<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CASCADE MICROTECH, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OREGON 3825 93-0856709
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
2430 N.W. 206TH AVENUE
BEAVERTON, OREGON 97006
(503) 601-1000
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
------------------------
ERIC W. STRID
CHIEF EXECUTIVE OFFICER
CASCADE MICROTECH, INC.
2430 N.W. 206TH AVENUE
BEAVERTON, OREGON 97006
(503) 601-1000
(Name, address, including zip code and telephone number, including area code, of
agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JACK W. SCHIFFERDECKER, JR., ESQ. CYNTHIA A. ROTELL, ESQ.
BYRON W. MILSTEAD, ESQ. LATHAM & WATKINS
ATER WYNNE LLP 633 W. FIFTH STREET, SUITE 4000
222 S.W. COLUMBIA, SUITE 1800 LOS ANGELES, CA 90071
PORTLAND, OR 97201 (213) 485-1234
(503) 226-1191
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box: / /
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 ("Securities Act"), other than securities offered only in connection with
dividend or interest reinvestment plans, 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 delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PROPOSED MAXIMUM AGGREGATE OFFERING PRICE (1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value $69,000,000 $18,216
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED October 2, 2000
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 WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of shares of common stock of Cascade
Microtech, Inc. We expect that the public offering price will be between
$ and $ per share.
We have applied to have our common stock listed for trading and quotation on
the Nasdaq National Market under the symbol "CCMT."
Our business involves significant risks. These risks are described under the
caption "Risk Factors" beginning on page 8.
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.
---------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
<S> <C> <C>
Public offering price.................................... $ $
Underwriting discounts and commissions................... $ $
Proceeds, before expenses, to Cascade Microtech.......... $ $
</TABLE>
The underwriters may also purchase from us up to additional
shares of our common stock at the public offering price, less the underwriting
discounts and commissions, to cover over-allotments. The underwriters can
exercise this right at any time within 30 days after the date of this
prospectus.
The underwriters expect to deliver the shares in New York, New York on
, 2000.
---------------------
SG COWEN CHASE H&Q
ADAMS, HARKNESS & HILL, INC.
FIRST SECURITY VAN KASPER
, 2000
<PAGE>
Description of Inside Cover Art
The graphic is entitled: "Our Pyramid Probe cards test the
semiconductors..." and "...that enable today's most advanced communications
products" that frames, by placement at the top and bottom of the page, a photo
of our Pyramid Probe card--captioned "Pyramid Probe Card"--surrounded by
magnified probe card components, a semiconducter wafer and an array of photos of
end-user products that incorporate or are enabled by the types of semiconductors
that customers develop and test using our products. At the top left of the
Pyramid Probe card photo is a photo of two clean-room workers engaged in our
Pyramid Probe fabrication process which is captioned: "Pyramid Probe Thin Film
Fab." To the right of the Pyramid Probe card photo are a photo of our Pyramid
Probe core--captioned "Pyramid Probe Core"--and a photo of our magnified Pyramid
Probe tips--captioned "Pyramid Probe Tips (magnified 200x)." Directly beneath
the Pyramid Probe card photo is a photo of a semiconductor wafer--captioned
"Semiconductor Wafer"--and a photo of a semiconductor chip--captioned
"Integrated Circuit or Optoelectronic Device." Below the photo of the
semiconductor chip are four photos of products that incorporate or are enabled
by the types of semiconductors that customers develop and test using our
products: a photo of a video game controller, a photo of a personal digital
assistant, a stylized photo of a bundle of optical fibers and a photo of a cell
phone keypad. At the lower left is the Cascade Microtech logo with the tagline:
"Innovating Test Technologies for production probe cards."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 5
Risk Factors......................... 9
Note Regarding Forward-Looking
Statements......................... 20
Use of Proceeds...................... 21
Dividend Policy...................... 21
Capitalization....................... 22
Dilution............................. 23
Selected Consolidated Financial
Data............................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 25
</TABLE>
<TABLE>
Business............................. 34
Management........................... 50
<CAPTION>
PAGE
----
<S> <C>
Certain Transactions................. 60
Principal Shareholders............... 63
Description of Capital Stock......... 64
Shares Eligible for Future Sale...... 67
Underwriting......................... 69
Legal Matters........................ 71
Experts.............................. 71
Where You Can Find More Information.. 71
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
------------------------
UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, 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.
OUR REGISTERED TRADEMARKS ARE THE CASCADE MICROTECH LOGO, AIR COPLANAR
PROBE-REGISTERED TRADEMARK- AND MICROCHAMBER-REGISTERED TRADEMARK-. OUR
TRADEMARKS ARE CASCADE MICROTECH, MICROSCRUB, PYRAMID PROBE AND INNOVATING TEST
TECHNOLOGIES. THIS PROSPECTUS CONTAINS TRADEMARKS AND TRADE NAMES OF COMPANIES
AND ORGANIZATIONS OTHER THAN CASCADE MICROTECH.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS ONLY A SUMMARY. YOU SHOULD CAREFULLY READ THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES. OUR BUSINESS INVOLVES SIGNIFICANT RISKS. YOU
SHOULD CAREFULLY CONSIDER THE INFORMATION UNDER THE HEADING "RISK FACTORS."
We are a worldwide leader in developing, manufacturing and selling
leading-edge wafer probing solutions used to measure and test complex
semiconductors in wafer form in both design and production environments.
Customers use our solutions to develop and test advanced integrated circuits and
optoelectronic devices, or chips, for a broad range of communications, consumer
electronics and computing products. In particular, we believe we derived
approximately one-half of our sales in the first six months of 2000 from
customers who are developing and supplying wireless, broadband and other
communications chips. Our products are used by design engineers to develop new
chips and accelerate time-to-market, by production process engineers to improve
chip fabrication processes, and by test engineers to assure chip quality and
reliability. Approximately 400 customers purchased our products in the first
half of 2000. Our top ten customers during this period were Agilent
Technologies, Conexant Systems, Fujitsu, IBM, Infineon, Lucent Technologies,
Matsushita, Mitsubishi, Nortel Networks and Taiwan Semiconductor Manufacturing
Company.
As chips become smaller and faster and integrate more functions to meet the
requirements of today's advanced electronics products, wafer probe testing of
these complex chips is becoming increasingly challenging. As a result, we have
developed proprietary technologies and products, including production probe
cards, analytical probes and probe stations, to meet the specific wafer probing
challenges faced by semiconductor designers and manufacturers.
We design our innovative, proprietary production probe cards, or Pyramid
Probe cards, to test high-speed chips for products such as synchronous optical
network, or SONET, equipment, Gigabit Ethernet equipment and cellular phones.
Our Pyramid Probe cards are also used to test chips with small bond pads, or
metallized electrical connection areas, such as liquid crystal display drivers
and some application-specific integrated circuits, or ASICs. Our proprietary,
lithography-based manufacturing process allows us to fabricate Pyramid Probe
cards with microscopic probe tips that are accurately aligned and highly
reproducible. We believe these features benefit production customers by enabling
them to:
- test high-speed chips up to 20 GHz;
- achieve superior electrical signal integrity;
- accurately contact very small and closely spaced bond pads;
- reduce costly probe tip cleaning and maintenance; and
- improve production yields.
Our probe stations and analytical probes facilitate development of
next-generation chips and chip production processes by enabling highly precise
electrical and optical, or lightwave, measurements. These products are used
throughout the semiconductor industry in engineering test to develop designs and
fabrication processes for chips such as radio frequency chips, digital signal
processors, telecommunications chips, advanced memory chips, microprocessors and
microcontrollers, video graphics processors and ASICs. We believe our probe
stations and analytical probes benefit customers by enabling them to:
- design and test high-speed chips up to 110 GHz;
- refine complex chip designs;
- reduce the time required to achieve desired production yields;
5
<PAGE>
- increase engineering productivity; and
- accelerate time-to-market.
Our objectives are to become the leading provider of probe cards for
production test and to expand our market leadership position in wafer probing
solutions for engineering test. Our strategies to achieve these objectives are
to:
- continue to develop next-generation technologies through ongoing research
into electrical and lightwave measurement techniques and collaboration
with our customers;
- target high-growth markets such as ICs and optoelectronic devices for
broadband optical fiber communications networks and wireless devices and
systems, and customer segments such as wafer foundries;
- drive adoption of our Pyramid Probe solution into targeted market segments
by expanding our sales and application support activities and increasing
our production capacity;
- emphasize development and sale of our consumable products, including both
Pyramid Probe cards and analytical probes, which have reduced the effects
of semiconductor cyclicality on our operations; and
- expand relationships with complementary technology suppliers, which
broaden our opportunity to sell products.
We have provided wafer probing solutions to semiconductor suppliers since
our inception in 1983. We were incorporated in Oregon in 1984, and perform the
majority of our design and manufacturing at our facilities in Beaverton, Oregon.
We have direct sales and service subsidiaries in Japan and the United Kingdom.
Our principal executive office is located at 2430 NW 206th Avenue, Beaverton,
Oregon 97006, and our telephone number is (503) 601-1000. Our web site address
is WWW.CASCADEMICROTECH.COM. Information on our web site does not constitute
part of this prospectus.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock we are offering................................ shares
Common stock to be outstanding after this offering.......... shares
Use of proceeds............................................. We intend to use the net
proceeds for general corporate
purposes, including working
capital and capital
expenditures.
Proposed Nasdaq National Market symbol...................... CCMT
</TABLE>
----------------
ASSUMPTIONS THAT APPLY TO THIS PROSPECTUS
Unless otherwise indicated, all information in this prospectus, including
the outstanding share information above, is based on the number of shares
outstanding as of June 30, 2000 and:
- gives effect to the automatic conversion of all outstanding shares of
preferred stock into 3,596,486 shares of common stock upon the closing of
this offering;
- excludes 1,524,678 shares of common stock issuable upon the exercise of
options outstanding under our 1993 Stock Incentive Plan at June 30, 2000
at a weighted average exercise price of $2.69 per share;
- excludes 1,200,000 shares of common stock available for issuance under our
2000 Stock Incentive Plan, and 200,000 shares of common stock available
for issuance under our 2000 Employee Stock Purchase Plan;
- excludes 25,000 shares of common stock issuable upon the exercise of a
warrant at an exercise price of $3.80 per share;
- excludes 250,000 shares of redeemable convertible preferred stock issuable
upon the exercise of a warrant at an exercise price of $10.00 per share;
- reflects the filing of our second amended and restated articles of
incorporation; and
- assumes no exercise of the underwriters' over-allotment option.
----------------
All references in this prospectus to "we," "us," "our," "Cascade" and
"Cascade Microtech" relate to Cascade Microtech, Inc. and our subsidiaries,
unless the context indicates otherwise.
----------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS
OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF OUR COMMON STOCK.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following tables summarize our consolidated financial data. For a more
detailed explanation of our financial condition and operating results, you
should read "Management's Discussion and Analysis of Financial Condition and
Results of Operations," our consolidated financial statements and the notes to
those statements included in this prospectus. Unaudited pro forma basic and
diluted net income per share have been calculated assuming the conversion of all
outstanding preferred stock into common stock as if the shares had converted
immediately upon their issuance.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales............................. $33,636 $37,798 $40,322 $41,597 $51,530 $20,762 $31,860
Gross profit.......................... 16,589 18,308 18,641 17,056 24,086 8,995 15,125
Income (loss) from operations......... 2,917 3,208 1,033 (1,576) 3,963 457 2,710
Net income (loss)..................... 2,005 1,928 671 (977) 2,474 229 1,833
Net income (loss) attributed to common
shareholders........................ $ 2,005 $ 1,928 $ 671 $ (977) $ 2,435 $ 229 $ 1,385
Net income (loss) per share:
Basic............................... $ 0.44 $ 0.42 $ 0.15 $ (0.21) $ 0.49 $ 0.05 $ 0.28
Diluted............................. $ 0.31 $ 0.29 $ 0.10 $ (0.21) $ 0.32 $ 0.03 $ 0.15
Shares used in computing net income
(loss) per share:
Basic............................... 4,509 4,553 4,568 4,711 4,988 4,974 5,023
Diluted............................. 6,477 6,696 6,590 4,711 7,577 7,159 9,472
Unaudited pro forma net income per
share:
Basic............................... $ 0.35 $ 0.16
Diluted............................. $ 0.32 $ 0.15
Unaudited shares used in computing pro
forma net income per share:
Basic............................... 6,992 8,619
Diluted............................. 7,577 9,472
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000
--------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short term investments........... $11,284 $11,284 $
Working capital............................................. 23,592 23,592
Total assets................................................ 41,304 41,304
Long-term obligations, net of current portion............... 506 506
Redeemable convertible preferred stock...................... 10,356 --
Shareholders' equity........................................ 19,502 29,858
</TABLE>
The pro forma consolidated balance sheet data summarized above assumes the
conversion of all outstanding shares of preferred stock into 3,596,486 shares of
common stock upon closing of this offering on a one-to-one basis. The pro forma
as adjusted data above adjusts the pro forma amounts to reflect the application
of the net proceeds from the sale of shares of common stock in this
offering at an assumed public offering price of $ per share, after
deducting underwriting discounts and commissions and estimated offering expenses
payable by us.
8
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED
NOTES. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE CURRENTLY
BELIEVE MAY MATERIALLY AFFECT OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES OF
WHICH WE ARE UNAWARE OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO BECOME
IMPORTANT FACTORS THAT AFFECT OUR COMPANY.
RISKS RELATED TO OUR BUSINESS
THE CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY AFFECTS OUR SALES, AND AS A RESULT
WE MAY EXPERIENCE REDUCED SALES OR OPERATING LOSSES.
The semiconductor industry is highly cyclical with recurring periods of
oversupply. We have experienced operating losses in the past due, in part, to
cyclical downturns in the semiconductor industry. Our business is heavily
dependent on both the volume of semiconductor production by semiconductor
manufacturers, as well as the development of new semiconductors and
semiconductor designs. The volume of semiconductor production and development of
new designs in turn depends on the demand for products using semiconductors. A
significant portion of our sales depends on the capital expenditures made by
semiconductor designers and manufacturers to purchase and maintain testing
equipment, such as probe stations, which accounted for 77.3% of our net sales in
1999 and 74.2% of our net sales in the first six months of 2000. Semiconductor
manufacturers in particular are known to sharply curtail their capital
expenditures when confronted with an industry downturn, such as the downturn
experienced from 1996 through 1998. We expect that the markets for future
generations of semiconductors will also be subject to similar fluctuations. We
cannot be certain that we will be able to achieve or maintain our current or
prior levels of sales or growth rates. Any factor adversely affecting the
semiconductor industry in general or particular segments within the
semiconductor industry, will adversely affect our sales and could cause us to
experience reduced sales or operating losses.
OUR PYRAMID PROBE CARD FABRICATION PROCESS IS COMPLEX AND SUBJECT TO NUMEROUS
RISKS. IF WE ARE UNABLE TO SUCCESSFULLY FABRICATE OUR PYRAMID PROBE CARDS AND
MEET CUSTOMER DEMAND IN A TIMELY MANNER, OUR GROWTH AND OPERATING RESULTS WILL
BE MATERIALLY ADVERSELY AFFECTED.
Due to the complexity and ongoing development of our Pyramid Probe card
fabrication process, combined with increases in Pyramid Probe card production
volumes, we have at times experienced fabrication problems that have led to
delays in shipping products. In some instances these delays have further
resulted in a loss of or delay in subsequent sales to customers and an overall
delay in the adoption of our Pyramid Probe cards. Fabrication problems may
result from a number of factors, including:
- contamination in the process equipment;
- unknown sensitivities to process conditions, such as temperature,
humidity, material properties and to the effects of combining these
various process conditions;
- equipment failures;
- and other as yet unknown factors.
For example, we recently experienced a contamination problem in our fabrication
facility due to the transition to our second generation Pyramid Probe card
fabrication process. This contamination problem resulted in approximately four
weeks of lost production time and delayed product shipments. Furthermore, we
have not yet produced our Pyramid Probe cards in high volumes, which may result
in
9
<PAGE>
additional unforeseen fabrication difficulties and will require us to develop
new fabrication processes and hire many new skilled designers, engineers and
manufacturing and technical support employees. If we are unable to produce high
quality Pyramid Probe cards in sufficient volumes, our growth and operating
results will be materially adversely affected.
IF OUR PYRAMID PROBE CARDS DO NOT GAIN WIDESPREAD ADOPTION, OUR GROWTH AND
OPERATING RESULTS WILL BE MATERIALLY HARMED.
Our future growth depends in significant part on market adoption of and
demand for our Pyramid Probe cards, which utilize a proprietary new technology
to address relatively new and emerging requirements in the production probe card
market. Large-scale market adoption depends on our ability to increase customer
awareness of the benefits of our Pyramid Probe cards and to prove their
reliability and cost effectiveness in a production environment. Production
customers are generally very reluctant to adopt new technologies which will
affect their production output. Additionally, many potential customers have
witnessed the failure of new probe card technologies from other companies,
adding to their reluctance to adopt or evaluate new technologies. We will be the
sole source supplier of our Pyramid Probe cards. Some customers may be unwilling
to accept a sole source supplier relationship for a product as critical as a
production probe card. If, for any reason, our Pyramid Probe cards are not
adopted in the market at the levels we anticipate, our future growth and
operating results will be materially harmed.
WE HAVE EXPERIENCED AND EXPECT TO CONTINUE TO EXPERIENCE SIGNIFICANT
PERIOD-TO-PERIOD FLUCTUATIONS IN OUR REVENUE AND OPERATING RESULTS, WHICH MAY
RESULT IN VOLATILITY IN OUR STOCK PRICE.
Our operating results have fluctuated in the past and will continue to do so
in the future due to a variety of factors, some of which are beyond our control.
These factors include, but are not limited to:
- customer demand, which is influenced, in part, by economic conditions in
the semiconductor industry, demand for products that use semiconductors
and market acceptance of our products and those of our customers;
- competition, such as competitive pressures on the prices, performance and
reliability of our products, the introduction or announcement of new
products by us or our competitors, and our competitors' intellectual
property rights, which could prevent us from introducing products that
compete effectively with their products;
- our product sales mix, average selling prices and geographic sales mix;
- seasonality, principally due to purchasing cycles in our international
markets, particularly in Japan and Europe, that are different from the
United States, which has caused our first quarter net sales typically to
decline compared to our fourth quarter net sales of the previous year;
- timing, cancellation or delay of customer orders;
- our production capacity and availability and cost of materials, components
and subassemblies;
- our ability to deliver reliable products in a timely manner;
- expenses incurred as a result of intellectual property claims, including
the cost of litigation to defend and protect our patents and trade
secrets, and expenses incurred in defending or resolving claims that we
have infringed the proprietary technology of others;
- our product development costs, including research and development and
sales and marketing expenses associated with new products or product
enhancements and the costs of transitioning to new or enhanced products;
10
<PAGE>
- our ability to hire and retain technical, sales, marketing and management
personnel; and
- economic conditions in the United States and the worldwide markets we
serve.
As a result of these or other factors, our future operating results may
fluctuate significantly on a quarterly or annual basis, which may negatively
impact our financial condition and the market price of our common stock.
WE HAVE DEVOTED, AND PLAN TO CONTINUE TO DEVOTE, SIGNIFICANT RESOURCES TO THE
GROWTH AND DEVELOPMENT OF OUR PYRAMID PROBE CARD PRODUCT LINE, AND THESE EFFORTS
MAY NOT BE SUCCESSFUL.
We have devoted significant resources to the development and growth of our
Pyramid Probe card product line. To date these investments have exceeded the net
sales of our Pyramid Probe cards, and our ongoing investments in research and
development, as well as capacity expansion for our Pyramid Probe card line, may
continue to exceed our sales from these products. We will need to expand
capacity at our Pyramid Probe card fabrication facility to meet anticipated
demand. We must make significant investments to increase our fabrication
capacity 6 to 12 months before that capacity is available. Expanding capacity
will require us to purchase new equipment, upgrade existing equipment, develop
and implement new fabrication processes, and hire additional technical
personnel. We may not be successful in effectively expanding our fabrication
capacity or accurately estimating the demand for additional capacity.
Furthermore, our cost structure relating to the manufacture of Pyramid Probe
cards is unproven at higher volumes and fabrication capacity utilization, and we
cannot assure you that we will be successful in manufacturing our Pyramid Probe
cards at acceptable costs at higher volumes.
OUR BUSINESS IS GROWING AND EXPANDING, AND IF WE CANNOT SUCCESSFULLY MANAGE AND
SUPPORT OUR FUTURE GROWTH, OUR BUSINESS MAY BE HARMED.
Our growth has placed and will continue to place significant demands on our
management, operational, financial and technical resources, and our internal
control, management information and reporting systems. Our future operating
results will depend on our ability to:
- continue to improve our operations, customer support, financial controls
and information systems;
- manage the growth of different product lines with different cost
structures; and
- recruit, train, manage and motivate our employees to support our expanded
operations.
We cannot predict whether these efforts will be successful or will occur in
a timely or efficient manner. Failure to effectively manage our growth and the
system and procedural transitions required by expansion could materially harm
our business and our operating results.
WE OBTAIN SOME OF THE MATERIALS, COMPONENTS AND SUBASSEMBLIES USED IN OUR
PRODUCTS FROM A SINGLE SOURCE OR LIMITED GROUP OF SUPPLIERS. IF THESE SUPPLIERS
ARE UNABLE TO PROVIDE US WITH THESE MATERIALS, COMPONENTS OR SUBASSEMBLIES IN
ADEQUATE QUANTITIES AND ON A TIMELY BASIS, WE MAY BE UNABLE TO MANUFACTURE OUR
PRODUCTS OR MEET OUR CUSTOMERS' NEEDS.
We obtain some of the materials, components and subassemblies used in our
products from a single source or a limited group of suppliers. From time to
time, we experience difficulties in obtaining these materials, components and
subassemblies from some suppliers, especially during periods of high demand for
semiconductor capital equipment. The manufacture of some of the materials,
components and subassemblies that we use in our products, such as thermal chucks
and microscopes, is a complex process, and in the event that we cannot obtain an
adequate supply of these components, it may be difficult and time-consuming to
identify and qualify new suppliers. For example, we are currently
11
<PAGE>
experiencing long leadtimes for and difficulties obtaining desired quantities of
precision microscopes used in some probe stations. In June 1999, the sole
supplier of the material that we use for making thin-films for our Pyramid Probe
cards discontinued production of the material and has been unwilling to grant us
a license to make the material. In response, we purchased additional quantities
of the material and based on projected demand for our Pyramid Probe cards, we
estimate that as of September 2000 we have approximately one year's supply of
the material. This temporary supply may not be sufficient and the inventoried
material, which is subject to deterioration, may not remain in usable condition.
While we have identified and are currently testing a replacement material, this
replacement material may not meet the requirements of our Pyramid Probe cards.
The delay in shipments from, or complete loss of, our suppliers could
prevent us from producing and shipping our products, resulting in lost orders
for our products and damage to our customer relationships, which would harm our
results of operations. Furthermore, a significant increase in the price of one
or more of these materials, components or subassemblies could materially
adversely affect our results of operations.
OUR GROWTH DEPENDS ON THE GROWTH OF THE MARKETS FOR WIRELESS AND BROADBAND
COMMUNICATIONS PRODUCTS.
During the first six months of 2000, we believe one-half of our sales
resulted from the sale of products used in the design and manufacture of
semiconductors for communications applications. Our growth will depend in large
part on the continued growth of the communications markets in general and, in
particular, the markets for integrated circuits and optoelectronic devices used
in wireless and broadband communications. We cannot assure you that the markets
for these products will continue to grow at historical rates or at all. If these
markets do not continue to grow, or if they grow at a slow rate, growth in the
demand for our products will diminish and our business, financial condition and
results of operations will be materially adversely affected.
IF WE ARE UNABLE TO ANTICIPATE OUR CUSTOMERS' RAPIDLY CHANGING SEMICONDUCTOR
TEST NEEDS AND DEVELOP NEW AND ENHANCED PRODUCTS TO MEET THESE NEEDS, WE MAY NOT
GROW AND OUR BUSINESS MAY BE MATERIALLY HARMED.
Our future growth will depend, in significant part, on our ability to work
effectively with and anticipate the testing needs of our customers and on our
ability to design, develop, manufacture, assemble, test, market and support new
products and product enhancements to meet these needs on a timely and
cost-effective basis. Our customers' testing needs are becoming more challenging
as the semiconductor industry continues to experience rapid technological change
driven by the demand for integrated circuits and optoelectronic devices that are
increasingly complex, or smaller, faster, more functional, and less expensive to
produce. Our failure to meet our customers' testing requirements or anticipate
and respond adequately to technological developments could result in a loss of
competitiveness, which could materially harm our business and opportunities for
growth. We cannot assure you that we will successfully develop and bring new
products to market in a timely and cost-effective manner, that any product
enhancement or new product developed by us will gain market acceptance or that
products or technologies developed by others will not render our products or
technologies obsolete or noncompetitive.
WE FACE ECONOMIC, POLITICAL AND OTHER RISKS ASSOCIATED WITH OUR INTERNATIONAL
SALES AND OPERATIONS, WHICH COULD MATERIALLY HARM OUR OPERATING RESULTS.
In each of the last three years, we derived greater than 50% of our net
sales from sales outside the United States. We expect international sales to
continue to represent a substantial portion of our sales
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for the foreseeable future. In the past, the economic climate in some foreign
markets, particularly in Asia, has quickly and dramatically changed, resulting
in a negative effect on our operating results. Some of the factors which impact
our business in foreign markets include:
- economic and political instability;
- changes in domestic or foreign law or policy resulting in the need to
comply with potentially burdensome government controls, tariffs, embargoes
or export license requirements;
- longer payment cycles;
- differing labor regulations and practices; and
- difficulties staffing and managing our international operations.
In the past, there have been significant fluctuations in the exchange rates
between the dollar and the currencies of countries in which we do business.
Significant unfavorable fluctuations in the exchange rates between the U.S.
dollar and foreign currencies could cause us to lower our prices and thus reduce
our profitability. In addition, these fluctuations could cause customers to
delay or cancel orders because of the increased cost of our products relative to
those of our competitors who manufacture in other countries. For example, the
recent decline in the value of the Euro relative to the U.S. dollar has made our
products less competitive than those of our European competitors. Fluctuations
in the exchange rate or the occurrence of or an unfavorable change in any of the
factors identified above could have a material adverse effect on our business,
financial condition and results of operations.
OUR CUSTOMERS' EVALUATION PROCESSES CAN LEAD TO LENGTHY SALES CYCLES, DURING
WHICH WE MAY INCUR SIGNIFICANT COSTS THAT MAY NOT RESULT IN SALES.
Our customers typically expend significant efforts in evaluating and
qualifying our products prior to placing an order, particularly for production
probe cards and for large probe station orders. This evaluation and
qualification process frequently results in a lengthy sales cycle, typically
ranging from 3 to 12 months and sometimes longer. During the period in which our
customers are evaluating our products, we may incur substantial sales,
marketing, research and development expenses and expend significant management
efforts. After completing this evaluation process, a potential customer may
elect not to purchase our products. For example, many chip designs never reach
production, including chip designs for which our Pyramid Probe cards are being
evaluated. In addition, product purchases are frequently subject to unplanned
processing and other delays, particularly with respect to larger customers for
which our products represent a very small percentage of their overall purchase
activity. In particular, the period of evaluation for Pyramid Probe cards
depends in part on the customer's ability to devote resources to the evaluation.
As a result of these factors, long sales cycles may negatively impact our
operating results.
FAILURE TO RETAIN KEY MANAGERIAL, TECHNICAL, AND SALES AND MARKETING PERSONNEL,
OR TO ATTRACT NEW KEY PERSONNEL COULD HAVE A MATERIAL NEGATIVE EFFECT ON OUR
BUSINESS.
Our success depends on the continued services of our executive officers and
other key management, technical, and sales and marketing personnel and on our
ability to continue to attract, retain and motivate qualified personnel. The
loss of key personnel could limit our ability to develop new products and adapt
existing products to our customers' evolving requirements and may result in lost
sales and a diversion of management resources. Furthermore, much of our
competitive advantage and intellectual property is based on the expertise,
experience and know-how of our key personnel. We do not have employment
agreements or non-compete agreements with any of our employees except for an
employment agreement with our Chief Financial Officer. To support our future
growth, we will need
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to attract and retain additional qualified management, technical, and sales and
marketing employees. Competition for such personnel in our industry is intense,
and we cannot assure you that we will be successful in attracting and retaining
such personnel.
INTENSE COMPETITION IN THE SEMICONDUCTOR WAFER PROBING BUSINESS MAY REDUCE
DEMAND FOR OUR PRODUCTS AND REDUCE OUR SALES.
The markets for our products are highly competitive, and we expect
competition to continue in the future. We believe that our principal competitors
are the major providers of production probe cards, analytical probes and probe
stations. Our principal competitors in the probe card market are Cerprobe, Form
Factor, GGB Industries, JEM Corporation, Micronics Japan and Probe Technology.
Our principal competitor in the analytical probe market is GGB Industries and
our principal competitors in the probe station market are Suss MicroTec,
Micromanipulator, Wentworth Laboratories and Signatone. However, other potential
competitors may have developed or may be developing technology of which we are
unaware that may render our products uncompetitive. Some of our competitors have
significantly greater financial, technical and marketing resources than we do.
As a result, these competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, to devote greater
resources to the development, promotion and sale of their products, or to
deliver competitive products at lower prices. We cannot guarantee that we will
maintain our current competitive position, or that any of our new products,
including our Pyramid Probe cards, will achieve widespread acceptance in the
market. Increased competition could result in pricing pressures, reduced sales,
reduced margins or failure to achieve or maintain widespread market acceptance
for our products, any of which could prevent us from growing our business or
sustaining or increasing our profitability. New technologies are emerging due to
increased competition and customer demand. The introduction of new products
incorporating new technologies or the emergence of new industry standards could
make our existing products noncompetitive. If one or more of our competitors
develop new technologies before we do, we could lose market share and our
business will suffer.
