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)

            OREGON                            3825                          93-0856709
(State or other jurisdiction of   (Primary Standard Industrial           (I.R.S. Employer
Incorporation or Organization)     Classification Code Number)        Identification Number)

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:

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


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

TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED   PROPOSED MAXIMUM AGGREGATE OFFERING PRICE (1)   AMOUNT OF REGISTRATION FEE
Common Stock, $0.01 par value                                         $69,000,000                             $18,216

(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.




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.


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.


                                                           PER
                                                           SHARE         TOTAL
Public offering price....................................   $             $
Underwriting discounts and commissions...................   $             $
Proceeds, before expenses, to Cascade Microtech..........   $             $

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


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."


TABLE OF CONTENTS

                                       PAGE
                                       ----
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

Business.............................    34
Management...........................    50
                                       PAGE
                                       ----
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


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.


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;

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- 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.

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THE OFFERING

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


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.

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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.

                                                                                                SIX MONTHS ENDED
                                                      YEAR ENDED DECEMBER 31,                       JUNE 30,
                                        ----------------------------------------------------   -------------------
                                          1995       1996       1997       1998       1999       1999       2000
                                        --------   --------   --------   --------   --------   --------   --------
                                                                                                   (UNAUDITED)
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
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

                                                                       JUNE 30, 2000
                                                              --------------------------------
                                                                                     PRO FORMA
                                                                                        AS
                                                               ACTUAL    PRO FORMA   ADJUSTED
                                                              --------   ---------   ---------
                                                                        (UNAUDITED)
                                                                       (IN THOUSANDS)
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

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.

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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

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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;

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- 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

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

12

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

13

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.

16

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,

17

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

19

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.

                                                                        JUNE 30, 2000
                                                              ----------------------------------
                                                                                      PRO FORMA
                                                               ACTUAL    PRO FORMA   AS ADJUSTED
                                                              --------   ---------   -----------
                                                              (IN THOUSANDS, EXCEPT SHARE DATA)
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    $
                                                              =======     =======    ===========

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:

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.........................              $
                                                                          =====

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.

                                        SHARES PURCHASED                TOTAL CONSIDERATION
                                  ----------------------------      ----------------------------      AVERAGE PRICE
                                    NUMBER           PERCENT          AMOUNT           PERCENT          PER SHARE
                                  -----------      -----------      -----------      -----------      -------------
Existing shareholders.......        8,565,603                 %     $20,081,446                 %      $      2.34
New investors...............
                                  -----------      -----------      -----------      -----------
  Total.....................                             100.0%     $                      100.0%
                                  ===========      ===========      ===========      ===========

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.

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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.

                                                                                                                  SIX MONTHS
                                                                     YEAR ENDED DECEMBER 31,                    ENDED JUNE 30,
                                                       ----------------------------------------------------   -------------------
                                                         1995       1996       1997       1998       1999       1999       2000
                                                       --------   --------   --------   --------   --------   --------   --------
                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
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

                                                                              DECEMBER 31,
                                                                     ------------------------------
                                                                       1995       1996       1997
                                                                     --------   --------   --------
                                                                             (IN THOUSANDS)
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

                                                             DECEMBER 31,
                                                          -------------------   JUNE 30,
                                                            1998       1999       2000
                                                          --------   --------   ---------
                                                                  (IN THOUSANDS)
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

24

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

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.

                                                                                                      SIX MONTHS
                                                                 YEAR ENDED DECEMBER 31,            ENDED JUNE 30,
                                                             --------------------------------    --------------------
                                                               1997        1998        1999        1999        2000
                                                             --------    --------    --------    --------    --------
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%
                                                              =====       =====       =====       =====       =====

26

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.

                                                                                   SIX MONTHS ENDED
                                                    YEAR ENDED DECEMBER 31,            JUNE 30,
                                                 ------------------------------   -------------------
                                                   1997       1998       1999       1999       2000
                                                 --------   --------   --------   --------   --------
                                                                    (IN THOUSANDS)
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
                                                 =======    =======    =======    =======    =======

                                                                                            SIX MONTHS ENDED
                                                             YEAR ENDED DECEMBER 31,            JUNE 30,
                                                          ------------------------------   -------------------
                                                            1997       1998       1999       1999       2000
                                                          --------   --------   --------   --------   --------
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%
                                                          =======    =======    =======    =======    =======

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

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

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

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.

                                                                         QUARTER ENDED
                                              -------------------------------------------------------------------
                                              MARCH 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MARCH 31,    JUNE 30,
                                                1999        1999       1999        1999        2000        2000
                                              ---------   --------   ---------   --------   ----------   --------
                                                                        (IN THOUSANDS)
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
                                               ======     =======     =======    =======      =======    =======

                                                                         QUARTER ENDED
                                              -------------------------------------------------------------------
                                              MARCH 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MARCH 31,   JUNE 30,
                                                1999        1999       1999        1999       2000        2000
                                              ---------   --------   ---------   --------   ---------   ---------
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%
                                               ======     =======     =======    =======     =======     =======

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

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

31

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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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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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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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:

                                                                TYPICAL CHIPS                      TEST
PRODUCT FAMILY                       BASIC FEATURES             AND DEVICES TESTED                 ENVIRONMENT

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

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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:

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

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:

NAME                                    AGE      POSITION(S)
----                                  --------   -----------
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


(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

                                                                        LONG TERM
                                                                       COMPENSATION
                                                                       ------------
                                                 ANNUAL COMPENSATION    SECURITIES
                                                 -------------------    UNDERLYING     ALL OTHER
NAME AND PRINCIPAL POSITIONS                      SALARY     BONUS       OPTIONS      COMPENSATION
----------------------------                     --------   --------   ------------   ------------
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


(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.

                                                         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% ($)      10% ($)
----                                      ----------   ----------   ---------   ----------   ----------   ----------
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.........................        --          --           --            --           --           --


(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.

                                                    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
----                                             -----------   -------------   -----------   -------------
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


(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

57

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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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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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

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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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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.

                                                                              PERCENTAGE OF SHARES
                                                                               BENEFICIALLY OWNED
                                                                 SHARES      ----------------------
                                                              BENEFICIALLY    BEFORE        AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER                             OWNED       OFFERING      OFFERING
------------------------------------                          ------------   --------      --------
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


* 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.

64

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

65

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.

66

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:

ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
----------------------------------------------------------
At effective date...........................................
90 days after effective date................................
180 days after effective date...............................
                                                              ----
After 180 days post-effective date..........................
                                                              ====

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.

67

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.

68

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.

                                                               NUMBER OF
UNDERWRITER                                                      SHARES
-----------                                                   ------------
SG Cowen Securities Corporation.............................
Chase Securities Inc........................................
Adams, Harkness & Hill, Inc.................................
First Security Van Kasper...................................
                                                              ============
  Total.....................................................

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.

                                                                        WITHOUT        WITH
                                                         PER SHARE      OPTION        OPTION
                                                        -----------   -----------   -----------
Public offering price.................................
Underwriting discounts and commissions................
Proceeds, before expenses, to Cascade Microtech.......

69

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

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

CASCADE MICROTECH, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                PAGE
                                                              --------
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

F-1

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

CASCADE MICROTECH, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

                                                                 DECEMBER 31,               JUNE 30,
                                                              -------------------   -------------------------
                                                                1998       1999        2000          2000
                                                              --------   --------   -----------   -----------
                                                                                    (UNAUDITED)   (PRO FORMA)
                                                                                                  (UNAUDITED)
                                                   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
                                                              =======    =======      =======       =======

See accompanying notes to consolidated financial statements.

F-3

CASCADE MICROTECH, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                                                   SIX MONTHS ENDED
                                                    YEAR ENDED DECEMBER 31,            JUNE 30,
                                                 ------------------------------   -------------------
                                                   1997       1998       1999       1999       2000
                                                 --------   --------   --------   --------   --------
                                                                                      (UNAUDITED)
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

See accompanying notes to consolidated financial statements.

F-4

CASCADE MICROTECH,INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY

(IN THOUSANDS)

                                                    REDEEMABLE
                                                    CONVERTIBLE           CONVERTIBLE
                                                  PREFERRED STOCK       PREFERRED STOCK        COMMON STOCK       DEFERRED
                                                -------------------   -------------------   -------------------   STOCK-BASED
                                                SHARES     AMOUNT     SHARES     AMOUNT     SHARES     AMOUNT     COMPENSATION
                                                --------   --------   --------   --------   --------   --------   -----------
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)
                                                 =====     =======     =====      ======     =====     =======       =====

                                                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
                                                 =====         ===         ======      =======

See accompanying notes to consolidated financial statements.

F-5

CASCADE MICROTECH, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

                                                                                                SIX MONTHS ENDED
                                                                 YEAR ENDED DECEMBER 31,            JUNE 30,
                                                              ------------------------------   -------------------
                                                                1997       1998       1999       1999       2000
                                                              --------   --------   --------   --------   --------
                                                                                                   (UNAUDITED)
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

See accompanying notes to consolidated financial statements.

F-6

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

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

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

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:

                                                        YEAR ENDED DECEMBER 31,                   SIX MONTHS ENDED JUNE 30,
                                              --------------------------------------------   ------------------------------------
                                                1997       1998       1999        1999         1999        2000          2000
                                              --------   --------   --------   -----------   --------   -----------   -----------
                                                                               (UNAUDITED)              (UNAUDITED)
                                                                               (PRO FORMA)                            (PRO FORMA)
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
                                               =====      =====      =====        =====       =====        =====         =====

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

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

CASCADE MICROTECH, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(2) INVENTORIES

Inventories consist of the following:

                                                                 DECEMBER 31,
                                                              -------------------
                                                                1998       1999
                                                              --------   --------
Raw materials...............................................   $2,312     $2,365
Work in process.............................................      275        745
Finished goods..............................................    3,129      3,144
                                                               ------     ------
                                                               $5,716     $6,254
                                                               ======     ======

(3) FIXED ASSETS

Fixed assets consist of the following:

                                                               DECEMBER 31,
                                                            -------------------
                                                              1998       1999
                                                            --------   --------
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
                                                            =======    =======

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

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:

                                                                 DECEMBER 31,
                                                              -------------------
                                                                1998       1999
                                                              --------   --------
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
                                                               ======     ======

(6) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES

Long-term debt and obligations under capital leases consist of the following:

                                                                 DECEMBER 31,
                                                              -------------------
                                                                1998       1999
                                                              --------   --------
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
                                                               ======     ======

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

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:

Year ending December 31:
  2000......................................................  $  653
  2001......................................................     630
  2002......................................................     118
  2003......................................................      16
  2004......................................................      17
  Thereafter................................................      78
                                                              ------
                                                              $1,512
                                                              ======

(7) PROVISION FOR INCOME TAXES

The provision (benefit) for income taxes consists of the following:

                                                        YEAR ENDED DECEMBER 31,
                                                     ------------------------------
                                                       1997       1998       1999
                                                     --------   --------   --------
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
                                                      ======    =======     ======

Domestic and foreign pre-tax income (loss) is as follows:

                                                        YEAR ENDED DECEMBER 31,
                                                     ------------------------------
                                                       1997       1998       1999
                                                     --------   --------   --------
Domestic...........................................   $  599    $(2,116)    $3,208
Foreign............................................      595        409        489
                                                      ------    -------     ------
                                                      $1,194    $(1,707)    $3,697
                                                      ======    =======     ======

F-14

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:

                                                               YEAR ENDED DECEMBER 31,
                                                         ------------------------------------
                                                           1997          1998          1999
                                                         --------      --------      --------
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%
                                                           ====         =====          ====

Significant components of deferred income tax assets and liabilities are as follows:

                                                                 DECEMBER 31,
                                                              -------------------
                                                                1998       1999
                                                              --------   --------
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
                                                               ======     ======

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

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

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

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

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:

                                                       YEAR ENDED DECEMBER 31,
                                                    ------------------------------
                                                      1997       1998       1999
                                                    --------   --------   --------
Expected dividend yield...........................      -0-%       -0-%       -0-%
Risk-free interest rate...........................     5.77%      4.45%      6.19%
Expected life.....................................  6 years    6 years    6 years

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:

                                                         YEAR ENDED DECEMBER 31,
                                                      ------------------------------
                                                        1997       1998       1999
                                                      --------   --------   --------
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

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

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:

                                                       NUMBER     WEIGHTED-AVERAGE
                                                      OF SHARES    EXERCISE PRICE
                                                      ---------   ----------------
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
                                                        =====

The following information relates to options outstanding and exercisable under the 1993 plan at December 31, 1999:

                                   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
------------------   ---------   ----------------   ----------------   -----------   ----------------
$       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
                       =====                                               ===

F-20

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

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:

                                                              LESS
                                                            SUBLEASE   NET RENTAL
                                              COMMITMENTS   RENTALS    COMMITMENTS
                                              -----------   --------   -----------
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
                                                =======       ====       =======

(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:

                                                      YEAR ENDED DECEMBER 31,
                                                   ------------------------------
                                                     1997       1998       1999
                                                   --------   --------   --------
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
                                                   =======    =======    =======

F-22

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:

                                                      YEAR ENDED DECEMBER 31,
                                                   ------------------------------
                                                     1997       1998       1999
                                                   --------   --------   --------
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
                                                   =======    =======    =======

                                                               DECEMBER 31,
                                                            -------------------
                                                              1998       1999
                                                            --------   --------
Identifiable assets:
  United States...........................................  $15,354    $31,725
  Japan...................................................    3,317      4,385
  United Kingdom..........................................      836      1,049
                                                            -------    -------
                                                            $19,507    $37,159
                                                            =======    =======

(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

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."




______________ SHARES

[LOGO]

Cascade Microtech, Inc.

COMMON STOCK


PROSPECTUS

SG COWEN
CHASE H&Q
ADAMS, HARKNESS & HILL, INC.
FIRST SECURITY VAN KASPER

, 2000




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.

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
                                                                ==========


* 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


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:

EXHIBIT
NO.                     DOCUMENT
-------                 --------
            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.

II-2


EXHIBIT
NO.                     DOCUMENT
-------                 --------
            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.


* 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


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


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.

CASCADE MICROTECH, INC.

By:              /s/ ERIC W. STRID
     -----------------------------------------
                   Eric W. Strid
              CHIEF EXECUTIVE OFFICER

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.

              SIGNATURE                                            TITLE
              ---------                                            -----

          /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

II-5


              SIGNATURE                                            TITLE
              ---------                                            -----
        /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

II-6


SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

CASCADE MICROTECH, INC.

(in thousands)

                                                                   ADDITIONS
                                                            -----------------------
                                               BALANCE AT   CHARGED TO   CHARGED TO
                                               BEGINNING    COSTS AND      OTHER                    BALANCE AT
DESCRIPTION                                    OF PERIOD     EXPENSES     ACCOUNTS    DEDUCTIONS   END OF PERIOD
---------------------------------------------  ----------   ----------   ----------   ----------   -------------
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

S-1

EXHIBIT INDEX

(A) EXHIBITS:

 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.


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.


* 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.


Exhibit 3.1

RESTATED ARTICLES OF INCORPORATION
OF
CASCADE MICROTECH, INC.

I, the undersigned, do hereby certify that the following are the Restated Articles of Incorporation of Cascade Microtech, Inc., an Oregon corporation, adopted May 29, 1990, and that these Restated Articles of Incorporation supersede and take the place of the heretofore existing Articles of Incorporation and Amendments thereto.

ARTICLE I

The name of this corporation shall be Cascade Microtech, Inc., and its existence shall be perpetual.

ARTICLE II

The purpose and the object of this corporation are to engage in any lawful activity for which corporations may be organized under the Oregon Business Corporation Act (Oregon Revised Statutes, Chapter 60), and by such statement the corporation shall have the power to engage in any lawful activity for which corporations may be organized under the foregoing Act, including, but not limited to, designing, manufacturing and selling microwave wafer probing equipment.

ARTICLE III

3.1 The corporation is authorized to issue two classes of shares, to be designated Preferred Stock ("Preferred Stock") and Common Stock ("Common Stock"), respectively. The total number of shares of capital stock that the corporation shall have authority to issue is sixteen million (16,000,000). The total number of shares of Preferred Stock that the corporation shall have authority to issue is four million (4,000,000). The total number of shares of Common Stock that the corporation shall have authority to issue is twelve million (12,000,000). The Preferred Stock shall have a par value of $0.01 per share, and the Common Stock shall have a par value of $0.01 per share.

3.2 The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the corporation (the "Board of Directors") is expressly authorized to provide for the issue of all or any of the shares of the Preferred Stock in one or more series and to fix the number of shares and to determine or alter for each such series such

1 - RESTATED ARTICLES OF INCORPORATION


voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other rights and such qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such shares (a "Preferred Stock Designation") and as may be permitted by the Oregon Business Corporation Act. The Board of Directors is also expressly authorized to increase or decrease (but not below the number of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.

(A) The first series of Preferred Stock shall consist of 1,337,319 shares and is hereby designated "Series A Preferred Stock."

(B) The powers, preferences, rights, restrictions and other matters relating to the Series A Preferred Stock are as follows:

(1) DIVIDENDS.

(a) The holders of the Series A Preferred Stock shall be entitled to receive dividends at the rate of $0.251 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) per annum, payable out of funds legally available therefor. Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be noncumulative.

No dividends (other than those payable solely in the form of Common Stock of the corporation) shall be paid on any Common Stock of the corporation during any fiscal year of the corporation until dividends in the total amount of $0.251 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) on the Series A Preferred Stock shall have been paid or declared and set apart during that fiscal year.

No right shall accrue to holders of shares of Series A Preferred Stock by reason of the fact that dividends on such shares are not declared in any prior year, and no undeclared or unpaid dividend shall bear or accrue any interest.

(b) In the event the corporation shall declare a distribution (other than any distribution described in Section (B)(2)) payable in securities of other persons, evidences of indebtedness issued by the corporation or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each such case, the holders of the Series A Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of the Series A Preferred Stock were the holders of the number of shares of Common Stock of the corporation into which their shares of

2 - RESTATED ARTICLES OF INCORPORATION


Series A Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the corporation entitled to receive such distribution.

(2) LIQUIDATION AND REORGANIZATION PREFERENCES.

(a) In the event of any liquidation, dissolution or winding up of the corporation, whether voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the corporation to the holders of the Common Stock by reason of their ownership thereof, the amount of $2.51 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares), plus all accrued or declared but unpaid dividends on such share for each share of Series A Preferred Stock then held by them. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive.

(b) After payment to the holders of Series A Preferred Stock of the full amount set forth in Section (B)(2)(a) above, the entire remaining assets and funds of the corporation legally available for distribution, if any, shall be distributed among the holders of the Common Stock and the Series A Preferred Stock in proportion to the shares of Common Stock then held by them and the shares of Common Stock which they then have the right to acquire upon conversion of the shares of Series A Preferred Stock then held by them.

(c) For purposes of this Section (B)(2), (i) any acquisition of the corporation by means of merger or other form of corporate reorganization in which more than 50% of the outstanding shares of the corporation are exchanged for securities or other consideration issued or caused to be issued by the acquiring corporation or its subsidiary (other than a mere reincorporation transaction), or (ii) a sale of all or substantially all of the assets of the corporation, shall be treated as a liquidation, dissolution or winding up of the corporation and shall entitle the holders of Series A Preferred Stock and Common Stock to receive at the closing, in cash, securities or other property (valued as provided in Section (B)(2)(d) below) amounts as follows:

(i) The holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any cash, securities or other property to the holders of the Common Stock by reason of their ownership thereof, the amount of $2.51 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares), plus all accrued or declared but unpaid dividends on such share for each share of Series A Preferred Stock then held by them. If upon the occurrence of such event, the cash, securities and other property thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then

3 - RESTATED ARTICLES OF INCORPORATION


the entire assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive;

(ii) After payment to the holders of Series A Preferred Stock of the full amount set forth in Section (B)(2)(c)(i) above, the holders of Common Stock shall be entitled to receive, prior and in preference to any further distribution of any cash, securities or other property to the holders of Series A Preferred Stock by reason of their ownership thereof, the amount of $1.70 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares), plus all accrued or declared but unpaid dividends on such share for each share of Common Stock then held by them. If upon the occurrence of such event, the cash, securities and other property thus distributed among the holders of Common Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of Common Stock in proportion to the preferential amount each such holder is otherwise entitled to receive; and

(iii) After payment to the holders of Series A Preferred Stock and Common Stock of the full amounts set forth above in Sections (B)(2)(c)(i) and (ii), respectively, any remaining cash, securities or other property legally available for distribution, if any, shall be distributed among the holders of the Common Stock and the Series A Preferred Stock in proportion to the shares of Common Stock then held by them and the shares of Common Stock which they then have the right to acquire upon conversion of the shares of Series A Preferred Stock then held by them.

(d) Whenever the distribution provided for in this
Section (B)(2) shall be payable in securities or property other than cash, the value of such distribution shall be the fair market value of such securities or other property as determined in good faith by the Board of Directors.

(3) VOTING RIGHTS; DIRECTORS.

(a) Each holder of shares of the Series A Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which such shares of Series A Preferred Stock could be converted and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class) and shall be entitled to notice of any shareholders, meeting in accordance with the Bylaws of the corporation. Fractional votes, however, shall not be permitted, and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series A Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). Each holder of Common Stock shall be entitled to one vote for each share of Common Stock held.

4 - RESTATED ARTICLES OF INCORPORATION


(b) The authorized number of directors of the Company shall be fixed by the Board of Directors, but in no event shall be fewer than four (4) or more than seven (7) members. The holders of a majority of the outstanding shares of Series A Preferred Stock, voting together as a class, shall be entitled to designate and elect one member of the Board of Directors, which member shall be subject to approval by the corporation, which approval shall not be unreasonably withheld. The holders of Series A Preferred Stock and the holders of Common Stock, voting together as a class, shall be entitled to designate and elect the remaining members of the Board of Directors.

(c) In the case of any vacancy in the office of a director designated and elected by the holders of the Series A Preferred Stock pursuant to Section (B)(3)(b) hereof, only the holders of Series A Preferred Stock, by affirmative vote of the holders of a majority of the outstanding shares thereof, may elect a successor to hold the office for the unexpired term of the director whose place shall be vacant, which successor shall be subject to approval by the corporation, which approval shall not be unreasonably withheld. Any director who shall have been elected by the holders of the Series A Preferred Stock and approved pursuant to Section (B)(3)(b) hereof or any director so elected and approved as provided in the preceding sentence hereof may be removed during the director's term of office, with or without cause, only by the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred Stock.

(4) CONVERSION.

The holders of Series A Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):

(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $2.51 by the Series A Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series A Preferred Stock (the "Series A Conversion Price") shall initially be $2.51 per share of Common Stock. Such initial Series A Conversion Price shall be adjusted as hereinafter provided.

(b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the then-effective Series A 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 Preferred Stock then outstanding, (ii) the date on which a majority of the shares of Series A Preferred Stock originally issued has been converted into shares of Common Stock or redeemed, or (iii) immediately upon the closing of the sale of the corporation's Common Stock in a firm commitment, underwritten

5 - RESTATED ARTICLES OF INCORPORATION


public offering registered under the Securities Act of 1933, as amended (the "Securities Act"), other than a registration relating solely to a transaction under Rule 145 under the Securities Act (or any successor thereto) or to an employee benefit plan of the corporation, at a public offering price (prior to underwriters, discounts and expenses) equal to or exceeding $6.00 per share of Common Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) and the aggregate proceeds to the corporation and any selling shareholders (after deduction for underwriters' discounts and expenses relating to the issuance, including without limitation fees of the corporation's counsel) of which exceed $7,500,000.

(c) MECHANICS OF CONVERSION.

(i) Before any holder of Series A Preferred Stock shall be entitled to convert the same into shares of Common Stock, the holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for such stock and shall give written notice to the corporation at such office that the holder elects to convert the same and shall state therein the name or names in which the holder wishes the certificate or certificates for shares of Common Stock to be issued. As soon as practicable thereafter, the corporation shall issue and deliver at such office to such holder of Series A Preferred Stock a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid. Such conversion shall 'be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series A Preferred Stock to be converted and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

(ii) If the conversion is in connection with an underwritten offering of securities pursuant to the Securities Act, the conversion, at the option of any holder tendering shares of Series A Preferred Stock for conversion, may be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Series A Preferred Stock shall not be deemed to have converted such Series A Preferred Stock until immediately prior to the closing of such sale of securities.

(d) ADJUSTMENTS TO SERIES A CONVERSION PRICE FOR CERTAIN DILUTING ISSUES.

(i) SPECIAL DEFINITIONS. For purposes of this
Section (B)(4)(d), the following definitions shall apply:

(1) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (as defined below).

6 - RESTATED ARTICLES OF INCORPORATION


(2) "Original Issue Date" shall mean the date on which a share of Series A Preferred Stock was first issued.

(3) "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock and Series A Preferred Stock) or other securities convertible into or exchangeable for Common Stock.

(4) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section (B)(4)(d)(iii), deemed to be issued) by the corporation after the original Issue Date, other than shares of Common Stock issued or issuable:

(A) upon conversion of shares of Series A Preferred Stock;

(B) pursuant to stock option or stock purchase plans or agreements on terms approved by the Board of Directors, to officers, directors or employees of, or consultants to, the corporation:

(1) who have provided services to the corporation in any such capacity beginning at any time up to but not including the Original Issue Date, but not exceeding 300,000 shares of Common Stock (net of any repurchases of such shares or cancellations or expirations of options); and

(2) who have provided or will provide services to the Company in any such capacity beginning at any time on or after the Original Issue Date, but not exceeding 400,000 shares of Common Stock (net of any repurchases of such shares or cancellations or expirations of options),

in each case subject to adjustment for any stock dividends, combinations or splits with respect to such shares;

(C) to officers, directors or employees of, or consultants to, the corporation

(1) which are repurchased by the corporation at the original issue price(s) thereof (but excluding any shares the issuance of which would have resulted in an adjustment of the Series A Conversion Price but for Section (B)(4)(d)(i)(4)(B)), provided that shares which are excluded from the definition of "Additional Shares of Common Stock" pursuant to this Section (B)(4)(d)(i)(4)(C) are reissued by the corporation at not less than such original issue price(s); or

7 - RESTATED ARTICLES OF INCORPORATION


(2) which become available for reissuance as a result of lapse without exercise of stock options;

(D) as a dividend or distribution on Series A Preferred Stock; or

(E) for which adjustment of the Series A Conversion Price is made pursuant to Section (B)(4)(e).

(ii) NO ADJUSTMENT OF CONVERSION PRICE. Any provision herein to the contrary notwithstanding, no adjustment in the Conversion Price for the Series A Preferred Stock shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section (B)(4)(d)(v) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Series A Conversion Price in effect on the date of and immediately prior to such issue.

(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities (other than issuances pursuant to clauses (A) through (E) of Section (B)(4)(d)(i)(4)) or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date; provided, however, that in any such case in which Additional Shares of Common Stock are deemed to be issued:

(1) no further adjustments in the Series A Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;

(2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the corporation or decrease or increase in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Series A Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon, shall be recomputed, upon any such increase or decrease becoming effective, to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible

8 - RESTATED ARTICLES OF INCORPORATION


Securities; provided, however, that no such adjustment of the Series A Conversion Price shall affect Common Stock previously issued upon conversion of the Series A Preferred Stock;

(3) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Series A Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:

(A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were the shares of Common Stock if any, actually issued upon the exercise of such options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange; and

(B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such options and the consideration received by the corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the corporation (determined pursuant to Section (B)(4)(d)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised;

(4) no readjustment pursuant to clause (2) or (3) above shall have the effect of increasing the Series A Conversion Price to an amount which exceeds the lower of (A) the Series A Conversion Price on the original adjustment date or (B) the Series A Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; and

(5) in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Series A Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (3) above.

(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the corporation, at any time after the Original Issue Date, shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to
Section (B)(4)(d)(iii)) without consideration or

9 - RESTATED ARTICLES OF INCORPORATION


for a consideration per share less than the Series A Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, the Series A Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the Series A Conversion Price by a fraction,

(1) the numerator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue plus (B) the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Series A Conversion Price in effect immediately prior to such issuance, and

(2) the denominator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue plus (B) the number of such Additional Shares of Common Stock so issued.

For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all shares of Series A Preferred Stock and all Convertible Securities had been fully converted into shares of Common Stock immediately prior to such issuance and any outstanding warrants, options or other rights for the purchase of shares of stock or convertible securities had been fully exercised immediately prior to such issuance (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date, but not including in such calculation any additional shares of Common Stock issuable with respect to shares of Series A Preferred Stock, Convertible Securities or outstanding options, warrants or other rights for the purchase of shares of stock or convertible securities solely as a result of the adjustment of the Series A Conversion Price (or other conversion ratio) resulting from the issuance of Additional Shares of Common Stock causing such adjustment.

(v) DETERMINATION OF CONSIDERATION. For purposes of this Section (B)(4)(d), the consideration received by the corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

(1) CASH AND PROPERTY. Such consideration:

(A) insofar as it consists of cash, shall be computed at the aggregate amount of cash received by the corporation excluding amounts paid or payable for accrued interest or accrued dividends;

(B) insofar as it consists of property other than cash, shall be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board; and

10 - RESTATED ARTICLES OF INCORPORATION


(C) insofar as it consists of cash and property, shall be computed as provided in clauses (A) and (B) above, prorated for the amount of each form of such consideration so received.

(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by the corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section (B)(4)(d)(iii) relating to Options and Convertible Securities shall be determined by dividing:

(A) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the corporation upon the exercise of such options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities,

by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities.

(e) ADJUSTMENTS TO CONVERSION PRICES FOR STOCK DIVIDENDS AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event that the corporation at any time or from time to time after the Original Issue Date shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock) or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the Series A Conversion Price in effect immediately prior to such event shall be proportionately decreased or increased, as appropriate, concurrently with the effectiveness of such event. In the event that the corporation shall declare or pay, without consideration, any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the corporation shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock.

(f) ADJUSTMENTS FOR RECLASSIFICATIONS AND REORGANIZATIONS. If the Common Stock issuable upon conversion of the Series A Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of

11 - RESTATED ARTICLES OF INCORPORATION


stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section (B)(4)(e) above or a merger or other reorganization referred to in Section (B)(2)(c) above), the Series A Conversion Price then in effect shall be proportionately adjusted, concurrently with the effectiveness of such reorganization or reclassification, so that the Series A Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series A Preferred Stock immediately before such change.

(g) NO IMPAIRMENT. The corporation will not, by amendment of its Restated Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section (B)(4) and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock against impairment.

(h) MINIMUM ADJUSTMENT. No adjustment of the Series A Conversion Price shall be made in an amount less than $.01 per share; provided, however, that any adjustments which are not required to be made as a result of the operation of this Section (B)(4)(h) shall be carried forward and shall be taken into account in any subsequent adjustment made prior to five years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in Section (B)(4)(d)(iii)(4). no adjustment of the Series A Conversion Price pursuant to Section (B)(4)(d)(iv) shall have the effect of increasing the Series A Conversion Price above the Series A Conversion Price in effect immediately prior to such adjustment.

(i) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Series A Conversion Price pursuant to this Section (B)(4), the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate executed by the corporation's President or Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation, upon the written request at any time of any holder of Series A Preferred Stock, shall furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Series A Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series A Preferred Stock.

12 - RESTATED ARTICLES OF INCORPORATION


(j) NOTICES OF RECORD DATE. In the event that the corporation shall propose at any time (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation or sell, lease or convey all or substantially all of its assets or to liquidate, dissolve or wind up, then, in connection with each such event, the corporation shall send to the holders of Series A Preferred Stock:

(1) at least 20 days, prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in Section (B)(4)(j)(iii) and (iv) above; and

(2) in the case of the matters referred to in Section (B)(4)(j)(iii) and (iv) above, at least 20 days, prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event).

(k) ISSUE TAXES. The corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series A Preferred Stock pursuant hereto; provided, however, that the corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

(l) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, such number of its shares of Common Stock as shall be sufficient from time to time to effect the conversion of all outstanding shares of Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, the corporation will take such corporate action as may be necessary, in the opinion of its counsel, to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including without limitation engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to these Restated Articles of Incorporation.

13 - RESTATED ARTICLES OF INCORPORATION


(m) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion of any share or shares of Series A Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the corporation, in lieu of issuing any fractional share, shall pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors).

(n) NOTICES. Any notice required by the provisions of this
Section (B)(4) to be given to the any holder of shares of Series A Preferred Stock shall be deemed given when personally delivered to such holder or when deposited in the United States mail, postage prepaid and addressed to such holder of record at the holder's address appearing on the books of the corporation.

(5) RESTRICTIONS AND LIMITATIONS.

As long as any shares of Series A Preferred Stock remain outstanding, the corporation, without the vote or written consent by the holders of at least a majority of the outstanding shares of Series A Preferred Stock, voting as a class, shall not:

(a) Redeem, purchase or otherwise acquire for value (or pay into or set aside for a sinking fund for each purpose) any share or shares of Preferred Stock otherwise than by conversion in accordance with Section (B)(4) hereof or any share or shares of Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any subsidiary pursuant to agreements under which the Company has the option to repurchase such shares at cost upon the occurrence of certain events, such as the termination of employment.

(b) Authorize or issue or obligate itself to issue, any other equity security (including any security convertible into or exercisable for any equity security) senior to the Series A Preferred Stock as to dividend or liquidation preferences or any other rights, preferences or privileges of or powers granted to the Series A Preferred Stock;

(c) Increase or decrease (other than by conversion) the total number of authorized shares of Preferred Stock;

(d) Change, amend, modify or otherwise alter any of the rights, preferences or privileges provided for herein for the benefit of any shares of Series A Preferred Stock; or

14 - RESTATED ARTICLES OF INCORPORATION


(e) Change the authorized number of directors of the corporation or the provisions for the election of Directors of the corporation by class vote contained in Section (B)(3)(b) above.

(6) NO REISSUANCE OF SERIES A PREFERRED STOCK.

No share or shares of Series A Preferred Stock acquired by the corporation by reason of repurchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the corporation shall be authorized to issue.

ARTICLE IV

No director of the corporation shall be personally liable to the corporation or its shareholders for monetary damages for conduct as a director; provided, however, that this Article IV shall not eliminate the liability of a director for any act or omission for which such elimination of liability is not permitted under the Oregon Business Corporation Act. No amendment to the Oregon Business Corporation Act that further limits the acts or omissions for which elimination of liability is permitted shall affect the liability of a director for any act or omission which occurs prior to the effective date of such amendment.

ARTICLE V

5.1 DEFINITIONS.

A. PROCEEDING. The term "Proceeding" shall include any threatened, pending, or completed action, suit, or proceeding, whether brought in the right of the corporation or otherwise and whether of a civil, criminal, administrative, or investigative nature, in which a Fiduciary Person may be or may have been involved as a party or otherwise by reason of the fact that the person is or was a Fiduciary Person.

B. FIDUCIARY PERSON. A Fiduciary Person is a person who is or was a director or officer of the corporation or a fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plan of the corporation, or is or was serving at the request of the corporation as a director, officer, or fiduciary of an employee benefit plan of another corporation, partnership, joint venture, trust, or other enterprise, whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification or advancement of expenses can be provided under this Article.

5.2 INDEMNIFICATION. The corporation shall indemnify to the fullest extent not prohibited by law any Fiduciary Person who was or is a party or is threatened to be made a party to any Proceeding against all expenses (including attorney fees), judgments, fines, and amounts

15 - RESTATED ARTICLES OF INCORPORATION


paid in settlement actually and reasonably incurred by the person in connection with such Proceeding.