IF WE FAIL TO PROTECT OUR PROPRIETARY TECHNOLOGY, COMPETITORS MAY BE ABLE TO USE
OUR TECHNOLOGIES, WHICH WOULD WEAKEN OUR COMPETITIVE POSITION AND COULD REDUCE
OUR SALES.
Our success and competitive position depend in significant part on the
technically innovative features of our products. We rely in part on patent,
trade secret and trademark laws to protect the proprietary technology used in
our products. Our patents may be challenged by third parties and held invalid,
and any of our pending patent applications may not be approved. Additionally, we
may not be able to develop additional proprietary technology that is patentable.
Policing unauthorized use of our products is difficult and we may not be able to
prevent the misappropriation and unauthorized use of our technologies.
Furthermore, our existing and future patents may not be sufficiently broad to
protect our proprietary technologies, may not provide us with competitive
advantages and may be circumvented by the designs of third parties.
Some of our proprietary technology cannot be effectively protected by
patents. In these cases, we rely on trade secret laws and confidentiality
agreements to protect our confidential and proprietary information, processes
and technology. However, our confidential and proprietary information, processes
and technology could be independently developed by, or otherwise become known
to, third parties, which would weaken our competitive position and could reduce
our sales.
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OUR EFFORTS TO PROTECT OUR PROPRIETARY TECHNOLOGY MAY BE LESS EFFECTIVE IN SOME
FOREIGN COUNTRIES WHERE INTELLECTUAL PROPERTY RIGHTS ARE NOT AS WELL PROTECTED
AS IN THE UNITED STATES.
During 1999 and the first six months of 2000, we derived greater than 50% of
our net sales from purchases of our products by customers in foreign countries.
The laws of some foreign countries do not protect our proprietary rights to the
same extent as the laws of the United States, and many companies have
encountered substantial problems in protecting their proprietary rights against
infringement in such countries. Our means of protecting our proprietary rights
may not be adequate in foreign countries. Our failure to adequately protect our
intellectual property in foreign countries would make it easier for competitors
to copy or circumvent our product designs and sell competing products in those
countries.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS BY OR AGAINST US MAY RESULT IN
LITIGATION. THE COSTS ASSOCIATED WITH THIS LITIGATION COULD BE SUBSTANTIAL AND
WE COULD BE PREVENTED FROM SELLING OUR PRODUCTS.
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. We are currently the plaintiff in
two patent infringement suits in the United States and a suit to invalidate the
patent of a company in Germany relating to technology used in our probe
stations. Prosecuting these actions requires considerable management time,
resources and costs, and there can be no assurance that we will prevail in any
of these actions.
Questions of infringement in the semiconductor industry involve highly
technical and subjective analyses. Litigation may be necessary to determine the
validity and scope of our proprietary rights, or to defend against claims of
infringement or invalidity by third parties, and we may not prevail in any
litigation. Any such litigation, whether or not determined in our favor or
settled, could be costly, could harm our reputation and could divert the efforts
and attention of our management and technical personnel from our normal business
operations. Adverse outcomes in any such litigation could result in the loss of
our proprietary rights, subject us to significant liabilities, require us to
seek licenses from third parties or prevent us from manufacturing and selling
our products, any of which could have an adverse effect on our business,
financial condition and results of operations. Although we are not presently a
defendant in any action asserting we have infringed the intellectual property
rights of others, we have been notified in the past that our products may have
infringed the intellectual property rights of others. For additional
information, see "Business--Legal Proceedings."
WE MAY ENGAGE IN FUTURE ACQUISITIONS WHICH MAY BE COSTLY, DIFFICULT TO INTEGRATE
WITH OUR OPERATIONS, DIVERT MANAGEMENT RESOURCES AND DILUTE SHAREHOLDER VALUE.
As part of our business strategy, we expect to make acquisitions of, or
investments in, companies, products or technologies that complement our current
product offerings, enhance our technical capabilities, expand our operations
into new markets, or offer other growth opportunities. While we have no current
agreements and no active negotiations underway with respect to any acquisitions,
we may acquire companies, products or technologies in the future, which could
pose risks to our operations including:
- difficulties assimilating the acquired operations, personnel,
technologies, or products;
- diversion of management's attention from our existing business;
- adverse effects on relationships with our existing suppliers, customers or
partners or those of companies we acquire;
- entrance into markets in which we have no or limited experience; and
- loss of key employees, particularly those of the acquired company.
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In connection with these acquisitions or investments, we could:
- use a significant portion of our available cash, including the cash
proceeds remaining from this offering;
- issue equity securities, which would dilute current shareholders'
percentage ownership;
- incur substantial debt;
- incur or assume contingent liabilities, known or unknown;
- incur amortization expenses related to goodwill or other intangibles; and
- incur other significant charges, such as asset devaluations or
restructuring charges.
For these reasons, future acquisitions may be costly and dilute shareholder
value, and we cannot be certain what effect they may have on our business.
OUR SUCCESS DEPENDS ON OUR CONTINUED INVESTMENT IN RESEARCH AND DEVELOPMENT, THE
LEVEL AND EFFECTIVENESS OF WHICH COULD REDUCE OUR PROFITABILITY.
We will continue to make investments in research and development to sustain
and improve our competitive position and meet our customers' needs. These
investments currently include refining Pyramid Probe fabrication processes,
developing higher performance Pyramid Probe cards, and enhancing probe stations
for 300 mm wafers. To maintain our competitive position we will need to increase
our research and development investment which could reduce our profitability. In
addition, we cannot assure you that we will achieve a return on these
investments.
OUR EMPLOYMENT COSTS IN THE SHORT-TERM ARE TO A LARGE EXTENT FIXED, AND
THEREFORE, ANY SHORTFALL IN SALES WOULD HARM OUR OPERATING RESULTS.
Our operating expense levels are based, in significant part, on our
headcount. For a variety of reasons, particularly the high cost and disruption
of layoffs, the costs of recruiting and training new personnel, and product
delivery and service commitments to our customers, our headcount in the
short-term is, to a large extent, fixed. Accordingly, we may be unable to reduce
employment costs in a timely manner to compensate for any shortfall in our sales
or gross margins, which could materially harm our operating results. For
example, in 1998, we experienced a downturn in our business but deferred the
layoff of personnel until the second half of that year, which contributed to our
net losses in the second and third quarters of 1998.
WE RELY HEAVILY ON COMPUTER AND COMMUNICATIONS-BASED MANUFACTURING AND
MANAGEMENT INFORMATION SYSTEMS AND THEREFORE SYSTEMS OUTAGES MAY HARM OUR
BUSINESS.
In conducting our business we rely heavily on internal and external
computer-based information, manufacturing and communications systems and on
other computer-based systems and support services from third parties. These
systems are subject to risks presented by electrical or telecommunications
outages, computer viruses and hacking, as well as other problems which can
result in general system failure. Given the pervasive and complex nature of
these internal and external systems, problems may arise that are beyond our
control. System-wide or local failures that affect our information,
manufacturing or communications systems could harm our operating results. In
addition, insurance coverage for these risks may be inadequate or unavailable.
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WE RELY ON INDEPENDENT MANUFACTURERS' REPRESENTATIVES AND DISTRIBUTORS FOR A
SIGNIFICANT PORTION OF OUR SALES AND A DISRUPTION IN OUR RELATIONSHIP WITH OUR
MANUFACTURERS' REPRESENTATIVES OR DISTRIBUTORS WOULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR SALES.
Approximately 78% of our sales in 1999 were made through independent
manufacturers' representatives and distributors, whose activities are not within
our direct control. In addition, in some locations our manufacturers'
representatives and distributors also provide field service to our customers. A
reduction in the sales efforts or financial viability of these manufacturers'
representatives and distributors, or a termination of our relationship with
these representatives and distributors, would have a material adverse effect on
our sales, financial results and ability to support our customers. Our
manufacturers' representatives and distributors are not obligated to continue
selling our products, and they may terminate their arrangements with us at any
time with limited or no prior notice. Establishing alternative sales channels
would consume substantial time and resources, decrease our sales and increase
our expenses.
WE MANUFACTURE NEARLY ALL OF OUR PRODUCTS AT OUR OREGON FACILITIES, AND ANY
DISRUPTION IN THE OPERATIONS OF THESE FACILITIES COULD MATERIALLY HARM OUR
BUSINESS.
We manufacture nearly all of our products in three facilities located in
Beaverton, Oregon. Our manufacturing processes are complex and require
sophisticated and costly equipment and specially designed facilities. As a
result, any prolonged disruption in the operations of our facilities, whether
due to technical or labor difficulties, or destruction of or damage to the
facility as a result of an earthquake, fire or any other reason, could
materially and adversely affect our business, financial condition and results of
operations.
WE MAY FAIL TO COMPLY WITH ENVIRONMENTAL REGULATIONS, WHICH COULD RESULT IN
SIGNIFICANT COSTS.
We are subject to a variety of federal, state, and local laws, rules, and
regulations related to the discharge or disposal of toxic, volatile, or other
hazardous chemicals used in our thin-film fabrication facility and other
manufacturing operations. The failure to comply with past, present or future
regulations could result in substantial fines, suspension of production, or
cessation of operations in extreme situations. These regulations could require
us to purchase additional equipment or to incur substantial expenses to comply
with environmental regulations. If we fail to control our use, discharge or
disposal of hazardous substances, we could be subject to significant
liabilities.
We do not own any real property. We lease real property and we have not
conducted Phase I environmental assessments of our leased properties. Various
environmental laws may make a current or previous operator of real property
liable for the costs of removal or remediation of hazardous or toxic substances
on, under, adjacent to, or in such property. These laws may impose liability
whether or not the operator knew of, or was responsible for, the presence or
consequence of the hazardous or toxic substances. Moreover, an operator may have
liability or responsibility for personal or property damages under statutory or
common laws related to hazardous environmental conditions.
OUR PRODUCTS MAY BE FOUND TO BE DEFECTIVE, AND PRODUCT LIABILITY CLAIMS MAY BE
ASSERTED AGAINST US, RESULTING IN COSTLY LITIGATION FOR WHICH WE MAY NOT HAVE
SUFFICIENT LIABILITY INSURANCE.
Our products may contain defects which could cause our sales to decline,
divert management's attention and cause significant customer relations problems.
Our customers may use our products in the testing of high reliability
semiconductors for critical applications such as telecommunications
infrastructure, military, medical and aerospace equipment. Defects or other
problems with the performance of our products could result in financial or other
damages to our customers. In addition,
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some of our probe stations which operate at high voltage or extreme temperatures
may cause death or injury to persons utilizing such equipment due to undetected
design or manufacturing defects or due to improper use or maintenance by our
customers. Although our product invoices and sales contracts generally contain
provisions designed to limit our exposure to product liability claims, existing
or future laws or unfavorable judicial decisions could negate these provisions.
Product liability litigation against us, even if it were unsuccessful, could be
time consuming and costly to defend. Additionally, although we carry product
liability insurance, in some circumstances it may not be adequate to cover all
claims.
RISKS RELATED TO THIS OFFERING
THERE IS CURRENTLY NO PUBLIC MARKET FOR OUR COMMON STOCK, AND FOLLOWING THIS
OFFERING THE PRICE OF OUR COMMON STOCK COULD BE VOLATILE.
Prior to this offering, there has not been a public market for our common
stock. We cannot predict the extent to which investor interest in our stock will
lead to the development of a trading market or how liquid that market might
become. The initial public offering price for our common shares will be
determined by negotiations between us and the underwriters and may not be
indicative of prices that will prevail in the trading market. The trading price
of our common stock could be subject to wide fluctuations in response to various
factors, some of which are beyond our control, including factors discussed
elsewhere in this prospectus and the following:
- failure to meet the publicly disclosed expectations of securities analysts
for a given quarterly period;
- changes in financial estimates by securities analysts;
- extreme fluctuations in the prices and trading volumes of the stock of
high technology companies, particularly companies listed on the Nasdaq
National Market;
- fluctuations in our financial results, including future reported bookings;
- conditions or developments in the semiconductor and capital equipment
industry and the general economy;
- developments in our intellectual property rights, or those of our
competitors or other companies;
- announcements of new products or product enhancements by us or our
competitors;
- developments in our relationships with customers and suppliers;
- adverse reactions by securities analysts to acquisitions or investments we
may announce;
- additions or departures of key personnel; and
- commencement of litigation by or against us, and the outcome of that
litigation.
These broad market and industry factors may decrease the market price of our
common stock regardless of our actual operating performance. In addition, in the
past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its securities,
and newly public companies tend to experience more volatility in their stock
price. We may be the target of similar litigation in the future. Securities
litigation may result in substantial costs and divert management's attention and
resources, which may seriously harm our business.
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OUR OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL CONTROL THE OUTCOME OF
MATTERS REQUIRING SHAREHOLDER APPROVAL.
Upon completion of this offering, our officers and directors and their
affiliates will beneficially own approximately % of our outstanding shares
of common stock based on their holdings as of September 30, 2000. These
shareholders will have the ability, acting together, to control the election of
our directors and the outcome of corporate actions requiring shareholder
approval, such as a merger or a sale of our company, or a sale of all or
substantially all of our assets. This concentration of voting power could have a
significant effect in delaying, deferring or preventing an action that might
otherwise be beneficial to our other shareholders. These shareholders will also
have significant control over our business, policies and affairs.
OUR MANAGEMENT WILL RETAIN BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS
OFFERING AND MAY NOT OBTAIN A SIGNIFICANT RETURN ON THE USE OF THESE PROCEEDS.
The net proceeds of this offering will be utilized for general corporate
purposes, including working capital, capital expenditures and research and
development. We may also use a portion of the proceeds to acquire or make an
investment in technologies or companies that are complementary to our business.
Consequently, our management will have broad discretion as to how to spend the
proceeds from this offering and may spend these proceeds in ways with which our
shareholders may not agree. Management's allocation of the proceeds of this
offering may not benefit our business and the investment of the proceeds may not
yield a favorable return.
THE ANTI-TAKEOVER PROVISIONS OF OUR CHARTER DOCUMENTS AND OREGON LAW MAY INHIBIT
A TAKEOVER OR CHANGE IN OUR CONTROL THAT SHAREHOLDERS MAY CONSIDER BENEFICIAL.
Provisions of our second amended and restated articles of incorporation and
bylaws and provisions of Oregon law may have the effect of delaying or
preventing a merger or acquisition of us, or making a merger or acquisition of
us less desirable to a potential acquirer, even if the shareholders consider the
merger or acquisition favorable. Our second amended and restated articles of
incorporation provide for a staggered board of directors, which will make it
more difficult for a group of shareholders to quickly change the composition of
our board. Our second amended and restated articles of incorporation also make
it possible for our board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
acquire us or change our control. See "Description of Capital Stock" for more
complete information.
YOU WILL EXPERIENCE AN IMMEDIATE AND SIGNIFICANT DILUTION IN THE BOOK VALUE OF
YOUR INVESTMENT.
Because the initial public offering price is substantially higher than the
book value per share of common stock, purchasers of the common stock in this
offering will be subject to immediate and substantial dilution of $ per
share. See "Dilution."
FUTURE SALES OF COMMON STOCK BY OUR EXISTING SHAREHOLDERS COULD CAUSE OUR STOCK
PRICE TO DECLINE.
Future sales of the shares of common stock held by existing shareholders and
option and warrant holders could cause our stock price to decline. Such sales
could also make it more difficult for us to sell equity securities in the future
at a time and price we deem appropriate. Upon completion of this offering, we
expect that shares of common stock held by our existing shareholders
and option and warrant holders will be eligible for sale into the public market,
subject to compliance with
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the resale volume limitations and other restrictions of Rule 144 under the
Securities Act, beginning 180 days after the date of this prospectus.
------------------------
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities and
Exchange Act of 1934. These statements identify substantial risks and
uncertainties and relate to future events or our future financial performance.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "could," "should," "expect," "intend," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue," and similar
expressions, whether in the negative or affirmative. These statements are only
predictions and may be inaccurate. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks outlined under "Risk Factors" and in other
parts of this prospectus. These factors may cause our actual results to differ
materially from any forward-looking statement. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to confirm them to actual results
or to changes in our expectations.
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USE OF PROCEEDS
Net proceeds from the sale of the shares of common stock in this
offering will be approximately $ million after deducting underwriting
discounts and commissions and our estimated offering expenses. If the
underwriters exercise their over allotment option in full, our estimated net
proceeds will be approximately $ million.
We expect to use the net proceeds for general corporate purposes, including
working capital and capital expenditures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." Although we may use a portion of the net proceeds to acquire or make
an investment in technologies or companies that are complementary to our
business, we have no current plans in this regard. Pending such uses, we plan to
invest the net proceeds in interest-bearing, investment grade securities.
Management will retain broad discretion in the allocation of the net proceeds of
this offering. You will not have the opportunity to evaluate the economic,
financial or other information from which we base our decisions on how to use
the proceeds.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common or preferred
stock. We currently expect to retain any future earnings to fund the operation
and expansion of our business, and therefore, we do not currently expect to pay
cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all outstanding shares
of our preferred stock into 3,596,486 shares of our common stock; and
- on a pro forma as adjusted basis to reflect the net proceeds from the sale
of shares of our common stock in this offering at an assumed initial
public offering price of $ per share after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.
You should read the following table in conjunction with our consolidated
financial statements and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, net of current portion............... $ 506 $ 506 $
Redeemable convertible preferred stock, $.01 par value:
1,500,000 shares authorized; 1,250,000 shares issued and
outstanding (actual); no shares issued and outstanding
(pro forma and pro forma as adjusted)..................... 10,356 -- --
Shareholders' equity:
Convertible preferred stock, $.01 par value:
2,500,000 shares authorized; 2,346,486 shares issued and
outstanding (actual); no shares issued and outstanding
(pro forma and pro forma as adjusted)................... 9,226 -- --
Common stock, $.01 par value:
12,000,000 shares authorized; 4,969,117 shares issued
and
outstanding (actual); 8,565,603 shares issued and
outstanding
(pro forma), shares issued and outstanding
(pro forma as adjusted)................................. 813 19,908
Deferred stock-based compensation........................... (143) (143)
Notes receivable for common stock........................... (264) (264)
Accumulated other comprehensive loss........................ (4) (4)
Retained earnings........................................... 9,874 10,361
------- ------- -----------
Total shareholders' equity................................ 19,502 29,858
------- ------- -----------
Total capitalization...................................... $30,364 $30,364 $
======= ======= ===========
</TABLE>
The share information set forth above excludes:
- 1,524,678 shares of common stock issuable upon the exercise of options
outstanding at June 30, 2000 with a weighted average exercise price of
$2.69 per share;
- 1,200,000 shares of common stock available for issuance under our 2000
Stock Incentive Plan and 200,000 shares of common stock available for
issuance under our 2000 Employee Stock Purchase Plan;
- 25,000 shares of common stock issuable upon the exercise of a warrant at
an exercise price of $3.80 per share; and
- 250,000 shares of redeemable convertible preferred stock available for
issuance upon the exercise of a warrant at an exercise price of $10.00 per
share.
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DILUTION
Our pro forma net tangible book value as of June 30, 2000 was $28.9 million
or $3.38 per share. Pro forma net tangible book value per share is determined by
dividing our pro forma tangible assets less total liabilities by our pro forma
number of outstanding shares of common stock after giving effect to, on a pro
forma basis, the automatic conversion of all outstanding preferred shares into
3,596,486 shares of common stock immediately prior to the completion of the
offering. Dilution per share to new investors represents the difference between
the amount per share paid by purchasers of our common stock in this offering and
the pro forma net tangible book value per share of common stock immediately
after the completion of this offering. After giving effect to our sale of
shares of common stock in this offering at an assumed initial public offering
price of $ per share and the receipt of the net proceeds of such sale, the
pro forma net tangible book value as of June 30, 2000 would have been $
million, or $ per share. This amount represents an immediate increase in
pro forma net tangible book value per share of $ to the current
shareholders and an immediate dilution of $ per share to purchasers of
common stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of June 30,
2000.................................................... $3.38
Increase in pro forma net tangible book value per share
attributable
to this offering........................................
-----
Pro forma net tangible book value per share after this
offering..................................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
If the underwriters exercise their over-allotment option in full, our
adjusted pro forma net tangible book value as of June 30, 2000 would have been
$ , or $ per share, representing an immediate increase in pro
forma net tangible book value to our existing shareholders of $ per share
and an immediate dilution to new investors of $ per share.
The following table summarizes, on a pro forma basis, as of June 30, 2000,
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid by our existing shareholders and
by the new investors in this offering, at an assumed initial public offering
price of $ per share, before deducting underwriting discounts and
commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------------- ---------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 8,565,603 % $20,081,446 % $ 2.34
New investors...............
----------- ----------- ----------- -----------
Total..................... 100.0% $ 100.0%
=========== =========== =========== ===========
</TABLE>
The foregoing discussion and table assume no exercise of any stock options
or warrants outstanding as of June 30, 2000. As of June 30, 2000, there were
1,524,678 shares of common stock issuable upon the exercise of options
outstanding at a weighted average exercise price of $2.69 per share.
Additionally, there were 25,000 shares of common stock available for issuance
upon the exercise of a warrant at an exercise price of $3.80 per share and
250,000 shares of redeemable convertible preferred stock available for issuance
upon the exercise of a warrant at an exercise price of $10.00.
If all options and warrants outstanding as of June 30, 2000 were exercised,
the pro forma net tangible book value per share immediately after completion of
the offering would be $ , which represents an immediate dilution per share
of $ to purchasers of shares of common stock in this offering. See
"Management--Employee Benefit Plans" and the notes to our consolidated financial
statements for more information on our stock incentive plans.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
included elsewhere in this prospectus. We derived the consolidated statements of
operations data for the years ended December 31, 1997, 1998 and 1999 and the
consolidated balance sheet data as of December 31, 1998 and 1999 from our
audited financial statements included elsewhere in this prospectus, which have
been audited by KPMG LLP, independent auditors, whose report is also included
elsewhere in this prospectus. We derived the consolidated statements of
operations data for the years ended December 31, 1995 and 1996, and the
consolidated balance sheet data as of December 31, 1995, 1996 and 1997 from
audited financial statements not included elsewhere in this prospectus. We
derived the consolidated statements of operations data for the six months ended
June 30, 1999 and 2000 and the consolidated balance sheet data as of June 30,
2000 from unaudited consolidated financial statements included elsewhere in this
prospectus which, in the opinion of management, include all adjustments
necessary for a fair presentation of our financial position and operating
results for these periods. The historical financial information presented below
is not necessarily indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales............................................ $33,636 $37,798 $40,322 $41,597 $51,530 $20,762 $31,860
Cost of sales........................................ 17,047 19,490 21,681 24,541 27,444 11,767 16,735
------- ------- ------- ------- ------- ------- -------
Gross profit......................................... 16,589 18,308 18,641 17,056 24,086 8,995 15,125
Operating expenses:
Research and development........................... 3,771 4,874 5,911 6,194 5,887 2,430 3,725
Selling, general and administrative................ 9,901 10,226 11,697 12,438 14,236 6,108 8,690
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations........................ 2,917 3,208 1,033 (1,576) 3,963 457 2,710
Other income (expense), net.......................... 101 (30) 161 (131) (266) (73) 253
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision (benefit) for income
taxes.............................................. 3,018 3,178 1,194 (1,707) 3,697 384 2,963
Provision (benefit) for income taxes................. 1,013 1,250 523 (730) 1,223 155 1,130
------- ------- ------- ------- ------- ------- -------
Net income (loss).................................... 2,005 1,928 671 (977) 2,474 229 1,833
Accretion of preferred stock redemption.............. -- -- -- -- 39 -- 448
------- ------- ------- ------- ------- ------- -------
Net income (loss) attributed to common
shareholders....................................... $ 2,005 $ 1,928 $ 671 $ (977) $ 2,435 $ 229 $ 1,385
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share:
Basic.............................................. $ 0.44 $ 0.42 $ 0.15 $ (0.21) $ 0.49 $ 0.05 $ 0.28
Diluted............................................ $ 0.31 $ 0.29 $ 0.10 $ (0.21) $ 0.32 $ 0.03 $ 0.15
Shares used in computing net income (loss) per share:
Basic.............................................. 4,509 4,553 4,568 4,711 4,988 4,974 5,023
Diluted............................................ 6,477 6,696 6,590 4,711 7,577 7,159 9,472
Unaudited pro forma net income per share:
Basic.............................................. $ 0.35 $ 0.16
Diluted............................................ $ 0.32 $ 0.15
Unaudited shares used in computing pro forma net
income per share:
Basic.............................................. 6,992 8,619
Diluted............................................ 7,577 9,472
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....... $ 717 $ 2,978 $ 602
Working capital......................................... 7,654 10,372 9,764
Total assets............................................ 15,227 17,947 20,872
Long-term obligations, net of current portion........... 1,257 2,288 1,504
Redeemable convertible preferred stock.................. -- -- --
Shareholders' equity.................................... 8,571 10,385 10,962
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1998 1999 2000
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....... $ 368 $13,511 $11,284
Working capital......................................... 8,354 26,012 23,592
Total assets............................................ 20,549 38,114 41,304
Long-term obligations, net of current portion........... 1,513 859 506
Redeemable convertible preferred stock.................. -- 9,908 10,356
Shareholders' equity.................................... 10,540 18,965 19,502
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. IN
ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION AND OTHER PARTS OF
THIS PROSPECTUS CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
BY FORWARD-LOOKING STATEMENTS DUE TO FACTORS DISCUSSED UNDER "RISK FACTORS,"
"BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a worldwide leader in developing, manufacturing and selling wafer
probing solutions used to develop and test integrated circuits and
optoelectronic devices, or chips, on semiconductor wafers. We sell production
probe cards, analytical probes and probe stations. We design, manufacture and
assemble our products in Beaverton, Oregon, with global sales, service and
support centers in North America, Europe and Japan. We began our operations in
1983.
Probe stations and analytical probes have historically represented our core
product lines. These product lines address the need for precise and accurate
measurement of semiconductor electrical and optical, or lightwave,
characteristics during chip design or when optimizing the chip fabrication
process. Probe stations and analytical probes together have accounted for a
substantial majority of our net sales to date, and we anticipate that these two
product lines will continue to account for a majority of our net sales in the
foreseeable future.
Our production probe card product line consists of our Pyramid Probe cards,
which we developed to overcome new probing challenges in the production test
environment. We introduced our first generation Pyramid Probe cards for
production testing of aluminum bond pads in 1997. To address the evolving test
requirements of chips that are smaller, faster and integrate more functions, we
have continued to enhance our Pyramid Probe card fabrication process and design,
and in early 2000, introduced our second generation Pyramid Probe products. To
date, sales of our Pyramid Probe cards have represented a small, but growing,
portion of our net sales.
Our products are primarily used by semiconductor manufacturers, research
organizations and designers, including fabless semiconductor companies who
design their own chips but outsource the manufacturing to third party
semiconductor manufacturers. No single customer accounted for more than 10% of
our net sales during the past three years or in the six months ended June 30,
2000. Our ten largest customers accounted for 30.1% of our net sales in 1997,
33.5% in 1998, 34.7% in 1999 and 35.6% in the six months ended June 30, 2000. In
North America and Asia, excluding Japan, we sell our products primarily through
manufacturers' representatives. In Japan, we sell through Cascade Microtech
Japan, K.K., our direct sales and service subsidiary. In Europe we sell through
manufacturers' representatives and distributors managed by Cascade Microtech
Europe, Ltd., our direct sales and service subsidiary in the United Kingdom. In
other countries, we typically sell through manufacturers' representatives or
distributors. Approximately 78% of our 1999 net sales were through
manufacturers' representatives and distributors.
International sales accounted for 55.2% of our net sales in 1997, 52.7% in
1998, 50.6% in 1999 and 50.2% in the six months ended June 30, 2000. Sales
through our subsidiaries in Japan and Great Britain are denominated in yen and
pound sterling, respectively, while other international sales are generally
denominated in U.S. dollars. Our international operations give rise to exposures
from changes in currency exchange rates. To reduce our Japanese currency risk,
we have hedged future cash flows from firmly committed bookings denominated in
yen. We believe our exposure to exchange rate fluctuations involving currencies
other than yen has been minimal; therefore, we have not used derivative
contracts to purchase or sell other currencies.
25
<PAGE>
The semiconductor industry is cyclical and has from time to time experienced
depressed business conditions. From 1996 through 1998, the semiconductor
industry experienced worldwide overcapacity, which led to a slowdown in demand
for semiconductors and, in turn, semiconductor capital equipment. Our operating
results were negatively impacted by this slowdown, particularly in the second
half of 1998 and the first half of 1999. While markets for semiconductors and
semiconductor capital equipment have improved significantly, we cannot assure
you that these conditions will continue.
We recognize revenue from product sales to customers that do not have
acceptance criteria, including product sales to distributors, when a written
purchase order has been obtained, the product is shipped, title has transferred
and no obligations remain. We recognize revenue from customers who have
acceptance criteria when all acceptance criteria are satisfied. We recognize
revenue for installation services when the services are performed.
Our gross margin fluctuates due to a number of factors, including product
line mix, geographic mix, pricing pressures and our utilization of current
manufacturing capacity. Product line mix affects gross margin due to varying
cost structures associated with our product lines. Sales of products with a high
content of accessories built by other manufacturers may reduce gross margin.
Geographic mix impacts gross margins due to the varying price structures and
sales channels in different regions. Pricing pressures affect gross margin by
reducing the price charged for a product and typically relate to a specific
product or a specific geographic region. Finally, our gross margin will
fluctuate depending on the utilization of our available manufacturing capacity.
Generally, a higher utilization percentage will bring about greater
manufacturing efficiencies and permit our manufacturing overhead expense to be
spread over a greater number of products, thereby enhancing gross margin.
We have recorded deferred stock-based compensation of $0.1 million as of
June 30, 2000, and we expect to record approximately $ million of deferred
stock-based compensation on our balance sheet as of September 30, 2000. This
deferred stock-based compensation is based on the difference between the deemed
fair market value of our common stock and the exercise price of the option or
stock on the grant date. Amortization of the deferred stock-based compensation
for the years ended December 31, 2000, 2001, 2002, 2003 and 2004 is expected to
be approximately $ million, $ million, $ million, $ million and
$ million, respectively.