5.3 ADVANCEMENT OF EXPENSES. Expenses incurred by a director or officer of the corporation in defending a Proceeding shall in all cases be paid by the corporation in advance of the final disposition of such Proceeding at the written request of such person, if the person:

A. furnishes the corporation a written affirmation of the person's good faith belief that such person has met the standard of conduct described in the Oregon Business Corporation Act or is entitled to be indemnified by the corporation under any other indemnification rights granted by the corporation to such person; and

B. furnishes the corporation a written undertaking to repay such advance to the extent it is ultimately determined by a court that such person is not entitled to be indemnified by the corporation under this Article or under any other indemnification rights granted by the corporation to such person.

Such advances shall be made without regard to the person's ability to repay such advances and without regard to the person's ultimate entitlement to indemnification under this Article or otherwise.

5.4 NON-EXCLUSIVITY AND CONTINUITY OF RIGHTS. The indemnification and entitlement to advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which those indemnified may be entitled under the corporation's articles of incorporation or any statute, agreement, general or specific action of the board of directors, vote of stockholders, or otherwise, shall continue as to a person who has ceased to be a director or officer, shall inure to the benefit of the heirs, executors, and administrators of such person, and shall extend to all claims for indemnification or advancement of expenses made after the adoption of this Article.

5.5 AMENDMENTS. Any repeal of this Article shall only be prospective and no repeal or modification hereof shall adversely affect the rights under this Article in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any Proceeding.

Dated:            May 29, 1990

                                             /s/   Eric W. Strid
                                          --------------------------------------

Eric W. Strid, President

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AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
OF
CASCADE MICROTECH, INC.

ARTICLE V OF THE RESTATED ARTICLES OF INCORPORATION
IS AMENDED TO READ AS FOLLOWS:

V.

Capital Stock

5.1 The corporation is authorized to issue two classes of shares, to be designated Preferred Stock ("Preferred Stock") and Common Stock ("Common Stock"), respectively. The total number of shares of capital stock that the corporation shall have authority to issue is sixteen million (16,000,000). The total number of shares of Preferred Stock that the corporation shall have authority to issue is four million (4,000,000). The total number of shares of Common Stock that the corporation shall have authority to issue is twelve million (12,000,000). The Preferred Stock shall have a par value of $0.01 per share, and the Common Stock shall have a par value of $0.01 per share.

5.2 The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the corporation (the "Board of Directors") is expressly authorized to provide for the issue of all or any of the shares of the Preferred Stock in one or more series and to fix the number of shares and to determine or alter for each such series such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other rights and such qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such shares (a "Preferred Stock Designation") and as may be permitted by the Oregon Business Corporation Act. The Board of Directors is also expressly authorized to increase or decrease (but not below the number of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.

(A) The first series of Preferred Stock shall consist of 1,337,319 shares and is hereby designated "Series A Preferred Stock." The second series of Preferred Stock shall consist of 1,009,167 shares and is hereby designated "Series B Preferred Stock." The third

1 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


series of Preferred Stock shall consist of 1,500,000 shares and is hereby designated "Series C Preferred Stock."

(B) The powers, preferences, rights, restrictions and other matters relating to the Series A, B and C Preferred Stock are as follows:

(1) DIVIDENDS.

(a) The holders of the Series A, B and C Preferred Stock shall be entitled to receive dividends at the rate of $0.251, $0.60 and $0.80 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) per annum, respectively, payable out of funds legally available therefor. Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be noncumulative.

No dividends (other than those payable solely in the form of Common Stock of the Corporation) shall be paid on any Common Stock of the Corporation during any fiscal year of the Corporation until dividends in the total amount of $0.251, $0.60 and $0.80 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares) on the Series A, B and C Preferred Stock, respectively, shall have been paid or declared and set apart during that fiscal year.

No right shall accrue to holders of shares of Series A, B and C Preferred Stock by reason of the fact that dividends on such shares are not declared in any prior year, and no undeclared or unpaid dividend shall bear or accrue any interest.

No dividend shall be paid on or declared and set apart for the shares of any series of Preferred Stock for any dividend period unless at the same time a like proportionate dividend for the same dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall be paid on or declared and set apart for the shares of all other such series of Preferred Stock.

(b) In the event the Corporation shall declare a distribution (other than any distribution described in Section (B)(2)) payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each such case, the holders of the Series A, B and C Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of the Series A, B and C Preferred Stock were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series A, B and C Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.

2 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


(2) LIQUIDATION AND REORGANIZATION PREFERENCES.

(a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Series A, B and C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership thereof, the amount of $2.51, $6.00 and $8.00 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares), respectively, plus all accrued or declared but unpaid dividends on such share for each share of Series A, B and C Preferred Stock then held by them. The Series A, B and C Preferred Stock shall rank on a parity as to the receipt of the respective preferential amounts for each such series upon the occurrence of such event. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A, B and C Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A, B and C Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive.

(b) After payment to the holders of Series A, B and C Preferred Stock of the full amount set forth in Section (B)(2)(a) above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Common Stock and the Series A, B and C Preferred Stock in proportion to the shares of Common Stock then held by them and the shares of Common Stock which they then have the right to acquire upon conversion of the shares of Series A, B and C Preferred Stock then held by them.

(c) For purposes of this Section (B)(2), (i) any acquisition of the Corporation by means of merger or other form of corporate reorganization in which more than 50% of the outstanding shares of the Corporation are exchanged for securities or other consideration issued or caused to be issued by the acquiring corporation or its subsidiary (other than a mere reincorporation transaction), or (ii) a sale of all or substantially all of the assets of the Corporation, shall be treated as a liquidation, dissolution or winding up of the Corporation and shall entitle the holders of Series A, B and C Preferred Stock and Common Stock to receive at the closing, in cash, securities or other property (valued as provided in Section (B)(2)(d) below) amounts as follows:

(i) The holders of the Series A, B and C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any cash, securities or other property to the holders of the Common Stock by reason of their ownership

3 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


thereof, the amount of $2.51, $6.00 and $8.00 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares), respectively, plus all accrued or declared but unpaid dividends on such share for each share of Series A, B and C Preferred Stock then held by them. If upon the occurrence of such event, the cash, securities and other property thus distributed among the holders of the Series A, B and C Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A, B and C Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive;

(ii) After payment to the holders of Series A, B and C Preferred Stock of the full amount set forth in Section (B)(2)(c)(i) above, the holders of Common Stock shall be entitled to receive prior and in preference to any further distribution of any cash, securities or other property to the holders of Series A, B and C Preferred Stock by reason of their ownership thereof, the amount of $1.70 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares), plus all accrued or declared but unpaid dividends on such share for each share of Common Stock then held by them. If upon the occurrence of such event, the cash, securities and other property thus distributed among the holders of Common Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of Common Stock in proportion to the preferential amount each such holder is otherwise entitled to receive; and

(iii) After payment to the holders of Series A, B and C Preferred Stock and Common Stock of the full amounts set forth above in Sections (B)(2)(c)(i) and (ii), respectively, any remaining cash, securities or other property legally available for distribution, if any, shall be distributed among the holders of the Common Stock and the Series A, B and C Preferred Stock in proportion to the shares of Common Stock then held by them and the shares of Common Stock which they then have the right to acquire upon conversion of the shares of Series A, B and C Preferred Stock then held by them.

(d) Whenever the distribution provided for in this
Section (B)(2) shall be payable in securities or property other than cash, the value of such distribution shall be the fair market value of such securities or other property as determined in good faith by the Board of Directors.

(3) VOTING RIGHTS; DIRECTORS.

4 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


(a) Each holder of shares of the Series A, B and C be entitled to a number of votes equal to the number of shares of Common Stock into which such shares of Series A, B and C Preferred Stock could be converted and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class) and shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes, however, shall not be permitted, and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series A, B and C Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). Each holder of Common Stock shall be entitled to one vote for each share of Common Stock held.

(b) The authorized number of directors of the Company shall be fixed by the Board of Directors, but in no event shall be fewer than four (4) or more than seven (7) members. The holders of a majority of the outstanding shares of Series A Preferred Stock, voting together as a class, shall be entitled to designate and elect one member of the Board of Directors, which member shall be subject to approval by the Corporation, which approval shall not be unreasonably withheld. So long as there remains outstanding not fewer than 505,000 shares of Series B Preferred Stock, the holders of a majority of the outstanding shares of Series B Preferred Stock, voting together as a class, shall be entitled to designate and elect one member of the Board of Directors, which member shall be subject to approval by the Corporation, which approval shall not be unreasonably withheld. So long as there remains outstanding not fewer than 1,000,000 shares of Series C Preferred Stock, the holders of a majority of the outstanding shares of Series C Preferred Stock, voting together as a class, shall be entitled to designate and elect one member of the Board of Directors, which member shall be subject to approval by the Corporation, which approval shall not be unreasonably withheld. The holders of Series A, B and C Preferred Stock and the holders of Common Stock, voting together as a class, shall be entitled to designate and elect the remaining members of the Board of Directors.

(c) In the case of any vacancy in the office of a director designated and elected by the holders of the Series A, B or C Preferred Stock pursuant to the second and third sentences of Section (B)(3)(b) hereof, only the holders of Series A, B and C Preferred Stock, as the case may be, by affirmative vote of the holders of a majority of the outstanding shares thereof, may elect a successor to hold the office for the unexpired term of the director whose place shall be vacant, which successor shall be subject to approval by the Corporation, which approval shall not be unreasonably withheld. Any director who shall have been elected by the holders of the Series A, B or C Preferred Stock and approved pursuant to Section (B)(3)(b) hereof or any director so elected and approved as provided in

5 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


the preceding sentence hereof may be removed during the director's term of office, with or without cause, only by the affirmative vote of the holders of a majority of the outstanding shares of Series A, B or C Preferred Stock, as the case may be.

(4) CONVERSION.

The holders of Series A, B and C Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):

(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $2.51 by the Series A Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series A Preferred Stock (the "Series A Conversion Price") shall initially be $2.51 per share of Common Stock. Such initial Series A Conversion Price shall be adjusted as hereinafter provided. Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $6.00 by the Series B Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series B Preferred Stock (the "Series B Conversion Price") shall initially be $6.00 per share of Common Stock. Such initial Series B Conversion Price shall be adjusted as hereinafter provided. Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $8.00 by the Series C Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series C Preferred Stock (the "Series C Conversion Price") shall initially be $8.00 per share of Common Stock. Such initial Series C Conversion Price shall be adjusted as hereinafter provided.

(b) AUTOMATIC CONVERSION. Each share of Series A, B and C Preferred Stock shall automatically be converted into shares of Common Stock at the then-effective Series A, B or C Conversion Price, respectively, upon the earlier, of (i) the

6 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


date specified by vote or written consent or agreement of holders of at least a majority of the shares of Series A, B and C Preferred Stock then outstanding, provided such vote, written consent or agreement is in furtherance of (A) the closing of the sale of the Corporation's Common Stock in a firm commitment, underwritten public offering registered under the Securities Act of 1933, as amended (the "Securities Act"), (B) the closing of any acquisition of the Corporation by means of merger or other form of corporate reorganization in which more than 50% of the outstanding shares of the Corporation are exchanged for securities or other consideration issued or caused to be issued by the acquiring corporation or its subsidiary (other than a mere reincorporation transaction), or (C) the closing of a sale of all or substantially all of the assets of the Corporation; (ii) the date on which a majority of the shares of Series A and B Preferred Stock and all of the Series C Preferred Stock originally issued has been converted into shares of Common Stock or redeemed; or
(iii) immediately upon the closing of the sale of the Corporation's Common Stock in a firm commitment, underwritten public offering registered under the Securities Act, other than a registration relating solely to a transaction under Rule 145 under the Securities Act (or any successor thereto) or to an employee benefit plan of the Corporation, at a public offering price (prior to underwriters' discounts and expenses) equal to or exceeding 125 percent of the then applicable Conversion Price of the Series C Preferred Stock (as adjusted for, any stock dividends, combinations or splits with respect to such shares) and the aggregate proceeds to the Corporation and any selling shareholders (after deduction for underwriters' discounts and expenses relating to the issuance, including without limitation fees of the Corporation's counsel) of which exceed $20,000,000 (a "Qualified Public Offering").

(c) MECHANICS OF CONVERSION.

(i) Before any holder of Series A, B or C Preferred Stock shall be entitled to convert the same into shares of Common Stock, the holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock and shall give written notice to the Corporation at such office that the holder elects to convert the same and shall state therein the name or names in which the holder wishes the certificate or certificates for shares of Common Stock to be issued. As soon as practicable thereafter, the Corporation shall issue and deliver at such office to such holder of Series A, B or C Preferred Stock a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series A, B or C Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

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(ii) If the conversion is in connection with an underwritten offering of securities pursuant to the Securities Act, the conversion may be conditioned, at the option of any holder tendering shares of Series A, B or C Preferred Stock for conversion, upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Series A, B or C Preferred Stock shall not be deemed to have converted such Series A, B or C Preferred Stock until immediately prior to the closing of such sale of securities.

(d) ADJUSTMENTS TO SERIES A, B AND C CONVERSION PRICE FOR CERTAIN DILUTING ISSUES.

(i) SPECIAL DEFINITIONS. For purposes of this
Section (B)(4)(d), the following definitions shall apply:

(1) "OPTIONS" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (as defined below).

(2) "ORIGINAL ISSUE DATE" shall mean the date on which a share of Series C Preferred Stock was first issued.

(3) "CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness, shares (other than Common Stock and Series A, B and C Preferred Stock) or other securities convertible into or exchangeable for Common Stock.

(4) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued (or, pursuant to Section (B)(4)(d)(iii), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable:

(A) upon conversion of shares of Series A, B or C Preferred Stock;

(B) pursuant to stock option, stock incentive, or stock purchase plans or agreements on terms approved by the Board of Directors, to officers, directors or employees of, or consultants to, the Corporation, so long as shares issued or issuable under such plans and agreements, together with shares reserved for issuance under such plans and agreements total no more than 2,200,000 shares (subject to adjustment for any stock dividends, combinations or splits with respect to such shares);

8 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


(C) to officers, directors or employees of, or consultants to, the Corporation:

(1) which are subject to repurchase by the Corporation at the original issue price(s) thereof (but excluding any shares the issuance of which would have resulted in an adjustment of the Series A, B or C Conversion Price but for Section (B)(4)(d)(i)(4)(B)), provided that shares which are excluded from the definition of "Additional Shares of Common Stock" pursuant to this Section (B)(4)(d)(i)(4)(C) are reissued by the Corporation at not less than such original issue price(s); or

(2) which become available for reissuance as a result of lapse without exercise of stock options;

(D) as a dividend or distribution on Series A, B or C Preferred Stock; or

(E) for which adjustment of the Series A, B or C Conversion Price is made pursuant to Section (B)(4)(e).

(F) upon exercise of that certain warrant dated as of the Original Issue Date, to purchase up to 250,000 shares of Series C Preferred Stock.

(ii) NO ADJUSTMENT OF CONVERSION PRICE. Any provision herein to the contrary notwithstanding, no adjustment in the Conversion Price for a series of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section (B)(4)(d)(v) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Conversion Price for such series of Preferred Stock in effect on the date of and immediately prior to such issue.

(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities (other than issuances pursuant to clauses (A) through (E) of Section (B)(4)(d)(i)(4)) or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options or, in the case of

9 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date; provided, however, that in any such case in which Additional Shares of Common Stock are deemed to be issued:

(1) no further adjustments in the Series A, B or C Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;

(2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation or decrease or increase in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Series A, B or C Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon, shall be recomputed, upon any such increase or decrease becoming effective, to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; provided, however, that no such adjustment of the Series A, B or C Conversion Price shall affect Common Stock previously issued upon conversion of the Series A, B or C Preferred Stock;

(3) upon the expiration of any such options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Series A, B or C Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:

(A) in the case of Convertible Securities or options for Common Stock, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange; and

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       ARTICLES OF INCORPORATION

                                  (B) in the case of Options for Convertible

Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation (determined pursuant to Section (B)(4)(d)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised;

(4) no readjustment pursuant to clause (2) or
(3) above shall have the effect of increasing the Series A, B or C Conversion Price to an amount which exceeds the lower of (A) the Series A, B or C Conversion Price on the original adjustment date or (B) the Series A, B or C Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; and

(5) in the case of any options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Series A, B or C Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (3) above.

(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation, at any time after the Original Issue Date, shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to
Section (B)(4)(d)(iii)) without consideration or for a consideration per share less than the Conversion Price with respect to any series of Preferred Stock in effect on the date of and immediately prior to such issue, then and in such event, the Conversion Price for such series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction,

(1) the numerator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue plus (B) the number of shares of Common Stock which the aggregate consideration (if any, as determined pursuant to Section (B)(4)(d)(v)) received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price in effect immediately prior to such issuance, and

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       ARTICLES OF INCORPORATION

                              (2) the denominator of which shall be (A) the

number of shares of Common Stock outstanding immediately prior to such issue plus (B) the number of such Additional Shares of Common Stock so issued.

For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all shares of Series A, B and C Preferred Stock and all Convertible Securities had been fully converted into shares of Common Stock immediately prior to such issuance and any outstanding warrants, options or other rights for the purchase of shares of stock or convertible securities had been fully exercised immediately prior to such issuance (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date, but not including in such calculation any additional shares of Common Stock issuable with respect to shares of Series A, B or C Preferred Stock, Convertible Securities or outstanding options, warrants or other rights for the purchase of shares of stock or convertible securities solely as a result of the adjustment of the respective Conversion Prices (or other conversion ratio) resulting from the issuance of Additional Shares of Common Stock causing such adjustment.

(v) DETERMINATION OF CONSIDERATION. For purposes of this Section (B)(4)(d), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

(1) CASH AND PROPERTY. Such consideration:

(A) insofar as it consists of cash, shall be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends;

(B) insofar as it consists of property other than cash, shall be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board; and

(C) insofar as it consists of cash and property, shall be computed as provided in clauses (A) and (B) above, prorated for the amount of each form of such consideration so received.

(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section (B)(4)(d)(iii) relating to Options and convertible Securities shall be determined by dividing:

12 -   AMENDMENT TO RESTATED
       ARTICLES OF INCORPORATION

                                  (A) the total amount, if any, received or

receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible securities or, in the case of Options for Convertible Securities, the exercise of such options for Convertible Securities and the conversion or exchange of such Convertible securities,

by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such options or conversion or exchange of such Convertible Securities.

(e) ADJUSTMENTS TO CONVERSION PRICES FOR STOCK DIVIDENDS AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event that the Corporation at any time or from time to time after the Original Issue Date shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock) or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the Conversion Price for any series of Preferred Stock in effect immediately prior to such event shall be proportionately decreased or increased, as appropriate, concurrently with the effectiveness of such event. In the event that the Corporation shall declare or pay, without consideration, any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the Corporation shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock.

(f) ADJUSTMENTS FOR RECLASSIFICATIONS AND REORGANIZATIONS. If the Common Stock issuable upon conversion of the Series A, B and C Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section (B)(4)(e) above or a merger or other reorganization referred to in Section (B)(2)(c) above), the Series A, B and C Conversion Price then in effect shall be proportionately adjusted, concurrently with the effectiveness of such reorganization or reclassification, so that the Series A, B and C Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock

13 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series A, B and C Preferred Stock immediately before such change.

(g) NO IMPAIRMENT. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this
Section (B)(4) and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A, B and C Preferred Stock against impairment.

(h) MINIMUM ADJUSTMENT. No adjustment of the Series A, B or C Conversion Price shall be made in an amount less than $.01 per share; provided, however, that any adjustments which are not required to be made as a result of the operation of this Section (B)(4)(h) shall be carried forward and shall be taken into account in any subsequent adjustment made prior to five years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in Section (B)(4)(d)(iii)(4), no adjustment of the Series A, B or C Conversion Price pursuant to Section (B)(4)(d)(iv) shall have the effect of increasing the Series A, B or C Conversion Price above the Series A, B or C Conversion Price in effect immediately prior to such adjustment.

(i) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of any Conversion Price pursuant to this Section (B)(4), the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A, B or C Preferred Stock a certificate executed by the Corporation's President or Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation, upon the written request at any time of any holder of Series A, B or C Preferred Stock, shall furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price for such series of Preferred Stock at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series A, B or C Preferred Stock.

14 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


(j) NOTICES OF RECORD DATE. In the event that the Corporation shall propose at any time (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other entity or sell, lease or convey all or substantially all of its assets or to liquidate, dissolve or wind up, then, in connection with each such event, the Corporation shall send to the holders of Series A, B and C Preferred Stock:

(1) at least 20 days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in Section (B)(4)(j)(iii) and (iv) above; and

(2) in the case of the matters referred to in Section (B)(4)(j)(iii) and (iv) above, at least 20 days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event).

(k) ISSUE TAXES. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series A, B or C Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

(l) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A, B and C Preferred Stock, such number of its shares of Common Stock as shall be sufficient from time to time to effect the conversion of all outstanding shares of Series A, B and C Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A, B and C Preferred Stock, the Corporation will take such corporate action as may be necessary, in the opinion of its counsel, to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including

15 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


without limitation engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to these Restated Articles of Incorporation.

(m) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion of any share or shares of Series A, B or C Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A, B or C Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation, in lieu of issuing any fractional share, shall pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors).

(n) NOTICES. Any notice required by the provisions of this
Section (B)(4) to be given to the holders of shares of Series A, B or C Preferred Stock shall be deemed given when personally delivered to such holder or when deposited in the United States mail, postage prepaid and addressed to such holder of record at the holder's address appearing on the books of the Corporation.

(5) RESTRICTIONS AND LIMITATIONS.

(a) As long as any shares of Preferred Stock remain outstanding, the Corporation, without the vote or written consent by (i) the holders of at least a majority of the outstanding shares of Series A, B and C Preferred Stock, voting together as a single class, and (ii) the holder of at least a majority of the outstanding shares of Series C Preferred Stock, voting as a separate class, shall not:

(i) Redeem, purchase or otherwise acquire for value (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock or any share or shares of Common Stock; provided, however, that this restriction shall not apply to (a) the conversion of shares of Preferred Stock in accordance with Section (B)(4) hereof, (b) the redemption of shares of Series C Preferred Stock in accordance with Section 2.25 of that certain Investors' Rights Agreement dated as of the Original Issue Date (the "Investors' Rights Agreement"), (c) the repurchase of Registrable Securities pursuant to the terms of Section 2.6 of the Investors' Rights Agreement, (d) the repurchase of shares of Common Stock from Dale E. Carlton and Cynthia Ann Crow-Carlton pursuant to the terms of the Stock Put Agreement dated October 14, 1992, (e) the repurchase of shares of Common Stock from K. Reed Gleason in an amount not to exceed $1,000,000 on terms approved by the Board of Directors provided such repurchase occurs not more than six (6) months from the Original Issue Date, and (f) repurchase of shares of Common Stock from current and

16 - AMENDMENT TO RESTATED ARTICLES OF INCORPORATION


former employees, officers, directors, consultants or other persons performing services for the Company or any subsidiary pursuant to agreements under which the Company has the option to repurchase such shares and on terms approved by the Board of Directors.

(ii) Increase or decrease (other than by conversion) the total number of authorized shares of Preferred Stock;

(b) The Corporation shall not amend its Articles of Incorporation without the approval, by vote or written consent, by the holders of at least a majority of the outstanding shares of a series of Preferred Stock, if such amendment would change any of the rights, preferences or limitations provided for herein for the benefit of any shares of that series of Preferred Stock. Without limiting the generality of the preceding sentence, the Corporation will not amend its Articles of Incorporation without the approval of at least a majority of the outstanding shares of a series of Preferred Stock, if such amendment would:

(i) Authorize or obligate the Corporation to (a) issue any additional Series A, B or C Preferred Stock above the 1,337,319, 1,009,167 and 1,500,000 shares of Series A, B and C Preferred Stock, respectively, authorized as of the Original Issue Date, or (b) issue any other equity security
(including any security convertible into or exercisable for any equity security) senior to the Series A, B or C Preferred Stock as to dividend or liquidation preferences or any other rights, preferences or limitations of or powers granted to the Series A, B or C Preferred Stock;

(ii) Change, amend, modify or otherwise alter any of the rights, preferences or limitations provided for herein for the benefit of any shares of Series A, B or C Preferred Stock; or

(iii) Change the provisions for the election of Directors of the Corporation by class vote contained in Section (B)(3)(b) above;

(c) The Corporation shall not amend its Articles of Incorporation if such amendment would change the rights, preferences or limitations of one or more series of Preferred Stock, unless such amendment is approved, by vote or written consent, by the holders of at least a majority of the outstanding shares of each of the other series of Preferred Stock.

(6) NO REISSUANCE OF SERIES A, B OR C PREFERRED STOCK.

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       ARTICLES OF INCORPORATION

            No share or shares of Series A, B or C Preferred Stock acquired

by the Corporation by reason of repurchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue.

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ARTICLES OF INCORPORATION


Exhibit 3.4

RESTATED BYLAWS
OF
CASCADE MICROTECH, INC.

ARTICLE I

OFFICES

1.1 PRINCIPAL OFFICE. The principal office of the corporation shall be located at 14255 S.W. Brigadoon Court, Suite B, Beaverton, Oregon 97005. The corporation may have such other offices as the Board of Directors may designate or as the business of the corporation may from time to time require.

1.2 REGISTERED OFFICE. The registered office of the corporation required by the Oregon Business Corporation Act to be maintained in the State of Oregon may be, but need not be, identical with the principal office in the State of Oregon, and the address of the registered office may be changed from time to time by the Board of Directors.

ARTICLE II

SHAREHOLDERS

2.1 ANNUAL MEETING. The annual meeting of the shareholders shall be in the month of April, on a date to be set by the Board of Directors. The failure to hold an annual meeting at the time stated herein shall not affect the validity of any corporate action.

2.2 SPECIAL MEETINGS. Special meetings of the shareholders may be called by the President or by the Board of Directors and shall be called by the President (or in the event of absence, incapacity, or refusal of the President, by the Secretary or any other officer) at the request of the holders of not less than one-tenth of all the outstanding shares of the corporation entitled to vote at the meeting. The requesting shareholders shall sign, date, and deliver to the Secretary a written demand describing the purpose or purposes for holding the special meeting.

2.3 PLACE OF MEETINGS. Meetings of the shareholders shall be held at the principal business office of the corporation or at such other place, within or without the State of Oregon, as may be determined by the Board of Directors.

2.4 NOTICE OF MEETINGS. Written notice stating the date, time, and place of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be mailed to each shareholder entitled to vote at the meeting at the shareholder's address shown in the corporation's current record of shareholders, with postage thereon prepaid, not less than 10 nor more than fifty (50) days before the date of the meeting.

2.5 WAIVER OF NOTICE. A shareholder may at any time waive any notice required by law, the Articles of Incorporation, or these Restated Bylaws. The waiver must be in writing, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes for

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filing with the corporate records. A shareholder's attendance at a meeting waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting. The shareholder's attendance also waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.

2.6 RECORD DATE

(a) For the purpose of determining shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, or to vote or to take any other action, the Board of Directors may fix a future date as the record date for any such determination of shareholders, such date in any case to be not more than 70 days before the meeting or action requiring a determination of shareholders. The record date shall be the same for all voting groups.

(b) A determination of shareholders entitled to notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.

(c) If a court orders a meeting adjourned to a date more than 120 days after the date fixed for the original meeting, it may provide that the original record date continue in effect or it may fix a new record date.

2.7 SHAREHOLDERS' LIST FOR MEETING. After the record date for a shareholders' meeting is fixed by the Board of Directors, the Secretary of the corporation shall prepare an alphabetical list of the names of all its shareholders entitled to notice of the shareholders' meeting. The list must be arranged by voting group and within each voting group by class or series of shares and show the address of and number of shares held by each shareholder. The shareholders' list must be available for inspection by any shareholder, beginning two business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The corporation shall make the shareholders' list available at the meeting, and any shareholder or the shareholder's agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment. Refusal or failure to prepare or make available the shareholders' list does not affect the validity of action taken at the meeting.

2.8 QUORUM; ADJOURNMENT. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action in that matter. A majority of shares represented at the meeting, although less than a quorum, may adjourn the meeting from time to time to a different time and place without further notice to any shareholder of any adjournment. At such adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting originally held. Once a share is represented for any purpose at a meeting, it shall be deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting, unless a new record date is set for the adjourned meeting.

2.9 VOTING REQUIREMENTS; ACTION WITHOUT MEETING. Unless otherwise provided in the Articles of Incorporation, each outstanding share entitled to vote shall be entitled to

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one vote upon each matter submitted to a vote at a meeting of shareholders. If a quorum exists, action on a matter, other than the election of directors, is approved if the votes cast by the shares entitled to vote favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by law or the Articles of Incorporation. If a quorum exists, directors are elected by a plurality of the votes cast by the shares entitled to vote unless otherwise provided in the Articles of Incorporation. No cumulative voting for directors shall be permitted unless the Articles of Incorporation so provide. Action required or permitted by law to be taken at a shareholders' meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action. The action must be evidenced by one or more written consents describing the action taken, signed by all the shareholders entitled to vote on the action and delivered to the corporation for inclusion in the minutes for filing with the corporate records. Action taken under this section is effective when the last shareholder signs the consent, unless the consent specifies an earlier or later effective date. If the law requires that notice of proposed action be given to nonvoting shareholders and the action is to be taken by unanimous consent of the voting shareholders, the corporation must give its nonvoting shareholders written notice of the proposed action at least 10 days before the action is taken. The notice must contain or be accompanied by the same material that, under the Oregon Business Corporation Act, would have been required to be sent to nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted to the shareholders for action.

2.10 PROXIES.

(a) A shareholder may vote shares in person or by proxy by signing an appointment, either personally or by the shareholder's attorney-in-fact. An appointment of a proxy shall be effective when received by the Secretary or other officer of the corporation authorized to tabulate votes. An appointment is valid for 11 months unless a longer period is provided in the appointment form. An appointment is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest that has not been extinguished.

(b) The death or incapacity of a shareholder appointing a proxy shall not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the Secretary or other officer authorized to tabulate votes before the proxy exercises the proxy's authority under the appointment.

2.11 CORPORATION'S ACCEPTANCE OF VOTES.

(a) If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a shareholder, the corporation, if acting in good faith, is entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder.

(b) If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the name of a shareholder, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder if:

(i) The shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;

(ii) The name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the

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corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;

(iii) The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;

(iv) The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment; or

(v) Two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all co-owners.

(c) The corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the Secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder.

(d) The shares of a corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation, and the first corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation; provided, however, a corporation may vote any shares, including its own shares, held by it in a fiduciary capacity.

(e) The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this provision shall not be liable in damages to the shareholder for the consequences of the acceptance or rejection. Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this provision is valid unless a court of competent jurisdiction determines otherwise.

ARTICLE III

BOARD OF DIRECTORS

3.1 DUTIES. All corporate powers shall be exercised by or under the authority of the Board of Directors and the business and affairs of the corporation shall be managed by or under the direction of the Board of Directors.

3.2 NUMBER, ELECTION, AND QUALIFICATION. The number of directors of the corporation shall be a minimum of four (4) and a maximum of seven (7), as determined from time to time by the Board of Directors. The shareholders or Board of Directors may change from time to time the number of directors. If the Articles of Incorporation establish the number of directors, then, after shares are issued, only the shareholders may change the number of directors. The directors shall hold office until the next annual meeting of shareholders. Directors need not be residents of the State of Oregon or shareholders of the corporation. The number of directors may be increased or decreased from time to

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time by amendment of the Bylaws, but no decrease shall have the effect of shortening the term of any incumbent director.

3.3 CHAIRMAN OF THE BOARD OF DIRECTORS. The directors may elect a director to serve as Chairman of the Board of Directors to preside at all meetings of the Board of Directors and to fulfill any other responsibilities delegated by the Board of Directors.

3.4 REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held without other notice than this Section 3.4 immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Oregon, for the holding of additional regular meetings without other notice than the resolution.

3.5 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the President or any director. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Oregon, as the place for holding any special meeting of the Board of Directors called by them.

3.6 NOTICE. Notice of the date, time, and place of any special meeting of the Board of Directors shall be given at least three days prior to the meeting by any means provided by law. If mailed, notice shall be deemed to be given upon deposit in the United States mail addressed to the director at the director's business address, with postage thereon prepaid. If by telegram, notice shall be deemed to be given when the telegram is delivered to the telegraph company. Notice by all other means shall be deemed to be given when received by the director or a person at the director's business or residential address whom the person giving notice reasonably believes will deliver or report the notice to the director within 24 hours. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

3.7 WAIVER OF NOTICE. A director may at any time waive any notice required by law, the Articles of Incorporation, or these Bylaws. Unless a director attends or participates in a meeting, a waiver must be in writing, must be signed by the director entitled to notice, must specify the meeting for which notice is waived, and must be filed with the minutes or corporate records.

3.8 QUORUM. A majority of the number of directors fixed by Section 3.2 shall constitute a quorum for the transaction of business at any meeting of the Board of Directors.

3.9 MANNER OF ACTING.

(a) The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a different number is provided by law, the Articles of Incorporation, or these Bylaws.

(b) Members of the Board of Directors may hold a board meeting by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.

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Participation in such a meeting shall constitute presence in person at the meeting.

(c) Any action that is required or permitted to be taken by the directors at a meeting may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the directors entitled to vote on the matter. The action shall be effective on the date when the last signature is placed on the consent or at such earlier or later time as is set forth therein. Such consent, which shall have the same effect as a unanimous vote of the directors, shall be filed with the minutes of the corporation.

3.10 VACANCIES. Any vacancy, including a vacancy resulting from an increase in the number of directors, occurring on the Board of Directors may be filled by the shareholders, the Board of Directors, or the affirmative vote of a majority of the remaining directors if less than a quorum of the Board of Directors, or by a sole remaining director. If the vacant office is filled by the shareholders and was held by a director elected by a voting group of shareholders, then only the holders of shares of that voting group are entitled to vote to fill the vacancy. Any directorship not so filled by the directors shall be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose. A director elected to fill a vacancy shall be elected to serve until the next annual meeting of shareholders and until a successor shall be duly elected and qualified. A vacancy that will occur at a specific later date, by reason of a resignation or otherwise, may be filled before the vacancy occurs, and the new director shall take office when the vacancy occurs.

3.11 COMPENSATION. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

3.12 PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the Board of Directors or a committee of the Board of Directors shall be presumed to have assented to the action taken (a) unless the director's dissent to the action is entered in the minutes of the meeting, (b) unless a written dissent to the action is filed with the person acting as the secretary of the meeting before the adjournment thereof or forwarded by certified or registered mail to the Secretary of the corporation immediately after the adjournment of the meeting or (c) unless the director objects at the meeting to the holding of the meeting or transacting business at the meeting. The right to dissent shall not apply to a director who voted in favor of the action.

3.13 DIRECTOR CONFLICT OF INTEREST.

(a) A transaction in which a director of the corporation has a direct or indirect interest shall be valid notwithstanding the director's interest in the transaction if the material facts of the transaction and the director's interest are disclosed or known to the Board of Directors or a committee thereof and it authorizes, approves, or ratifies the transaction by a vote or consent sufficient for the purpose without counting the votes or consents of directors with a direct or indirect interest in the transaction; or the material facts of the transaction and the director's interest are disclosed or known to shareholders entitled to vote and they, voting as a single group, authorize, approve, or ratify the transaction by a majority vote; or the transaction is fair to the corporation.

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(b) A conflict of interest transaction may be authorized, approved, or ratified if it receives the affirmative vote of a majority of directors on the Board of Directors or a committee thereof who have no direct or indirect interest in the transaction. If a majority of such directors vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action.