RESULTS OF OPERATIONS
The following table summarizes our historical consolidated results of
operations as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- --------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................ 53.8 59.0 53.3 56.7 52.5
----- ----- ----- ----- -----
Gross profit............................................. 46.2 41.0 46.7 43.3 47.5
Operating expenses:
Research and development............................... 14.7 14.9 11.4 11.7 11.7
Selling, general and administrative.................... 29.0 29.9 27.6 29.4 27.3
----- ----- ----- ----- -----
Income (loss) from operations............................ 2.6 (3.8) 7.7 2.2 8.5
Other income (expense), net.............................. 0.4 (0.3) (0.5) (0.4) 0.8
----- ----- ----- ----- -----
Income (loss) before provision (benefit) for income
taxes.................................................... 3.0 (4.1) 7.2 1.8 9.3
Provision (benefit) for income taxes..................... 1.3 (1.8) 2.4 0.7 3.5
----- ----- ----- ----- -----
Net income (loss)........................................ 1.7% (2.3)% 4.8% 1.1% 5.8%
===== ===== ===== ===== =====
</TABLE>
26
<PAGE>
SALES BY PRODUCT LINE
The following table summarizes our consolidated net sales by product line,
both in dollars and as a percentage of net sales, for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Probe stations................................. $31,405 $32,384 $39,843 $15,531 $23,643
Analytical probes.............................. 7,136 7,329 8,442 3,937 5,613
Production probe cards......................... 1,781 1,884 3,245 1,294 2,604
------- ------- ------- ------- -------
$40,322 $41,597 $51,530 $20,762 $31,860
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Probe stations.......................................... 77.9% 77.9% 77.3% 74.8% 74.2%
Analytical probes....................................... 17.7 17.6 16.4 19.0 17.6
Production probe cards.................................. 4.4 4.5 6.3 6.2 8.2
------- ------- ------- ------- -------
100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= =======
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 TO SIX MONTHS ENDED JUNE 30, 2000
NET SALES. Our net sales increased 53.5% from $20.8 million in the six
months ended June 30, 1999 to $31.9 million in the same period in 2000. This
increase in net sales was attributable to higher levels of capital spending by
our semiconductor manufacturing and design customers, resulting in increased
demand for our products. Of the $11.1 million increase in net sales,
$8.1 million was due to a 52.2% increase in sales of probe stations,
$1.7 million was due to a 42.6% increase in sales of analytical probes and
$1.3 million was due to a 101.2% increase in sales of production probe cards.
Domestic sales increased 52.9% from $10.4 million in the six months ended
June 30, 1999 to $15.9 million in the same period in 2000. International sales
increased 53.8% from $10.4 million to $16.0 million over the same periods.
GROSS PROFIT. Gross profit consists of net sales less cost of sales. Cost
of sales includes materials, labor, warranty and overhead. Gross profit
increased 68.1% from $9.0 million in the six months ended June 30, 1999 to
$15.1 million in the same period in 2000. Gross profit as a percentage of net
sales, or gross margin, increased from 43.3% in the six months ended June 30,
1999 to 47.5% in the same period in 2000. The gross profit and gross margin
increases resulted from higher sales volume and a heavier concentration of
higher margin products. The increase in gross margin was partially offset by
higher manufacturing costs associated with expansion in the manufacturing
capacity for our Pyramid Probe products.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development, or R&D,
expenses include salaries and related expenses for engineering personnel and
costs of materials associated with the design, development, testing and
enhancement of our products. R&D expenses increased 53.3% from $2.4 million in
the six months ended June 30, 1999 to $3.7 million in the same period in 2000.
In the second half of 1998, we implemented cost reductions to respond to the
semiconductor industry slowdown. As a result, we adjusted R&D expenses downward
through the first six months of 1999. In mid-1999, we began hiring additional
R&D personnel as the semiconductor industry improved, and, therefore, our R&D
expenses in the first six months of 2000 increased. As a percentage of net
sales, R&D expenses were 11.7% in both periods. We anticipate that spending for
R&D will increase in
27
<PAGE>
absolute dollars in future periods as we focus on growing opportunities in the
communications market and as we continue to enhance our core technologies and
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative, or SG&A, expenses include salaries and related costs for
administrative, financial, human resource, marketing and sales, and information
technology functions, and for professional services. SG&A expenses increased
42.3% from $6.1 million in the six months ended June 30, 1999 to $8.7 million in
the same period in 2000. The increase primarily resulted from higher payroll
expenses and increased commissions paid to manufacturers' representatives. As a
percentage of net sales, SG&A expenses decreased from 29.4% in the six months
ended June 30, 1999 to 27.3% in the same period in 2000, primarily due to the
increase in net sales. We expect SG&A expenses to increase in absolute dollars
to support our Pyramid Probe card operations and additional costs associated
with being a public company.
OTHER INCOME (EXPENSE), NET. Other income (expense), net includes interest
earned on cash and cash equivalents, interest incurred on debt outstanding, and
foreign currency gains and losses. Other income (expense), net was ($0.1)
million in the six months ended June 30, 1999 compared to $0.3 million in the
same period in 2000. The improvement is primarily due to interest income in the
first six months of 2000 from equity financing received in the second half of
1999.
PROVISION (BENEFIT) FOR INCOME TAXES. Our effective tax rate decreased from
40.4% in the six months ended June 30, 1999 to 38.1% in the same period in 2000
due to a decrease in foreign tax rates. Our effective tax rate is sensitive to
shifts in income and losses from our foreign subsidiaries.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1999
NET SALES. Our net sales increased 23.9% from $41.6 million in 1998 to
$51.5 million in 1999. This increase is primarily due to increased demand for
our products resulting from the semiconductor industry's recovery and increased
demand from the communications market. In addition, net sales in 1999 include
one-time technology licensing fees of $2.0 million paid to us by a strategic
partner. Of the $7.9 million increase in net sales, excluding the licensing
fees, $5.4 million was due to a 16.9% increase in sales of probe stations,
$1.1 million was due to a 15.2% increase in sales of analytical probes and
$1.4 million was due to a 72.2% increase in sales of production probe cards. The
$2.0 million of licensing fees are included in net sales of the probe stations
product line. Domestic sales, excluding the licensing fees, increased 18.7% from
$19.8 million in 1998 to $23.5 million in 1999. International sales increased
19.3% from $21.8 million in 1998 to $26.0 million in 1999.
GROSS PROFIT. Gross profit increased 41.2% from $17.1 million in 1998 to
$24.1 million in 1999. This increase was primarily a result of higher sales
volumes and the $2.0 million of licensing fees in 1999. Gross margin increased
from 41.0% in 1998 to 46.7% in 1999. Excluding the licensing fees, gross margin
was 44.6% in 1999. This gross margin increase was due to improved capacity
utilization resulting from the improvement in the semiconductor industry.
RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses decreased 5.0% from
$6.2 million in 1998 to $5.9 million in 1999. R&D expenses relating to
developing our 200 mm automatic probe station, or autoprober, decreased from
1998 due principally to completion of the project. R&D expenses also decreased
in 1999 due to the cost reductions we implemented in the second half of 1998.
These decreases were partially offset by increased spending for Pyramid Probe
card development in 1999. As a percentage of net sales, R&D expenses decreased
from 14.9% in 1998 to 11.4% in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased 14.5%
from $12.4 million in 1998 to $14.2 million in 1999. The increase was a result
of increased commissions paid to manufacturers' representatives, higher
patent-related costs and increased facility costs associated with our move to a
new Pyramid Probe card fabrication facility. As a percentage of net sales, SG&A
28
<PAGE>
expenses decreased from 29.9% in 1998 to 27.6% in 1999, primarily as a result of
the increase in net sales and a reduction in average headcount.
OTHER INCOME (EXPENSE), NET. Other income (expense), net was ($0.1) million
in 1998 compared to ($0.3) million in 1999. The change from 1998 to 1999 is
primarily related to larger exchange losses resulting from our holdings of
subsidiary monetary assets and liabilities denominated in yen and pound
sterling. Translation of these assets and liabilities into U.S. dollars results
in net gains or losses depending on the change in the exchange rate from period
to period.
PROVISION (BENEFIT) FOR INCOME TAXES. Our income tax benefit in 1998
represents an effective tax rate of 42.8%. This compares to our income tax
provision in 1999 representing an effective tax rate of 33.1%. The 1999
effective rate was favorably impacted by a reduction in the valuation allowance
due to utilization of previously reserved net operating loss carryovers.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1998
NET SALES. Our net sales increased 3.2% from $40.3 million in 1997 to
$41.6 million in 1998. In 1998, the semiconductor industry experienced worldwide
overcapacity, worsened by economic recessions in various Asian economies. Sales
increased in 1998 due to increased demand for our autoprober product, which was
first introduced in late 1997, analytical probes and production probe cards.
Partially offsetting these increases was a decrease in the average selling price
of probe stations, excluding autoprobers. Of the $1.3 million increase in net
sales, $1.0 million was due to a 3.1% increase in sales of probe stations,
$0.2 million was due to a 2.7% increase in sales of analytical probes and
$0.1 million was due to a 5.8% increase in sales of production probe cards.
Domestic sales increased 10.0% from $18.0 million in 1997 to $19.8 million in
1998. International sales decreased 2.2% from $22.3 million in 1997 to
$21.8 million in 1998.
GROSS PROFIT. Gross profit decreased 8.5% from $18.6 million in 1997 to
$17.1 million in 1998. Gross margin decreased from 46.2% in 1997 to 41.0% in
1998. This gross margin decrease was due to lower selling prices for our probe
stations, excluding autoprobers. In addition, lower margin autoprobers accounted
for a higher percentage of 1998 sales. The gross margin decrease was also due to
an increase in allocated occupancy costs associated with the relocation of our
headquarters to a new facility in the second half 1998.
RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses increased 4.8% from
$5.9 million in 1997 to $6.2 million in 1998. The increase was primarily due to
increased staffing for R&D and increased occupancy costs resulting from our move
to a larger headquarters facility. As a percentage of net sales, R&D expenses
increased slightly from 14.7% in 1997 to 14.9% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased 6.3%
from $11.7 million in 1997 to $12.4 million in 1998. This increase was due to
costs incurred to hire additional employees in the first half of 1998 and to
move to the new headquarters facility in the second half of 1998. In addition,
we incurred severance costs as headcount reductions were necessary in the second
half of 1998 to respond to the effects of the semiconductor industry slowdown.
As a percentage of net sales, SG&A expenses increased from 29.0% in 1997 to
29.9% in 1998.
OTHER INCOME (EXPENSE), NET. Other income (expense), net was $0.2 million
in 1997 compared to ($0.1) million in 1998. The change from 1997 to 1998 is
primarily related to exchange losses resulting from our holdings of subsidiary
monetary assets and liabilities denominated in yen and pound sterling.
PROVISION (BENEFIT) FOR INCOME TAXES. Our income tax provision in 1997
represents an effective tax rate of 43.8%. This compares to our income tax
benefit in 1998 representing an effective tax rate of 42.8%. The tax benefit in
1998 was a result of our net loss.
29
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited consolidated operating results
for each of the six most recent quarters ended June 30, 2000 both in dollars and
as a percentage of net sales for each quarter. The information for each of these
quarters is unaudited and has been prepared on the same basis as the audited
consolidated financial statements included in this prospectus. In the opinion of
management, all necessary adjustments have been included to fairly present the
unaudited quarterly results. The historical financial information presented
below is not necessarily indicative of results to be expected for any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1999 1999 1999 1999 2000 2000
--------- -------- --------- -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales................................... $9,628 $11,134 $15,875 $14,893 $14,491 $17,369
Cost of sales............................... 5,412 6,355 8,025 7,652 7,646 9,089
------ ------- ------- ------- ------- -------
Gross profit................................ 4,216 4,779 7,850 7,241 6,845 8,280
Operating expenses:
Research and development.................. 1,240 1,190 1,595 1,862 1,952 1,773
Selling, general and administrative....... 2,823 3,285 4,178 3,950 3,708 4,982
------ ------- ------- ------- ------- -------
Income from operations...................... 153 304 2,077 1,429 1,185 1,525
Other income (expense), net................. (60) (13) (97) (96) 147 106
------ ------- ------- ------- ------- -------
Income before provision for income taxes.... 93 291 1,980 1,333 1,332 1,631
Provision for income taxes.................. 62 93 686 382 484 646
------ ------- ------- ------- ------- -------
Net income.................................. $ 31 $ 198 $ 1,294 $ 951 $ 848 $ 985
====== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1999 1999 1999 1999 2000 2000
--------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 56.2 57.1 50.6 51.4 52.8 52.3
------ ------- ------- ------- ------- -------
Gross profit................................ 43.8 42.9 49.4 48.6 47.2 47.7
Operating expenses:
Research and development.................. 12.9 10.7 10.0 12.5 13.5 10.2
Selling, general and administrative....... 29.3 29.5 26.3 26.5 25.6 28.7
------ ------- ------- ------- ------- -------
Income from operations...................... 1.6 2.7 13.1 9.6 8.2 8.8
Other income (expense), net................. (0.6) (0.1) (0.6) (0.6) 1.0 0.6
------ ------- ------- ------- ------- -------
Income before income taxes.................. 1.0 2.6 12.5 9.0 9.2 9.4
Provision for income taxes.................. 0.6 0.8 4.3 2.6 3.3 3.7
------ ------- ------- ------- ------- -------
Net income.................................. 0.3% 1.8% 8.2% 6.4% 5.9% 5.7%
====== ======= ======= ======= ======= =======
</TABLE>
Our quarterly results have fluctuated in the past and we expect them to
fluctuate in future periods due to a variety of factors, including those
discussed in the section captioned "Risk Factors." Net sales in the quarters
ended September 30 and December 31, 1999 included one-time licensing fees of
$1.5 million and $0.5 million, respectively. Due to seasonality in international
markets, net sales in the quarter ended March 31, 2000 were essentially flat
compared to net sales in the quarter ended December 31, 1999, excluding
licensing fees. Sales in the first calendar quarter have generally been
30
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lower than sales in the fourth calendar quarter due to this seasonality. Gross
profit in the quarters ended September 30 and December 31, 1999 were favorably
impacted by the one-time licensing fees. R&D expenses increased in the quarters
ended September 30, 1999, December 31, 1999 and March 31, 2000 primarily due to
costs associated with development of our Pyramid Probe cards and our 300 mm
probe station. In addition, R&D expenses increased because we moved our Pyramid
Probe fabrication to a new, larger facility in the quarter ended December 31,
1999. SG&A expenses decreased as a percentage of net sales in the quarters ended
September 30 and December 31, 1999, primarily due to higher net sales from
one-time licensing fees. SG&A expenses as a percentage of net sales remained
lower in the quarter ended March 31, 2000, primarily due to the absence of major
tradeshow expenses that were incurred in previous quarters, lower rent expense
due to offsetting sublease income and lower amortization expense. SG&A expenses
increased as a percentage of net sales in the quarter ended June 30, 2000
primarily due to expanded sales and marketing activity related to our Pyramid
Probe cards.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through cash generated from
operations and the private sale of preferred stock. At June 30, 2000, we had
cash, cash equivalents and short-term investments of $11.3 million and working
capital of $23.6 million. Other sources of liquidity available to us include a
$5.0 million bank line of credit for which we signed a commitment letter in
September 2000 and an existing $0.5 million bank line of credit through our
subsidiary in Japan.
Net cash provided by operating activities was $0.6 million in 1998,
$2.0 million in 1999 and $3.1 million in the six months ended June 30, 2000.
Cash provided in 1998 was primarily from a decrease in inventories and accounts
receivable, offset by a net loss, a decrease in accrued liabilities and an
increase in prepaid expenses and other. Cash provided in 1999 was primarily from
net income and an increase in accrued liabilities, offset by an increase in
accounts receivable. Cash provided in the six months ended June 30, 2000 was
primarily from net income and an increase in accounts payable, offset by
increases in inventories and accounts receivable.
Net cash used in investing activities was $1.9 million in 1998,
$1.6 million in 1999 and $10.2 million in the six months ended June 30, 2000.
Cash used in 1998 and 1999 resulted primarily from leasehold and tenant
improvements, equipment purchases to expand Pyramid Probe card fabrication
capabilities and costs related to patent infringement litigation against a
competitor. Capital expenditures were $1.5 million in 1998 and $1.4 million in
1999. Cash used in the six months ended June 30, 2000 resulted primarily from
investments in marketable securities using proceeds from the private sale of
preferred stock in 1999 and purchases of fixed assets primarily for
manufacturing operations and engineering. Capital expenditures were
$2.0 million in the six months ended June 30, 2000. We expect capital
expenditures for the second half of 2000 to be approximately $2.6 million.
Net cash provided by financing activities was $1.1 million in 1998 and
$12.8 million in 1999. Net cash used in financing activities was $1.6 million in
the six months ended June 30, 2000. Cash provided in 1998 resulted from
borrowings under a line of credit and proceeds received from the issuance of
common stock. Cash provided in 1999 resulted from proceeds from the issuance of
preferred stock offset by payments on our line of credit and principal payments
on our long-term debt. Cash used in the six months ended June 30, 2000 resulted
from the repurchase of common stock and principal payments on long-term debt.
On September 27, 2000, we signed a commitment letter with a bank for a
$5.0 million revolving line of credit that will expire on September 30, 2001.
All borrowings under this line will bear interest at the bank's prime rate.
Alternately, we have the option to incur interest on borrowings under the line
at LIBOR or quoted Bankers Acceptance rates plus a spread based on our ratio of
debt to tangible net worth. The line of credit will be unsecured. The line of
credit will require us to maintain quarterly
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financial covenants, including a minimum tangible net worth, minimum quick ratio
and maximum leverage ratio.
On September 27, 2000, we received a commitment letter for a foreign
exchange facility with a bank that provides for issuance of forward and spot
currency contracts up to $40.0 million. The facility allows for a maximum
forward settlement date of 13 months, with maturity not to exceed March 31,
2002. Rates and availability are subject to current market conditions.
Cascade Microtech Japan, K.K. has a bank line of credit that provides
borrowings up to approximately $0.5 million at the June 30, 2000 exchange rate.
The line bears interest at 1.375%, has a six-month term, and is guaranteed by
Cascade Microtech, Inc. The line will expire in October 2000 and is subject to
renewal based on agreement between the parties. No amounts were outstanding
under this line of credit at June 30, 2000.
We have one term loan with $1.0 million outstanding at June 30, 2000. The
loan bears interest at 7.71% per annum, with monthly principal and interest
payments. The loan expires in February 2002, is secured by accounts receivable,
inventories, equipment and certain intangibles and contains a covenant for debt
service coverage. We were in compliance with the covenant requirements at
June 30, 2000.
We believe that the net proceeds from this offering, together with our
existing cash and cash equivalents, will provide us with sufficient liquidity
and capital resources to meet our current and future financial obligations, as
well as to provide funds for our working capital, capital expenditures and other
needs for at least the next 12 months. No assurance can be given, however, that
this will be the case. We expect from time to time to evaluate potential
acquisitions and equity investments complementary to our market strategy. To the
extent we pursue such transactions, or in the event of an industry downturn or
an unexpected adverse change in our business operations, we could require
additional equity or debt financing to fund our activities or our working
capital requirements. To the extent we require additional capital, we cannot
assure you that additional financing will be available or, if available, will be
available on terms satisfactory to us.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
FOREIGN CURRENCY EXCHANGE RISK
We are exposed to foreign currency fluctuations through our international
operations. This exposure results from timing differences between incoming and
outgoing cash flows denominated in a foreign currency. To manage this exposure,
we enter into forward foreign exchange contracts to exchange yen for U.S.
dollars. The contracts generally mature within six months. We do not currently
use derivative financial instruments for speculative or trading purposes or buy
or sell currencies other than yen. At inception, foreign exchange contracts are
designated as hedges of firmly committed bookings for which we expect payment
within six months. At June 30, 2000, foreign currency contracts to receive
$3.7 million were outstanding with an estimated fair value of $3.7 million.
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio and long-term debt obligations. We maintain an
investment policy which is designed to ensure the safety and preservation of our
invested funds by limiting default risk, market risk, and reinvestment risk. At
June 30, 2000, our investments consisted of municipal, U.S. agency, corporate
finance obligations and money market funds with a total book value of
$11.1 million. The investments held at June 30, 2000 mature through
October 2001 and have a weighted-average effective interest rate of 5.4%.
We mitigate default risk by attempting to invest in high credit quality
securities and by positioning our portfolio to respond appropriately to a
significant reduction in a credit rating of any investment
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<PAGE>
issuer or guarantor. The portfolio includes only marketable securities with
active secondary or resale markets to ensure portfolio liquidity and maintains a
prudent amount of diversification.
The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
interest rate changes affect the fair market value but do not impact earnings or
cash flows. The estimated fair value of our long-term debt at June 30, 2000
approximates carrying value, as stated interest rates do not differ
significantly from current market rates. The effect of an immediate 10% change
in interest rates would not have a material impact on our future operating
results or cash flows.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, which establishes accounting
and reporting standards for derivative instruments and hedging activities by
requiring that all derivatives be recognized in the balance sheet and measured
at fair value. The effective date for SFAS No. 133 is January 1, 2001. We are in
the process of evaluating the potential impact of this standard on our financial
position and results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, or SAB, No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. We implemented the guidance
provided by SAB No. 101 effective January 1, 2000. Based on our current
understanding of SAB No. 101, the implementation of its guidance on revenue
recognition, presentation and disclosure of revenue did not have a material
impact on our financial statements or any material implications on how we have
historically recognized revenue.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions involving
Stock Compensation, an Interpretation of Accounting Principles Board, or APB,
Opinion No. 25," which clarifies the application of APB Opinion No. 25, "Stock
Issued to Employees," for certain issues including:
- the definition of an employee for purposes of applying APB Opinion
No. 25;.
- the criteria for determining whether a plan qualifies as a noncompensatory
plan;.
- the accounting consequences of various modifications to the terms of a
previously fixed stock option or award; and
- the accounting for an exchange of stock compensation awards in a business
combination.
FIN 44 became effective July 1, 2000, but certain conclusions in FIN 44
cover specific events that occurred after December 15, 1998 or January 12, 2000.
To the extent that FIN 44 covers events occurring during the period after
December 15, 1998 or January 12, 2000, but before the effective date of July 1,
2000, the effects of applying FIN 44 are recognized on a prospective basis from
July 1, 2000. We adopted the provisions of FIN 44 as of the required effective
dates, and this adoption has not had a material impact on our financial
statements.
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<PAGE>
BUSINESS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS."
OVERVIEW
We are a worldwide leader in developing, manufacturing and selling
leading-edge wafer probing solutions used to test and measure complex
semiconductors in wafer form in both design and production environments.
Customers use our solutions to develop and test advanced integrated circuits and
optoelectronic devices, or chips, for a broad range of communications, consumer
electronics and computing products. In particular, we believe we derived
approximately one-half of our sales in the first six months of 2000 from
customers who develop and supply wireless, broadband and other communications
chips. We sell production probe cards, analytical probes, and probe stations.
Probe stations manually or automatically align wafers to probe cards or probes
to electrically connect test equipment to each chip on a wafer, allowing a
variety of electrical and optical, or lightwave, measurements to be taken. Our
products are used by design engineers to develop new chips and accelerate
time-to-market, by production process engineers to improve chip fabrication
processes, and by test engineers to assure chip quality and reliability. Our
production probe cards test chips for products such as synchronous optical
network, or SONET, equipment, Gigabit Ethernet equipment, cellular phones,
liquid crystal display drivers and some application-specific integrated
circuits, or ASICs. Our probe stations and analytical probes are used throughout
the semiconductor industry in engineering test to develop designs and
fabrication processes for chips such as radio frequency chips, digital signal
processors, telecommunications chips, advanced memory chips, microprocessors and
microcontrollers, video graphics processors and ASICs. Approximately 400
customers purchased our products in the first half of 2000. Our top ten
customers during this period were Agilent Technologies, Conexant Systems,
Fujitsu, IBM, Infineon, Lucent Technologies, Matsushita, Mitsubishi, Nortel
Networks and Taiwan Semiconductor Manufacturing Company.
INDUSTRY BACKGROUND
COMMUNICATIONS, CONSUMER ELECTRONICS AND COMPUTING PRODUCTS ARE DRIVING
SEMICONDUCTOR CHIP GROWTH AND COMPLEXITY
In recent years, the proliferation of communications, consumer electronics
and computing products has driven substantial growth in the semiconductor chip
market. IC Insights, a market research firm, estimates that the worldwide market
for integrated circuits, or ICs, will grow from $130.2 billion in 1999 to $264.4
billion in 2003, a compound annual growth rate, or CAGR, of 19%. In particular,
the demand for chips used in communications products, such as cellular phones,
optical fiber networking equipment and high-speed local area networking
equipment, is generally growing at a faster rate. For example, Dataquest, a
division of Gartner Inc., forecasts that the worldwide market for ICs for
digital cellular handsets will grow from $13.9 billion in 1999 to $31.2 billion
in 2003, representing a CAGR of 22%. In addition, the rapid growth in data
traffic over broadband networks has resulted in increased demand for high-speed
data transport ICs and optoelectronic devices. Optoelectronic devices for
communications are components that convert electrical signals to optical, or
lightwave, signals, or lightwave signals to electrical signals. International
Data Corporation estimates that the worldwide market for SONET chips that
transmit data at 2.4 gigabits per second or faster will grow from $219.0 million
in 1999 to $846.2 million in 2003, representing a CAGR of 40%.
As demand grows for higher performance and less expensive electronics
products, semiconductor suppliers must respond by producing chips that are less
costly but more complex, meaning smaller, faster and integrating more functions.
Chip suppliers are striving to meet this demand primarily by
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<PAGE>
shrinking chip feature sizes and by using new materials to manufacture chips.
The result is more complex chips that are difficult to design and manufacture,
and increasingly challenging to test.
WAFER PROBE TESTING OF CHIPS
Chips are tested multiple times throughout design and manufacturing to
ensure the integrity of the chip design and the quality of the manufacturing
process. Most chip testing occurs during manufacturing and is often referred to
as production test. Chip testing that occurs during design or in support of
production is often referred to as engineering test. Production test entails
performing a limited number of tests at a rapid rate on a high volume of chips.
Engineering test entails performing a wide variety of highly precise
measurements on a low volume of chips.
Wafer probing, or testing chips while they are still in semiconductor wafer
form, is critical to both engineering and production test. A typical wafer is
currently 8 inches, or 200 mm, in diameter and usually contains 500 to 10,000
chips. Wafer probing entails establishing temporary electrical contact between
test equipment and each individual chip on a wafer to determine whether each
chip meets design and performance specifications. The test equipment transmits
electrical signals to the chip and analyzes the signals that return. Wafer
probing enables the manufacturer to avoid incurring the significant expense of
assembling and packaging chips that do not meet specification by identifying
flaws relatively early in the manufacturing process. The primary components of a
wafer probing test system include:
- PROBES. A conventional probe is a single tapered metal needle, whose tip
is positioned to "touch-down" on, or make electrical contact with, a
metallized bond pad on the chip being tested. A typical bond pad ranges
from 40 to 80 microns, or millionths of a meter, in width and 60 to 100
microns in length. Each chip contains numerous bond pads which connect to
the chip circuitry so that electrical signals can be transmitted in and
out of the chip. A probe used in engineering test is often called an
analytical probe.
- PROBE CARD. A probe card is a complex printed circuit board that contains
a customized arrangement of probe needles or probe tips to simultaneously
contact all of the bond pads on one or more chips. Probe cards are
primarily used in production testing.
- PROBE STATION. A probe station manually or automatically aligns the wafer
to permit the probes to precisely contact the chip bond pads.
- TEST EQUIPMENT. Test equipment transmits electrical signals through the
probes or probe card to the chip and evaluates the signals that return.
Test equipment used in production test is often called automated test
equipment, or ATE, and is designed specifically for high-volume testing.
The testing of each new chip design requires use of a custom probe card or a
set of probes. In production, probe cards generally last for only 50,000 to
500,000 touch-downs due to wear of the probe tips. As a result, probe cards and
probes are considered to be consumable products, or consumables, because they
can only be used with a specific chip design and must be replaced due to wear.
In contrast, probe stations and test equipment are used for many years, can be
used to test many different chips and are typically purchased to increase
production capacity. According to VLSI Research Inc., a market research firm,
the worldwide market for probe cards was $365.9 million and for probe stations
was $485.8 million in 1999.
CHALLENGES OF WAFER PROBE TESTING
As chips become more complex, wafer probing in both the production and
engineering test environments becomes increasingly difficult. Greater chip
functionality increases the number of bond pads, or pincount, on a chip. The
pincount of a chip is typically several hundred and can be as high as 3,000. As
feature sizes decrease, bond pads become smaller and the distance between the
centers of
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adjacent pads, or pitch, decreases. In addition, all probe touch-downs deform
the bond pad metal and can cause damage to the material surrounding the bond pad
if the probe tip is misaligned. Damage to material surrounding bond pads results
in diminished yields, and excessive bond pad damage can cause unreliable
electrical connections to the pads when the chip is packaged. Smaller pads make
the chip more susceptible to such damage. In addition, as chip operating speeds
increase, they often must be tested at their maximum operating speed because
some defects are only detectable at those speeds. Testing a chip at its maximum
operating speed requires wafer probes, probe cards and test equipment that can
operate as fast as the chips.
More complex chips pose additional challenges specific to the engineering
test environment and, in particular, require a greater variety of measurements
and much greater measurement precision. For example, engineers developing
advanced microprocessors or memory chips today need to measure various
electrical characteristics of a single transistor, a task which often requires
precision to a femtoamp, or a millionth of a billionth of an amp. Furthermore,
to enable timely development and introduction of new chips, engineering test
processes require higher productivity and increased automation.
LIMITATIONS OF CONVENTIONAL WAFER PROBE TESTING
Conventional wafer probe cards, which predominantly rely on manually
assembled needles to contact chip bond pads, are now reaching their practical
performance limits due to several factors:
- BOND PAD SIZE AND PITCH. Smaller bond pads with narrower pitch require
more accurate probe tip touch-downs to avoid production yield loss from
chip damage. Needle touch-down accuracy is limited by variations in the
manual assembly process, by difficulties in measuring the needle probe tip
position, by thermal instability of the needles and the circuit board to
which they are attached and by mechanical instabilities resulting from
application of force during touch-down.
- SPEED. Many communication chips and advanced microprocessor chips in
production today require testing at frequencies of 2 GHz or higher, and
some leading-edge communication chips already require testing at or above
10 GHz. Chips being prototyped in engineering test environments are now
operating at 40 GHz or higher. Conventional needle probe technologies,
however, can only probe effectively up to approximately 1 GHz, due
primarily to loss of signal integrity as frequency increases.
- CONTACT INTEGRITY. Conventional needle contact methods generate debris and
contaminate probe tips, resulting in impaired electrical contacts which
can cause false test failures and contribute to production yield losses.
The debris must be cleaned frequently from the probe tips, which causes
costly production downtime.
As chip complexity increases, we believe the gap between conventional wafer
probe capabilities and testing requirements will continue to widen.
OPPORTUNITY FOR NEW WAFER PROBE TESTING SOLUTIONS
Market pressures to produce more complex and less costly chips are driving
chip suppliers to seek new wafer probing technologies capable of meeting the
test requirements of increasingly complex chips while reducing the effective
test cost per chip. Compounding these pressures, production engineers are
expected to decrease their time-to-yield, or the time required to achieve
acceptable yields for a new chip or manufacturing process, to reach economically
productive levels in increasingly expensive fabrication facilities. Similarly,
design engineers are expected to decrease their time-to-market for new chip
designs and to minimize expensive chip redesigns.
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OUR SOLUTIONS
We provide leading-edge wafer probing solutions that enable customers to
test increasingly complex ICs and optoelectronic devices in both engineering and
production test environments. We have provided wafer probing solutions to
semiconductor suppliers since 1983 and have capitalized on our years of
experience by continuing to introduce next-generation products that meet our
customers' evolving testing needs. We believe our production probe cards,
analytical probes and probe stations benefit our customers by enabling them to
test increasingly complex chips, lower their effective test cost per chip,
reduce their time-to-yield or accelerate their time-to-market, as described
below.
WAFER PROBING SOLUTIONS FOR PRODUCTION TEST
We have developed an innovative, proprietary production probe card, called
the Pyramid Probe card. Our Pyramid Probe cards are used to test chips operating
at high speeds, such as chips used in SONET equipment, Gigabit Ethernet
equipment and cellular phones, or chips with small bond pads, such as liquid
crystal display, or LCD, drivers and some ASICs. In contrast to the technology
and manufacturing process used to create conventional needle probe cards, we
produce our Pyramid Probe cards using a proprietary, lithography-based
manufacturing process, similar to lithography performed in semiconductor
manufacturing. Our lithographic process uses light to precisely print and form
probe tips and electrical interconnections on a flexible membrane. This process
results in microscopic probe tips that are precisely spaced, accurately aligned
and highly reproducible, and electrical interconnections that minimize signal
distortions at high frequencies. We attach the membrane to a precision
mechanical support, which we then insert into a custom-designed printed circuit
board, thereby forming a Pyramid Probe card. We design our Pyramid Probe cards
to integrate with leading automated probe stations, or autoprobers, and ATE to
enable customers to configure a comprehensive production test solution. We
believe our Pyramid Probe cards provide production test customers with the
following key competitive advantages:
- HIGH-SPEED TESTING. As a result of their small interconnect circuitry on
the membrane, our Pyramid Probe cards are currently capable of testing
chips up to 20 GHz.
- SUPERIOR ELECTRICAL PERFORMANCE. Shorter and more precise electrical
interconnections in the flexible membrane enable superior electrical
signal integrity over a broader range of operating speeds.
- ACCURATE TESTING AT NARROW PITCH. The small size and precise alignment of
our probe tips allow highly accurate touch-downs on smaller bond pads with
narrower pitch. This allows semiconductor suppliers to decrease chip size
and increase the number of chips per wafer, thereby lowering the effective
test cost per chip.
- LESS CLEANING AND MAINTENANCE. Due to their small size and our MicroScrub
technology, our probe tips generate less debris at touch-down. This
results in less probe card cleaning and maintenance, which reduces costly
production downtime.
- IMPROVED YIELDS. Our patented contact method, called MicroScrub, provides
more consistent electrical contact to the bond pads, particularly aluminum
bond pads, resulting in more reliable measurements and fewer false test
fails, while minimizing yield loss due to damage to bond pads or
surrounding material.
WAFER PROBING SOLUTIONS FOR ENGINEERING TEST
We believe we are the industry leader in wafer probing solutions for
engineering test. Our engineering test solutions consist of a broad range of
analytical probes and probe stations, which are used throughout the
semiconductor industry to develop designs and processes for chips such as radio
frequency, or RF, chips, digital signal processors, or DSPs, telecommunications
chips, advanced memory
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chips, microprocessors and microcontrollers, video graphics processors and
ASICs. We design our products to facilitate development of next-generation chips
and chip manufacturing processes by enabling highly precise electrical and
lightwave measurements. We believe our engineering test solutions provide
customers with the following key competitive advantages:
- DESIGN AND TEST OF HIGH-SPEED CHIPS. Our analytical probes can measure
circuit elements or entire chips up to 110 GHz, facilitating design of
higher-speed chips.
- REFINED COMPLEX CHIP DESIGNS. The advanced measurement capabilities
afforded by our analytical probes and probe stations permit fine tuning of
complex chip designs to maximize performance and yields.
- REDUCED TIME-TO-YIELD. Our probe stations and analytical probes facilitate
highly precise circuit element measurements and high throughput testing
over a wide temperature range. The information provided by these
measurements is used to adjust manufacturing process parameters to more
rapidly improve yields.
- GREATER ENGINEERING PRODUCTIVITY. Our probe stations include automation
features which allow more tests to be performed more rapidly, leading to
greater engineering productivity.
- ACCELERATED TIME-TO-MARKET. Our analytical probes and probe stations
provide highly accurate test data, which accelerates chip design.
BUSINESS AND GROWTH STRATEGY
Our objective is to become the leading provider of probe cards for
production test and to expand our market leadership position in wafer probing
solutions for engineering test. Key elements of our strategy include:
- DEVELOP NEXT-GENERATION TECHNOLOGIES. We strive to be first to market with
next-generation technologies through continued research into fundamental
measurement techniques and collaboration with our customers. Since our
inception, we have focused our efforts on the measurement requirements of
our customers' most advanced products and processes because we believe
this is where we deliver the most value. For example, we developed and
introduced the first microwave probe for testing gallium arsenide chips;
the first integrated environmental enclosure for probe stations, our
MicroChamber; and the first lithographically-manufactured probe cards for
production testing of chips operating at speeds above 1 GHz, our Pyramid
Probe cards. These breakthroughs have contributed to our entry into new
markets and our ability to deliver improved measurement capability and
productivity to our customers.
- TARGET HIGH-GROWTH MARKETS AND CUSTOMER SEGMENTS. We focus our new product
development and marketing efforts on ICs and optoelectronic devices for
high-growth markets such as broadband optical fiber communications
networks, wireless devices and systems, and LCDs. During the six months
ended June 30, 2000, we believe we derived a majority of our net sales
from the sale of products used to test chips for communications
applications. In addition, we target fast growing customer segments, such
as semiconductor wafer foundries. We intend to continue to target these
markets and customer segments as they are driving significant
semiconductor growth and complexity.
- DRIVE ADOPTION OF OUR PYRAMID PROBE SOLUTION. We intend to continue
focusing substantial sales and applications support resources on
demonstrating the benefits of our Pyramid Probe cards to drive adoption by
customers. We believe our Pyramid Probe cards provide compelling
advantages over competing solutions in performing production wafer testing
of many of today's most advanced chips. As a result, we are targeting
customers producing high-speed communications chips and chips with very
small bond pads. We believe substantial additional
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sales opportunities exist with customers that have yet to evaluate our
technology or who are just beginning to produce chips for which
conventional probe cards are proving inadequate. Consistent with our focus
on growing this product line, we intend to expand design and application
support at customer sites, enhance Pyramid Probe card performance to
address even more complex chips, reduce leadtimes, and expand
manufacturing capacity.
- EMPHASIZE CONSUMABLES TO REDUCE CYCLICALITY. We intend to continue
devoting substantial development and marketing resources to consumable
products, including both our analytical probes and Pyramid Probe cards.
Because customers generally continue to purchase these products during
cyclical semiconductor downturns to support chip production volumes and
research and development, we believe these products mitigate the effects
of cyclicality on our operations. For example, sales of our consumable
products which represented 22.1% of our net sales in 1998, increased 3.2%
in 1998 over 1997 while, according to Dataquest, investments in
semiconductor wafer fabrication equipment declined by 28.1% during the
same period. We have increased our sales from consumable products every
year since our inception, and consumables comprised 25.8% of our net sales
in the six months ended June 30, 2000.
- EXPAND RELATIONSHIPS WITH COMPLEMENTARY TECHNOLOGY SUPPLIERS. We have
established relationships with several leading developers of complementary
test technologies to provide our customers with comprehensive test
solutions and support. We have a long-standing relationship with Agilent
Technologies in which we jointly market and sell selected wafer probing
test systems, comprised of products from both companies. In these
worldwide sales, we provide the analytical probes, production probe cards,
and probe stations while Agilent supplies the test equipment. We also work
regularly with other providers of semiconductor test equipment and
software to provide complete test solutions.
PRODUCTS
We design, manufacture and sell three product lines: production probe cards,
analytical probes and probe stations.
PRODUCTION PROBE CARDS
We offer proprietary Pyramid Probe cards primarily for production testing,
but they can also be used in engineering test. Each Pyramid Probe card consists
of a tester interface board and at least one Pyramid Probe core that is inserted
into the interface board. An interface board is a multi-layer circuit board
customized to connect to ATE from various vendors. A Pyramid Probe core contains
the probe tips that contact the chips on the wafer under test. Each customer
chip design requires a unique, custom-designed and lithographically-printed
Pyramid Probe core. We offer three families of Pyramid Probe cores, including
Radio Frequency Core, or RFC, Large Scale Integration, or LSI, and Very Large
Scale Rectangular, or VLSR. Selling prices range from $2,000 to $80,000 for
Pyramid Probe cores, and from $2,000 to $20,000 for interface boards, depending
upon chip complexity.
ANALYTICAL PROBES
We offer over 50 different analytical probe models primarily for engineering
test. Our analytical probes incorporate coaxial, lightwave and needle
technologies. Most of our analytical probes are coaxial, consisting of
microscopic, flexible probe tips attached to miniature coaxial cables. Our
coaxial probes, including our Air Coplanar and High Performance
Characterization, or HPC, probe lines, are RF and microwave probes typically
used for engineering test measurements of chips and optoelectronic devices used
in applications such as wireless and broadband optical fiber communications. Our
lightwave probes use optical fibers to illuminate or collect light from
optoelectronic devices, such as photodiodes, laser diodes, and laser modulators.
We employ needle probe technology for various low
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electrical current and high temperature measurements for chips such as
microprocessors, microcontrollers, advanced memory chips and video graphics
processors. Our analytical probes support a wide range of analytical
measurements, including the measurement of high-speed, broadband signals and
extremely low currents on various devices. While our analytical probes are used
primarily for engineering testing, several of our analytical probes are also
used in production testing of some high-frequency devices. Selling prices for
our analytical probes range from $200 to $5,000, depending on configuration and
frequency range.
PROBE STATIONS
We offer four families of engineering probe stations:
- THE SUMMIT SERIES, both manual and semi-automated, an industry-leading
probe station used for a wide range of transistor and chip measurements,
circuit element modeling, and reliability tests;
- THE S300 SERIES, semi-automated, similar to the Summit series, with
enhanced features and 300 mm wafer testing capability;
- THE PS21 SERIES autoprober, with high electrical measurement performance
and wide temperature range; and
- THE ALESSI SERIES, both manual and semi-automated, a widely-used and
versatile general-purpose probe station.
Engineering probe stations are highly configurable depending upon the size
and type of wafer, chip being measured, measurements required, and test
equipment used. We typically sell our engineering probe stations with various
accessories, including analytical probes, probe micropositioners, a thermal
controller and chuck, a microscope, a laser for cutting through chip layers, and
test software. In addition to our four product families, we also design and
build custom probe stations to meet customers' unique applications. An example
of these unique requirements include probe stations for testing substrates as
large as 24 X 24 inches. Selling prices of our probe stations range from $25,000
to $300,000, depending upon the automation level, measurement features, and
accessories required by our customers.
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The following table lists our primary product offerings, their basic
features, chips they typically test, and the test environments in which they are
used:
<TABLE>
TYPICAL CHIPS TEST
PRODUCT FAMILY BASIC FEATURES AND DEVICES TESTED ENVIRONMENT
<S> <C> <C> <C>
PRODUCTION PROBE CARDS
RFC Pyramid Probe cores Speeds to 20 GHz SONET chips Production and
Up to 250 probe tips Wireless chips Engineering
Low bond pad damage Optoelectronic devices
LSI Pyramid Probe cores Speeds to 10 GHz High-speed ASICs Production and
Up to 800 probe tips High-pincount ASICs Engineering
Low bond pad damage
VLSR Pyramid Probe cores Speeds to 3 GHz LCD driver chips Production
Up to 1200 probe tips
Low bond pad damage
Pyramid interface boards Speeds to 20 GHz Used with all cores to interface Production and
Customized test circuitry to various ATE Engineering
ANALYTICAL PROBES
Air Coplanar Probes Speeds to 110 GHz Test transistors Engineering and
and HPC Probes Low signal loss Broadband chip packages Production
High accuracy RF chips
RF filters
Other analytical probes Low current to Process control transistors Engineering and
less than 1 femtoamp Optoelectronic devices Production
High precision High-speed digital modules
Temp. -55 DEG. to
400 DEG.C
PROBE STATIONS
Summit analytical probers 200 mm semi-automated Test transistors Engineering
200 mm manual RF chips
Temp. -55 DEG. to Prototype logic chips
300 DEG.C Prototype memory chips
Low noise Prototype analog chips
Reliability test structures
S300 analytical probers 300 mm semi-automated Test transistors Engineering
Temp. -55 DEG. to Prototype microprocessors
200 DEG.C Prototype memory chips
Low noise Reliability test structures
PS21 autoprober 200 mm automated Prototype memory chips Engineering and
Temp. -55 DEG. to RF chips Production
200 DEG.C Process control monitor circuits
Low noise Process test group circuits
Alessi analytical probers 200 mm semi-automated Various chips on low yield wafers Engineering
200 mm manual Chips in opened packages
Highly versatile Optoelectronic devices
</TABLE>
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TECHNOLOGY
OUR CORE TECHNOLOGIES
Over our 17-year history, we have been a leading innovator in developing
next-generation, proprietary probing technologies. We have focused our research
and development on enabling our customers to take better electrical and
lightwave measurements faster. Our core technologies include:
- BROADBAND/HIGH-FREQUENCY/HIGH SPEED INTERCONNECTS AND PROBING. We created
the first microwave probes, in 1983, that enabled the first on-wafer 18
GHz measurements and accelerated the commercialization of gallium arsenide
chips. Since then, the Defense Advanced Research Projects Agency, or
DARPA, has awarded us various contracts that have helped us to further the
state of the art in wafer probing, including studying the feasibility of
110 GHz Pyramid Probe cards. We use and maintain a wide variety of design,
verification, fabrication, and calibration technologies for high-frequency
probes and interconnections. These technologies include computer modeling,
scale modeling, and rapid prototyping for design; proprietary in-house
measurement and calibration fixtures for verifications; coaxial cable
microfabrication, lithographically-defined probe tips and interconnects on
rigid and flexible substrates, and various microassembly techniques for
fabrication; and versatile software and patented calibration methods for
electrical and lightwave measurement calibrations. We believe that these
technologies provide us with a competitive advantage by allowing us to
more effectively design and commercialize production probe cards and
analytical probes.
- PRECISE LOW-LEVEL MEASUREMENTS. We were first to commercialize a shielded
probe station, in 1993, utilizing our patented MicroChamber technology
that increased thermal measurement productivities by 10 times and current
measurement resolutions by 1,000 times. Many of our probe stations feature
MicroChambers, which ensure a dark, electrically noise-free measurement
environment to enable low-current measurements over a wide thermal range.
Our probe stations also incorporate our proprietary low-noise thermal
chuck technologies that increase measurement integrity and reduce the time
required to take precise measurements, which increases throughput. Our
analytical probes use technologies for low-level measurements across a
wide temperature range.
- MICROFABRICATION. We have developed our own proprietary clean-room
processes for depositing, lithographic patterning, etching and plating
probe structures on flexible substrates that are similar to the processes
used in making semiconductor chips. These processes have allowed us to
develop Pyramid Probe cores with high frequency electrical connections,
and probe tips that are close together to address narrow pitch
requirements. These processes have also enabled us to develop our
proprietary MicroScrub probe tip design, which improves probe contact
while minimizing bond pad damage during touch-downs. The process of making
a Pyramid Probe core begins with collecting chip geometries and test
requirements from our customer, from which we design the circuitry for a
custom probe core. We then produce this circuitry lithographically on a
flexible membrane that enables precise placement of the probe tips
relative to one another, excellent electrical performance and high
manufacturing repeatability. The free-standing membrane is then attached
to a precision mechanical support, forming the Pyramid Probe core, which
is then inserted into the tester interface board. The final Pyramid Probe
card is tested and shipped to the customer. In addition to lithography, we
have also developed and use proprietary tools and assembly fixtures for
micro-assembly tasks in the production of our Pyramid Probe cores and
analytical probes.
WAFER PROBE TESTING IN THE CHIP DESIGN AND MANUFACTURING PROCESS
The following diagram illustrates the stages in a typical chip design and
manufacturing process where wafer probe testing occurs. R&D wafers are probed
during the design phase in engineering test.
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Production wafers are probed at the parametric test stage for process control
parameters as soon as they exit the wafer fabrication facility, or fab. Good
wafers proceed to the chip sort test stage where defective chips on the wafer
are identified. The wafer is then diced into individual chips, and defective
chips are discarded and good chips are packaged. Throughout the process, some of
the failed or defective wafers or chips are returned to engineering test for
yield analysis, failure analysis or other tests.
[LOGO]
ENGINEERING TEST. Engineers use analytical probes and manual,
semi-automated and automated probe stations to test the wafer fabrication
process parameters; to define the operating parameters of, or characterize, the
chip and fabrication process; to analyze low-yield wafers or failed chips; and
to perform wafer-level reliability tests. We address this market segment with
our Summit, Alessi and S300 probe stations, our PS21 autoprober, our analytical
probes and various other accessories.
PARAMETRIC TEST (ALSO CALLED PROCESS CONTROL MONITOR OR E-TEST). After
fabrication, a set of chip circuit elements, such as single transistors, on each
wafer are measured for electrical parameters using ATE and production probe
cards. Process control data for the wafer fab is derived from this testing and
used to refine the manufacturing process to improve yields. We address this
market segment with our low-current analytical probes and production probe
cards. In addition, we have licensed some of our proprietary probe station
technology designed to facilitate high-volume, low-current process monitoring
measurements to Electroglas, Inc., a manufacturer of autoprobers. Electroglas
may integrate our technology with its autoprobers and sell the combined solution
for parametric test.
CHIP SORT TEST (ALSO CALLED WAFER SORT OR WAFER-LEVEL FUNCTIONAL
TEST). After parametric testing, wafers are transferred to the main test floor,
where each chip is functionally tested to eliminate defective chips. The
majority of all autoprobers and probe cards are used in chip sort test. These
autoprobers typically include wafer-handling robots, machine vision for
precision alignments, automated wafer tracking, and other features for
high-volume, automated testing. We address this market segment primarily with
our Pyramid Probe cards and also with our Air Coplanar analytical probes.
CUSTOMERS
Our products are used by semiconductor manufacturers, research organizations
and designers, including fabless semiconductor suppliers that do not manufacture
their own semiconductors but purchase analytical probes and probe stations for
research and development. Approximately 400
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customers purchased our products in the first half of 2000. Our top 20 end-user
customers during this period were:
<TABLE>
<S> <C>
Agilent Technologies Mitsubishi
Conexant Systems Motorola
Dallas Semiconductor NEC
Fujitsu Nortel Networks
Hitachi ST Microelectronics
Hughes Space Systems Taiwan Semiconductor Manufacturing Company (TSMC)
IBM Toshiba
Infineon Triton Network Systems
Lucent Technologies United Microelectronics Corporation (UMC)
Matsushita Worldwide Semiconductor
</TABLE>
No single customer accounted for more than 10% of our net sales in 1997,
1998, 1999 or the six months ended June 30, 2000. Our top ten customers, which
include end-user customers and distributors, accounted for approximately
one-third of our net sales in each of 1997, 1998, 1999 and the six months ended
June 30, 2000. International sales accounted for approximately one-half of our
net sales in each of 1997, 1998, 1999 and the six months ended June 30, 2000.
SALES, MARKETING AND CUSTOMER SUPPORT
SALES
We sell our production probe cards, analytical probes and probe stations
through a combination of manufacturers' representatives, distributors and direct
sales people. In North America and Asia, excluding Japan, we sell our products
through manufacturers' representatives. In Japan, we sell through Cascade
Microtech Japan, K.K., our direct sales and service subsidiary. In Europe we
sell through distributors and manufacturers' representatives managed by Cascade
Microtech Europe, Ltd., our direct sales and service subsidiary in the United
Kingdom. In other countries, we typically sell through manufacturers'
representatives or distributors. Our sales managers oversee and manage these
worldwide sales activities.
We work closely with our customers to select the most appropriate product or
to configure a custom solution to best fit their applications. Sales of our
production test solutions require significant interaction with customer
production test managers, knowledge of their specific product details and
hands-on application support, particularly for new customers. Our production
customers generally undertake an extensive evaluation of new probe technology
before adoption. Sales of our engineering test solutions require significant
interaction with customer engineering labs, knowledge of customer product
development schedules and systems, as well as on-site demonstration capability.
We also may assist our customers in the design of their products to enhance
testability. Our sales managers are experienced sales professionals with
in-depth technical training, customer knowledge and industry expertise. The
technical sophistication of our products requires substantial training for our
manufacturers' representatives, distributors and sales staff. We devote
considerable effort and resources to developing a highly trained sales force
that is responsive to our customers' changing needs.
We participate in joint sales and marketing activities with complementary
equipment and software vendors to offer our customers complete test solutions.
These relationships benefit us because they can lead to broader awareness and
increased sales of our products. In particular, we have a long-standing
relationship with Agilent Technologies, in which the two companies jointly
market and sell test system solutions comprised of compatible products from each
company. Our direct sales force, manufacturers' representatives, and
distributors also work with local Agilent sales personnel to identify, qualify
and close orders worldwide.
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MARKETING
We focus our marketing efforts on building awareness of our products among
designers and manufacturers of complex semiconductors. We market our products
and capabilities by participating in trade shows, providing product and
technical information in print and on our website, hosting technical and product
seminars, advertising in trade publications, and using direct mailings. In
addition, our marketing staff performs market research and product planning.
CUSTOMER SUPPORT
We believe our customers consider timely customer service and support to be
an important aspect of our relationship. Our probe stations are installed at
customer sites either by us, our distributors or our manufacturers'
representatives, depending on the complexity of the installation and the
customer's geographic location. We assist our customers in the selection,
integration and use of our products by providing engineering application
support. We also provide worldwide on-site training, seminars and telephone
support. Our distributors and manufacturers' representatives provide additional
service and support.
RESEARCH AND DEVELOPMENT
Our growth depends upon our ability to rapidly develop new products that
enable customers to improve their electrical and lightwave measurements and
increase their productivity. As a result, we expect to continue to devote
substantial resources to research and development. Our research and development
expenses were $5.9 million in 1997, $6.2 million in 1998, $5.9 million in 1999
and $3.7 million in the six months ended June 30, 2000. We are currently
devoting substantial resources to projects such as refining Pyramid Probe
manufacturing processes, developing faster, higher frequency Pyramid Probe cards
and enhancing probe stations for 300 mm wafers. At August 31, 2000, we employed
44 research and development engineers. We conduct research and development for
all of our product lines at our Beaverton, Oregon facilities.
MANUFACTURING AND ASSEMBLY
Our manufacturing and assembly operations consist of the production of
highly complex and sophisticated components and assemblies, many of which are
customized to meet customers' needs and specifications. We perform nearly all of
our manufacturing and assembly in Beaverton, Oregon at our manufacturing
facility within our headquarters building, at our thin-film fabrication and
Pyramid Probe assembly facility, and at our machine shop. Our thin-film
fabrication facility includes a 10,000 square foot, Class 100 clean room. Our
manufacturing strategy is to purchase components from vendors to the extent
possible. However, we manufacture key components that we deem to be proprietary
or that provide us with a competitive advantage. We depend on sole source
suppliers for a number of materials, components and subassemblies used in our
products.
Our product design and manufacturing process activities emphasize accurate
electrical measurements, precise and reliable mechanical components and
assemblies, and compliance with industry and governmental safety requirements.
We prototype and test our new standard product designs and components to ensure
high electrical signal integrity, mechanical accuracy and safety. In our
manufacturing operations we perform electrical, mechanical and chemical tests
and use statistical process control methods, internally developed manufacturing
information systems and inspections of purchased components and products to
monitor our product quality throughout the various stages of our manufacturing
process.
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COMPETITION
The markets for production probe cards, analytical probes, and probe
stations are highly competitive. We anticipate that the markets for our products
will continually evolve and be subject to rapid technological change.
PRODUCTION PROBE CARDS
Competition in the production probe card market is fragmented and
characterized by many suppliers offering products based on differing
technologies. Our Pyramid Probe cards compete with product offerings of other
probe card vendors including Cerprobe, Form Factor, GGB Industries, JEM
Corporation, Micronics Japan, Probe Technology, and others. At least two probe
card vendors, Form Factor and Cerprobe, are also offering probe cards built
using lithographic patterning. We believe that the primary competitive factors
in the production probe market depend upon the type of chip being tested, but
include probe tip touch-down accuracy, speed and frequency of the probe card,
interconnect versatility, frequency of cleaning required, application support,
customer service, delivery time and price.
ANALYTICAL PROBES
Our primary competitor in the analytical probe market is GGB Industries. We
believe that the primary competitive factors in this market are breadth of probe
types, probe frequency and electrical signal integrity, contact integrity and
the related cleaning required, calibration support, applications support,
delivery time and price.
PROBE STATIONS
Our primary competitor in the probe station market is Suss MicroTec AG (Karl
Suss), but we also compete with Micromanipulator, Wentworth Laboratories and
Signatone, among others. A related market niche is debugging tools for packaged
devices, using electron beams, laser beams or other technologies. These tools
are supplied by Schlumberger and Advantest. We believe that the primary
competitive factors in the engineering wafer probe station market are
measurement accuracy and versatility, throughput of typical tests, automation
features, completeness of the measurement solutions, applications support,
delivery time and price.
For additional information, see "Risk Factors--Intense competition in the
semiconductor wafer probing business may reduce demand for our products and
reduce our sales."
INTELLECTUAL PROPERTY
We have a significant portfolio of intellectual property, including patents
and trade secrets, covering electrical measurement reliability and integrity,
electrical shielding, Pyramid Probe contact structure and production process. In
the United States, we currently have 33 issued patents and 18 pending patent
applications. We also have 6 issued foreign patents and 30 pending foreign
patent applications. In addition, we regard certain of our processes,
information and know-how that we have developed and used to design and
manufacture our products as trade secrets or proprietary.
Our policy is to seek patents where appropriate on inventions involving new
products and improvements to existing products as part of our ongoing
engineering and research and development activities. We cannot assure you that
any of our pending patent applications will be approved, that we will develop
additional proprietary technology that is patentable, that any patents owned by
or issued to us will provide us with competitive advantages or that these
patents will not be challenged by third parties. Furthermore, there can by no
assurance that third parties will not design around our patents.
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The semiconductor test industry is characterized by vigorous protection and
pursuit of intellectual property rights and positions. To protect our
intellectual property from infringement, we have from time to time initiated
litigation against third parties and may be required to do so in the future. We
cannot assure you that we will be successful in future intellectual property
litigation and this litigation often is protracted and expensive. See "--Legal
Proceedings."
In 1999, we entered into a Joint Development Agreement and a License with
Electroglas, which permits Electroglas to incorporate some of our low-noise
probe station technology into certain of its products for sale in the automated
parametric production test market. This agreement provides for the payment of
two initial license fees aggregating $2.0 million, which were paid to us in
1999, and royalties over the term of the license based on sales of products
incorporating the licensed technology. To date, Electroglas has not sold any
products incorporating our technology and, therefore, we have not received any
royalty payments.
In 1997, we licensed certain low-noise probe station technology from Agilent
Japan, which we incorporate into some of our probe stations. Under this license,
we pay a fixed royalty to Agilent for each probe station sold in Japan that
incorporates the licensed technology.
EMPLOYEES
As of June 30, 2000, we had a total of 270 employees: 44 in engineering and
research and development; 55 in sales, marketing and customer support; 139 in
manufacturing; and 32 in executive and administrative functions. Of these
employees, 244 are located in the United States, 20 in Japan and 6 in Great
Britain. Many of our employees are highly skilled and our future performance
depends largely on our ability to continue to attract, train and retain
qualified technical, sales, service, marketing and managerial personnel. None of
our employees is subject to a collective bargaining agreement. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
FACILITIES
We maintain our corporate headquarters in Beaverton, Oregon. This leased
facility, comprised of one building totaling 86,800 square feet, contains
corporate administration, sales and marketing, design, test, light manufacturing
and assembly. Our lease of this facility expires in June 2008. Approximately
23,000 square feet of this building has been subleased until January 2002. Our
Pyramid Probe thin-film manufacturing is conducted in a 58,817 square foot
facility, that we lease in Beaverton, Oregon. Our lease of this facility expires
August 2009. Approximately 20,000 square feet of this facility has been
sub-leased until January 2001. We lease a small machine shop in Beaverton,
Oregon and, through subsidiaries, lease sales and service offices in Tokyo,
Japan and Banbury, England.