(c) A conflict of interest transaction may be authorized, approved, or ratified by a majority vote of shareholders entitled to vote thereon. Shares owned by or voted under the control of a director or an entity controlled by a director who has a direct or indirect interest in the transaction are entitled to vote with respect to a conflict of interest transaction. A majority of the shares, whether or not present, that are entitled to be counted in a vote on the transaction constitutes a quorum for the purpose of authorizing, approving, or ratifying the transactions.

(d) A director has an indirect interest in a transaction if (i) another entity in which the director has a material financial interest or in which the director is a general partner is a party to the transaction or (ii) another entity of which the director is a director, officer, or trustee is a party to the transaction and the transaction is or should be considered by the Board of Directors.

3.14 REMOVAL. The shareholders may remove one or more directors with or without cause at a meeting called expressly for that purpose, unless the Articles of Incorporation provide for removal for cause only. If a director is elected by a voting group of shareholders, only those shareholders may participate in the vote to remove the director.

3.15 RESIGNATION. Any director may resign by delivering written notice to the Board of Directors, its chairperson, or the corporation. Such resignation shall be effective, unless the notice specifies a later effective date, (a) on receipt, (b) five days after its deposit in the United States mails, if mailed postpaid and correctly addressed, or (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by addressee. Once delivered, a notice of resignation is irrevocable unless revocation is permitted by the Board of Directors.

ARTICLE IV

EXECUTIVE COMMITTEE AND OTHER COMMITTEES

4.1 DESIGNATION OF EXECUTIVE COMMITTEE. The Board of Directors may designate two or more directors to constitute an executive committee. The designation of an executive committee, and the delegation of authority to it, shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law. No member of the executive committee shall continue to be a member thereof after ceasing to be a director of the corporation. The Board of Directors shall have the power at any time to increase or decrease the number of members of the executive committee, to fill vacancies thereon, to change any member thereof, and to change the functions or terminate the existence thereof. The creation of the executive committee and the appointment of members to it shall be approved by a majority of the directors in office when the action is taken, unless a greater number is required by the Articles of Incorporation or these Bylaws.

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4.2 POWERS OF EXECUTIVE COMMITTEE. During the interval between meetings of the Board of Directors, and subject to such limitations as may be imposed by resolution of the Board of Directors, the executive committee may have and may exercise all the authority of the Board of Directors in the management of the corporation, provided that the committee shall not have the authority of the Board of Directors with respect to the following matters:
authorizing distributions; approving or proposing to the shareholders actions that are required to be approved by the shareholders under the Articles of Incorporation or these Bylaws or by law; filling vacancies on the Board of Directors or any committee thereof; amending the Articles of Incorporation; adopting, amending, or repealing bylaws; approving a plan of merger not requiring shareholder approval; authorizing or approving a reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; authorizing or approving the issuance or sale or contract for sale of shares or determining the designation and relative rights, preferences, and limitations of a class or series of shares except within limits specifically prescribed by the Board of Directors.

4.3 PROCEDURES; MEETINGS; QUORUM.

(a) The Board of Directors shall appoint a chairperson from among the members of the executive committee and shall appoint a secretary who may, but need not, be a member of the executive committee. The chairperson shall preside at all meetings of the executive committee and the secretary of the executive committee shall keep a record of its acts and proceedings, which shall be filed with the minutes of the corporation.

(b) Regular meetings of the executive committee, of which no notice shall be necessary, shall be held on such days and at such places as shall be fixed by resolution adopted by the executive committee. Special meetings of the executive committee shall be called at the request of the President or of any member of the executive committee, and shall be held upon such notice as is required by these Bylaws for special meetings of the Board of Directors.

(c) Attendance of any member of the executive committee at a meeting shall constitute a waiver of notice of the meeting. A majority of the executive committee, from time to time, shall be necessary to constitute a quorum for the transaction of any business, and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of the executive committee. Members of the executive committee may hold a meeting of such committee by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such meeting shall constitute presence in person at the meeting.

(d) Any action that is required or permitted to be taken at a meeting of the executive committee may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all members of the executive committee entitled to vote on the matter. The action shall be effective on the date when the last signature is placed on the consent or at such earlier or later time as is set forth therein. Such consent, which shall have the same effect as a unanimous vote of the members of the executive committee, shall be filed with the minutes of the corporation.

(e) The Board of Directors may approve a reasonable fee for the members of the executive committee as compensation for attendance at meetings of the executive committee.

4.4 OTHER COMMITTEES. By the approval of a majority of the directors when the action is taken (unless a greater number is required by the

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Articles of Incorporation), the Board of Directors, by resolution, may create one or more additional committees, appoint directors to serve on them, and define the duties of such committee or committees. Each such committee shall have two or more members, who shall serve at the pleasure of the Board of Directors. Such additional committee or committees shall not have the powers proscribed in Section 4.2.

ARTICLE V

OFFICERS

5.1 NUMBER. The officers of the corporation shall be a President and a Secretary. Such other officers and assistant officers as are deemed necessary or desirable may be appointed by the Board of Directors and shall have such powers and duties prescribed by the Board of Directors or the officer authorized by the Board of Directors to prescribe the duties of other officers. A duly appointed officer may appoint one or more officers or assistant officers if such appointment is authorized by the Board of Directors. Any two or more offices may be held by the same person.

5.2 APPOINTMENT AND TERM OF OFFICE. The officers of the corporation shall be appointed annually by the Board of Directors at the first meeting of the Board of Directors held after the annual meeting of the shareholders. If the officers shall not be appointed at the meeting, a meeting shall be held as soon thereafter as is convenient for such appointment of officers. Each officer shall hold office until a successor shall have been duly appointed and qualified or until the officer's death, resignation, or removal.

5.3 QUALIFICATION. An officer need not be a director, shareholder, or a resident of the State of Oregon.

5.4 RESIGNATION AND REMOVAL. An officer may resign at any time by delivering notice of such resignation to the corporation. A resignation is effective on receipt unless the notice specifies a later effective date. If the corporation accepts a specified later effective date, the Board of Directors may fill the pending vacancy before the effective date, but the successor may not take office until the effective date. Once delivered, a notice of resignation is irrevocable unless revocation is permitted by the Board of Directors. Any officer appointed by the Board of Directors may be removed at any time with or without cause. Appointment of an officer shall not of itself create contract rights. Removal or resignation of an officer shall not affect the contract rights, if any, of the corporation or the officer.

5.5 VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification, or otherwise may be filled by the Board of Directors for the unexpired portion of the term.

5.6 PRESIDENT. The President shall be the chief operating officer of the corporation and shall be in general charge of its business and affairs, subject to the control of the Board of Directors. The President shall preside at all meetings of shareholders and at all meetings of directors (unless there is an acting Chairman of the Board presiding at the meeting). The President may execute on behalf of the corporation all contracts, agreements, stock certificates, and other instruments. The President shall from time to time report to the Board of Directors all matters within the President's knowledge affecting the corporation that should be brought to the attention of the Board of Directors. The President shall vote all shares of stock in other corporations owned by the corporation and is empowered to execute proxies, waivers of notice,

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consents, and other instruments in the name of the corporation with respect to such stock. The President shall perform other duties assigned by the Board of Directors.

5.7 VICE PRESIDENTS. In the absence of the President or in the event of the President's death or inability or refusal to act, the Vice President (or, in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election), if any, shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President shall perform other duties assigned by the President or by the Board of Directors.

5.8 SECRETARY. The Secretary shall prepare the minutes of all meetings of the directors and shareholders, shall have custody of the minute books and other records pertaining to the corporate business, and shall be responsible for authenticating the records of the corporation. The Secretary shall countersign all instruments requiring the seal of the corporation and shall perform other duties assigned by the Board of Directors. In the event no Vice President exists to succeed to the President under the circumstances set forth in Section 5.7 above, the Secretary shall make such succession.

5.9 ASSISTANT SECRETARIES. The Assistant Secretaries, when authorized by the Board of Directors or the Bylaws, may sign, with the President or Vice President, certificates for shares of the corporation the issuance of which shall have been authorized by resolution of the Board of Directors. The Assistant Secretaries shall, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries shall, in general, perform such duties as shall be specifically assigned to them in writing by the President or the Board of Directors.

5.10 SALARIES. The salaries of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such salary because the officer is also a director of the corporation.

ARTICLE VI

ISSUANCE OF SHARES

6.1 CERTIFICATES FOR SHARES.

(a) Certificates representing shares of the corporation shall be in a form determined by the Board of Directors. Such certificates shall be signed, either manually or in facsimile, by two officers of the corporation, at least one of whom shall be the President or a Vice President, and may be sealed with the seal of the corporation or a facsimile thereof. All certificates for shares shall be consecutively numbered or otherwise identified.

(b) Every certificate for shares of stock that are subject to any restriction on transfer pursuant to the Articles of Incorporation, the Bylaws, applicable securities laws, agreements among or between shareholders, or any agreement to which the corporation is a party shall have conspicuously noted on the face or back of the certificate either (i) the full text of the restriction or (ii) a statement of the existence of such restriction and that the corporation retains a copy of the restriction. Every certificate issued when the corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either (i) the full text of the designations,

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relative rights, preferences, and limitations of the shares of each class and series authorized to be issued and the authority of the Board of Directors to determine variations for future series or (ii) a statement of the existence of such designations, relative rights, preferences, and limitations and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge.

(c) The name and mailing address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. Each shareholder shall have the duty to notify the corporation of his or her mailing address. All certificates surrendered to the corporation for transfer shall be canceled, and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed, or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors prescribes.

6.2 TRANSFER OF SHARES. A transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by the holder's legal representative, who shall furnish proper evidence of authority to transfer, or by the holder's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.

6.3 TRANSFER AGENT AND REGISTRAR. The Board of Directors may from time to time appoint one or more transfer agents and one or more registrars for the shares of the corporation, with such powers and duties as the Board of Directors determines by resolution. The signatures of officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or by a registrar other than the corporation itself or an employee of the corporation.

6.4 OFFICER CEASING TO ACT. If the person who signed a share certificate, either manually or in facsimile, no longer holds office when the certificate is issued, the certificate is nevertheless valid.

ARTICLE VII

CONTRACTS, LOANS, CHECKS, AND OTHER INSTRUMENTS

7.1 CONTRACTS. The Board of Directors may authorize any officer or officers and agent or agents to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.

7.2 LOANS. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

7.3 CHECKS; DRAFTS. All checks, drafts, or other orders for the payment of money and notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers and agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

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7.4 DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the Board of Directors may select.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

8.1 SEAL. The Board of Directors from time to time may provide for a seal of the corporation, which shall be circular in form and shall have inscribed thereon the name of the corporation, the state of incorporation and the words "Corporate Seal."

8.2 SEVERABILITY. Any determination that any provision of these Bylaws is for any reason inapplicable, invalid, illegal, or otherwise ineffective shall not affect or invalidate any other provision of these Bylaws.

ARTICLE IX

AMENDMENTS

These Bylaws may be altered, amended, or repealed and new bylaws may be adopted by the Board of Directors at any regular or special meeting, subject to repeal or change by action of the shareholders of the corporation.

    /s/  Steven E. Wynne
------------------------------------
Steven E. Wynne, Secretary

ADOPTED: May 1, 1990.

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Exhibit 4.2

CASCADE MICROTECH, INC.

SERIES A PREFERRED STOCK
PURCHASE AGREEMENT

EXHIBIT C

CASCADE MICROTECH, INC.

INVESTOR RIGHTS AGREEMENT

MAY 1, 1990

1

CASCADE MICROTECH, INC.

INVESTOR RIGHTS AGREEMENT

TABLE OF CONTENTS

1.       Restrictions on Transferability of Securities; Registration Rights......1
         1.1      CERTAIN DEFINITIONS............................................1
         1.2      REQUESTED REGISTRATION.........................................3
         1.3      COMPANY REGISTRATION...........................................5
         1.4      EXPENSES OF REGISTRATION.......................................6
         1.5      REGISTRATION ON FORM S-3.......................................6
         1.6      REGISTRATION PROCEDURES........................................7
         1.7      INDEMNIFICATION................................................8
         1.8      INFORMATION BY HOLDER.........................................10
         1.9      LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES...........10
         1.10     RULE 144 REPORTING............................................10
         1.11     TRANSFER OR-ASSIGNMENT OF REGISTRATION RIGHTS.................11
         1.12     "MARKET STAND-OFF" AGREEMENT..................................11
         1.13     ALLOCATION OF REGISTRATION OPPORTUNITIES......................12
         1.14     DELAY OF REGISTRATION.........................................12
         1.15     TERMINATION OF REGISTRATION RIGHTS............................12

2.       Covenants of the Company and the Shareholder...........................13
         2.1      BASIC FINANCIAL INFORMATION...................................13
         2.2      ADDITIONAL INFORMATION AND RIGHTS.............................13
         2.3      RIGHT OF FIRST REFUSAL........................................14
         2.4      RIGHT TO REMAIN EQUAL TO THE LARGEST OUTSIDE SHAREHOLDER......16
         2.5      RIGHT TO MAKE COMPETING OFFER.................................16
         2.6      COMPANY REPURCHASE OPTION.....................................17
         2.7      PROMPT PAYMENT OF TAXES, ETC..................................19
         2.8      MAINTENANCE OF PROPERTIES AND LEASES..........................19
         2.9      INSURANCE.....................................................19
         2.10     KEY PERSON LIFE INSURANCE.....................................20
         2.11     ACCOUNTS AND RECORDS..........................................20
         2.12     INDEPENDENT ACCOUNTANTS.......................................20
         2.13     COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES......20
         2.14     MAINTENANCE OF CORPORATE EXISTENCE, ETC.......................20
         2.15     PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS.............20
         2.16     EMPLOYEE AND OTHER STOCK ARRANGEMENTS.........................21
         2.17     BOARD OF DIRECTORS............................................21
         2.18     ATTENDANCE AT BOARD AND COMMITTEE MEETINGS....................21
         2.19     INDEBTEDNESS..................................................21

         2.20     EXTENSION OF CREDIT...........................................21
         2.21     COMPENSATION OF EMPLOYEES.....................................21
         2.22     TRANSACTIONS WITH AFFILIATES..................................21
         2.23     RESTATED ARTICLES OF INCORPORATION............................22
         2.24     CONFIDENTIAL DISCLOSURE AGREEMENT.............................22
         2.25     HARDWARE PURCHASES............................................22
         2.26     TERMINATION OF COVENANTS......................................22

3.       Miscellaneous..........................................................23
         3.1      GOVERNING LAW.................................................23
         3.2      SUCCESSORS AND ASSIGNS........................................23
         3.3      ENTIRE AGREEMENT; AMENDMENT; WAIVER...........................23
         3.4      NOTICES, ETC..................................................23
         3.5      DELAYS OR OMISSIONS...........................................23
         3.6      RIGHTS; SEPARABILITY..........................................24
         3.7      TITLES AND SUBTITLES..........................................24
         3.8      COUNTERPARTS..................................................24


EXHIBITS

Exhibit A: Confidential Disclosure Agreement

Exhibit B: Hardware Purchase Agreement


CASCADE MICROTECH, INC.

INVESTOR RIGHTS AGREEMENT

This Investor Rights Agreement (the "Agreement") is made as of the 1st day of May, 1990, by and among Cascade Microtech, Inc., an Oregon corporation (the "Company"), Hewlett-Packard Company, a California corporation (the "Shareholder"), and each of the Founders (as defined herein).

RECITAL:

WHEREAS, the Company and the Shareholder are parties to that certain Series A Preferred Stock Purchase Agreement, dated of even date herewith (the "Series A Agreement"), under which certain obligations of the Company and the Shareholder are conditioned upon the execution and delivery by the Company and the Shareholder of this Agreement;

NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants set forth herein,. the parties hereto agree as follows:

SECTION 1

RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
REGISTRATION RIGHTS

1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth below:

(a) "Closing" shall mean the date of the initial sale of the Company's Series A Preferred Stock.

(b) "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

(c) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.

(d) "Founder" shall mean Eric W. Strid, Cynthia Strid, K. Reed Gleason, Dale E. Carlton and Cynthia Ann Crow-Carlton.

(e) "Founder Shares" shall mean any shares of the Company's Common Stock held by any Founder.

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(f) "Holder" shall mean (i) the Shareholder, (ii) any holder of Registrable Securities to whom the registration rights conferred by this Agreement have been transferred in compliance with Section 1.11 hereof, and
(iii) except with respect to Section 2.3 hereof, the Founders.

(g) "Initiating Holders" shall mean any Holder or Holders other than the Founders who in the aggregate hold not less than fifty percent (50%) of the outstanding Registrable Securities other than Founder Shares. For purposes of such calculation, holders of Shares shall be considered to hold the shares of Common Stock then issuable upon conversion of such Shares.

(h) "Registrable Securities" shall mean (i) shares of Common Stock issued or issuable pursuant to the conversion of the Shares, (ii) Founder Shares, and (iii) any Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referred to in clauses (i) or (ii) above; provided, however, that Registrable Securities shall not include any shares of Common Stock which have previously been registered or which have been sold to the public.

(i) The terms "register," "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder and the declaration or ordering of the effectiveness of such registration statement.

(j) "Registration Expenses" shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including without limitation all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, fees and expenses under applicable state securities laws and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses and fees and disbursements of counsel for the Holders (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company).

(k) "Rule 144" shall mean Rule 144 as promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar successor rule that may be promulgated by the commission.

(l) "Rule 145" shall mean Rule 145 as promulgated by the commission under the Securities Act, as such rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

(m) "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.

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(n) "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and disbursements of counsel for any Holder (other than the fees and disbursements of counsel included in Registration Expenses).

(o) "Shares" shall mean the Company's Series A Preferred Stock.