We have signed an agreement to lease 14,000 square feet in a newly
constructed facility in Beaverton, Oregon, through January 2007. We intend to
move our machine shop operations into this new facility upon the expiration of
the current machine shop lease in December 2000.
Our future growth may require that we secure additional facilities or expand
our current facilities further. If required, we may pursue acquisitions of
existing facilities or lease suitable additional space on commercially
acceptable terms to accommodate expansion.
LEGAL PROCEEDINGS
From time to time participants in our industry become involved in litigation
over intellectual property rights and other matters.
In April 1997, we filed a patent infringement suit against The
Micromanipulator Company, Inc. of Carson City, Nevada in the U.S. District Court
in Portland, Oregon. Micromanipulator is one of our direct competitors in the
probe station market. In our suit, we allege that Micromanipulator is
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infringing four of our patents relating to the wafer enclosure and chuck
assemblies used in our low-current analytical probe stations. We are seeking
damages and an injunction halting sales by Micromanipulator of probe stations
which infringe our patents. The parties have completed the discovery phase and
are awaiting the setting of a trial date.
In June 1999, Mr. Erich Reitinger, the holder of two German patents relating
to wafer enclosure on a probe station, petitioned the Bavarian District Court in
Munich, Germany, alleging that we had infringed his patents and requesting a
preliminary injunction to prevent us from selling infringing products in
Germany. We denied any alleged infringement. Following a hearing, a three-judge
panel ruled against granting the injunction, and Mr. Reitinger appealed the
ruling. In October 1999, we filed a lawsuit against Mr. Reitinger in the German
Federal Patents Court in Munich requesting a declaration of patent invalidity
with respect to the patents held by Mr. Rietinger. We also filed a request at
the German Patent and Trademark Office for cancellation of a Utility Model, or
"petty patent," owned by Mr. Reitinger, which claims the same subject matter as
the probe station patents. Before Mr. Reitinger's appeal was scheduled to be
heard, the parties reached a settlement under which Mr. Reitinger withdrew his
appeal and dismissed his suit. We agreed to hold non-binding discussions
relating to a possible business relationship with ERS Elektronik, GmbH, a
thermal chuck manufacturer controlled by Mr. Reitinger. As part of the
settlement agreement, Mr. Reitinger retained the right to refile his
infringement suit. Our lawsuit challenging the validity of his patents is
pending.
In February 2000, we filed a patent infringement suit against Karl Suss
America, Inc. of Waterbury Center, Vermont, and Karl Suss Dresden, GmbH, of
Sacka, Germany, in the U.S. District Court in Portland, Oregon. These companies
are our direct competitors in the probe station market. We have alleged that
these two companies are infringing three of our patents relating to the wafer
enclosure and chuck assemblies used in our low-current analytical probe
stations. We are seeking damages and an injunction halting the sale by either or
both of the defendants of probe stations which infringe our patents. In Oregon,
Karl Suss America and Karl Suss Dresden have filed a motion to dismiss Karl Suss
Dresden for lack of jurisdiction and to transfer the action against Karl Suss
America to the U.S. District Court in Burlington, Vermont. In May 2000, both
Karl Suss America and Karl Suss Dresden filed a lawsuit in the U.S. District
Court in Burlington, Vermont, requesting a judgment declaring our patents
invalid and a finding that they have not infringed our patents. Proceedings in
the Vermont case have been suspended pending resolution of the motions in the
Oregon action.
ENVIRONMENTAL MATTERS
In the conduct of our manufacturing operations, we have handled and continue
to handle materials that are considered hazardous, toxic or volatile under
federal, state and local laws; therefore, we are subject to regulations related
to the use, storage, discharge and disposal of materials. We believe we are in
substantial compliance with the environmental laws and regulations applicable to
the conduct of our business and operations. The risk of accidental release of
hazardous, toxic or volatile materials cannot be completely eliminated, and if
such a release occurs, we could be held financially responsible for the clean up
or other consequences of the release. We are subject to variable interpretations
and governmental priorities concerning environmental laws and regulations. We
may be required to incur costs to comply with current or future environmental
laws or regulations, and our operations, business or financial condition could
be adversely affected by such requirements.
We do not own any real property, however, we do lease real property. We have
not conducted Phase I environmental assessments of our leased properties.
Various environmental laws may make a current or previous operator of real
property, including a lessee, liable for the costs of removal or remediation of
hazardous or toxic substances on, under, adjacent to, or in such property. These
laws may impose liability whether or not the operator knew of, or was
responsible for, the presence or consequence of the hazardous or toxic
substances. Moreover, an operator may have liability or
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responsibility for personal or property damages under statutory or common laws
relating to hazardous environmental conditions.
Since 1989 when we began processing our thin-film membranes, we have
exceeded allowable daily maximums or monthly averages under discharge permits by
insubstantial amounts on six occasions with respect to emissions of materials
considered hazardous, toxic or volatile under federal, state and local laws.
None of these discharges resulted in remediation costs, and the only monetary
penalty was a fine of $150. Since we moved our thin-film operations to a new
site in late 1999, we have experienced no instances of emissions exceeding
allowable limits.
BACKLOG
At June 30, 2000, our backlog of unfilled orders for all products was
$14.3 million, compared with $10.0 million at June 30, 1999. We generally ship
our products within three months of receipt of a customer's purchase order.
Accordingly, we expect to deliver nearly all of our June 30, 2000 backlog in
2000. While backlog is calculated on the basis of firm orders deliverable within
12 months, all orders are subject to cancellation or delay by the customer with
limited or no penalty. We believe, therefore, that our backlog at any particular
date is not necessarily indicative of actual sales for any succeeding period.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our directors
and executive officers, as of September 30, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- -------- -----------
<S> <C> <C>
Eric W. Strid(1).................... 48 Chairman of the Board and Chief Executive Officer
Bruce A. McFadden................... 54 President and Chief Operating Officer
Craig M. Swanson.................... 58 Chief Financial Officer, Vice President of Finance,
Treasurer and Corporate Secretary
K. Reed Gleason..................... 55 Vice President of Advanced Development and Director
Emmons J. Miles..................... 64 Vice President of Operations
John E. Pence....................... 37 Vice President of Engineering Products
Mark L. Olen........................ 41 Vice President of Pyramid Probes
Ken R. Smith........................ 43 Vice President of Corporate Technology and Thin Film Fab
Operations
F. Paul Carlson(1)(2)............... 62 Director
George P. O'Leary(1)(2)............. 57 Director
William R. Spivey................... 53 Director
Curtis S. Wozniak(2)................ 45 Director
Scott R. Wright..................... 56 Director
</TABLE>
------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
ERIC W. STRID co-founded Cascade Microtech and has served as our Chairman
and Chief Executive Officer since our inception in 1983. He also served as our
President from 1984 to January 1997. Prior to 1984, Mr. Strid served as a
Principal Engineer with Tektronix, Inc. and with TriQuint Semiconductor, where
he designed and evaluated high-frequency gallium arsenide integrated circuits.
Mr. Strid holds a B.S. in Electrical Engineering from the Massachusetts
Institute of Technology and an M.S. in Electrical Engineering from the
University of California at Berkeley.
BRUCE A. MCFADDEN has served as our President and Chief Operating Officer
since December 1996. From March 1992 to December 1996, Bruce was a management
consultant for several high technology companies, including Cascade Microtech
and AT&T Microelectronics. From April 1994 until November 1996, Bruce served as
Chief Financial Officer and Corporate Secretary of Barrett Enclosures, Inc., a
manufacturer of custom marine and architectural enclosures. From September 1986
to January 1992, Bruce served as Vice President of Graco, Inc., a fluid handling
equipment company with responsibility for its industrial equipment division.
From June 1980 to September 1986, Mr. McFadden was the Managing Director of
European Silicones Operation for General Electric. Prior to joining General
Electric, he worked as a consultant with Booz Allen & Co. and was an engineer
with Exxon Corporation. Mr. McFadden holds a B.S. in Chemical Engineering from
Virginia Polytechnic Institute and State University and an M.S. in Management
from the Sloan School at Massachusetts Institute of Technology.
K. REED GLEASON co-founded Cascade Microtech and has served as a director
and as our Vice President of Advanced Development since our inception in 1983.
Prior to 1983, Mr. Gleason was a Senior Physicist at Tektronix and at TriQuint
Semiconductor, conducting research into high-frequency gallium arsenide devices
and integrated circuits. He began his career as an engineer with the U.S.
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Naval Research Laboratory in Washington, D.C. Mr. Gleason holds a B.S. in
Electrical Engineering from the California Institute of Technology.
CRAIG M. SWANSON has served as our Vice President of Finance, Chief
Financial Officer, Corporate Secretary and Treasurer since October 1999. From
October 1988 to October 1999, he served as the Vice President, Finance, and
Chief Financial Officer for Protocol Systems, Inc., a designer and manufacturer
of vital signs monitoring systems. During 1987, Mr. Swanson served as the
President and Chief Operating Officer of Receptor, Inc., a development stage
biotechnology company. Previously, Mr. Swanson spent ten years in public
accounting with Price Waterhouse and Arthur Young & Company. Mr Swanson holds a
B.A. in Political Science and a Master of Public Administration from the
University of Washington.
JOHN E. PENCE has served as our Vice President of Engineering Products since
May 2000. From April 1997 to February 2000, he served as our Vice President of
Probing Systems. From 1993 to April 1997, Mr. Pence served us as a Product
Marketing Manager. Prior to joining Cascade Microtech, Mr. Pence worked as an
engineer in the Space and Communications Division of Hughes Aircraft Company.
Mr. Pence holds a B.S. and an M.S. in Electrical Engineering from Cornell
University.
EMMONS J. MILES has served as our Vice President of Operations since 1992.
He joined Cascade Microtech in 1991 as Vice President of Engineering and held
that position until he was appointed our Vice President of Operations a year
later. Prior to joining Cascade Microtech, Mr. Miles co-founded and served for
three years as the Vice President of Operations for Support Technology, Inc., a
designer and manufacturer of printed circuit boards. He previously spent five
years with Floating Point Systems, Inc. as its Vice President of Engineering,
and was a co-founder and served as an officer of Computer Automation, Inc. from
1967 to 1976. Mr. Miles holds a B.S. in Electrical Engineering from Fresno State
University.
MARK L. OLEN has served as our Vice President of Pyramid Probes since
February 2000. From April 1998 to February 2000, he served as the Vice President
of Sales and Marketing for Fluence Technology, Inc., a subsidiary of
Credence, Inc., specializing in semiconductor test software. From July 1993 to
March 1998, Mr. Olen served as the General Manager of the Design For Test unit
of Mentor Graphics Corporation. Previously, Mr. Olen held various sales and
marketing positions at Teradyne, Inc., a semiconductor test company, and
Megatest Corporation, a semiconductor handler company. Mr. Olen holds a B.S. in
Electrical Engineering from the Massachusetts Institute of Technology.
KENNETH R. SMITH has served as our Vice President of Corporate Technology
and Thin Film Fab Operations since February 2000. He joined us in 1990 as a
Product Marketing Manager and was promoted to our Vice President of Membrane
Probes in 1997 and served in that capacity until February 2000. Prior to joining
Cascade Microtech, Mr. Smith served as the Director of Manufacturing for Cogent
Research, Inc., a development-stage computer manufacturer, and also held various
management and engineering positions in the Hybrid Circuits Division of
Tektronix, Inc. Mr. Smith holds a B.S. in General Engineering from Oregon State
University.
F. PAUL CARLSON has served as a director since 1992. In 1991, he founded and
has since served as President and Chief Executive Officer of The Carlson Group
of Companies, specializing in business re-engineering and re-structuring, and
the financing and development of early stage companies. From 1988 to 1991,
Mr. Carlson served as the Vice President of Strategy and Business Development
for Honeywell, Inc. He also served as the President and Chief Executive Officer
of the Oregon Graduate Institute from 1980 to 1985. Previously, he served as a
Professor of Electrical Engineering at the University of Washington for
10 years, where he also received a Ph.D. in Electrical Engineering. Mr. Carlson
also serves as a director of the Frank Russell Trust Company.
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GEORGE P. O'LEARY has served as a director since 1988. From 1972 to 1987,
Mr. O'Leary was employed by Floating Point Systems, Inc., where he served as
Chief Operating Officer and a director from 1986 until his retirement in 1987.
He previously held positions as the Vice President of Engineering and Vice
President of European Operations of Floating Point Systems. Mr. O'Leary was a
Professor of Physics at the Oregon Graduate Institute from 1969 to 1972. He
received his Ph.D. in Physics from Yale University.
WILLIAM R. SPIVEY has served as a director since July 1998. Since
July 2000, Mr. Spivey has served as the President and Chief Executive Officer of
Luminent, Inc., a provider of fiber-optic components to the communications
industry. From October 1997 to July 2000, Mr. Spivey served as Group President
of the Network Products group of Lucent Technologies. From February 1994 to
September 1997, he served as Vice President of the Systems and Components Group,
Member of the Office of the President and Co-chair of the Executive Committee of
AT&T Microelectronics. Mr. Spivey holds a B.S. in Physics from Duquesne
University, an M.S. in Physics from Indiana University in Indiana, Pennsylvania
and a Ph.D. in Administration/Management from Walden University. Bill also
serves as a director of Lyondell Chemical Co., Novellus Systems, Inc. and
Raytheon Company.
CURTIS S. WOZNIAK has served as a director since July 1999. Since
April 1996, he has served as Chairman and Chief Executive Officer of
Electroglas, Inc., a manufacturer of production probing systems for the
semiconductor industry. From August 1994 to April 1996, he served as President
and Chief Executive Officer of Xilinx, Inc., a semiconductor manufacturer. From
1984 to 1994, he held various management positions including Vice President of
Marketing and Vice President of Engineering at Sun Microsystems, Inc.
Mr. Wozniak is a graduate of the General Motors Institute and currently serves
as a director of the Semiconductor Industry Suppliers Association (formerly
SEMI/ SEMATECH).
SCOTT R. WRIGHT has served as a director since May 1996. Since November
1999, he has served as Vice President and General Manager of the Component Test
Unit of Agilent Technologies, Inc. (formerly Hewlett Packard Co.) in Santa Rosa,
California and Kobe, Japan. From 1967 until November 1999, Mr. Wright held a
variety of engineering, marketing, and management positions with Hewlett Packard
Co. Mr. Wright holds a B.S. in Electrical Engineering from the University of
Oklahoma and an M.S. in Business Administration from Santa Clara University.
BOARD OF DIRECTORS
Our articles of incorporation provide for a variable three to nine person
board of directors. Our bylaws provide that the exact number of directors shall
be fixed by resolution of our board. Our board currently consists of seven
members. Prior to the closing of this offering, the terms of office of the board
of directors will be divided into three classes. As a result, a portion of our
board of directors will be elected each year. The division of the three classes,
the initial directors and their respective election dates will be as follows:
- the class I directors will be Messrs. Strid and Carlson, and their term
will expire at the annual meeting of shareholders to be held in 2001;
- the class II directors will be Messrs. Gleason, O'Leary and Wright, and
their term will expire at the annual meeting of shareholders to be held in
2002; and
- the class III directors will be Messrs. Spivey and Wozniak, and their term
will expire at the annual meeting of shareholders to be held in 2003.
At each annual meeting of our shareholders, the successors to directors
whose terms will then expire, will be elected to serve from the time of election
and qualification until the third annual meeting following their election. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible, each
class will
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consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in our control
or management.
BOARD COMMITTEES
Our board of directors has a compensation committee and an audit committee.
Our compensation committee consists of Messrs. Strid, Carlson and O'Leary. The
compensation committee reviews and makes recommendations to our board of
directors regarding our compensation policies and all forms of compensation to
be provided to our executive officers and directors, including annual salaries,
bonuses, stock options and other incentive compensation agreements. The
compensation committee also administers and makes recommendations to our board
of directors regarding our 1993 Stock Incentive Plan, our 2000 Stock Incentive
Plan and our 2000 Employee Stock Purchase Plan.
Our audit committee consists of Messrs. Carlson, O'Leary and Wozniak. The
audit committee reviews the scope and results of our audit by our independent
auditors, recommends the appointment of our independent auditors, reviews and
approves the audit fees for the independent auditors and reviews the adequacy of
our systems of internal control and accounting policies and procedures and our
compliance with legal matters that have a significant impact on our financial
reports. The audit committee also consults with our management and our
independent auditors prior to the presentation of financial statements to
shareholders and, as appropriate, initiates and supervises inquiries into
aspects of our financial affairs.
DIRECTOR COMPENSATION
At the time of their first election to the board of directors, each of our
directors received an option to purchase between 5,000 and 15,000 shares of our
common stock immediately exercisable at a price equal to the fair market value
of our common stock on the option grant date. Our directors are currently not
entitled to receive any cash compensation for serving on our board. Directors
are reimbursed for their out-of-pocket expenses incurred in connection with such
services.
Immediately following this offering, our non-employee directors will each
receive an option to purchase 2,000 shares of our common stock exercisable
immediately at the per share price of this offering. In addition, upon election
to the board of directors, beginning with the election of the class I directors
in 2001, each non-employee director will receive an option to purchase 6,000
shares of our common stock, with one-third of the shares vesting on each
anniversary of the option grant date. On the date of the 2001 annual
shareholders' meeting, each non-employee director in classes II and III will
receive an option to purchase 2,000 shares of common stock for each year of his
remaining term, with 2,000 shares vesting on each anniversary of the option
grant date. The non-employee director options will be exercisable at 100% of the
fair market value of our common stock on the option grant date and will expire,
if unexercised, ten years from that date. In addition to the option grants,
non-employee directors will receive $1,000 for each board meeting they attend in
person. They will also receive $500 for each board meeting they attend by
telephone, and each subcommittee meeting they participate in, whether in person
or by telephone.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year end December 31, 1999, the members of the
compensation committee of our board of directors were Messrs. Strid, Carlson and
O'Leary. Messrs. Carlson and O'Leary have at no time been officers or employees
of Cascade Microtech. Mr. Carlson is sole manager of Maristeth Ventures, LLC,
the managing member of Maristeth Fund III, LLC. In March 1999, we issued and
sold 416,667 shares of our Series B preferred stock to Maristeth Fund in a
private placement transaction at a purchase price of $6.00 per share. As a
result of this transaction, Mr. Carlson is the beneficial owner of more than
5.0% of our then outstanding capital stock. Mr. Strid co-founded Cascade
Microtech and
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has served as our Chairman and Chief Executive Officer since our inception in
1983. Mr. Strid holds approximately 21.0% of our capital stock.
EXECUTIVE OFFICERS
Our executive officers are elected by, and serve at the discretion of, our
board of directors. There are no family relationships among our directors or
officers.
EXECUTIVE COMPENSATION
The following table sets forth information for 1999 regarding the
compensation awarded to or earned by our Chief Executive Officer and each of our
other four most highly compensated executive officers whose salary and bonus for
1999 exceeded $100,000 on an annual basis. We sometimes refer to these officers
as the "named executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS COMPENSATION
---------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Eric W. Strid ................................. $192,932 $152,286 -- $ 957(2)
Chairman and Chief Executive Officer
Bruce A. McFadden ............................. 173,638 101,500 5,000 1,005(3)
President and Chief Operating Officer
Craig M. Swanson .............................. 39,423(1) 32,000 120,000 70(4)
Chief Financial Officer
John E. Pence ................................. 133,437 67,458 8,000 2,204(5)
Vice President, Engineering Products
Emmons J. Miles ............................... 126,935 47,972 -- 3,080(6)
Vice President, Operations
</TABLE>
-----------------
(1) Mr. Swanson joined Cascade Microtech as our Chief Financial Officer in
October 1999. His 1999 salary on an annualized basis was $175,000.
(2) Consists of $522 of insurance premiums and $435 of 401(k) matching
contributions.
(3) Consists of $749 of insurance premiums and $256 of 401(k) matching
contributions.
(4) Consists of insurance premiums.
(5) Consists of $2,090 of 401(k) matching contributions and $114 of insurance
premiums.
(6) Consists of $1,939 of 401(k) matching contributions and $1,141 of insurance
premiums.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides summary information regarding stock options we
granted during 1999 to each of the named executive officers. Stock options are
generally granted at an exercise price equal to the fair market value of our
common stock as determined by our board of directors as of the date of the
option grant. In establishing these prices, our board considered many factors,
including recent arms' length transactions, our financial condition and
operating results, its assessment of our competitive position and future
prospects, the value of comparable companies and the lack of a public market for
our common stock. The term of each option grant is generally 10 years from the
option grant date.
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Options may terminate before their expiration dates, if the optionee's status as
an employee is terminated or upon the optionee's death or disability.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -----------------------
NAME GRANTED IN 1999 SHARE DATE 5% ($) 10% ($)
---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eric W. Strid........................... -- --% $ -- -- $ -- $ --
Bruce A. McFadden....................... 5,000 2.0 3.80 11/12/09 11,949 30,281
Craig M. Swanson........................ 120,000(2) 48.1 3.80 10/11/09 286,776 726,747
John E. Pence........................... 8,000 3.2 3.80 11/12/09 19,118 48,450
Emmons J. Miles......................... -- -- -- -- -- --
</TABLE>
------------------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of appreciation of 5% and 10% compounded annually
from the date the respective options were granted based upon the fair market
value on the date of grant. These assumptions do not represent our estimate
of future appreciation of our share price. Actual gains, if any, on option
exercises will depend on the future performance of our common stock.
(2) Options granted to Mr. Swanson in 1999 are exercisable over five years, with
one-tenth of the option shares exercisable every six months from the grant
date and accelerated vesting of 24,000 shares upon completion of this
offering or termination of Mr. Swanson's employment in connection with a
sale of all or substantially all of our assets or our merger into another
company that our shareholders do not control.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END-OPTION VALUES
The following table sets forth for each of the named executive officers'
information concerning the number and value of shares subject to both
exercisable and unexercisable options held at December 31, 1999. None of the
named executive officers exercised any stock options in 1999. Actual gains on
exercise, if any, will depend on the value of our common stock on the date on
which the options are exercised.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Eric W. Strid.................................. 6,291 -- $ $ --
Bruce A. McFadden.............................. 95,000 75,000
Craig M. Swanson............................... -- 120,000 --
John E. Pence.................................. 48,000 45,000
Emmons J. Miles................................ 10,600 6,400
</TABLE>
------------------------
(1) There was no public trading market for our common stock as of December 31,
1999. The value of unexercised in-the-money options represents the
difference between the fair market value of the shares underlying the
options using $ per share, the midpoint of the filing range for the
price of our stock in this offering, less the applicable exercise price of
the option, multiplied by the number of shares underlying the option.
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EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Craig M. Swanson on
October 11, 1999, the date he became our Vice President of Finance and Chief
Financial Officer. We also paid him a starting bonus of $32,000. In
consideration for Mr. Swanson's services, we agreed to pay him an annual salary
of $175,000, periodic cash bonuses consistent with our standard executive bonus
plan, and our standard employee benefits. In addition, we granted him 120,000
options under our 1993 Stock Incentive Plan. If we terminate Mr. Swanson without
cause, as defined in the agreement, then he is entitled to severance pay equal
to one year's salary, reimbursement for premiums to maintain his group health
coverage for 12 months and reimbursement of up to $23,000 in outplacement
services. Upon completion of this offering, or if Mr. Swanson is terminated for
any reason other than death, disability or cause, within 12 months after we sell
all or substantially all of our assets or are merged into another company that
our shareholders do not control, then the lesser of 24,000 or the entire
remaining portion of his unexercisable option shares shall become immediately
exercisable. As a condition of his employment, Mr. Swanson entered into our
standard employee invention and confidentiality agreement pursuant to which he
may not divulge any of our proprietary information other than as permitted as
part of his employment with us.
EMPLOYEE BENEFIT PLANS
2000 STOCK INCENTIVE PLAN
Our 2000 Stock Incentive Plan, which was approved by our shareholders on
October , 2000, provides for grants of both incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, the
Code, and nonqualified stock options, which are not qualified for treatment
under Section 422 of the Code. The 2000 Stock Incentive Plan also provides for
direct stock grants and sales to our employees and consultants. The purposes of
the 2000 Stock Incentive Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentives to our employees and consultants and to promote the success of our
business. The 2000 Stock Incentive Plan is administered by the board of
directors or a committee of the board. The 2000 Stock Incentive Plan provides
for the issuance of 1.2 million shares.
The term of each incentive option granted under the 2000 Stock Incentive
Plan will generally be ten years from the date of grant, or such shorter period
as may be established at the time of the grant. An option granted under the 2000
Stock Incentive Plan may be exercised at such times and under such conditions as
determined by the board of directors. If a person who has been granted an
incentive stock option ceases to be employed by or on a consulting basis with
us, such person may exercise that option only during the exercise period
established by the board of directors at the time we grant the options, which
shall not exceed 90 days after the date of termination, and only to the extent
that the option was exercisable on the date of termination. Nonqualified stock
options may be exercised during a period determined by the board of directors.
If a person who has been granted an option ceases to be an employee or
consultant as a result of such person's total and permanent disability, such
person may exercise that option at any time within twelve months after the date
of termination, but only to the extent that the option was exercisable on the
date of termination. No option granted under the 2000 Stock Incentive Plan is
transferable other than at death, and each option is exercisable during the life
of the optionee only by the optionee. In the event of the death of a person who
has received an option, the option generally may be exercised by a person who
acquired the option by bequest or inheritance during the twelve month period
after the date of death to the extent that such option was exercisable at the
date of death. Outstanding options may terminate before their expiration date
and be returned to the plan for subsequent grant, if the optionee's status as an
employee is terminated or upon the optionee's death or disability.
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The exercise price of incentive stock options granted under the 2000 Stock
Incentive Plan is established by the board of directors but may not be less than
the fair market value of a share of common stock on the last market trading day
prior to the date of grant of the option and incentive stock options granted to
greater than 10% shareholders may not be granted for less than 110% of fair
market value. The exercise price of nonqualified stock options is established by
the board of directors. The consideration to be paid upon exercise of an option,
including the method of payment, will be determined by the board of directors
and may consist entirely of cash, check, shares of common stock or any
combination of such methods of payment as permitted by the board of directors.
The 2000 Stock Incentive Plan will continue in effect until October , 2010
unless earlier terminated by the board of directors, but such termination will
not affect the terms of any options outstanding at that time. Amendments that
would materially increase the number of shares that may be issued, materially
modify the requirements as to eligibility for plan participation, or materially
increase the benefits to plan participants must be approved by our shareholders.
As of the date of this prospectus, no options have been granted or shares issued
under the plan.
1993 STOCK INCENTIVE PLAN
Our 1993 Stock Incentive Plan, which was approved by our shareholders on
April 29, 1993, was substantially similar to our 2000 Stock Incentive Plan. In
connection with establishing our 2000 Stock Incentive Plan, we terminated the
1993 Stock Incentive Plan effective October , 2000, but such termination has
not affected the terms of any outstanding options granted under the 1993 Stock
Incentive Plan at that time. No further options are available for grant under
the 1993 Stock Incentive Plan and any options which terminate before their
expiration as a result of termination of the optionee's status as an employee or
upon the optionee's death or disability, shall not be returned to the plan for
subsequent grant.
At October , 2000, there were options to purchase shares of common
stock outstanding under our 1993 Stock Incentive Plan and no shares remained
available under the plan.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 Employee Stock Purchase Plan, was adopted by our shareholders on
October , 2000 to become effective on the date of this offering. We have
reserved 400,000 shares of our common stock for issuance under the Employee
Stock Purchase Plan. Beginning in 2002 and continuing each year thereafter, we
will increase the number of shares reserved for issuance under the Employee
Stock Purchase Plan 1.5% of the outstanding shares of our common stock on the
first day of our fiscal year or a lesser amount determined by our board of
directors.
The compensation committee of our board of directors will administer the
Employee Stock Purchase Plan and will have full and exclusive authority to
interpret the terms of the plan and determine eligibility.
The Employee Stock Purchase Plan contains 24-month offering periods, with
each offering period divided into four six-month purchase periods. The offering
periods generally start on the first trading day on or after February 1 and
August 1 of each year, except for the first offering period, which commences on
the date of this offering and ends on the last trading day on or before
January 31, 2002.
Employees who are employed by us or any participating subsidiary for more
than five months in any calendar year and work at least 20 hours per week are
eligible to participate in our Employee Stock Purchase Plan. However, employees
who own shares representing 5% or more of the total combined voting power or
value of all classes of our capital shares may not participate in the plan. In
addition, no employee may be granted an option to purchase shares under the plan
to the extent that that person's right to purchase shares under all of our
Employee Stock Purchase Plans accrues at a rate
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<PAGE>
that exceeds $25,000 worth of shares for each calendar year. Furthermore, no
employee is permitted to purchase more than 2,500 shares during a six-month
purchase period. The Employee Stock Purchase Plan permits participants to
purchase shares of common stock through payroll deductions in 1% increments not
less than 2% or greater than 15% of the participant's compensation, which
includes the participant's base straight time gross earnings and commissions,
but excludes payments for overtime, profit sharing payments, shift premium
payments, incentive compensation, incentive payments and bonuses.
Amounts deducted and accumulated under the Employee Stock Purchase Plan are
used to purchase shares of common stock at the end of each six-month purchase
period. The price of shares purchased under the plan is 85% of the lower of the
fair market value of the shares of common stock at the beginning of the offering
period or after a purchase period ends. If the offering period commences on the
date of this offering, the price of the shares purchased shall be the lower of
85% of the price to the public of the shares offered in this offering or 85% of
the fair market value of the shares of common stock after the purchase period
ends. In the event the fair market value at the end of a purchase period is less
than the fair market value at the beginning of the offering period, participants
will be withdrawn from the current offering period following their purchase of
shares on the purchase date and will be automatically re-enrolled in a new
offering period. In addition, in the event the fair market value at the end of a
purchase period is less than the fair market value at the beginning of the
offering period, a participant is limited to purchasing no more than 200% of the
number of shares that the participant would have purchased at 85% of the fair
market value at the beginning of the offering period. Participants may end their
participation at any time during an offering period and will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with us. Rights granted under the Employee Stock Purchase Plan are
not transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the plan.