1.2 REQUESTED REGISTRATION

(a) REQUEST FOR REGISTRATION. If the Company shall receive from the Initiating Holders, at any time or times not earlier than the earlier of (x) f our years after the date of this Agreement and (y) six months after the effective date of the first registration statement filed by the Company covering an underwritten offering of any of its securities to the general public, a written request that the Company effect any registration with respect to all or a part of the Registrable securities having an aggregate offering price, net of underwriting discounts and expenses, equal to or exceeding $6.00 per share of Common Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) and the aggregate proceeds of which (after deduction for underwriter's discounts and expenses related to the issuance) exceed $7,500,000 the Company will:

(i) promptly give written notice of the proposed registration to all other Holders; and

(ii) as soon as practicable, use its best efforts to effect such registration (including without limitation filing post-effective amendments, appropriate qualifications under applicable state securities laws and appropriate compliance with the Securities Act) and as would permit or facilitate the sale and distribution of all or such number of such Registrable Securities as are specified in such request, together with all or such number of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within 20 days after such written notice from the Company is effective.

The Company shall not be obligated to ef fect or to take any action to effect, any such registration pursuant to this Section 1.2:

(A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(B) After the Company has initiated two such registrations pursuant to this Section 1.2(a) (counting for these purposes only (1) registrations which have been declared or ordered effective and pursuant to which securities have been sold, and (2) registrations which have been withdrawn by the Holders as to which the Holders have not elected to bear the Registration Expenses pursuant to Section 1.4 hereof and would, absent such election, have been required to bear such expenses);

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(C) During the period starting with the date 60 days prior to the Company's good faith estimate of the date of filing of, and ending on a date 180 days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective;

(D) If the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 1.5 hereof;

(E) If the Initiating Holders do not request that such offering be firmly underwritten by underwriters selected by the Initiating Holders (subject to the consent of the Company, which consent will not be unreasonably withheld); or

(F) If the Company and the Initiating Holders are unable to obtain the commitment of the underwriter described in clause (E) above to a firmly underwritten offer.

(b) Subject to the foregoing clauses (A) through (F), the Company shall f ile a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Initiating Holders; provided, however, that if (i) in the good faith judgment of the Board of Directors of the Company such registration would be seriously detrimental to the Company and the Board of Directors of the Company concludes as a result, that it is essential to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to all participating Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company it would be seriously detrimental to the Company for such registration statement to be filed in the near future and that it is therefore essential to defer the filing of such registration statement, then the Company shall have the right to defer such filing for the period during which such disclosure would be seriously detrimental; and, provided further, that (except as provided in clause (C) above) the Company may not defer the filing for a period of more than 120 days after receipt of the request of the Initiating Holders; and, provided further, that the Company shall not def er its obligation in this manner more than once in any 12-month period. Subject to the provisions of Sections 1.2(b) and 1.13 hereof, the registration statement filed pursuant to the request of the Initiating Holders may include other securities of the Company with respect to which registration rights have been granted and may include securities of the Company being ~sold for the account of the Company.

(c) UNDERWRITING. The right of any Holder to registration pursuant to
Section 1.2 shall be conditioned upon the participation of such Holder in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder with respect to such participation and inclusion) to the extent provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities held by the Holder.

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(d) PROCEDURES. If the Company shall request inclusion in any registration pursuant to Section 1.2 of securities being sold for its own account or if other persons shall request inclusion in any registration pursuant to Section 1.2, the Initiating Holders shall offer to include such securities in the underwriting on behalf of all Holders and may condition such offer on their acceptance of the further applicable provisions of this Section 1 (including
Section 1.12). The Company (together with all Holders and other persons proposing to distribute their securities through such underwriting) shall enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders, which underwriters shall be reasonably acceptable to the Company. Notwithstanding any other provision of this Section 1.2, if the representative of the underwriters advises the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underw itten, the number of shares to be included in the underwriting or registration shall be allocated as set forth in Section 1.13 hereof. If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall, be excluded therefrom by written notice from the Company, the underwriter or the Initiating Holders. Any Registrable Securities or other securities so excluded shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of shares to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 1.2(d), then the Company shall offer to all Holders who have retained rights to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares do withdrawn, with such shares to be allocated among such Holders requesting additional inclusion in accordance with Section 1.13.

1.3 COMPANY REGISTRATION.

(a) If the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders exercising their respective demand registration rights (other than pursuant to Sections 1.2 or 1.5 hereof), other than a registration relating solely to employee benefit plans, a registration relating solely to a Rule 145 transaction or a registration on any registration form that does not permit secondary sales, the Company will:

(i) promptly give to each Holder written notice thereof; and

(ii) use its best ef f orts to include in such registration (and any related qualification under applicable state securities laws or other compliance), except as set forth in Section 1.3(b) below and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests made by any Holder within 20 days after the written notice from the Company described in clause (i) above is given. Such written request may specify all or any number of a Holder's Registrable Securities.

(b) UNDERWRITING. If the registration of which the company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.3(a)(i). In such event, the right of any Holder to

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registration pursuant to this Section 1.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting (together with the Company and the other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) shall enter into an underwriting agreement in customary f orm with the representative of the underw iter or underwriters selected by the Company.

Notwithstanding any other provision of this Section 1.3, if the representative of the underwriters advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the representative may exclude all Registrable Securities from or limit the number of Registrable Securities to be included in the registration and underwriting (subject to the limitations set forth below). The Company shall so advise all holders of securities requesting registration and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated f irst to the Company for securities being sold for its own account and thereafter as set forth in Section 1.13. If any person does not agree to the terms of any such underwriting, such person shall be excluded therefrom by written notice from the Company or the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.

If shares are so withdrawn from the registration or if the number of shares of Registrable Securities to.be included in such registration was previously reduced as a result of marketing factors, the Company shall then offer to all persons who have retained the right, to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among the persons requesting additional inclusion in accordance with Section 1.13 hereof.

1.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 1.3 and 1.5 hereof and all Registration Expenses and reasonable fees of one counsel f or the selling shareholders in the case of registrations pursuant to Section 1.2 shall be borne by the Company; provided, however, that if the Holders bear the Registration Expenses f or any registration proceeding begun pursuant to Section 1.2 and subsequently withdrawn by the Holders registering shares therein, such registration proceeding shall not be counted as a requested registration pursuant to Section 1.2 hereof, except in the event that such withdrawal is based upon material adverse information relating to the Company that is different from the information known or available (upon request from the Company or otherwise) to the Holders requesting registration at the time of their request for registration under Section 1.2, in which event such registration shall not be treated as a counted registration for purposes of
Section 1.2 hereof, even though the Holders do not bear the Registration Expenses for such registration. All Selling Expenses relating to securities so registered shall be borne by the holders of such securities pro rata on the basis of the number of shares of securities so registered on their behalf.

1.5 REGISTRATION ON FORM S-3

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(a) After its initial public offering, the Company shall use its best efforts to qualify for registration on Form S-3 or any comparable or successor form or forms. After the Company has qualified for the use of Form S-3, the Holders of Registrable Securities shall have the right, in addition to the rights contained in the foregoing provisions of this Section 1, to request registrations on Form S-3 (such requests to be in writing and to state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Holder or Holders); provided, however, that the Company shall not be obligated to effect any such registration if (i) the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) on Form S-3 at an aggregate price to the public of less than $1,000,000, (ii) the Company shall furnish the certification described in Section 1.2(a)(ii) (but subject to the limitations set forth therein), (iii) in a given 12-month period the Company has effected one such registration in any such period For (iv) it is to be effected more than five years after the Company's initial public offering.

(b) If a request complying with the requirements of Section 1.5(a) hereof is delivered to the Company, the provisions of Sections 1.2(a)(i) and
(ii) and 1.2(b) hereof shall apply to such registration. If the registration is for an underwritten offering, the provisions of Sections 1.2(c) and 1.2(d) hereof shall apply to such registration.

1.6 REGISTRATION PROCEDURES. In the case of each registration effected by the Company pursuant to Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will use its best efforts to:

(a) Keep such registration effective for a period of 120 days or until the Holder or Holders shall have completed the distribution described in the registration statement relating thereto, whichever first occurs; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 145 or any successor rule under the Securities Act permits an offering on a continuous or delayed basis and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment that (i) includes any prospectus required by Section 10(a)(3) of the Securities Act or (ii) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in clauses (i) and (ii) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement;

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(b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;

(c) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request;

(d) Notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing and, at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing;

(e) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed;

(f) Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number for all such Registrable securities, in each case not later than the effective date of such registration;

(g) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months, but not more than 18 months, beginning with the first month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; and

(h) In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 1.2 hereof, enter into an underwriting agreement reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains customary underwriting provisions and provided further that, if the underwriter so requests, the underwriting agreement will contain customary contribution provisions.

1.7 INDEMNIFICATION.

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(a) The Company will indemnify each Holder, each of its officers, directors and partners, legal counsel and accountants and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1 and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance and will reimburse each such Holder, each of its officers, directors, partners, legal counsel and accountants and each person controlling such Holder, each such underwriter and each person who controls any such underwriter f or any legal and other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. It is agreed that the indemnity agreement contained in this Section 1.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent has not been unreasonably withheld).

(b) Each Holder, if any Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, will indemnify the Company, each of its directors, officers, partners, legal counsel and accountants and each. underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder and each of its officers, directors and partners and each person controlling such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and will reimburse the Company and such Holders, directors, officers, partners, legal counsel and accountants, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder; provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect

9

thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld).

(c) Each party entitled to indemnification under this Section 1.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, however, that counsel f or the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld) and the Indemnified Party may participate in such defense at such party's expense; and, provided further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1 to the extent such failure is not prejudicial. No Indemnifying Party, in the defense of any such claim or litigation, shall consent, except with the consent of each Indemnified Party, to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnif ied Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom.

(d) If the indemnification provided for in this Section 1.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunityto correct or prevent such statement or omission.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

1.8 INFORMATION BY HOLDER. Each Holder of Registrable Securities shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the

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Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Section 1.

1.9 LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES. From and after the date of this Agreement, the Company, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, shall not enter into any agreement with any holder or prospective holder of any securities of the company giving such holder or prospective holder any registration rights the terms of which are more favorable than the registration rights granted to the Holders hereunder.

1.10 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of Registrable Securities to the public without registration, the Company agrees to use its best efforts to:

(a) Make and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after 90 days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;

(b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements;

(c) As long as a Holder owns any Registrable Securities, furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public) and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration.

1.11 TRANSFER OR-ASSIGNMENT OF REGISTRATION RIGHTS.

(a) Except as provided in Section 1.11(b) below, the rights to cause the Company to register securities granted to a Holder by the Company under this
Section 1 may be transferred or assigned by a Holder only to a transferee or assignee of not fewer than 50,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and the like); provided, however, that the Company shall be given written notice at the time of or within a reasonable time after such transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned; and, provided further, that the transferee or assignee of such rights shall assume the obligations of such Holder under this Section 1.

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(b) The rights to cause the Company to register securities granted to a Holder by the Company under this Section 1 may not be transferred or assigned by any Founder.

1.12 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an underwriter of Common Stock (or other securities) of the Company, a Holder shall not sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held such Holder (other than those included in the registration) during the 120-day period following the effective date of a registration statement of the Company filed under the Securities Act, provided that:

(a) such agreement shall only apply to the first such registration statement of the Company, including securities to be sold on its behalf to the public in an underw itten offering; and

(b) all Holders and off icers and directors of the Company enter into similar agreements.

The obligations described in this Section 1. 12 shall not apply to a registration relating solely to employee benef it plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future or a registration relating solely to a commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of such 120-day period.

1.13 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in which all of the Registrable Securities requested to be included in a registration on behalf of the Holders and all of the shares held by any other shareholders cannot be so included as a result of limitations of the aggregate number of shares of Registrable Securities and other shares that may be so included, the number of shares of Registrable Securities and, other shares that may be so included shall be allocated as follows:

(a) first, among the Holders other than the Founders (the "Non-founding Holders") requesting inclusion of shares pro rata on the basis of the number of shares of Registrable Securities other than Founder Shares (the "Non-founder Registrable Securities") that would be held by the Non-founding Holders, assuming conversion; provided, however, that, in order that such allocation shall not operate so as to reduce the aggregate number of Non-founder Registrable Securities to be included in such registration, if any Non-founding Holder does not request inclusion of the maximum number of shares of Nonfounder Registrable Securities allocated to such Non-founding Holder pursuant to the procedure described in this Section 1.13, the remaining portion of such Non-founding Holder's allocation shall be reallocated among those requesting Non-founding Holders whose allocations did not satisfy their requests pro rata on the basis of the number of shares of Non-founder Registrable Securities which would be held by such Non-founding Holders, assuming conversion; and, provided further, that this procedure shall be repeated until all of the shares of the Non-founder Registrable Securities which may be included in the registration on behalf of the Non-founding Holders have been so allocated;

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(b) second, among the Founders requesting inclusion of shares pro rata on the basis of the number of Founder Shares' that would be held by such Founders; and

(c) finally, among any other shareholders requesting inclusion of their shares of the Company's Common Stock pro rata. on the basis of the number of such shares that would be held by such shareholders.

In no event shall the Company limit the number of Non-founder Registrable Securities to be included in a registration pursuant to this Agreement in order to include shares held by Founders or shareholders with no registration rights, or, except with respect to a registration pursuant to Sections 1.3 and 1.5 above, shares for the Company's own account.

1.14 DELAY OF REGISTRATION. No Holder shall have any right to take any action toorestrain, enjoin or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.

1.15 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to request registration or inclusion in any registration pursuant to Section 1.2, 1.3 or 1.5 shall terminate on, or on such date after, the closing of the f irst Companyinitiated registered public offering of Common Stock of the Company if all shares of Registrable Securities held or entitled to be. held upon conversion by such Holder may immediately be sold under Rule 144 during any 90-day period.

SECTION 2

COVENANTS OF THE COMPANY AND THE SHAREHOLDER

The Company hereby covenants and agrees, as long as any Holder owns any Registrable Shares, as follows:

2.1 BASIC FINANCIAL INFORMATION. The Company will furnish the following reports to each Holder:

(a) As soon as practicable after the end of each f iscal year of the company and in any event within 90 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of recognized national standing selected by the Company;

(b) As soon as practicable after the end of the first, second and third quarterly accounting periods in each f iscal year of the Company and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period and consolidated statements of income and cash flows of the Company and its

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subsidiaries for such period and for the current f iscal year to date, prepared. in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year and to the Company's operating plan then in effect and approved by its Board of Directors, subject to changes resulting from normal year-end audit adjustments, all in reasonable detail and certified by the principal financial or accounting officer of the Company, except that such financial statements need not contain the notes required by generally accepted accounting principles; and

(c) From the date the Company becomes subject to the reporting requirements of the Exchange Act (which shall include any successor federal statute) and in lieu of the financial information required pursuant to Sections 2.1(a) and (b), copies of its annual reports on Form 10-K and its quarterly reports on Form 10-Q, respectively.

2.2 ADDITIONAL INFGRMATION AND RIGHTS

(a) The Company will permit any Holder (or its representative) to visit and inspect any of the properties of the Company, including its books of account and other records (and make copies thereof and take extracts therefrom) and to discuss its affairs, finances and accounts with the Company's officers and its independent public accountants, all at such reasonable times and as often as any such person may reasonably request.

(b) The Company will deliver the reports described below in this
Section 2.2 to each Holder:

(i) As soon as practical after the end of each month and in any event within 30 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such month and consolidated statements of income and cash flows of the Company and its subsidiaries, for each month and for the current fiscal year of the Company to date, all subject to normal year-end audit adjustments, prepared in accordance with generally accepted accounting principles consistently applied and certified by the principal financial or accounting officer of the Company, together with a comparison of such statements to the corresponding periods of the prior fiscal year and to the Company's operating plan then in effect and approved by its Board of Directors;

(ii) Annually (but in any event not later than 90 days after the commencement of each fiscal year of the Company) the business plan of the Companyj in such manner and form as approved by the Board of Directors of the Company, which business plan shall include a projection of income and a projected cash flow statement for such fiscal year and a projected balance sheet as of the end of such fiscal year. Any material changes in such business plan shall be submitted as promptly as practicable after such changes have been approved by the Board of Directors of the Company;

(iii) With reasonable promptness, such other information and data with respect to the Company and its subsidiaries as any Holder may from time to time reasonably request;

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(iv) As soon as practicable after the end of each fiscal year and in any event within 90 days thereafter, (A) a report from the Company reporting on compliance with the terms and conditions of this Agreement and any other agreement pursuant to which the Company has borrowed money or sold its securities, and (B) a copy of the annual management review letter of the Company's independent public accountants; and

(v) As soon as practica b le after transmission or occurrence and in any event within 10 days thereof, copies of any reports or communications delivered to any class of the Company's security holders or broadly to the financial community, including any filings by the Company with any securities exchange, the Commission or the National Association of Securities Dealers, Inc.

(c) The provisions of Section 2.1 and this Section 2.2 shall not be in limitation of any rights which any Holder may have with respect to the books and records of the Company and its subsidiaries or to inspect their properties or discuss their affairs, finances and accounts, under the laws of the jurisdictions in which they are incorporated.

2.3 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Holder who owns any Shares or any shares of Common Stock issued upon conversion of the Shares a right of first refusal to purchase its pro rata share of New Securities (as defined below) which the Company, from time to time, may propose to sell and issue. A Holder's pro rata share, for purposes of this right of first refusal, is the ratio of the number of shares of Common Stock owned by the Holder immediately prior to the issuance of' New Securities, assuming full conversion of the Shares, to the total number of shares of Common Stock outstanding immediately prior to the issuance of New Securities, assuming full conversion of the Shares and exercise of all outstanding rights, options and warrants to acquire Common Stock of the Company. Each Holder shall have a right of overallotment such that if any Holder fails to exercise its right hereunder to purchase its pro rata share of New Securities, the other Holders may purchase the non-purchasing Holder's portion on a pro rata basis within 10 days from the date such non-purchasing Holder f ails to exercise its right hereunder to purchase its pro rata share of New Securities. This right of first refusal shall be subject to the following provisions:

(a) "New Securities" shall mean any capital stock (including Common Stock or Preferred Stock) of the Company, whether now authorized or not, any rights, options or warrants to purchase such capital stock and securities of any type whatsoever that are or may become, convertible into capital stock; provided, however, that the term "New Securities" does not include (i) securities purchased under the Series A Agreement; (ii) securities issued upon conversion of the Shares; (iii) any borrowings, direct or indirect, from financial institutions or other persons by the Company, whether or not presently authorized, including any type of loan or payment evidenced by any type of debt instrument, provided such borrowings do not have any equity features including warrants, options or other rights to purchase capital stock and are not convertible into capital stock of the Company; (iv) securities issued to employees, consultants, officers or directors of the Company pursuant to any stock option, stock purchase or stock bonus plan, agreement or arrangement approved by the Board of Directors; (v) securities issued in connection with obtaining lease financing, whether issued to a lessor, guarantor or other person; (vi) securities issued in a firmly

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written public offering pursuant to a registration under the Securities Act with an aggregate offering price to the public of at least $7,500,000 at a price per share of at least $6.00; (vii) securities issued in connection with any stock split, stock dividend or recapitalization of the Company; and (viii) any right, option or warrant to acquire any security convertible into the securities excluded from the definition of New securities pursuant to clauses (i) through
(vii) above.