The Employee Stock Purchase Plan provides that, in the event that we merge
with or into another corporation or sell substantially all of our assets, each
outstanding right to purchase shares under the plan during the offering period
then in progress may be assumed or substituted for by the successor corporation.
If the successor corporation refuses such assumption or substitution, the
offering period then in progress will be shortened and a new purchase date will
be set at or prior to the closing of that transaction after which time the
Employee Stock Purchase Plan will terminate.
The Employee Stock Purchase Plan will terminate in October 2010. The board
has the authority to amend or terminate the plan, except that no such action may
adversely affect any outstanding rights to purchase shares under the plan.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
As an Oregon corporation, we are subject to the Oregon Business Corporation
Act, or OBCA, and the exculpation from liability and indemnification provisions
contained therein. Pursuant to Section 60.047(2)(d) of the OBCA, Article 5 of
our second amended and restated articles of incorporation eliminates the
liability of our directors to us or our shareholders, except for any liability
related to breach of the duty of loyalty, actions not in good faith and certain
other liabilities.
Section 60.387 et seq. of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnify against the reasonable
expenses associated with such claims. Corporations may not indemnify against
breaches of the duty of
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loyalty. The OBCA provides for mandatory indemnification of directors against
all reasonable expenses incurred in the successful defense of any claim made or
threatened whether or not such claim was by or in the right of the corporation.
Finally, a court may order indemnification if it determines that the director or
officer is fairly and reasonably entitled to indemnification in view of all the
relevant circumstances whether or not the director or officer met the good faith
and reasonable belief standards of conduct set out in the statute. Article 6 of
our Second Amended and Restated Articles requires us to indemnify our directors
and officers to the fullest extent not prohibited by law.
The OBCA also provides that the statutory indemnification provisions are not
deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
shareholders or otherwise.
We also have entered into indemnity agreements with each of our executive
officers and each member of our board of directors. These indemnity agreements
provide for indemnification of the indemnitee to the fullest extent allowed by
law.
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<PAGE>
CERTAIN TRANSACTIONS
SERIES B PREFERRED STOCK FINANCING
On March 30, 1999, we sold 416,667 shares of our Series B preferred stock to
Maristeth Fund III, LLC and 87,500 shares to Agilent Technologies, formerly
Hewlett-Packard Co., at $6.00 per share for an aggregate purchase price of
$3,025,000. As of August 31, 2000, Maristeth Fund III was the holder of
approximately 4.9% of our stock. F. Paul Carlson, one of our directors since
1992, is the sole manager of Maristeth Ventures LLC, the managing member of
Maristeth Fund III. As of August 31, 2000, Agilent was the holder of 16.65% of
our stock. Furthermore, Scott R. Wright, one of our directors since 1996, was
Vice President and General Manager of the Component Test Unit of Agilent
Technologies. The Series B preferred stock will automatically convert on a
one-for-one basis into shares of our common stock upon consummation of this
offering.
In accordance with the terms of a letter of intent with Electroglas, Inc.
dated April 30, 1999, we completed a second closing of our Series B preferred
stock and sold 505,000 shares to Electroglas on July 21, 1999 at $6.00 per share
for an aggregate purchase price of $3,030,000. Concurrently with the closing of
this financing. Curtis S. Wozniak, the Chairman and Chief Executive Officer of
Electroglas, became a member of our board of directors. As of August 31, 2000,
Electroglas was the holder of approximately 5.9% of our stock. The Series B
preferred stock will automatically convert on a one-for-one basis into shares of
our common stock upon consummation of this offering.
ELECTROGLAS, INC. JOINT VENTURE
We entered into a Joint Development Agreement with Electroglas, Inc. on
June 18, 1999, and subsequently entered into a License with Electroglas on
July 21, 1999, which together permit Electroglas to incorporate some of our
low-noise probe station technology into certain of its products for sale in the
automated parametric production test market. The License provided for the
payment of two initial license fees aggregating $2.0 million, which Electroglas
paid to us in the third and fourth quarters of 1999. The License also provides
for the payment of royalties over the life of the license based on sales of
products incorporating the licensed technology. To date, Electroglas has not
sold any products incorporating our technology and, therefore, we have not
received any royalty payments. We believe that these arrangements with
Electroglas will leverage our technologies into the production test market. As
of August 31, 2000, Electroglas was the holder of approximately 5.9% of our
stock.
SERIES C PREFERRED STOCK FINANCING
On December 16, 1999, we sold 1,250,000 shares of our Series C preferred
stock at $8.00 per share and a Warrant to purchase 250,000 additional shares of
our Series C preferred stock to Teachers Insurance Annuity Association of
America, or TIAA, for an aggregate purchase price of $10,000,000. As of
August 31, 2000, TIAA was the holder of approximately 17.5% of our stock. The
exercise price of the Warrant is between $6.00 and $18.00 per share depending on
the total sales received from the sale of our Pyramid Probe cards in fiscal
2000. The Series C preferred stock will automatically convert on a one-for-one
basis into shares of our common stock upon consummation of this offering.
INVESTORS' RIGHTS AGREEMENT
We have entered into an Investors' Rights Agreement with our founders, Eric
Strid, Reed Gleason and Dale Carlton, as well as the holders of our Series A,
Series B and Series C preferred stock. This agreement provides these
shareholders with certain rights relating to the registration of their shares,
including shares of common stock issuable upon conversion of the preferred
stock. See "Description of Capital Stock--Registration Rights." The preferred
stock will automatically convert into common stock on a one-for-one basis
immediately upon consummation of this offering. The Investors' Rights
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<PAGE>
Agreement also entitles the holders of our preferred stock the following rights,
all of which terminate upon consummation of this offering:
- the right to receive financial information regarding us;
- the right of first refusal to purchase their pro rata portion of any
shares we subsequently issue;
- the right to participate in any sale of shares held by our founders,
except Dale Carlton, by selling a portion of their shares to the proposed
purchaser;
- solely with respect to Agilent Technologies, the right to remain equal to
our largest non-employee shareholder and the right to make a competing
offer to purchase us should we propose to merge with another company or
sell all or substantially all of our assets, which offer must be accepted
if it is of equal or greater value than the proposed offer.
- solely with respect to Teacher's Insurance and Annuity Association, the
right after December 16, 2004, to require us to redeem its shares of
Series C preferred stock at a price of $8.00 per share plus any declared
but unpaid dividends provided we have legally available funds with which
to make the redemption.
Scott R. Wright, one of our directors, is affiliated with Agilent
Technologies, the sole holder of our Series A preferred stock and a holder of
our Series B preferred stock. F. Paul Carlson, one of our directors, is
affiliated with Maristeth Fund III, LLC, a holder of our Series B preferred
stock. Curtis S. Wozniak, one of our directors is affiliated with Electroglas, a
holder of our Series B preferred stock.
VOTING AGREEMENT
On November 12, 1999, in connection with the Series B preferred stock
financing, Cascade Microtech, Maristeth Fund III, LLC, Eric W. Strid, our Chief
Executive Officer, and his wife Cynthia Strid, and K. Reed Gleason, our Vice
President of Advanced Development, entered into a Voting Agreement whereby each
party agreed to vote their shares in the election of directors to cause one
designee of Maristeth, one designee of Mr. and Mrs. Strid, and one designee of
Mr. Gleason, to be elected to the board of directors. The Voting Agreement will
terminate by its terms upon consummation of this offering.
SALE OF PRODUCTS TO LUCENT TECHNOLOGIES
In 1999, we sold products totaling $2,642,606 in net sales to Lucent
Technologies. This amount represented approximately 5.1% of our consolidated net
sales for that year. William J. Spivey, one of our directors, was President of
the Network Products Group at Lucent Technologies in 1999.
PURCHASE OF STOCK FROM K. REED GLEASON
On May 24, 2000, we purchased 142,857 shares of our common stock at $7.00
per share aggregating $999,999 from Mr. Gleason, one of our directors and our
Vice President of Advanced Development.
STOCK PUT AGREEMENT WITH DALE E. CARLTON AND CYNTHIA A. CROW-CARLTON
We are party to a Stock Put Agreement dated October 2, 1992, with Dale E.
Carlton, one of our co-founders, and his wife Cynthia A. Crow-Carlton who
together own approximately 6.02% of our common stock. The Stock Put Agreement
gives the Carltons an annual right to require us to purchase up to $150,000 of
our common stock from them based on the value established by our board of
directors in good faith. Pursuant to the exercise of their put right under the
agreement, on July 1, 2000, we purchased 21,429 shares from the Carltons at a
price of $7.00 per share, aggregating $150,003. No shares were purchased in 1998
or 1999 under the agreement as the Carlton's elected not to exercise
61
<PAGE>
their put right. The Stock Put Agreement will terminate by its terms upon
consummation of this offering.
TRANSACTION WITH EMMONS J. MILES
On July 22, 1998, we loaned $144,000 to Emmons J. Miles, our Vice President
of Operations, to exercise options to purchase 171,000 shares of our common
stock. The loan is evidenced by a full recourse promissory note of Mr. Miles
payable to us. The note bears interest at 5.51% per annum from the date of the
note and calls for quarterly payments of interest only commencing on July 22,
2000. The full principal amount of the note and any unpaid interest is due on
July 22, 2002. The note is secured by 18,822 shares of our common stock issued
in the name of Mr. Miles. The maximum amount of principal and accrued interest
owed by Mr. Miles under the note was $159,000, and $147,000 of principal and
accrued interest was outstanding at August 31, 2000.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table lists the beneficial ownership of our common stock as of
August 31, 2000 by owners of more than 5% of our common stock that are known to
us, each of our directors, each of our named executive officers and all our
directors and executive officers as a group.
The ownership percentages are based on 8,557,894 shares of common stock
outstanding at August 31, 2000, giving effect to the conversion of our preferred
stock into common stock immediately prior to the closing of this offering, and
shares outstanding after this offering, assuming no exercise of the
underwriters' over-allotment options.
We have calculated beneficial ownership based on requirements of the
Securities and Exchange Commission. All shares of our common stock subject to
options or warrants currently exercisable or exercisable within 60 days after
August 31, 2000 are deemed to be shares beneficially owned by the person holding
such options, but are not deemed to be outstanding for computing the percentage
ownership of any other person.
Except as otherwise indicated, each shareholder named in the table has sole
voting and investment power with respect to the shares, subject to applicable
community property laws, and, unless otherwise noted, the address of each
beneficial owner listed in the table is c/o Cascade Microtech, Inc., 2430 N.W.
206th Avenue, Beaverton, Oregon 97006.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
SHARES ----------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Eric W. and/or Cynthia Strid(1)........................... 1,810,852 21.16%
K. Reed Gleason(2)........................................ 1,673,772 19.56%
F. Paul Carlson(3)........................................ 572,918 6.69%
Emmons J. Miles(4)........................................ 179,208 2.09%
Bruce A. and/or Cheryl McFadden(5)........................ 107,000 1.25%
George P. O'Leary(6)...................................... 104,263 1.22%
William R. Spivey(7)...................................... 69,799 *
John E. Pence(8).......................................... 58,325 *
Craig M. Swanson(9)....................................... 48,000 *
Scott R. Wright........................................... 5,000 *
All directors and executive officers as a group........... 4,731,137 55.28%
(13 persons)
OTHER 5% SHAREHOLDERS:
Teachers Insurance and Annuity............................ 1,500,000 17.53%
Assn. of America
730 Third Avenue
New York, NY 10017
Agilent Technologies, Inc................................. 1,424,819 16.65%
c/o Marie O. Huber, Esq.
395 Page Mill Road, MS A3-10
Palo Alto, CA 94303-0870
Dale E. and/or Cynthia Crow-Carlton....................... 514,801 6.02%
1869 N.W. 129th Place
Portland, Oregon 97229
Electroglas, Inc.......................................... 505,000 5.90%
c/o Curtis S. Wozniak
6024 Silver Creek Valley Road
Santa Clara, CA 95138
Maristeth Fund III, LLC................................... 416,667 4.87%
c/o F. Paul Carlson
1201 Pacific Avenue, Suite 1702
Tacoma, WA 98402
</TABLE>
------------------------------
* Less than one percent (1%).
(1) Includes 6,291 shares issuable upon the exercise of options.
(2) Includes 6,291 shares issuable upon the exercise of options.
(3) Reflects 416,667 shares beneficially owned by Maristeth Fund III, LLC.
Mr. Carlson is the sole manager of Maristeth Ventures LLC, the managing
member of Maristeth Fund III, LLC. Also includes 34,648 shares issuable upon
the exercise of options.
(4) Includes 11,600 shares issuable upon the exercise of options.
(5) Includes 95,000 shares issuable upon the exercise of options.
(6) Includes 2,630 shares issuable upon the exercise of options.
(7) Includes 6,649 shares issuable upon the exercise of options.
(8) Includes 58,000 shares issuable upon the exercise of options.
(9) Includes 36,000 shares issuable upon the exercise of options, including
24,000 shares issuable upon the exercise of options assuming completion of
this offering.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
After this offering, we will be authorized to issue up to shares
of common stock, par value $0.01 per share, and shares of preferred
stock, par value, $0.01 per share. Immediately after this offering, based on
8,557,894 shares outstanding at August 31, 2000, we estimate there will be
approximately shares of common stock outstanding, 2,517,438 shares
of common stock issuable on exercise of outstanding options, 275,000 shares of
common stock issuable on exercise of outstanding warrants, and no shares of
preferred stock outstanding. The weighted average exercise price of options
outstanding at August 31, 2000 was $2.73 and the weighted average exercise price
of warrants outstanding at August 31, 2000 was $9.44.
The following summary is qualified by reference to our second amended and
restated articles of incorporation and amended and restated bylaws, which will
be effective prior to the consummation of this offering. You should carefully
read these documents which have been filed as exhibits to the registration
statement, of which this prospectus is a part. Additionally, certain provisions
of Oregon law may impact our capital stock.
COMMON STOCK
As of August 31, 2000, there were 4,961,408 shares of common stock
outstanding and held of record by 108 shareholders. Each holder of our common
stock is entitled to receive dividends if declared by our board of directors.
See "Dividend Policy." Each holder of common stock is entitled to one vote per
share on all matters on which common shareholders are entitled to vote. There
are no cumulative subscription or preemptive rights to subscribe for any
additional securities we may issue. There are also no conversion, redemption or
sinking fund provisions applicable to our common stock. In the event of our
liquidation, dissolution or winding up, holders of our common stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any outstanding preferred stock. All outstanding
shares of common stock are fully paid and nonassessable. The rights, preferences
and privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock, which our board of directors may designate in the future.
We plan to apply to list our common stock for trading and quotation on the
Nasdaq National Market under the symbol "CCMT."
PREFERRED STOCK
As of August 31, 2000, there were 3,596,486 shares of preferred stock held
of record by four shareholders. Upon the closing of this offering, all
outstanding shares of our preferred stock will automatically convert on a
one-for-one basis into shares of our common stock. Our board of directors has
the authority, subject to any limitations prescribed by law, without shareholder
approval, to designate and issue shares of preferred stock in one or more series
and to designate the rights, preferences and privileges of each series, any or
all of which may be greater than the rights of the common stock. It is not
possible to state the actual effect of the issuance of any shares of preferred
stock upon the rights of holders of the common stock until the board of
directors determines the specific rights of the holders of such preferred stock.
However, the effects might include restricting dividends on the common stock,
diluting the voting power of the common stock, impairing the liquidation rights
of the common stock and delaying or preventing a change in control without
further action by our shareholders. We have no agreements or understandings for
the issuance of preferred stock, and our board of directors have no current
plans to issue any shares of preferred stock after the completion of this
offering.
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REGISTRATION RIGHTS
We have granted to the holders of all 3,596,486 shares of our preferred
stock, the holders of warrants to purchase 275,000 shares of our capital stock,
and our three founders who collectively hold 3,986,843 shares of our common
stock, rights with respect to registration of these shares under the Securities
Act of 1933. These rights are provided under the terms of an Investors' Rights
Agreement between us and the holders of these registrable securities. Beginning
180 days following the completion of this offering, the holders of each of our
Series A, Series B and Series C preferred stock may each require on one occasion
that we register their shares for public resale. We are only obligated to
register these shares if the outstanding registrable securities have an
anticipated public offering price of at least $10.0 million. Also, the holders
of registrable securities may require, once in any 12 month period, that we
register their shares for public resale on Form S-3 or similar short form
registration statement, if the value of the securities to be registered is at
least $1.0 million. Furthermore, in the event we register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders exercising their registration rights, the holders of
registrable securities are entitled to include their shares of common stock in
the registration. These "piggyback" registration rights apply to this offering;
however, the holders of these rights have waived their rights with respect to
this offering. We are generally required to bear all expenses in connection with
any registration, other than underwriting discounts and commissions. These
registration rights are subject to conditions and limitations, including the
right of the underwriter of an offering to limit the number of shares of common
stock to be included in the registration. All registration rights terminate as
to each holder of registrable securities when such holder is able to sell all of
its registrable securities in any three-month period without registration in
compliance with Rule 144 of the Securities Act.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OREGON LAW, THE RESTATED ARTICLES
AND BYLAWS
Upon completion of the offering, we will become subject to the Oregon
Control Share Act. The Oregon Control Share Act generally provides that a person
who acquires voting stock of an Oregon corporation, in a transaction that
results in the acquiror holding more than 20%, 33 1/3% or 50% of the total
voting power of the corporation, cannot vote the shares acquired in the
acquisition. An acquiror is broadly defined to include companies or persons
acting as a group to acquire the shares of an Oregon corporation. This
restriction does not apply if voting rights are given to the control shares by:
- a majority of each voting group entitled to vote; and
- the holders of a majority of the outstanding voting shares, excluding the
control shares held by the acquiror and shares held by the Company's
officers and employee directors.
The acquiror may, but is not required to, submit to the target company a
statement including specific information about the acquiror and its plans for
the Company. The statement may also request that the Company call a special
meeting of shareholders to determine whether the control shares will be allowed
to have voting rights. If the acquiror does not request a special meeting of
shareholders, the issue of voting rights of control shares will be considered at
the next annual or special meeting of shareholders. If the acquiror's control
shares are allowed to have voting rights and represent a majority or more of all
voting power, shareholders who do not vote in favor of voting rights for the
control shares will have the right to receive the appraised fair value for their
shares, which may not be less than the highest price paid per share by the
acquiror for the control shares.
We are also subject to the Oregon Business Combination Act. The Business
Combination Act generally provides that in the event a person or entity acquires
15% or more of the voting stock of an Oregon corporation, thereby becoming an
"interested shareholder," the corporation and the interested shareholder, or any
affiliated entity, may not engage in certain business combination transactions
for a
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period of three years following the date the person became an interested
shareholder. Business combination transactions for this purpose include:
- a merger or plan of share exchange;
- any sale, lease, mortgage or other disposition of the assets of the
corporation where the assets have an aggregate market value equal to 10%
or more of the aggregate market value of the corporation's assets or
outstanding capital stock; or
- certain transactions that result in the issuance of capital stock of the
corporation to the interested shareholder.
These restrictions are not applicable if:
- as a result of the transaction in which a person became an interested
shareholder, they will own at least 85% of the outstanding voting stock of
the corporation (excluding shares owned by directors who are also
officers, and certain employee benefit plans);
- the board of directors approves the share acquisition or business
combination before the interested shareholder acquires 15% or more of the
corporation's voting stock; or
- the board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (excluding shares owned by the
interested shareholder) approve the transaction after the interested
shareholder has acquired 15% or more of the corporation's voting stock.
Our second amended and restated articles of incorporation contain provisions
that
- divide our board of directors into three classes, each of which serves for
a three-year term with one class elected each year
- provide that directors may be removed by our shareholders only for cause
and only upon the vote of 75% of the outstanding shares of common stock,
and
- permit the board of directors to issue preferred stock in one or more
series and to fix the number of shares constituting any such series, the
voting powers and all other rights and preferences of any such series,
without any further vote or action by our shareholders.
The staggered terms for directors, the provisions allowing the removal of
directors only for cause and the availability of preferred stock for issuance
without shareholder approval may have the effect of lengthening the time
required for a person to acquire control of our company through a proxy contest
or the election of a majority of the board of directors and may deter any
potential unfriendly offers or other efforts to obtain control. This could
deprive our shareholders of opportunities to realize a premium for their common
stock and could make removal of incumbent directors more difficult. At the same
time, these provisions may have the effect of inducing any persons seeking
control of our company to negotiate terms acceptable to the board of directors.
TRANSFER AGENT
The transfer agent and registrar for the shares of common stock is
ChaseMellon Shareholder Services, LLC. ChaseMellon's address is 85 Challenger
Road, Ridgefield Park, New Jersey 07660.
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SHARES ELIGIBLE FOR FUTURE SALE
We cannot provide any assurance that a significant public market for our
common stock will develop or be sustained after we complete this offering. The
sale of substantial numbers of our shares of common stock in the public market,
or the expectation of a sale of a significant number of our shares, could
adversely affect prevailing market prices for our common stock. Furthermore,
only a limited number of our shares of common stock currently held by our
shareholders will be available for sale shortly after this offering because of
contractual and legal restrictions on resale described below. Future sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could adversely affect the market price and our ability to
raise equity capital in the future.
Upon completion of this offering, and assuming no exercise after that date
of the underwriters' over-allotment option or any outstanding options, we expect
to have shares of common stock outstanding based on shares
outstanding as of , 2000.
Of these shares, the shares that we expect to sell in this
offering, and any shares of common stock sold upon exercise of the underwriters'
over-allotment option, will be freely tradable without restriction under the
Securities Act. However, there will be trading restrictions imposed on
"affiliates" and "control persons" as defined under Rule 144. The remaining
shares of common stock held by existing shareholders are restricted securities
as that term is defined in Rule 144 of the Securities Act. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 promulgated under the Securities Act,
which is summarized below. As a result of the contractual restrictions described
below and the provisions of Rule 144, the restricted securities will be eligible
for sale in the public market immediately following the offering subject to the
expiration of 180-day lock-up agreements with representatives of the
underwriters and to volume limitations and other conditions under Rule 144.
Following this offering, the holders of an aggregate of of the
outstanding shares of common stock have the right to require us to register
their shares for sale upon meeting requirements to which the parties have
previously agreed. See "Description of Capital Stock--Registration Rights" for
additional information regarding registration rights.
The following table indicates approximately when the of our
shares of common stock, held by existing shareholders, that are not being sold
in the offering but which will be outstanding at the time the offering is
complete will be eligible for sale into the public market:
<TABLE>
<CAPTION>
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
----------------------------------------------------------
<S> <C>
At effective date...........................................
90 days after effective date................................
180 days after effective date...............................
----
After 180 days post-effective date..........................
====
</TABLE>
The shares eligible for sale includes shares outstanding as of ,
2000 and assumes the automatic conversion of all outstanding preferred shares
into shares of common stock upon completion of the offering.
LOCK-UP AGREEMENTS
As of , 2000, the holders of % of our outstanding capital
stock, including, all of our officers and directors, have signed lock-up
agreements with the underwriters under which they have agreed not to dispose of
any shares of our common stock or securities convertible into or exchangeable
for shares of our common stock for a period of 180 days from the date of this
prospectus. Dispositions can be made sooner with the prior written consent of SG
Cowen Securities Corporation.
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OPTIONS AND WARRANTS
As of , 2000, we had 1,200,000 shares and 400,000 shares of
common stock reserved for future issuance pursuant to our 2000 Stock Incentive
Plan and 2000 Employee Stock Purchase Plan, respectively. An aggregate of
shares of common stock issuable upon the exercise of our outstanding
options will be vested 180 days following the date of this prospectus. We intend
to file, shortly after effectiveness of this offering, a registration statement
on Form S-8 under the Securities Act covering all shares of common stock
reserved for issuance under our share plans. Holders of outstanding options
exercisable for % of the underlying option shares are subject to 180-day
lock-up agreements with the underwriters.
As of September , 2000, we had two fully-exercisable warrants outstanding,
one warrant to purchase 250,000 shares of our Series C redeemable preferred
stock and one warrant to purchase 25,000 shares of our common stock. The shares
issuable upon exercise of each of these warrants have rights with respect to
registration of the shares under the Securities Act. See "Description of Capital
Stock--Registration Rights. The shares underlying these warrants are subject to
180-day lock-up agreements with the underwriters.
RULE 144
In general, under Rule 144, as in effect on the date of this prospectus, any
person who has beneficially owned restricted securities for at least one year
will be entitled to sell in any three-month period a number of shares that does
not exceed the greater of:
- 1% of the then outstanding shares of common stock, which is equal to
approximately shares immediately after the offering; or
- the average weekly trading volume of our shares of common stock on the
Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the SEC.
Sales of restricted securities pursuant to Rule 144 are subject to
requirements relating to manner of sale, notice and availability of
current public information about us. Our affiliates must also comply with
the restrictions and requirements of Rule 144, other than the one-year
holding period requirement, in order to sell shares of common stock which
are not restricted securities.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally including the holding period of any prior owner other than an
"affiliate," is entitled to sell those shares without complying with the manner
of sale, notice filing, volume limitation or notice provisions of Rule 144(k).
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
RULE 701
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by employees, directors, officers,
consultants or advisers prior to the date we become subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, pursuant to
written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the SEC has indicated that Rule 701
will apply to typical stock options granted by an issuer in accordance with
Rule 701 before it becomes subject to the reporting requirements of the Exchange
Act, along with the shares acquired upon exercise of such options. Securities
issued in reliance on Rule 701 are restricted securities and, subject to the
contractual restrictions described above, beginning 90 days after the date of
this prospectus, such securities may be sold:
- by persons other than our affiliates, subject only to the manner of sale
provisions of Rule 144; and
- by our affiliates under Rule 144 without compliance with the one-year
minimum holding period requirements.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
, 2000, the underwriters named below, through their representatives
SG Cowen Securities Corporation, Chase Securities Inc., Adams, Harkness &
Hill, Inc. and First Security Van Kasper, severally agreed to purchase from us
the number of shares of common stock set forth opposite their names at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ------------
<S> <C>
SG Cowen Securities Corporation.............................
Chase Securities Inc........................................
Adams, Harkness & Hill, Inc.................................
First Security Van Kasper...................................
============
Total.....................................................
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are conditional and may be terminated at their discretion based on their
assessment of the state of the financial markets and may also be terminated upon
the occurrence of other events specified in the underwriting agreement. The
underwriters are severally committed to purchase all of the common stock being
offered by us if any of such shares are purchased, other than those covered by
the over-allotment option described below.
The underwriters propose to offer the common stock directly to the public at
the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to dealers at that price less a
concession not in excess of $ per share. Dealers may reallow a concession
not in excess of $ per share to other dealers. After the shares of common
stock are released for sale to the public, the underwriters may vary the
offering price and other selling terms from time to time.
We have granted to the underwriters an option, exercisable for up to
30 days after the date of this prospectus, to purchase up to additional
shares of common stock at the public offering price set forth on the cover of
this prospectus to cover over allotments, if any. If the underwriters exercise
their over-allotment option, the underwriters have severally agreed, subject to
limited conditions, to purchase approximately the same percentage that the
number of shares of common stock to be purchased by each of them, as shown in
the foregoing table, bears to the common stock covered by this prospectus.
At our request, the underwriters have reserved up to 5% of the shares of
this offering for sale to our employees, vendors, customers and other persons
and entities with whom we maintain business relationships at the offering price.
The number of shares of common stock available for sale to the general public
will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.
The following table shows the per share and total public offering price, the
underwriting discounts and commissions to be paid by us to the underwriters and
the proceeds from the sale of shares to the underwriters before our expenses.
This information is presented assuming either no exercise or full exercise by
the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
----------- ----------- -----------
<S> <C> <C> <C>
Public offering price.................................
Underwriting discounts and commissions................
Proceeds, before expenses, to Cascade Microtech.......
</TABLE>
69
<PAGE>
We have agreed to indemnify the underwriters against some liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the underwriters may be required to make in respect thereof.
Cascade Microtech and all of our directors, officers and other shareholders
owning approximately % of our outstanding capital stock as of ,
2000 have agreed that for a period of at least 180 days following the date of
this prospectus, without the prior written consent of SG Cowen Securities
Corporation, they will not directly or indirectly, offer, sell, assign,
transfer, pledge, contract to sell, or otherwise dispose of, any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock, including, without limitation, common stock which may be
deemed to be beneficially owned in accordance with rules and regulations
promulgated under the Securities Act.
The representatives may engage in over-allotment transactions, open market
purchases, stabilizing transactions and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934, as amended. In
connection with this offering, the underwriters may make short sales by selling
more shares than they are obligated to purchase under the underwriting
agreement. Covered short sales are sales made in an amount not greater than the
number of shares available for purchase by the underwriters under the
over-allotment option. The underwriters may close out a covered short sale by
exercising their over-allotment option or purchasing shares in the open market.
In determining the source of shares to close out a covered short sale, the
underwriters will consider, among other things, the price of shares in the open
market compared to the price at which they may purchase shares under the
over-allotment option. Naked short sales are sales made in an amount in excess
of the number of shares available under the over-allotment option. The
underwriters must close out any naked short sale by purchasing shares 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 common stock in the open market after pricing that could adversely affect
investors who purchase in this offering. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions. Any of these activities may cause the price of our
common stock to be higher than it would otherwise be in the absence of these
transactions. These transactions may be effected on the Nasdaq National Market
or otherwise, and, if commenced, may be discontinued at any time.
The underwriters have advised us that they do not intend to confirm sales in
excess of 5% of the common stock offered to any account over which they exercise
discretionary authority.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price has been determined by
negotiations between the underwriters and us. Among the factors considered in
these negotiations were prevailing market conditions, the market capitalizations
and the stages of development of other companies that we and the underwriters
believe to be comparable to us, estimates of our business potential, our results
of operations in recent periods, the present state of our development and other
factors deemed relevant.
We estimate that our out of pocket expenses for this offering will be
approximately $ .
70
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby and certain other
legal matters relating to the offering are being passed upon for us by Ater
Wynne LLP, Portland, Oregon. Certain legal matters relating to the offering are
being passed upon for the underwriters by Latham & Watkins, Los Angeles,
California.
EXPERTS
The consolidated financial statements and schedule of Cascade
Microtech, Inc. as of December 31, 1998 and 1999 and each of the years in the
three-year period ended December 31, 1999, have been included in this prospectus
and in the registration statement in reliance upon the report of KPMG LLP,
independent auditors, appearing elsewhere in this prospectus and registration
statement and upon the authority of KPMG LLP as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules, under the Securities
Act of 1933, as amended, with respect to the shares of our common stock to be
sold in this offering. This prospectus, which forms a part of the registration
statement, does not contain all the information included in the registration
statement. Certain information is omitted and you should refer to the
registration statement and its exhibits. With respect to references made in this
prospectus to any of our contracts or other documents, such references are not
necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract or document. You may
review a copy of the registration statement, including exhibits and schedules
filed therewith, as well as the reports, proxy statements and other information
that we have filed at the Securities and Exchange Commission's public reference
facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Securities and Exchange
Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You may also obtain copies of such materials from the Public
Reference Section of the Securities and Exchange Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Securities and Exchange Commission maintains a Web site at
HTTP://WWW.SEC.GOV.
71
<PAGE>
CASCADE MICROTECH, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Shareholders' Equity............................ F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cascade Microtech, Inc.:
We have audited the accompanying consolidated balance sheets of Cascade
Microtech, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, redeemable convertible preferred
stock and shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cascade
Microtech, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations, and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Portland, Oregon
February 25, 2000
F-2
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------- -------------------------
1998 1999 2000 2000
-------- -------- ----------- -----------
(UNAUDITED) (PRO FORMA)
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 368 $13,511 $ 4,864 $ 4,864
Short-term investments.................................... -- -- 6,420 6,420
Accounts receivable, less allowance for doubtful accounts
of $50 and $66 at December 31, 1998 and 1999,
respectively, and $69 at June 30, 2000.................. 8,709 12,602 13,511 13,511
Inventories............................................... 5,716 6,254 7,386 7,386
Prepaid expenses and other................................ 918 98 303 303
Deferred income taxes..................................... 848 1,186 1,200 1,200
------- ------- ------- -------
Total current assets................................ 16,559 33,651 33,684 33,684
Long-term investments....................................... -- -- 1,547 1,547
Fixed assets, net........................................... 2,578 3,048 4,685 4,685
Other assets, net........................................... 1,412 1,415 1,388 1,388
------- ------- ------- -------
Total assets........................................ $20,549 $38,114 $41,304 $41,304
======= ======= ======= =======
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit........................................... $ 2,640 $ 198 $ -- $ --
Current portion of long-term debt and obligations under
capital leases.......................................... 652 653 619 619
Accounts payable.......................................... 2,530 2,839 4,910 4,910
Accrued liabilities....................................... 2,383 3,949 4,563 4,563
------- ------- ------- -------
Total current liabilities........................... 8,205 7,639 10,092 10,092
Long-term debt and obligations under capital leases, less
current portion........................................... 1,513 859 506 506
Deferred income taxes....................................... 16 96 96 96
Other long-term liabilities................................. 275 647 752 752
------- ------- ------- -------
Total liabilities................................... 10,009 9,241 11,446 11,446
------- ------- ------- -------
Redeemable convertible preferred stock:
Series C, $0.01 par value; 1,500 shares authorized; -0-,
1,250 and 1,250 shares issued and outstanding at
December 31, 1998 and 1999 and June 30, 2000,
respectively; liquidation preference of $10,000......... -- 9,908 10,356 --
Commitments and contingencies (note 12)
Shareholders' equity:
Convertible preferred stock:
Series A, $0.01 par value; 1,337 shares authorized,
issued and outstanding at December 31, 1998 and 1999
and June 30, 2000; liquidation preference of $3,356... 3,332 3,332 3,332 --
Series B, $0.01 par value; 1,009 shares authorized; -0-,
1,009 and 1,009 shares issued and outstanding at
December 31, 1998 and 1999 and June 30, 2000,
respectively; liquidation preference of $6,055........ -- 5,894 5,894 --
Common stock, $0.01 par value; 12,000 shares authorized;
4,955, 5,004 and 4,969 shares issued and outstanding at
December 31, 1998 and 1999 and June 30, 2000,
respectively............................................ 1,350 1,446 813 19,908
Deferred stock-based compensation......................... -- -- (143) (143)
Notes receivable for common stock......................... (196) (196) (264) (264)
Accumulated other comprehensive loss -- unrealized holding
loss on investments..................................... -- -- (4) (4)
Retained earnings......................................... 6,054 8,489 9,874 10,361
------- ------- ------- -------
Total shareholders' equity.......................... 10,540 18,965 19,502 29,858
------- ------- ------- -------
Total liabilities, redeemable convertible preferred
stock and shareholders' equity.................... $20,549 $38,114 $41,304 $41,304
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales...................................... $40,322 $41,597 $51,530 $20,762 $31,860
Cost of sales.................................. 21,681 24,541 27,444 11,767 16,735
------- ------- ------- ------- -------
Gross profit............................... 18,641 17,056 24,086 8,995 15,125
------- ------- ------- ------- -------
Operating expenses:
Research and development..................... 5,911 6,194 5,887 2,430 3,725
Selling, general and administrative.......... 11,697 12,438 14,236 6,108 8,690
------- ------- ------- ------- -------
Total operating expenses................... 17,608 18,632 20,123 8,538 12,415
------- ------- ------- ------- -------
Income (loss) from operations.............. 1,033 (1,576) 3,963 457 2,710
------- ------- ------- ------- -------
Other income (expense):
Interest income.............................. 82 19 150 21 381
Interest expense............................. (246) (349) (198) (124) (52)
Other, net................................... 325 199 (218) 30 (76)
------- ------- ------- ------- -------
Total other income (expense), net.......... 161 (131) (266) (73) 253
------- ------- ------- ------- -------
Income (loss) before provision (benefit)
for income taxes......................... 1,194 (1,707) 3,697 384 2,963
Provision (benefit) for income taxes........... 523 (730) 1,223 155 1,130
------- ------- ------- ------- -------
Net income (loss).......................... 671 (977) 2,474 229 1,833
Accretion of preferred stock redemption........ -- -- 39 -- 448
------- ------- ------- ------- -------
Net income (loss) attributed to common
shareholders............................. $ 671 $ (977) $ 2,435 $ 229 $ 1,385
======= ======= ======= ======= =======
Net income (loss) per share:
Basic........................................ $ 0.15 $ (0.21) $ 0.49 $ 0.05 $ 0.28
Diluted...................................... 0.10 (0.21) 0.32 0.03 0.15
Shares used in computing net income (loss) per
share:
Basic........................................ 4,568 4,711 4,988 4,974 5,023
Diluted...................................... 6,590 4,711 7,577 7,159 9,472
Unaudited pro forma net income per share:
Basic........................................ $ 0.35 $ 0.16
Diluted...................................... 0.32 0.15
Unaudited shares used in computing pro forma
net income per share:
Basic........................................ 6,992 8,619
Diluted...................................... 7,577 9,472
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CASCADE MICROTECH,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK DEFERRED
------------------- ------------------- ------------------- STOCK-BASED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION
-------- -------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances December 31, 1996.................... -- $ -- 1,337 $3,332 4,557 $ 372 $ --
Common stock issued........................... -- -- -- -- 168 253 --
Common stock repurchased...................... -- -- -- -- (122) (65) --
Tax benefit of stock option exercises......... -- -- -- -- -- 61 --
Net income.................................... -- -- -- -- -- -- --
----- ------- ----- ------ ----- ------- -----
Balance, December 31, 1997.................... -- -- 1,337 3,332 4,603 621 --
Common stock issued........................... -- -- -- -- 355 726 --
Common stock repurchased...................... -- -- -- -- (3) (3) --
Tax benefit of stock option exercises......... -- -- -- -- -- 6 --
Net loss...................................... -- -- -- -- -- -- --
----- ------- ----- ------ ----- ------- -----
Balance, December 31, 1998.................... -- -- 1,337 3,332 4,955 1,350 --
Series B preferred stock issued............... -- -- 1,009 5,894 -- -- --
Series C preferred stock issued............... 1,250 9,869 -- -- -- -- --
Common stock issued........................... -- -- -- -- 55 121 --
Common stock repurchased...................... -- -- -- -- (6) (25) --
Accretion of preferred stock redemption
preference.................................. -- 39 -- -- -- -- --
Net income.................................... -- -- -- -- -- -- --
----- ------- ----- ------ ----- ------- -----
Balance, December 31, 1999.................... 1,250 9,908 2,346 9,226 5,004 1,446 --
Common stock issued (unaudited)............... -- -- -- -- 112 253 --
Common stock repurchased (unaudited).......... -- -- -- -- (147) (1,029) --
Deferred compensation related to stock options
(unaudited)................................. -- -- -- -- -- 143 (143)
Accretion of preferred stock redemption
preference (unaudited)...................... -- 448 -- -- -- -- --
Unrealized holding loss on investments
(unaudited)................................. -- -- -- -- -- -- --
Net income (unaudited)........................ -- -- -- -- -- -- --
----- ------- ----- ------ ----- ------- -----
Balance, June 30, 2000 (unaudited)............ 1,250 $10,356 2,346 $9,226 4,969 $ 813 $(143)
===== ======= ===== ====== ===== ======= =====
<S> <C> <C> <C> <C>
NOTES
RECEIVABLE ACCUMULATED
FOR OTHER TOTAL
COMMON COMPREHENSIVE RETAINED SHAREHOLDERS'
STOCK LOSS EARNINGS EQUITY
-------- ------------ -------- -----------
Balances December 31, 1996.................... $ -- $-- $6,681 $10,385
Common stock issued........................... (30) -- -- 223
Common stock repurchased...................... -- -- (313) (378)
Tax benefit of stock option exercises......... -- -- -- 61
Net income.................................... -- -- 671 671
----- --- ------ -------
Balance, December 31, 1997.................... (30) -- 7,039 10,962
Common stock issued........................... (166) -- -- 560
Common stock repurchased...................... -- -- (8) (11)
Tax benefit of stock option exercises......... -- -- -- 6
Net loss...................................... -- -- (977) (977)
----- --- ------ -------
Balance, December 31, 1998.................... (196) -- 6,054 10,540
Series B preferred stock issued............... -- -- -- 5,894
Series C preferred stock issued............... -- -- -- --
Common stock issued........................... -- -- -- 121
Common stock repurchased...................... -- -- -- (25)
Accretion of preferred stock redemption
preference.................................. -- -- (39) (39)
Net income.................................... -- -- 2,474 2,474
----- --- ------ -------
Balance, December 31, 1999.................... (196) -- 8,489 18,965
Common stock issued (unaudited)............... (68) -- -- 185
Common stock repurchased (unaudited).......... -- -- -- (1,029)
Deferred compensation related to stock options
(unaudited)................................. -- -- -- --
Accretion of preferred stock redemption
preference (unaudited)...................... -- -- (448) (448)
Unrealized holding loss on investments
(unaudited)................................. -- (4) -- (4)
Net income (unaudited)........................ -- -- 1,833 1,833
----- --- ------ -------
Balance, June 30, 2000 (unaudited)............ $(264) $(4) $9,874 $19,502
===== === ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 671 $ (977) $ 2,474 $ 229 $ 1,833
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization......................... 907 944 1,283 606 661
(Gain) loss on disposal of fixed assets............... (172) (66) (3) (67) 1
Deferred income taxes................................. (290) (31) (258) (3) (14)
Tax benefit of stock option exercises................. 61 6 -- -- --
Increase (decrease) in cash resulting from changes in:
Accounts receivable................................. (2,798) 891 (3,893) 164 (836)
Inventories......................................... (2,202) 929 (538) (1,501) (1,132)
Prepaid expenses and other.......................... 54 (556) 705 515 (225)
Accounts payable.................................... 774 108 309 895 2,071
Accrued liabilities................................. 771 (677) 1,938 839 719
------- ------- ------- ------- --------
Net cash (used in) provided by operating
activities....................................... (2,224) 571 2,017 1,677 3,078
------- ------- ------- ------- --------
Cash flows from investing activities:
Purchase of investments................................... -- -- -- -- (9,044)
Proceeds from maturity of investments..................... -- -- -- -- 1,000
Purchases of fixed assets................................. (804) (1,461) (1,356) (337) (2,016)
Proceeds from disposal of fixed assets.................... 175 81 73 68 --
Investment in patents..................................... (224) (554) (355) (144) (115)
------- ------- ------- ------- --------
Net cash used in investing activities............. (853) (1,934) (1,638) (413) (10,175)
------- ------- ------- ------- --------
Cash flows from financing activities:
Net increase (decrease) in lines of credit................ 1,602 775 (2,442) (2,417) (198)
Principal payments on capital lease obligations........... (15) (21) (41) (20) (40)
Proceeds from issuance of long-term debt.................. -- 2,316 -- -- --
Principal payments on long-term debt...................... (731) (2,490) (612) (303) (468)
Proceeds from issuance of preferred stock................. -- -- 15,763 2,869 --
Proceeds from issuance of common stock.................... 223 560 121 91 185
Payments to repurchase common stock....................... (378) (11) (25) (25) (1,029)
------- ------- ------- ------- --------
Net cash provided by (used in) financing
activities....................................... 701 1,129 12,764 195 (1,550)
------- ------- ------- ------- --------
Net (decrease) increase in cash and cash
equivalents...................................... (2,376) (234) 13,143 1,459 (8,647)
Cash and cash equivalents at beginning of period............ 2,978 602 368 368 13,511
------- ------- ------- ------- --------
Cash and cash equivalents at end of period.................. $ 602 $ 368 $13,511 $ 1,827 $ 4,864
======= ======= ======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest................................................ $ 237 $ 362 $ 200 $ 125 $ 53
Income taxes............................................ 604 552 1,156 123 1,388
Noncash investing and financing activities:
Equipment acquired under capital leases................... $ -- $ 72 $ -- $ -- $ 121
Notes receivable for sale of common stock................. 30 166 -- -- 68
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF BUSINESS
Cascade Microtech, Inc. (Cascade) is involved in the development,
manufacturing and selling of wafer probing solutions used to measure and test
complex semiconductors in wafer form in both design and production environments.
Cascade's products are used to develop and test advanced integrated circuits and
optoelectronic devices, or chips. Cascade designs, manufactures and assembles
their products in Beaverton, Oregon, with global sales, service and support
centers in North America, Europe and Japan.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cascade
Microtech, Inc. and its wholly-owned subsidiaries, Cascade Microtech Foreign
Sales Inc., Cascade Microtech Japan, K.K. and Cascade Microtech Europe, Ltd. All
significant intercompany accounts and transactions have been eliminated.
The functional currency of Cascade's foreign subsidiaries is the
U.S. dollar. Nonmonetary balance sheet items are remeasured at historical rates
and monetary balance sheet items are remeasured at current rates. Exchange gains
and losses from remeasurement of monetary assets and liabilities are recognized
currently in the consolidated statements of operations.
(C) REVENUE RECOGNITION
Revenue from product sales to customers that do not have acceptance
criteria, including product sales to distributors, is recognized when a written
purchase order has been obtained, the product is shipped, title has transferred
and no obligations remain. Revenue from customers who have acceptance criteria
is not recognized until all acceptance criteria are satisfied. Revenue for
installation services is recognized when the services are performed.
Cascade provides for estimated costs to repair or replace products under
one-year warranties and technical support costs when the related product revenue
is recognized. The products are sold without a right of return.
(D) CASH EQUIVALENTS
Cash equivalents consist of money market funds, which are stated at cost,
which approximates market value. For purposes of the statement of cash flows,
Cascade considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
(E) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is computed on a
currently adjusted standard basis (which approximates actual costs computed on a
first-in, first-out basis).
F-7
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) INVESTMENTS IN MARKETABLE SECURITIES
Investments in marketable securities are classified as available-for-sale
and recorded at current market value. Unrealized holding gains and losses are
excluded from earnings and are reported as a separate component of shareholders'
equity until realized. Dividend and interest income is recognized when earned.
Realized gains and losses are included in earnings and are derived using the
specific identification method for determining the cost of securities sold.
Short-term investments consist of highly liquid securities with remaining
maturities of between three and twelve months. Long-term investments consist of
highly rated securities with remaining maturities of greater than one year and
less than two years.
(G) FIXED ASSETS
Equipment and leasehold improvements are stated at cost. Equipment under
capital lease is recorded at the net present value of the future minimum lease
payments at the inception of the lease. Maintenance and repairs are expensed as
incurred. Depreciation of owned equipment is provided using the straight-line
method over the estimated useful lives of the assets, ranging from two to seven
years. Amortization of equipment under capital leases and leasehold improvements
is provided using the straight-line method over the life of the lease or the
asset, whichever is shorter.
(H) OTHER ASSETS
Other assets, which consists primarily of purchased technologies, other
intangible assets and related rights, are stated at historical cost less
accumulated amortization. The intangible assets are amortized using the
straight-line method over estimated useful lives of five to seven years.
Accumulated amortization associated with intangible assets was $826 and
$1,268 at December 31, 1998 and 1999. Amortization expense associated with
purchased technology and intangible assets was $215, $225 and $467 in 1997, 1998
and 1999, respectively.
(I) ADVERTISING
Advertising costs are expensed as incurred and amounted to $178, $160 and
$91 in 1997, 1998 and 1999, respectively.
(J) INCOME TAXES
Cascade accounts for income taxes under the asset and liability method.
Under this method, deferred income taxes are established for the difference
between the financial reporting and income tax basis of assets and liabilities
as well as operating loss and tax credit carryforwards. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
F-8
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(K) FORWARD EXCHANGE CONTRACTS
Cascade generally enters into forward foreign currency exchange contracts,
which typically settle within six months, to manage its exposure against foreign
currency fluctuations on sales denominated in Japanese yen. Realized gains and
losses on these contracts are recognized in the same period as the hedged
transactions. Management believes that these contracts should not subject
Cascade to undue risk from foreign exchange movements because gains and losses
on these contracts should offset gains and losses on the transactions being
hedged.
(L) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivables, accounts payable, accrued
liabilities and lines of credit approximate fair value due to the short
maturities. The fair value of Cascade's long-term debt and capital lease
obligations approximate carrying value as such instruments' stated interest
rates do not differ significantly from current market rates.
The estimated fair value for foreign exchange contracts is based on quoted
market prices. At December 31, 1998, foreign currency contracts to pay $46 were
outstanding with an estimated fair value of $-0-. At December 31, 1997 and 1999,
foreign currency contracts to receive $3,461 and $1,738, respectively, were
outstanding with an estimated fair value of $3,271 and $1,849, respectively.
(M) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as revenues and expenses reported for the periods presented.
Cascade regularly assesses these estimates and, while actual results may differ,
management believes that the estimates are reasonable.
(N) NET INCOME (LOSS) PER SHARE
Cascade computes net income (loss) per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE, and SEC Staff
Accounting Bulletin (SAB) No. 98. Under the provisions of SFAS No. 128 and SAB
No. 98, basic net income (loss) per share is computed by dividing the net income
(loss) available to common shareholders for the period by the weighted average
number of shares of common stock outstanding during the period. Diluted net
income (loss) per share incorporates the incremental shares issuable upon the
assumed exercise of stock options and warrants and assumed conversions of
preferred stock, if dilutive.
Pro forma net income per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of automatic
conversion of all outstanding convertible preferred stock into shares of common
stock effective upon the closing of Cascade's initial public offering as if such
conversion occurred at the date of original issuance.
F-9
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pursuant to SAB No. 98, common shares issued for nominal consideration in
each of the periods presented, if any, would be included in the per share
calculations as if they were outstanding for all periods presented. No such
shares have been issued.
The following table reconciles the shares used in calculating basic earnings
per share to the shares used in calculating diluted earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ------------------------------------
1997 1998 1999 1999 1999 2000 2000
-------- -------- -------- ----------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(PRO FORMA) (PRO FORMA)
<S> <C> <C> <C> <C> <C> <C> <C>
Shares used to calculate basic earnings per
share.................................... 4,568 4,711 4,988 6,992 4,974 5,023 8,619
Dilutive effect of:
Outstanding stock options................ 685 -- 585 585 589 844 844
Outstanding warrants..................... -- -- -- -- -- 9 9
Convertible preferred stock.............. 1,337 -- 2,004 -- 1,596 3,596 --
----- ----- ----- ----- ----- ----- -----
Shares used to calculate diluted earnings
per share................................ 6,590 4,711 7,577 7,577 7,159 9,472 9,472
===== ===== ===== ===== ===== ===== =====
</TABLE>
In 1998, common stock equivalents related to stock options and convertible
preferred stock are excluded from the computation of diluted earnings per share
due to their antidilutive effect as a result of Cascade's net loss. In 1999,
warrants to purchase 250 shares of Series C redeemable preferred stock are also
excluded from the computation of diluted earnings per share because the effect
would be anti-dilutive.
(O) STOCK OPTION PLAN
Cascade applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations, in accounting for its fixed plan stock
options. As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, established
accounting and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed by SFAS
No. 123, Cascade has elected to continue to apply the intrinsic value-based
method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123.
Cascade accounts for stock and stock options issued to non-employees in
accordance with the provisions of Emerging Issues Task Force (EITF) consensus on
Issue No. 96-18, ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN
EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES.
(P) RESEARCH AND DEVELOPMENT
Research and development expenses are charged to expense as incurred.
F-10
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(Q) COMPREHENSIVE INCOME
Cascade has adopted the provisions of SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. Comprehensive income is defined as changes in shareholders' equity
exclusive of transactions with owners, such as capital contributions and
dividends. Unrealized holding gains and losses on Cascade's available-for-sale
investments are included as a separate component of shareholders' equity until
realized. The differences between net income and comprehensive income for the
periods presented are not material.
(R) CERTAIN RISKS AND UNCERTAINTIES
Cascade's future operating results and financial condition are subject to
influences driven by rapid technological changes, a highly competitive industry,
a lengthy sales cycle, and the cyclical nature of general economic conditions.
Future operating results will depend on many factors, including demand for
Cascade's products, the introduction and industry acceptance of new products by
Cascade and the level and timing of available shippable orders and backlog.
In addition, Cascade relies on several suppliers to provide certain key
components used in Cascade's products. Some of these items are available from
only one supplier or a limited group of suppliers. Any disruption in the
availability and delivery of these items could materially adversely affect
Cascade's business, financial condition and results of operations.
(S) PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Upon consummation of Cascade's initial public offering, all of the
redeemable convertible preferred stock and the convertible preferred stock
outstanding as of the closing date will automatically convert into an aggregate
of 3,596 shares of common stock based on the outstanding shares of redeemable
convertible preferred stock and convertible preferred stock as of December 31,
1999 and June 30, 2000. Unaudited pro forma shareholders' equity as of
December 31, 1999 and June 30, 2000 reflects the impact of the conversion of the
convertible preferred stock and is disclosed on the balance sheet.
(T) UNAUDITED QUARTERLY INFORMATION
The financial information included herein as of June 30, 2000 and for the
six-month periods ended June 30, 1999 and 2000 is unaudited. Such information,
however, reflects all adjustments consisting of normal recurring adjustments,
which are, in the opinion of management, necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim
periods. The results of operations for the six-month period ended June 30, 2000
are not necessarily indicative of the results to be expected for the full year.
F-11
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Raw materials............................................... $2,312 $2,365
Work in process............................................. 275 745
Finished goods.............................................. 3,129 3,144
------ ------
$5,716 $6,254
====== ======
</TABLE>
(3) FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Equipment................................................. $ 5,944 $ 5,518
Leasehold improvements.................................... 1,570 1,481
------- -------
7,514 6,999
Accumulated depreciation and amortization................. (4,936) (3,951)
------- -------
$ 2,578 $ 3,048
======= =======
</TABLE>
Depreciation expense was $692, $719 and $816 in 1997, 1998 and 1999,
respectively.
Included in fixed assets at December 31, 1998 and 1999 is $163 of equipment
under capital lease. Amortization expense related to these assets for the years
ended December 31, 1997, 1998 and 1999 was $18, $20 and $28, respectively.
(4) LINES OF CREDIT
During 1999, Cascade replaced its $7,500 operating line of credit maturing
February 2000 with a new $6,500 operating line of credit maturing February 18,
2000. The line of credit represents the maximum available and is subject to a
borrowing base calculation. The line bears interest at the bank's prime rate
plus 1/4% and is secured by an interest in all accounts receivable, inventories,
chattel paper, equipment, certain intangibles, goods, and products and proceeds
of all the foregoing. Line of credit borrowings totaled $1,844 and $-0- at
December 31, 1998 and 1999, respectively. The revolving line of credit contains
covenants for quick ratio, tangible worth and ratio of total liabilities to
tangible net worth. Cascade was in compliance with all covenant requirements at
December 31, 1999. Cascade did not renew the line of credit beyond February 18,
2000.
Cascade Microtech Japan has a bank line of credit which allows for
borrowings up to $1,468 (at the December 31, 1999 exchange rate). The line bears
interest at the Japanese current short-term borrowing rate of 1.8% and is
guaranteed by Cascade Microtech, Inc. The agreement is subject to review every
six months. Borrowings totaled $796 and $198 at December 31, 1998 and 1999,
respectively.
F-12
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(5) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Accrued compensation and benefit costs...................... $ 885 $1,718
Anticipated warranty costs.................................. 447 544
Accrued sales representative commissions.................... 421 479
Income taxes payable........................................ 39 450
Other accrued liabilities................................... 591 758
------ ------
$2,383 $3,949
====== ======
</TABLE>
(6) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and obligations under capital leases consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
7.71% term loan payable to financial institution, due in
monthly installments of $52 including interest through
February 2002, secured by accounts receivable,
inventories, equipment and certain intangibles............ $1,758 $1,249
9.00% note payable, due in quarterly installments of $24,
including interest through July 2000...................... 136 49
10.00% note payable, due in monthly installments of $2
including interest through July 2008...................... 166 149
11.67% obligation under capital lease, net of interest, due
in monthly installments of $2 including interest through
October 2001.............................................. 68 47
11.30% obligation under capital lease, net of interest, due
in monthly installments of $2 including interest through
May 2000.................................................. 37 18
------ ------
2,165 1,512
Current portion of long-term debt and obligations under
capital leases............................................ 652 653
------ ------
$1,513 $ 859
====== ======
</TABLE>
The term loan payable to financial institution contains certain covenants,
including a covenant for debt service coverage ratio. Cascade was in compliance
with all covenant requirements at December 31, 1999.
F-13
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(6) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
The aggregate maturities of long-term debt and capital leases are as
follows:
<TABLE>
<S> <C>
Year ending December 31:
2000...................................................... $ 653
2001...................................................... 630
2002...................................................... 118
2003...................................................... 16
2004...................................................... 17
Thereafter................................................ 78
------
$1,512
======
</TABLE>
(7) PROVISION FOR INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 430 $ (859) $1,175
State............................................ 64 3 105
Foreign.......................................... 319 157 201
------ ------- ------
Total current.................................. 813 (699) 1,481
------ ------- ------
Deferred:
Federal.......................................... (212) (19) (178)
State............................................ (47) (9) (43)
Foreign.......................................... (31) (3) (37)
------ ------- ------
Total deferred................................. (290) (31) (258)
------ ------- ------
Provision (benefit) for income taxes........... $ 523 $ (730) $1,223
====== ======= ======
</TABLE>
Domestic and foreign pre-tax income (loss) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Domestic........................................... $ 599 $(2,116) $3,208
Foreign............................................ 595 409 489
------ ------- ------
$1,194 $(1,707) $3,697
====== ======= ======
</TABLE>
F-14
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The provision (benefit) for income taxes vary from the amounts computed by
applying the Federal statutory rate to income (loss) before income taxes as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Federal income tax (benefit) computed at statutory 34.0% (34.0)% 34.0%
rates................................................
Foreign sales corporation tax benefit.................. (4.1) -- (1.5)
Difference in foreign tax rate......................... 6.0 1.1 0.6
State income taxes, net of federal benefit............. 2.7 (5.1) 4.0
Tax credits............................................ (5.6) (2.7) (1.4)
Changes in valuation allowance......................... -- 6.4 (3.0)
Other.................................................. 10.8 (8.5) 0.4
---- ----- ----
Effective tax rate..................................... 43.8% (42.8)% 33.1%
==== ===== ====
</TABLE>
Significant components of deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Reserves and allowances................................... $ 531 $ 742
Accrued vacation.......................................... 88 141
Depreciation of fixed assets.............................. 59 --
Retirement benefit........................................ 114 163
Deferred intercompany profit.............................. 230 315
State net operating loss carryforward..................... 105 --
Other deferred tax assets................................. 207 205
------ ------
Gross deferred tax assets............................. 1,334 1,566
Valuation allowance....................................... (110) --
------ ------
Total deferred tax assets............................. 1,224 1,566
------ ------
Deferred tax liabilities:
Amortization of patents................................... 377 414
Depreciation of fixed assets.............................. -- 62
Other deferred tax liabilities............................ 15 --
------ ------
Total deferred tax liabilities........................ 392 476
------ ------
Net deferred tax assets............................... $ 832 $1,090
====== ======
</TABLE>
Cascade did not record a valuation allowance at December 31, 1999 as
management believes it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the net deferred
tax assets. The $110 reduction of the valuation allowance established in 1998 is
primarily due to utilization of the previously reserved net operating loss
carryforward.
At December 31, 1999, Cascade has no operating loss carryforward to offset
future taxable income. In 1999, Cascade received income tax refunds from net
operating loss carrybacks aggregating $866.
F-15
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(8) REDEEMABLE CONVERTIBLE PREFERRED STOCK
In 1999, Cascade designated 1,500 shares of authorized preferred stock as
Series C redeemable convertible preferred stock (Series C), of which 1,250
shares are issued and outstanding at December 31, 1999. At any time after
December 2004, holders of 50% or more of the Series C then outstanding are
entitled to sell, and Cascade is obligated to purchase all of the Series C at a
purchase price equal to the original cost plus 9% interest compounded annually.
Cascade may pay all or any portion of the purchase price in one or more
unsecured notes payable in three equal installments of principal and interest at
an annual rate of 6%. The put right terminates upon the occurrence of any of the
same conditions as would effect an automatic conversion, as discussed herein.