(b) In the event the Company proposes to undertake an issuance of New Securities, it shall give each Holder written notice of its intention, describing the type of New Securities and their price and the general terms upon which the Company proposes to issue the same. Each Holder shall have 30 days after any such notice is effective to agree to purchase its pro rata share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased.

(c) In the event any Holder fails to exercise fully the right of first refusal within such 30-day period and after the expiration of 15-day period for the exercise of the overallotment provisions of this Section 2.3, the Company shall have 120 days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within 120 days from the date of such agreement) to sell the New Securities with respect to which the Holder's right of first refusal option set forth in this section 2.3 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the company's notice to the other shareholders pursuant to Section 2.3(b). In the event the Company has not sold all of the New securities within such 120-day period or entered into an agreement to sell the New Securities in accordance with the foregoing within 120 days from the date of such agreement, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Holder in the manner provided in Section 2.3(b) above.

(d) The right of first refusal granted hereunder shall expire upon, and shall not be applicable to, the first firmly underwritten sale of Common Stock of the Company to the public effected pursuant to a registration statement filed with and declared effective by the Commission under the Securities Act, with proceeds of at least $7,500,000 at a price per share of at least $6.00.

(e) The right of f irst refusal set forth in this Section 2.3 may not be assigned or transferred, except that such right is assignable by a Holder to any wholly owned subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Securities Act, controlling, controlled by or under common control with, any Holder.

2.4 RIGHT TO REMAIN EQUAL TO THE LARGEST OUTSIDE SHAREHOLDER. The Shareholder shall have the right at any time to purchase, at a price per share equal to its then fair market value as determined in good faith by the Company's Board of Directors, such number of shares of the Company's Common Stock so as to hold, following such purchase, a total number of shares on an as-converted basis that is at least equal to the total number of shares on an as-converted basis that is held by the Company's largest outside shareholder.

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2.5 RIGHT TO MAKE COMPETING OFFER.

(a) In the event that the Company proposes (i) to merge or consolidate the Company with or into any other corporation or any other entity or person, other than to mergethe Company into a wholly owned subsidiary corporation solely for the purpose of reincorporating the Company in Delaware, (ii) to merge, consolidate or undertake any other corporate reorganization, reclassification or other change of any stock or any recapitalization of the Company or any of its subsidiaries as a result of which the Company shall not be the surviving entity or the holders of the outstanding capital stock of the Company immediately prior to any such event shall own less than a majority of the outstanding capital stock of the company on an as-converted basis immediately after the consummation of any such event, (iii) to sell, lease, assign, transfer or otherwise convey all or substantially all of the assets of the Company, including without limitation a sale of all or substantially all of the assets of the Company to any of its subsidiaries, or (iv) to undertake a reorganization of the Company as defined in Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended, or in which more than a majority of the outstanding stock of the Company is exchanged in any three-month period (each of such proposed transactions shall be referred to herein as a "Change of Control"), the Company shall notify the Shareholder in writing within seven days of receiving a good fAith written offer from a corporation, entity or person (a "Proposing Party") to engage in any such Change of Control, which notice shall include, to the full extent known to the Company, the terms and conditions of the proposed Change of Control and the name or names of the Proposing Party.

(b) Following delivery of such notice, the Shareholder shall have 15 days to notify the Company in writing whether the Shareholder intends , to submit a written competing offer (a "Competing Offer") within the next 30 days for consideration by the Company and its Board of Directors and, if applicable, its other shareholders.

(c) If the Shareholder so notifies the Company that it intends to submit a Competing offer, the Company, without the prior written consent of the Shareholder, shall not consummate any Change of Control with any other corporation, entity or person until the Shareholder has delivered its Competing Offer to the Company or notified the Company in writing that it does not intend to submit a Competing Offer.

(d) If the Shareholder delivers a Competing Offer to the Company within such 30-day period, the Company and its Board of Directors shall be obligated to consider the Competing Offer in good faith. If the Competing Offer is a cash of f er at a higher price than a cash offer by the Proposing Party, the Company and its Board of Directors shall be obligated to accept the Competing Offer or if the Proposing Party's offer is to the Company's shareholders, to recommend that such shareholders accept the Competing offer. If
(i) the Proposing Party's offer includes, in whole or in part, securities or assets other than cash as part of the consideration to be paid to the Company or its shareholders, and (ii) the Competing offer is determined to be of value equal to or greater than the value of the Proposing Party's offer, as determined by one or more nationally recognized independent investment banking firms selected by the Company's Board of Directors to advise it in connection with such transaction, then the Company shall be obligated to accept the Competing Offer or, if the

17

Proposing Party I s offer is to the company's shareholders, to recommend that such shareholders accept the Competing offer.

(e) Each party shall bear its own costs and expenses in connection with the operation of this Section 2.5.

(f) The Company's Board of Directors shall be obligated to comply with the provisions of this Section 2.5 with respect to each subsequent counteroffer by the Proposing Party or any other corporation, entity or person following the submission of a Competing Offer.

2.6 COMPANY REPURCHASE OPTION.

(a) As provided in this Section 2.6, the Company or the Designee (as defined below) shall have an option to repurchase (the "Repurchase Option") all, but not fewer than all, Registrable Securities that the Shareholder proposes to sell, assign, pledge, encumber, transfer or otherwise dispose of for value (the "Offered Shares").

(b) In the event the Shareholder desires to accept a bonafide third party offer for any or all of the Offered Shares, the Shareholder shall promptly deliver to the Secretary of the Company, or such designee as the Company shall indicate to the Shareholder by prompt written notice (the "Designee"), written notice (the "Disposition Notice") of the offer and the basic terms and conditions thereof, including without limitation the proposed purchase price and the identity of the third party.

(c) The Company or the Designee, as the case may be, shall have 30 days following receipt of the Disposition Notice to exercise the Repurchase option to repurchase all of the Offered Shares, which repurchase, except as provided in Section 2.6(d) below, shall be upon the same terms and conditions specified in the Disposition Notice. In order to exercise the Repurchase Option, the Company or the Designee, as the case may be, shall deliver a written notice (the "Exercise Notice") to the Shareholder prior to the expiration of such 30-day period. If the Company or the Designee, as the case may be, exercises the Repurchase option with respect to all of the Offered Shares specified in the Disposition Notice, then the Company or the Designee, as the case may be, shall repurchase the Offered Shares within seven days after delivery of the Exercise Notice; and at such time the Shareholder shall deliver to the Company or the Designee, as the case I may be, the certificate(s) representing the Offered Shares to be repurchased, each certificate properly endorsed for transfer.

(d) If the purchase price specified in the Disposition Notice is payable in the form of property other than cash or in the form of indebtedness or cancellation of indebtedness, the company or the Designee, as the case may be, shall pay the Shareholder, in lieu of such property, indebtedness or cancellation of indebtedness, an equal amount of cash as provided herein. If the Company or the Desinee, as the case may be, and the Shareholder cannot agree on such cash value within 10 days after the receipt by the Company or the Designee, as the case may be, of the Disposition Notice, the valuation shall be made by one nationally recognized independent investment banking firm selected

18

jointly by the Company's Board of Directors or the Designee, as the case may be, and the Shareholder to advise the Company or the Designee, as the case may be, and the Shareholder in connection with the exercise of the Repurchase Option. In the event that the Company's Board of Directors or the Designee, as the case may be, and the Shareholder cannot agree on the selection of such firm, the Company's Board of Directors or the Designee, as the case may be, and the Shareholder shall each select one firm, and the two firms so selected shall jointly select a third firm to carry out the purposes of this Section 2.6(d). The Company or the Designee, as the case may be, and the Shareholder shall share equally any fees charged by any such firm or firms and any other related expenses.

(e) In the event that the Company or the Designee, as the case may be, does not provide the Shareholder with the Exercise Notice within 30 days after the receipt by the Company or the Designee, as the case may be, of the Disposition-Notice or otherwise fails to comply with the requirements of this
Section 2.6, the Shareholder shall have 30 days from the expiration of such 30-day period in which to sell or otherwise dispose of the Offered Shares upon terms or conditions (including without limitation the purchase price) no more favorable to the third party purchaser than those specified in the Disposition Notice, and the third party purchaser shall then own the Offered Shares free and clear of the Repurchase Option. In the event that the Shareholder does not sell or otherwise dispose of the Offered Shares within such latter 30-day period, the Repurchase Option shall continue to apply to any subsequent proposed sale or disposition of the Offered Shares by the Shareholder.

(f) All certificates representing Registrable Securities held by the Shareholder that are subject to the Repurchase option shall be endorsed with the following legend:

"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, PLEDGED, ENCUMBERED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."

(g) In the event (i) the Shareholder desires to accept a bona fide third party offer for fewer than seventy-five percent (75%) of the Registrable Securities then held by the Shareholder, and (ii) the Company desires to indicate a Designee as provided in Section 2.6(b) above, the Shareholder shall have the right to approve the Designee, which approval shall not be unreasonably withheld. The Shareholder must deliver such approval in writing to the Company, and the 30-day period described in Section 2.6(c) above shall not commence until the Shareholder has delivered such approval.

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(h) Except as provided in the last sentence of Section 2.6(e), the Company, upon the indication of a Designee, shall have no rights pursuant to this Section 2.6 to repurchase any Registrable Securities held by the Shareholder.

2.7 PROMPT PAYMENT OF TAXES, ETC. The Company will promptly pay and discharge or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company or any subsidiary; provided, however, that any such tax, assessment charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto; and, provided further, that the Company will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor. The Company will promptly pay or cau ' se to be paid when due or in conformance with customary trade terms or otherwise in accordance with policies related thereto adopted by the Company's Board of Directors, all other indebtedness incident to the operations of the Company.

2.8 MAINTENANCE OF PROPERTIES AND LEASES. The company will keep its properties and those of its subsidiaries in good repair, working order and condition, reasonable wear and tear excepted and from time to time will make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and the Company and its subsidiaries will at all times comply with each material provision of all leases to which any of them is a party or under which any of them occupies property if the breach of such provision might have a material and adverse effect on the condition, financial or otherwise, or operations of the Company.

2.9 INSURANCE. Except as otherwise decided in accordance with policies adopted by the Company's Board of Directors, the Company will keep its assets and those of its subsidiaries which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in the Company's line of business and the Company will maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated.

2.10 KEY PERSON LIFE INSURANCE. The Company has as of the date hereof, or within 90 days of the date hereof shall use its best efforts to obtain, from financially sound and reputable insurers, and shall maintain at all times, term life insurance on the lives of Eric W. Strid and Dale E. Carlton in the amount of $1,300,000 each and on the life of K. Reed Gleason in the amount of $650,000. Such policies shall name the Company as loss payee and shall not be cancellable by the Company without prior approval of the Board of Directors.

2.11 ACCOUNTS AND RECORDS. The Company will keep true records and books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis.

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2.12 INDEPENDENT ACCOUNTANTS. The Company will retain independent public accountants of recognized national standing who shall certify the Company's financial statements at the end of each fiscal year. In the event the services of the independent public accountants so selected or any firm of, independent public accountants hereafter employed by the Company are terminated, the Company will promptly thereafter notify each Holder and will request the firm of independent public accountants whose services are terminated to deliver to the Holders a letter from such firm setting forth the reasons for the termination of their services. In the event of such termination, the Company will promptly thereafter engage another firm of independent public accountants of recognized national standing. In its notice to the Holders the Company shall state whether the change of accountants was recommended or approved by the Board of Directors of the Company or any committee thereof.

2.13 COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES. The Company and all its subsidiaries shall duly observe and conform to all valid requirements of governmental authorities relating to the conduct of their businesses or to their properties or assets, the violation of which may have a material and adverse effect on the financial condition or operations of the Company.

2.14 MAINTENANCE OF CORPORATE EXISTENCE, ETC. The Company shall maintain in full force and effect its corporate existence, rights and franchises and all licenses and other rights in or to use patents, processes, licenses, trademarks, trade names, or copyrights and similar rights owned or possessed by it or any subsidiary and deemed by the Company to be necessary to the conduct of their business.

2.15 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. The Company will cause each employee or consultant now or hereafter employed or engaged by it or any subsidiary with access to confidential information to enter into a Proprietary Information and Inventions Agreement substantially in the form attached as Exhibit F to the Series A Agreement.

2.16 EMPLOYEE AND OTHER STOCK ARRANGEMENTS. Without the approval of the Board of Directors, the Company will not issue any of its capital stock, or grant an option or rights to subscribe for, purchase or acquire any of its capital stock, to any director, officer or employee of, or consultant to, the Company or any subsidiary thereof except for the issuance of up to an aggregate of 700,000 shares of Common Stock pursuant to stock purchase agreements or the exercise of stock options granted or to be granted, under the Company's 1986 Non-Qualified Stock Option Plan, as amended. Each acquisition of any shares of capital stock of the Company or any option or right to acquire any shares of capital stock of the Company by any such person will be conditioned upon the execution and delivery by the Company and such person of an agreement substantially in a form approved by the Board of Directors of the Company.

2.17 BOARD OF DIRECTORS. The Company shall use its good faith best efforts to cause the election to its Board of Director of the person designated by the holders of Series A Preferred Stock pursuant to the Company's Articles of Incorporation, as amended from time to time.

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2.18 ATTENDANCE AT BOARD AND COMMITTEE MEETINGS.

In the event that the holders of Series A Preferred Stock shall fail for any reason to designate a representative to be elected to the Company's Board of Directors pursuant to the Company's Articles of Incorporation, as amended from time to time, or the person so designated by the holders of Series A Preferred shall not be elected to the Company's Board of Directors for any reason, then, and in either such event, the Shareholder may designate a person who, upon approval by the Company of his or her designation, which approval shall not be unreasonably withheld, shall have the right to attend all meetings of the Board of Directors and any committee thereof in a nonvoting observer capacity, to receive notice of such meetings and to receive the information provided by the Company to the Board of Directors and its committees at the same time as such Board or Committee members shall receive such information or as soon thereafter as practicable. The Shareholder may change the person designated under this
Section 2.18 upon 10 days advance written notice to the Company.

2.19 INDEBTEDNESS. The Company shall not, without the prior approval of the Board of Directors of the Company, incur any indebtedness in excess of $100,000, other than trade credit incurred in the ordinary course of business.

2.20 EXTENSION OF CREDIT. The Company shall not, without the prior approval of the Board of Directors of the Company, extend credit by any method or in any form or manner in excess of $100,000, other than open account credit extended to customers in the ordinary course of business.

2.21 COMPENSATION OF EMPLOYEES. The Company shall not, without the prior approval of the Board of Directors of the Company, compensate any of its employees, including officers, in an amount greater than $100,000.

2.22 TRANSACTIONS WITH AFFILIATES. The Company, without the approval of the disinterested members of the Company's Board of Directors, shall not engage in any loans, leases, contracts or other transactions with any director, officer or key employee of the Company or any member of any such person's immediate family, including the parents, spouse, children and other relatives of any such person, on terms less favorable than the Company would obtain in a transaction with an unrelated party, as determined in good faith by the Board of Directors.

2.23 RESTATED ARTICLES OF INCORPORATION. Within 90 days after the Closing, the company shall file with the Secretary of State of the State.of Oregon Restated Articles of Incorporation of the Company restating the Company's Articles of Incorporation with all amendments in existence immediately prior to the Closing and without any further amendment.

2.24 CONFIDENTIAL DISCLOSURE AGREEMENT. Prior to and as a condition to the fulfillment by the Company of any of the covenants, or the exercise by the Shareholder of any of the rights, set forth in sections 2.1(a) and (b), 2.2 and 2.18 above, the Shareholder shall execute and deliver to the Company a Confidential Disclosure Agreement in substantially the form attached hereto as Exhibit A.

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2.25 HARDWARE PURCHASES. The Company shall have the right to purchase in each calendar year up to an aggregate of $300,000 of used test and measurement equipment from the Shareholder pursuant to the terms and conditions of the form of Hardware Purchase Agreement attached hereto as Exhibit B (the "Hardware Agreement"); provided, however, that any add-ons, upgrades or other additional products of the Shareholder purchased by the Company shall be purchased not pursuant to a Hardware Agreement but instead pursuant to the Shareholder's then current terms and conditions of sale and at a price equal to the Shareholder's then current published list price for such add-ons, upgrades or additional products; and, provided further, that the purchase price of any such add-ons, upgrades or additional products shall not be included in the $300,000 calendar year limitation set forth above.

2.26 TERMINATION OF COVENANTS.

(a) Except as provided in Section 2.26(b) below, the covenants set forth in this Section 2 shall terminate and be of no further force and effect after the time of effectiveness of the Company's first firmly underwritten public offering registered under the Securities Act for aggregate proceeds of at least $7,500,000 at a price per share of at least $6.00 (the "Initial Public Offering").

(b) (i) The covenants set forth in Sections 2.1(b), 2.2 (a) and 2.2
(b) shall terminate and be of no further force and effect only in the event that a Holder owns fewer than 30,000 shares of Registrable Securities.