See note 9 for a description of additional features of the Series C.
PREFERRED STOCK WARRANTS
In December 1999, in connection with the Series C financing, Cascade issued
warrants for the purchase of 250 shares of the Series C. The Series C warrants
are exercisable at any time before December 31, 2002. The exercise price prior
to December 31, 2000 is $10 per share. After that period, the exercise price is
based on defined criteria in the agreement. The fair value of the warrant was
determined using the Black-Scholes valuation model with the following
assumptions: no dividend yield; risk-free interest rate of 6.19%; expected
volatility of 81%; and contractual life of three years. The allocated value was
$924 at December 31, 1999.
(9) SHAREHOLDERS' EQUITY
(A) CONVERTIBLE PREFERRED STOCK
Cascade has designated 1,337 shares of preferred stock as Series A
convertible preferred stock (Series A) and 1,009 shares of preferred stock as
Series B convertible preferred stock (Series B). Cascade has also designated and
issued shares of Series C. Significant terms of the Series A, Series B and
Series C are summarized below:
DIVIDENDS
Series A, Series B and Series C shareholders are entitled to receive
annual dividends at the rate of $0.251, $0.60 and $0.80 per share,
respectively. Such dividends are payable when and if declared by the Board
of Directors and are noncumulative.
LIQUIDATION PREFERENCES
Upon liquidation, dissolution or winding up of Cascade, Series A,
Series B and Series C shareholders are entitled to receive, prior and in
preference to any distribution to common shareholders, $2.51, $6.00 and
$8.00 per share, respectively, plus all accrued or declared but unpaid
dividends. The common shareholders are entitled to receive, prior and in
preference to any further distribution to Series A, Series B and Series C
shareholders, $1.70 per share, plus all accrued or declared but unpaid
dividends. After such payment, any remaining assets will be distributed
among common shareholders and preferred shareholders in proportion to the
common stock held and the
F-16
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(9) SHAREHOLDERS' EQUITY (CONTINUED)
shares of common stock into which the shares of Series A, Series B and
Series C could be converted.
VOTING
Each Series A, Series B and Series C shareholder is entitled to the
number of votes equal to the number of shares of common stock into which
such shares of Series A, Series B and Series C could be converted.
CONVERSION
At any time, Series A, Series B and Series C shareholders are entitled
to convert their shares into common stock as is determined by dividing
$2.51, $6.00 and $8.00, respectively, by the conversion price applicable to
each share in effect on the date the certificate is surrendered for
conversion. Each share of Series A, Series B and Series C preferred stock
will automatically be converted into shares of common stock at the then
effective conversion price upon the earlier of (i) the date specified by
vote or written consent or agreement of holders of at least a majority of
the shares of Series A, Series B and Series C then outstanding, in
furtherance of (a) the sale of Cascade's common stock in a firm commitment,
underwritten public offering registered under the Securities Act of 1933, as
amended (Securities Act), (b) the acquisition of Cascade by means of merger
or other form of corporate reorganization in which more than 50% of the
outstanding shares of Cascade are exchanged, or (c) the sale of all or
substantially all of the assets of Cascade; or (ii) the date on which a
majority of the shares of Series A and Series B and all of the Series C
originally issued has been converted into shares of Cascade's common stock
or redeemed; or (iii) immediately upon the closing of the sale of Cascade's
common stock in a firm commitment, underwritten public offering registered
under the Securities Act at a public offering price equal to or exceeding
125% of the conversion price of the Series C and the aggregate proceeds to
Cascade and any selling shareholders exceeds $20,000.
Cascade has reserved 1,337 shares of common stock for conversion of the
Series A, 1009 shares for conversion of the Series B, 1,250 shares for
conversion of the Series C, and 250 shares for exercise and conversion of
Series C warrants.
(B) INVESTORS' RIGHTS AGREEMENT
Cascade and its principal shareholders have entered into an Investors'
Rights Agreement that provides a repurchase option, right of first refusal and
other rights.
REPURCHASE OPTION
Cascade or its designee has the option to repurchase all shares held by any
significant shareholder that such shareholder proposes to sell, assign, pledge,
encumber, transfer or otherwise dispose of for value to a competitor. Such
repurchase will be at the same terms and conditions specified in a bona fide
third party offer for any or all of such securities. The repurchase option
lapses upon an initial public offering.
F-17
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(9) SHAREHOLDERS' EQUITY (CONTINUED)
RIGHT OF FIRST REFUSAL
Each significant common and preferred shareholder has the right of first
refusal to purchase its pro rata share of any new issuance of equity securities.
This right lapses upon an initial public offering.
(C) STOCK PUT AGREEMENT
Cascade has a stock put agreement with one of Cascade's original founders.
As part of the agreement, at the founder's annual option on or before July 1,
Cascade must purchase shares valued at up to $150 based on Cascade's last annual
valuation. Additional shares may be purchased at Cascade's discretion if so
agreed to by the founder. During 1998 and 1999, Cascade did not repurchase any
shares. During 1997, the Cascade repurchased 48 shares at $3.10 per share. At
December 31, 1997, 1998 and 1999, 536 shares are subject to this put agreement.
The stock put agreement will terminate upon the earlier of (i) the effectiveness
of a registration statement relating to an offering of Cascade's common stock
under the Securities Act of 1933, as amended, which results in aggregate
proceeds of at least $7,500 at a price per share of at least $6.00, (ii) a
merger or consolidation to which Cascade is a party and pursuant to which
(a) Cascade's shareholders exchange such shares for cash and/or tradable
securities, (b) Cascade is not the surviving corporation, and (c) the other
party does not control or is not controlled by or under common control with
Cascade immediately prior to such merger or consolidation.
(D) COMMON STOCK WARRANT
In 1998 Cascade issued a warrant for the purchase of 15 shares of common
stock. The warrant entitled the holder to additional shares upon the
satisfaction of certain conditions, as defined in the agreement. During 1999,
one such condition occurred, increasing the number of shares eligible for
purchase under the warrant to 25. The warrant is exercisable at $3.80 per share
and expires on December 31, 2003. The fair value of the initial 15 shares and
the additional 10 shares under the warrant was determined using the
Black-Scholes valuation model with the following assumptions: no dividend yield;
risk-free interest rates of 4.45% and 6.19%, respectively; expected volatility
of 81%; and contractual lives of 5 and 4.5 years, respectively. The fair value
of these warrants is not material to the financial statements.
(E) NOTES RECEIVABLE FOR COMMON STOCK
Cascade has sold shares of common stock for notes receivable. The notes are
due and payable at various dates and bear interest at various rates. The notes
are full recourse notes and are secured by the shares of common stock issued
thereunder.
(F) STOCK OPTIONS
The 1993 Stock Incentive Plan (the 1993 Plan) provides for the granting to
employees of either incentive stock options or non-qualified stock options.
Incentive stock options must be granted at an exercise price not less than 100%
of the fair market value per share at the grant date. Non-qualified stock
options granted or shares sold under the 1993 Plan cannot be granted or sold at
a price less than
F-18
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(9) SHAREHOLDERS' EQUITY (CONTINUED)
85% of the fair market value per share at the date of grant or sale. The term of
options granted under the 1993 Plan is generally ten years, and the right to
exercise options granted generally vests 20% each year, with varying initial
holding periods. Cascade has reserved 1,833 shares of common stock for issuance
under the 1993 Plan at December 31, 1999.
The 1993 Plan shall continue in effect for ten years unless terminated
sooner pursuant to the plan's provisions.
At December 31, 1997, 1998 and 1999, there were 236, 243 and 335 additional
shares available for grant under the 1993 Plan, respectively. The per share
weighted-average fair value of stock options granted during the years ended
December 31, 1997, 1998 and 1999 was $0.91, $0.89 and $2.35, respectively, on
the date of grant using the Minimum Value option-pricing model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Expected dividend yield........................... -0-% -0-% -0-%
Risk-free interest rate........................... 5.77% 4.45% 6.19%
Expected life..................................... 6 years 6 years 6 years
</TABLE>
Cascade accounts for stock options granted as prescribed under APB Opinion
25. Accordingly, no compensation cost has been recognized in the consolidated
statements of operations. Had compensation cost been determined based upon the
fair value of the stock options at grant date consistent with the method SFAS
No. 123, Cascade's net income (loss) would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) attributed to common shareholders:
As reported....................................... $ 671 $ (977) $2,435
Pro forma......................................... 582 (1,048) 2,333
Basic net income (loss) per share:
As reported....................................... $0.15 $ (0.21) $ 0.49
Pro forma......................................... 0.13 (0.22) 0.48
Diluted net income (loss) per share:
As reported....................................... $0.10 $ (0.21) $ 0.32
Pro forma......................................... 0.09 (0.22) 0.31
</TABLE>
Pro forma net income (loss) reflects only options granted subsequent to
January 1, 1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net income
(loss) amounts presented above because compensation cost is reflected over the
options' vesting period of 5 years and compensation cost for options granted
prior to January 1, 1995 is not considered.
F-19
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(9) SHAREHOLDERS' EQUITY (CONTINUED)
Stock option activity for each of the years in the three-year period ended
December 31, 1999 and the six-month period ended June 30, 2000, is as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1996............ 1,465 $ 1.54
Granted............................................. 255 3.10
Exercised........................................... (120) (.86)
Forfeited........................................... (54) (1.73)
-----
Options outstanding at December 31, 1997............ 1,546 1.84
Granted............................................. 117 3.80
Exercised........................................... (188) (.91)
Forfeited........................................... (130) (2.23)
-----
Options outstanding at December 31, 1998............ 1,345 2.11
Granted............................................. 250 3.81
Exercised........................................... (36) (1.35)
Forfeited........................................... (61) (2.84)
-----
Options outstanding at December 31, 1999............ 1,498 2.38
Granted (unaudited)................................. 178 5.16
Exercised (unaudited)............................... (112) (2.25)
Forfeited (unaudited)............................... (39) (3.29)
-----
Options outstanding at June 30, 2000 (unaudited).... 1,525 $ 2.69
=====
</TABLE>
The following information relates to options outstanding and exercisable
under the 1993 plan at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED-AVERAGE OPTIONS EXERCISABLE
RANGE OF REMAINING ------------------------------
EXERCISE NUMBER OF CONTRACTUAL LIFE WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
PRICES OPTIONS (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------------ --------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.80--1.00 497 2.98 $0.88 497 $0.88
1.80--2.50 215 5.50 2.05 172 2.04
3.10--3.10 433 7.27 3.10 230 3.10
3.80--5.00 353 9.47 3.81 26 3.80
----- ---
$ 0.80--5.00 1,498 6.11 $2.38 925 $1.73
===== ===
</TABLE>
F-20
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(10) RELATED PARTY TRANSACTIONS
Cascade had sales of approximately $752, $606 and $1,099 in 1997, 1998 and
1999, respectively, to Hewlett-Packard Company, a holder of the Cascade's
Series A and Series B convertible preferred stock. At December 31, 1998 and
1999, $78 and $387, respectively, was receivable from Hewlett-Packard. Cascade
also purchased goods and services from Hewlett-Packard of approximately $223,
$220 and $400 in 1997, 1998 and 1999, respectively. During 1999, Hewlett-Packard
created a separate company; Agilent Technologies, Inc., which is comprised of
Hewlett-Packard's test and measurement, semiconductor products and certain other
businesses. Cascade will continue to conduct business with both companies.
Consolidated sales for 1999 include $2,000 of license revenue pursuant to a
license agreement between Cascade and Electroglas, Inc., a holder of the
Cascade's Series B convertible preferred stock. The July 1999 agreement provides
the right to incorporate certain of Cascade's technologies into certain products
manufactured by Electroglas. Cascade has no further obligations under the
license agreement. Electroglas has also agreed to pay Cascade royalty fees based
on the sale or lease of products manufactured with the purchased technology. No
royalty fees were earned in 1999. Cascade also made purchases of approximately
$11 in 1999 from Electroglas.
(11) EMPLOYEE BENEFIT PLAN
Cascade sponsors a 401(k) savings plan (the Plan) which allows eligible
employees to contribute a certain percentage of their salary to the Plan.
Cascade matches 40% of eligible employee's contributions, up to a maximum of 2%
of the employees earnings. Cascade's matching contribution for the savings plan
was $119, $141 and $95 for 1997, 1998 and 1999, respectively.
(12) COMMITMENTS AND CONTINGENCIES
(A) OPERATING LEASES AND SUBLEASES
Cascade leases office and manufacturing space under operating leases that
expire at various dates through 2009. In addition to lease expense, Cascade pays
real property taxes, insurance, and repair and maintenance expenses for its
corporate office and manufacturing facility. Lease expense was $1,009, $1,610
and $2,765 for 1997, 1998 and 1999, respectively. Future minimum lease payments
and sublease
F-21
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
rentals under non-cancelable operating leases with initial or remaining terms in
excess of one year as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
LESS
SUBLEASE NET RENTAL
COMMITMENTS RENTALS COMMITMENTS
----------- -------- -----------
<S> <C> <C> <C>
Year ending December 31:
2000...................................... $ 2,605 $334 $ 2,271
2001...................................... 3,149 374 2,775
2002...................................... 1,939 89 1,850
2003...................................... 1,876 -- 1,876
2004...................................... 1,960 -- 1,960
Thereafter................................ 7,996 -- 7,996
------- ---- -------
$19,525 $797 $18,728
======= ==== =======
</TABLE>
(B) LEGAL PROCEEDINGS
Cascade is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
Cascade's financial position, results of operations or liquidity.
(13) SEGMENT INFORMATION
Cascade operates in one segment and is involved in the development,
manufacturing and selling of wafer probing solutions.
(A) PRODUCT LINES
Cascade's consolidated net sales by product lines are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Probe stations................................... $31,405 $32,384 $39,843
Analytical probes................................ 7,136 7,329 8,442
Production probe cards........................... 1,781 1,884 3,245
------- ------- -------
$40,322 $41,597 $51,530
======= ======= =======
</TABLE>
F-22
<PAGE>
CASCADE MICROTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(13) SEGMENT INFORMATION (CONTINUED)
(B) GEOGRAPHIC INFORMATION
Cascade's geographic revenues and identifiable assets are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Geographic revenues:
United States.................................. $18,049 $19,835 $25,465
Japan.......................................... 10,670 10,240 11,011
Other.......................................... 11,603 11,522 15,054
------- ------- -------
$40,322 $41,597 $51,530
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Identifiable assets:
United States........................................... $15,354 $31,725
Japan................................................... 3,317 4,385
United Kingdom.......................................... 836 1,049
------- -------
$19,507 $37,159
======= =======
</TABLE>
(14) UNAUDITED RECENT DEVELOPMENTS
On September 27, 2000, Cascade signed a commitment letter for a $5,000
revolving line of credit with a bank. This line of credit will expire on
September 30, 2001. All borrowings under this line will bear interest at the
bank's prime rate. Alternatively, Cascade has the option to incur interest on
borrowings under the line at LIBOR or quoted Bankers Acceptance rates plus a
spread based on Cascade's ratio of debt to tangible net worth. The line of
credit will be unsecured. The line of credit will require Cascade to maintain
quarterly financial covenants, including a minimum tangible net worth, minimum
quick ratio and maximum leverage ratio.
On September 27, 2000, Cascade received a committment letter from a bank for
a foreign exchange facility that provides for issuance of forward and spot
currency contracts up to $40,000. The facility will allow for a maximum forward
settlement date of 13 months, with maturity not to exceed March 31, 2002. Rates
and availability are subject to current market conditions.
F-23
<PAGE>
Description of Back Inside Cover Art
The graphic is entitled: "Our products enable the precise electrical and
lightwave measurements..." and "...required to develop next-generation
semiconductors" that frames, by placement at the top and bottom of the page,
photos of our S300 Series Probe Station--captioned "S300 Series Probe Station
for testing 300mm wafers"--and our analytical probes--captioned "Analytical
Probes on GaAs (gallium arsenide) wafer," above an array of photos of end-user
products that incorporate or are enabled by the types of semiconductors that
customers develop and test using our products. Beneath the photo of the
analytical probes and above the end-user products photos is a photo of a
semiconductor chip captioned "Integrated Circuit or Optoelectronic Device."
Directly beneath the semiconductor chip photo are four photos of end-user
products that incorporate the types of semiconductors that customers develop and
test using our products: a photo of a laptop computer, a photo of a
wireless-connected home refrigerator, a photo of telecommunications
infrastructure equipment and a photo of a cell phone with a video display. At
the lower right is the Cascade Microtech logo with the tagline: "Innovating Test
Technologies for better measurements faster."
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
______________ SHARES
[LOGO]
Cascade Microtech, Inc.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
SG COWEN
CHASE H&Q
ADAMS, HARKNESS & HILL, INC.
FIRST SECURITY VAN KASPER
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following table sets forth the costs and expenses expected to be
incurred by the Registrant in connection with the offering described in this
registration statement.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 18,216
NASD Filing Fee............................................. 30,500
Nasdaq Listing Fee.......................................... 95,000
Printing Expenses........................................... 200,000
Accounting Fees and Expenses................................ 300,000
Legal Fees and Expenses..................................... 300,000
Transfer Agent and Registrar Fees........................... 15,000
Miscellaneous Expenses...................................... 15,000
----------
Total..................................................... $ 973,716
==========
</TABLE>
------------------------
* All amounts are estimates except the SEC registration fee, the NASD filing
fee and the Nasdaq listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As an Oregon corporation, we are subject to the Oregon Business Corporation
Act ("OBCA") and the exculpation from liability and indemnification provisions
contained therein. Pursuant to Section 60.047(2)(d) of the OBCA, Article 4 of
our Second Amended Restated Articles of Incorporation (the "Restated Articles")
eliminates the liability of our directors to us or our shareholders, except for
any liability related to breach of the duty of loyalty, actions not in good
faith and certain other liabilities.
Section 60.387 et seq. of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnify against the reasonable
expenses associated with such claims. Corporations may not indemnify against
breaches of the duty of loyalty. The OBCA provides for mandatory indemnification
of directors against all reasonable expenses incurred in the successful defense
of any claim made or threatened whether or not such claim was by or in the right
of the corporation. Finally, a court may order indemnification if it determines
that the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances whether or not the
director or officer met the good faith and reasonable belief standards of
conduct set out in the statute. Article IV of the Restated Articles requires us
to indemnify our directors and officers to the fullest extent not prohibited by
law.
The OBCA also provides that the statutory indemnification provisions are not
deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
shareholders or otherwise.
We also have entered into indemnity agreements with each of our executive
officers and each member of our board of directors. These indemnity agreements
provide for indemnification of the indemnitee to the fullest extent allowed by
law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years prior to the effective date of this registration
statement, we have issued and sold the following unregistered securities:
- Between November 8, 1998 and March 31, 1999, we issued and sold 27,879
shares of common stock to employees in lieu of $105,941 in aggregate
compensation to such employees pursuant to a voluntary stock-in-lieu of
salary program whereby each employee could elect to receive up to 15% of
his or her net pay in shares of our common stock at $3.80 per share.
- On March 30, 1999, we issued and sold 504,167 shares of Series B preferred
stock to investors for aggregate consideration of $3,025,002 in cash.
- On July 21, 1999, we issued and sold 505,000 shares of Series B preferred
stock to investors for an aggregate consideration of $3,030,000 in cash.
- On December 16, 1999, we issued and sold 1,250,000 shares of Series C
preferred stock and a warrant to purchase an additional 250,000 shares of
Series C preferred stock to an investor for aggregate consideration of
$10,000,000 in cash.
- Since September 30, 1997, we have granted options to purchase 738,843
shares of common stock to our employees, consultants and other service
providers. As of September 29, 2000, 17,480 of those options have been
exercised for an aggregate consideration of $88,968 and options for 81,340
shares have been canceled, leaving 640,023 options outstanding.
Upon completion of the offering covered by this registration statement, all
outstanding shares of Series A, Series B and Series C preferred stock will
automatically convert into 3,596,486 shares of common stock.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act and/or Regulation D promulgated thereunder or Rule 701 promulgated under
Section 3(b) of the Securities Act as transactions by an issuer not involving
any public offering or transactions pursuant to compensation benefit plans and
contracts relating to compensation as provided under Rule 701. These sales were
made without general solicitation or advertising. The recipients of securities
in each such transaction represented their intentions to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof. Each purchaser was a sophisticated investor with access to
all relevant information necessary to evaluate the investment.
ITEM 16. EXHIBITS.
(a) The following exhibits as filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
------- --------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Cascade
Microtech, Inc., as amended.
3.2** Second Amended and Restated Articles of Incorporation of
Cascade Microtech, Inc.
3.3** Third Amended and Restated Articles of Incorporation of
Cascade Microtech, Inc.
3.4 Restated Bylaws of Cascade Microtech, Inc.
3.5** Second Amended and Restated Bylaws of Cascade Microtech,
Inc.
4.1 Reference is made to Exhibit 3.1
4.2 Investor Rights' Agreement for Series A Preferred Stock
Investors, dated May 1, 1990.
4.3 Investor Rights' Agreement for Series C Preferred Stock
Investors, dated December 16, 1999.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
------- --------
<C> <S>
4.4 Stock Purchase Warrant to Purchase Shares of Common Stock of
Cascade Microtech, Inc. dated December , 1998 granted to
Veber Investments V, L.L.C.
4.5 Cascade Microtech, Inc. Series C Preferred Stock Purchase
Warrant dated December 16, 1999 issued to Teachers
Insurance and Annuity Association of America.
5.1* Opinion of Ater Wynne LLP as to the legality of the Common
Stock being registered.
10.1 Form of Indemnity Agreement between the Company and each of
its Officers and Directors.
10.2 Cascade Microtech, Inc. 1993 Stock Incentive Plan, as
amended.
10.3** Cascade Microtech, Inc. 2000 Stock Incentive Plan.
10.4** Cascade Microtech, Inc. 2000 Employee Stock Purchase Plan.
10.5 Executive Employment Agreement between Cascade
Microtech, Inc. and Craig M. Swanson, dated October 11,
1999.
10.6 Loan and Security Agreement between Silicon Valley Bank and
Cascade Microtech, Inc. dated February 19, 1998, and Loan
Modification Agreements dated March 17, 1998,
February 18, 1999, May 7, 1999 and June 14, 1999 attached
thereto.
10.7 Lease Agreement between Poplar Development Company, III and
Cascade Microtech, Inc. dated October 28, 1986, as
amended.
10.8 Lease Agreement between Spieker Properties, L.P. and Cascade
Microtech, Inc. dated April 2, 1999.
10.9 Lease Agreements I and II between Amberjack, Ltd. and
Cascade Microtech, Inc. dated August 20, 1997, and
Amendment No. 2 to Lease Agreement I dated July 23, 1998,
and Amendment No. 2 to Lease Agreement II dated April 12,
1999.
10.10 Lease Agreement between Sumitomo Realty and Development Co.,
Ltd. and Cascade Microtech Japan, Inc., as amended.
10.11 Joint Development Agreement between Cascade Microtech, Inc.
and Electroglas, Inc., dated June 18, 1999.
10.12 Amendment to the Joint Development Agreement between Cascade
Microtech, Inc. and Electroglas, Inc., effective March 1,
2000.
10.13+ License Agreement between Cascade Microtech, Inc. and
Electroglas, Inc. dated July 21, 1999.
10.14+ Patent License Agreement between Micronics Japan Co., Ltd,
Hewlett-Packard Japan, Ltd., and Cascade Microtech
Japan, Inc. dated July 28, 1997.
10.15 Executive Compensation Plan for 2000.
21.1 List of Subsidiaries.
23.1* Consent of Ater Wynne LLP. Reference is made to Exhibit 5.1.
23.2 Independent Auditors' Report on Schedule and Consent of KPMG
LLP.
24.1 Powers of Attorney. Reference is made to the signature
page hereof.
27.1 Financial Data Schedule.
</TABLE>
------------------------
* To be filed by amendment.
** To be filed by amendment prior to the effectiveness of this Registration
Statement if approved by the Board of Directors and Shareholders of Cascade
Microtech, as applicable.
+ Confidential Treatment requested as to certain portions of this exhibit.
(b) Schedules have been omitted since they are not required or are not
applicable or the required information is shown in the financial statement
or related notes.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
We hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
- to include any prospectus required by section 10(a)(3) of the Securities
Act;
- to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
- to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
(4) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreements certificates in such names as required by the
underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons, we have
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than our payment of expenses incurred or paid by
a director, officer or controlling person in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered hereunder, we will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-1 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Beaverton, State of Oregon, on September 29, 2000.
<TABLE>
<S> <C> <C>
CASCADE MICROTECH, INC.
By: /s/ ERIC W. STRID
-----------------------------------------
Eric W. Strid
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Eric W. Strid and Craig M. Swanson and each of
them singly, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and any
or all further amendments to said Registration Statement (including
post-effective amendments and new registration statements pursuant to Rule 462
or otherwise), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the foregoing, as full to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his substitute, may lawfully do
or cause to be done by virtue hereof.
Witness our hands on the date set forth below. Pursuant to the requirements
of the Securities Act, this Registration Statement has been duly signed by the
following persons in the capacities indicated on September 29, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ERIC W. STRID
------------------------------------ Chairman and Chief Executive Officer
Eric W. Strid (Principal Executive Officer)
/s/ CRAIG M. SWANSON Chief Financial Officer, Treasurer
------------------------------------ (Principal Financial Officer and Accounting
Craig M. Swanson Officer)
/s/ K. REED GLEASON
------------------------------------ Director
K. Reed Gleason
/s/ F. PAUL CARLSON
------------------------------------ Director
F. Paul Carlson
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ GEORGE P. O'LEARY
------------------------------------ Director
George P. O'Leary
/s/ WILLIAM R. SPIVEY
------------------------------------ Director
William R. Spivey
/s/ SCOTT R. WRIGHT
------------------------------------ Director
Scott R. Wright
/s/ CURTIS S. WOZNIAK
------------------------------------ Director
Curtis S. Wozniak
</TABLE>
II-6
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
CASCADE MICROTECH, INC.
(in thousands)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
--------------------------------------------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Reserves and allowances included in accrued
liabilities:
Warranty Reserve......................... $447 $423 $ -- $326 $544
Year ended December 31, 1998:
Reserves and allowances included in accrued
liabilities:
Warranty Reserve......................... $265 $839 $ -- $657 $447
Year ended December 31, 1997:
Reserves and allowances included in accrued
liabilities:
Warranty Reserve......................... $153 $554 $ -- $442 $265
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
(A) EXHIBITS:
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Cascade
Microtech, Inc., as amended.
3.2** Second Amended and Restated Articles of Incorporation of
Cascade Microtech, Inc.
3.3** Third Amended and Restated Articles of Incorporation of
Cascade Microtech, Inc.
3.4 Restated Bylaws of Cascade Microtech, Inc.
3.5** Second Amended and Restated Bylaws of Cascade Microtech,
Inc.
4.1 Reference is made to Exhibit 3.1
4.2 Investor Rights Agreement for Series A Preferred Stock
Investors, dated May 1, 1990.
4.3 Investor Rights Agreement for Series C Preferred Stock
Investors, dated December 16, 1999.
4.4 Stock Purchase Warrant to Purchase Shares of Common Stock of
Cascade Microtech, Inc. dated December , 1998 granted to
Veber Investments V, L.L.C.
4.5 Cascade Microtech, Inc. Series C Preferred Stock Purchase
Warrant dated December 16, 1999 issued to Teachers
Insurance and Annuity Association of America.
5.1* Opinion of Ater Wynne LLP as to the legality of the Common
Stock being registered.
10.1 Form of Indemnity Agreement between the Company and each of
its Officers and Directors.
10.2 Cascade Microtech, Inc. 1993 Stock Incentive Plan, as
amended.
10.3** Cascade Microtech, Inc. 2000 Stock Incentive Plan.
10.4** Cascade Microtech, Inc. 2000 Employee Stock Purchase Plan.
10.5 Executive Employment Agreement between Cascade
Microtech, Inc. and Craig M. Swanson, dated October 11,
1999.
10.6 Loan and Security Agreement between Silicon Valley Bank and
Cascade Microtech, Inc. dated February 19, 1998, and Loan
Modification Agreements dated March 17, 1998,
February 18, 1999, May 7, 1999 and June 14, 1999 attached
thereto.
10.7 Lease Agreement between Poplar Development Company, III and
Cascade Microtech, Inc. dated October 28, 1986, as
amended.
10.8 Lease Agreement between Spieker Properties, L.P. and Cascade
Microtech, Inc. dated April 2, 1999.
10.9 Lease Agreements I and II between Amberjack, Ltd. and
Cascade Microtech, Inc. dated August 20, 1997, and
Amendment No. 2 to Lease Agreement I dated July 23, 1998,
and Amendment No. 2 to Lease Agreement II dated April 12,
1999.
10.10 Lease Agreement between Sumitomo Realty and Development Co.,
Ltd. and Cascade Microtech Japan, Inc., as amended.
10.11 Joint Development Agreement between Cascade Microtech, Inc.
and Electroglas, Inc., dated June 18, 1999.
10.12 Amendment to the Joint Development Agreement between Cascade
Microtech, Inc. and Electroglas, Inc., effective March 1,
2000.
10.13+ License Agreement between Cascade Microtech, Inc. and
Electroglas, Inc. dated July 21, 1999.
10.14+ Patent License Agreement between Micronics Japan Co., Ltd,
Hewlett-Packard Japan, Ltd., and Cascade Microtech
Japan, Inc. dated July 28, 1997.
10.15 Executive Compensation Plan for 2000.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
21.1 List of Subsidiaries.
23.1* Consent of Ater Wynne LLP. Reference is made to Exhibit 5.1.
23.2 Independent Auditors' Report on Schedule and Consent of KPMG
LLP.
24.1 Powers of Attorney. Reference is made to the signature
page hereof.
27.1 Financial Data Schedule.
</TABLE>
------------------------
* To be filed by amendment.
** To be filed by amendment prior to the effectiveness of this Registration
Statement if approved by the Board of Directors and Shareholders of Cascade
Microtech, as applicable.
+ Confidential Treatment requested as to certain portions of this exhibit.
(b) Schedules have been omitted since they are not required or are not
applicable or the required information is shown in the financial statement
or related notes.