(ii) The covenants set forth in Sections 2.4, 2.5 and 2.18 shall terminate and be of no further force and effect only in the event that the Shareholder owns fewer than (a) 30, 000 shares of Registrable Securities or (b) five percent (5%) of the outstanding shares of the Company's capital stock on an as-converted basis.

(iii) The covenant set forth in Section 2.17 shall terminate and be of no further force and effect only upon amendment of the Company's Articles of Incorporation to eliminate the right of the holders of Series A Preferred Stock to designate and elect one director.

(iv) The covenant set forth in Section 2.25 shall terminate and be of no further force and effect only upon the earlier of (a) the effectiveness of the Company's Initial Public Offering, and (b) the consummation of a Change in Control.

SECTION 3

MISCELLANEOUS

3.1 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of Oregon.

23

3.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

3.3 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including any Exhibits hereto) constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the Company and the Holders of at least a majority of the outstanding Registrable Securities, and any such amendment, waiver, discharge or termination shall be binding on all the Holders, but in no event shall the obligation of any Holder hereunder be materially increased, except upon the written consent of such Holder.

3.4 NOTICES, ETC.. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by United States first-class mail, postage prepaid or delivered personally addressed by hand or special courier to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by 10 days' advance written notice to the other party or parties, as the case may be, with, in the case of any notice to the Company, a copy to Steven E. Wynne, Esq., Lindsay, Hart, Neil & Weigler, 222 S.W. Columbia, Suite 1800, Portland, Oregon 97210, in the case of any. notice to the Shareholder, a copy to Ann 0. Baskins, Assistant Secretary and Corporate Counsel, Hewlett-Packard Company, 3000 Hanover Street, MS: 20BQ, Palo Alto, California 94304, and, if to a Holder other than the Shareholder, at such address as such Holder or permitted assignee shall have furnished to the Company in writing. Delivery of all such notices and other written communications shall be effective
(i) if mailed, five days after mailing and (ii) if delivered upon delivery.

3.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any Holder upon any breach or default of the Company under this Agreement shall impair any such right, power or remedy of such Holder and it shall not be construed to be a waiver of any such breach or default or an acquiescence therein or in any similar breach or default thereafter occurring; and no waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Holder of any breach or default under this Agreement or any waiver on the part of any Holder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise af forded to any Holder, shall be cumulative and not alternative.

3.6 RIGHTS; SEPARABILITY. Unless otherwise expressly provided herein, a Holder's rights hereunder are several rights, not rights jointly held with any of the other Holders. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

3.7 TITLES AND SUBTITLES. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

24

3.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

CASCADE MICROTECH, INC.                     HEWLETT-PACKARD COMPANY

By:/s/ Eric W. Strid                        By:/s/ Gerard V. Schenkkan
   ---------------------------------------     ---------------------------------
   Eric W. Strid                               Gerard V. Schenkkan
   President                                   Business Development Manager

   Address:  14255 Brigadoon Court             Address:  3000 Hanover Street
             Beaverton, OR 97005                         MS 20BT
                                                         Palo Alto, CA 94304

25

FOUNDERS

                  /s/      Eric W. Strid
                  --------------------------------------------
Eric W. Strid

                  /s/      Dale E. Carlton
                  --------------------------------------------
Dale E. Carlton

                  /s/      K. Reed Gleason
                  --------------------------------------------
K. Reed Gleason

                  /s/      Cynthia Strid
                  --------------------------------------------
Cynthia Strid

                  /s/      Cynthia Ann Crow-Carlton
                  --------------------------------------------
Cynthia Ann Crow-Carlton

26

Exhibit 4.3

CASCADE MICROTECH, INC.

INVESTORS' RIGHTS AGREEMENT

DECEMBER 16, 1999


TABLE OF CONTENTS

SECTION 1.        RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS..............................2

                  1.1      CERTAIN DEFINITIONS....................................................................2
                  1.2      REQUESTED REGISTRATION.................................................................4
                  1.3      COMPANY REGISTRATION...................................................................7
                  1.4      EXPENSES OF REGISTRATION...............................................................8
                  1.5      REGISTRATION ON FORM S-3...............................................................8
                  1.6      REGISTRATION PROCEDURES................................................................9
                  1.7      INDEMNIFICATION.......................................................................10
                  1.8      INFORMATION BY HOLDER.................................................................13
                  1.9      LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES...................................13
                  1.10     RULE 144 REPORTING....................................................................13
                  1.11     TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS.........................................13
                  1.12     "MARKET STAND-OFF" AGREEMENT..........................................................14
                  1.13     ALLOCATION OF REGISTRATION OPPORTUNITIES..............................................14
                  1.14     DELAY OF REGISTRATION.................................................................15
                  1.15     TERMINATION OF REGISTRATION RIGHTS....................................................15
                  1.16     RULE 144A.............................................................................15

SECTION 2.        COVENANTS OF THE COMPANY AND THE SHAREHOLDERS..................................................16

                  2.1      BASIC FINANCIAL INFORMATION...........................................................16
                  2.2      ADDITIONAL INFORMATION AND RIGHTS.....................................................16
                  2.3      RIGHT OF FIRST REFUSAL................................................................18
                  2.4      RIGHT TO REMAIN EQUAL TO THE LARGEST OUTSIDE SHAREHOLDER..............................19
                  2.5      RIGHT TO MAKE COMPETING OFFER.........................................................20
                  2.6      COMPANY REPURCHASE OPTION.............................................................21
                  2.7      RIGHT OF CO-SALE......................................................................23
                  2.8      PROMPT PAYMENT OF TAXES, ETC..........................................................26
                  2.9      MAINTENANCE OF PROPERTIES AND LEASES..................................................26
                  2.10     INSURANCE.............................................................................26
                  2.11     KEY PERSON LIFE INSURANCE.............................................................26
                  2.12     ACCOUNTS AND RECORDS..................................................................27
                  2.13     INDEPENDENT ACCOUNTANTS...............................................................27
                  2.14     COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES..............................27
                  2.15     MAINTENANCE OF CORPORATE EXISTENCE, ETC...............................................27
                  2.16     EMPLOYEE INVENTION AND CONFIDENTIALITY AGREEMENT......................................27
                  2.17     EMPLOYEE AND OTHER STOCK ARRANGEMENTS.................................................27
                  2.18     BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD........................................27
                  2.19     ATTENDANCE AT BOARD AND COMMITTEE MEETINGS............................................28


i - Table of Contents

                  2.20     INDEBTEDNESS..........................................................................28
                  2.21     EXTENSION OF CREDIT...................................................................28
                  2.22     COMPENSATION OF EMPLOYEES.............................................................28
                  2.23     TRANSACTIONS WITH AFFILIATES..........................................................28
                  2.24     CONFIDENTIAL DISCLOSURE AGREEMENT.....................................................29
                  2.25     SERIES C PREFERRED STOCK PUT RIGHT....................................................29
                  2.26     AMENDMENT OF RESTATED ARTICLES OF INCORPORATION;
                           VOTING AGREEMENT......................................................................31
                  2.27     PROTECTIVE COVENANT...................................................................31
                  2.28     TERMINATION OF COVENANTS..............................................................31

SECTION 3.        MISCELLANEOUS..................................................................................32

                  3.1      GOVERNING LAW.........................................................................32
                  3.2      SUCCESSORS AND ASSIGNS................................................................32
                  3.3      ENTIRE AGREEMENT; AMENDMENT; WAIVER...................................................32
                  3.4      NOTICES...............................................................................32
                  3.5      DELAYS OR OMISSIONS...................................................................33
                  3.6      RIGHTS; SEVERABILITY..................................................................33
                  3.7      TITLES AND SUBTITLES..................................................................33
                  3.8      COUNTERPARTS..........................................................................33
                  3.9      TERMINATION OF JULY 1999 INVESTORS' RIGHTS AGREEMENT..................................33

ii - Table of Contents


         SCHEDULES:
         ----------

         SCHEDULE 1            LIST OF SHAREHOLDERS

         EXHIBITS:
         ---------

         EXHIBIT A             EMPLOYEE INVENTION AND CONFIDENTIALITY AGREEMENT
         EXHIBIT B             NONDISCLOSURE AND RESTRICTED USE AGREEMENT
         EXHIBIT C             INSTALLMENT NOTE


iii - Table of Contents


CASCADE MICROTECH, INC.

INVESTORS' RIGHTS AGREEMENT

This Investors' Rights Agreement (the "Agreement") is made as of the 16th day of December, 1999, by and among Cascade Microtech, Inc., an Oregon corporation (the "Company"), each of the parties listed on SCHEDULE 1 hereto (the "Shareholders"), and each of Eric W. Strid, Cynthia Strid and K. Reed Gleason.

RECITALS:

WHEREAS, Agilent Technologies, Inc. (formerly known as Hewlett-Packard Company) ("Agilent Technologies"), Maristeth Fund III, LLC ("Maristeth"), and Electroglas, Inc. ("Electroglas") are the holders of the currently outstanding Series A and B Preferred Stock of the Company (the "Series A and B Preferred Stock") and possesses registration rights, information rights, rights of first refusal, and other rights pursuant to an Investors' Rights Agreement dated as of July 21, 1999, between the Company, Agilent Technologies, Maristeth, Electroglas and the Founders (as defined herein) (the "July 1999 Investors' Rights Agreement"); and

WHEREAS, the Founders hold shares of the Company's Common Stock and possess registration rights pursuant to the July 1999 Investors' Rights Agreement; and

WHEREAS, the Company has negotiated the sale of (i) 1,250,000 shares of its Series C Preferred Stock, and (ii) warrants to purchase 250,000 shares of its Series C Preferred Stock to Teachers Insurance & Annuity Association of America, a New York corporation ("TIAA") subject to the execution of this Agreement; and

WHEREAS, the Company and TIAA are parties to that certain Series C Preferred Stock and Warrant Purchase Agreement, dated of even date herewith (the "Series C Preferred Stock Purchase Agreement"), which provides that as a condition to the closing of the sale of the Series C Preferred Stock to TIAA, this Agreement must be executed and delivered by the Shareholders, each of Eric W. Strid, Cynthia Strid and K. Reed Gleason, and the Company; and

WHEREAS, in exchange for TIAA's willingness to make the investment in the Company as provided in the Series C Preferred Stock and Warrant Purchase Agreement, Agilent Technologies, Maristeth, Electroglas, Eric W. Strid, Cynthia Strid and K. Reed Gleason agree to terminate the July 1999 Investors' Rights Agreement and accept the additional rights and obligations, as the case may be, created pursuant to this Agreement in lieu of the rights and obligations created under the July 1999 Investors' Rights Agreement.

1 - Investors' Rights Agreement


NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants set forth herein, Agilent Technologies, Maristeth, Electroglas, Eric W. Strid, Cynthia Strid and K. Reed Gleason hereby agree that the July 1999 Investors' Rights Agreement shall be superseded and replaced in its entirety by this Agreement, and the parties hereto further agree as follows:

SECTION 1.

RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES; REGISTRATION RIGHTS

1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth below:

(a) "CLOSING" shall mean the date of the initial sale of the Company's Series C Preferred Stock.

(b) "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

(c) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.

(d) "FOUNDER" shall mean Eric W. Strid, Cynthia Strid, K. Reed Gleason, Dale E. Carlton and Cynthia Ann Crow-Carlton.

(e) "FOUNDER SHARES" shall mean any shares of the Company's Common Stock held by any Founder.

(f) "HOLDER" shall mean (i) the Shareholders, (ii) any holder of the Series C Preferred Stock Warrant, (iii) any holder of Registrable Securities to whom the registration rights conferred by this Agreement have been transferred in compliance with Section 1.11 hereof, and (iv) except with respect to Section 2.3 hereof, the Founders.

(g) "INITIAL PUBLIC OFFERING" shall mean consummation of the sale of securities pursuant to a registration statement filed by the Company under the Securities Act in connection with the firm commitment underwritten offering of its securities to the general public.

(h) "INITIATING HOLDERS" shall mean any holder or holders who in the aggregate hold not less than fifty percent (50%) of the outstanding shares of the Company's

2 - Investors' Rights Agreement


Series A, Series B or Series C Preferred Stock, including the shares of Common Stock issued upon conversion of such Preferred Stock.

(i) "QUALIFIED PUBLIC OFFERING" shall mean consummation of the sale of securities pursuant to a registration statement filed by the Company under the Securities Act in connection with the firm commitment underwritten offering of shares of common stock at an offering price of at least 125 percent of the then applicable conversion price of the Series C Preferred Stock (appropriately adjusted for any stock split, dividend, combination or other recapitalization) and resulting in net proceeds to the Company of at least $20,000,000.

(j) "REGISTRABLE SECURITIES" shall mean (i) shares of Common Stock issued or issuable pursuant to the conversion of the Shares, (ii) Founder Shares, and (iii) any Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referred to in clauses (i) or (ii) above; provided, however, that Registrable Securities shall not include any shares of Common Stock which have previously been registered or which have been sold to the public.

(k) The terms "REGISTER," "REGISTERED" and "REGISTRATION" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder and the declaration or ordering of the effectiveness of such registration statement.

(l) "REGISTRATION EXPENSES" shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including without limitation all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, fees and expenses under applicable state securities laws and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses and fees and disbursements of counsel for the Holders (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company).

(m) "RULE 144" shall mean Rule 144 as promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

(n) "RULE 144A" shall mean Rule 144A as promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

(o) "RULE 145" shall mean Rule 145 as promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

3 - Investors' Rights Agreement


(p) "SECURITIES ACT" shall mean the Securities Act of 1933, amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.

(q) "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and disbursements of counsel for any Holder (other than the fees and disbursements of counsel included in Registration Expenses).

(r) "SERIES C PREFERRED STOCK WARRANT" shall mean that certain Series C Preferred Stock Purchase Warrant of the Company to purchase up to 250,000 shares of the Company's Series C Preferred Stock issued to TIAA and dated of even date herewith.

(s) "SHARES" shall mean the Company's Series A, Series B and Series C Preferred Stock, including shares of Series C Preferred Stock if and when issued upon exercise of the Series C Preferred Stock Warrant.

(t) "SIGNIFICANT HOLDER" shall mean (i) any Shareholder that holds at least 50,000 Shares, or such number of shares of Common Stock issued upon conversion of 50,000 or more Shares, or any combination thereof (as adjusted for stock splits, stock dividends, combinations and other recapitalizations), (ii) any holder of Series C Preferred Stock Warrant(s) that represents the right to acquire at least 50,000 Shares, or (iii) any transferee of the foregoing, provided such transferee acquires at least 50,000 Shares, or such number of Shares of Common Stock issued upon conversion of 50,000 or more Shares, or Series C Preferred Stock Warrants to acquire at least 50,000 Shares, or any combination thereof.

1.2 REQUESTED REGISTRATION.

(a) If the Company shall receive from the Initiating Holders at any time or times not earlier than the earlier of (x) four years after the date of this Agreement and (y) six months after the effective date of the first registration statement filed by the Company covering an underwritten offering of any of its securities to the general public, a written request that the Company effect any registration with respect to all or a part of the Registrable Securities having an aggregate offering price, net of underwriting discounts and expenses, equal to or exceeding 150 percent of the then applicable conversion price of the Series B Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) and the aggregate proceeds of which (after deduction for underwriter's discounts and expenses related to the issuance) exceed $10,000,000 the Company will:

(i) promptly give written notice of the proposed registration to all other Holders; and

4 - Investors' Rights Agreement


(ii) as soon as practicable, use its best efforts to effect such registration (including without limitation filing post-effective amendments, appropriate qualifications under applicable state securities laws and appropriate compliance with the Securities Act) and as would permit or facilitate the sale and distribution of all or such number of such Registrable Securities as are specified in such request, together with all or such number of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within 20 days after such written notice from the Company is effective.

The Company shall not be obligated to effect or to take any action to effect, any such registration pursuant to this Section 1.2:

(A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(B) After the holders of the Series A, Series B and Series C Preferred Stock have each initiated one such registration pursuant to this Section 1.2(a) (three registrations in total, counting for these purposes only (i) registrations which have been declared or ordered effective and pursuant to which Registrable Securities have been sold, and (ii) registrations which have been withdrawn by the Holders as to which the Holders have not elected to bear the Registration Expenses pursuant to Section 1.4 hereof and would, absent such election, have been required to bear such expenses);

(C) During the period starting with the date 60 days prior to the Company's good faith estimate of the date of filing of, and ending on a date 180 days after the effective date of, a Company-initiated registration; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective;

(D) If the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 1.5 hereof;

(E) If the Initiating Holders do not request that such offering be firmly underwritten by underwriters selected by the Initiating Holders (subject to the consent of the Company, which consent will not be unreasonably withheld); or

(F) If the Company and the Initiating Holders are unable to obtain the commitment of the underwriter described in clause (E) above to a firmly underwritten offer.

5 - Investors' Rights Agreement


(b) Subject to the foregoing clauses (A) through (F), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Initiating Holders; provided, however, that if (i) in the good faith judgment of the Board of Directors of the Company such registration would be seriously detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is essential to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to all participating Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company it would be seriously detrimental to the Company for such registration statement to be filed in the near future and that it is therefore essential to defer the filing of such registration statement, then the Company shall have the right to defer such filing for the period during which such disclosure would be seriously detrimental; and, provided further, that (except as provided in clause (C) above) the Company may not defer the filing for a period of more than 120 days after receipt of the request of the Initiating Holders; and, provided further, that the Company shall not defer its obligation in this manner more than once in any 12-month period.

Subject to the provisions of Sections 1.2(b) and 1.13 hereof, the registration statement filed pursuant to the request of the Initiating Holders may include other securities of the Company with respect to which registration rights have been granted and may include securities of the Company being sold for the account of the Company.

(c) The right of any Holder to registration pursuant to
Section 1.2 shall be conditioned upon the participation of such Holder in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder with respect to such participation and inclusion) to the extent provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities held by the Holder.

(d) If the Company shall request inclusion in any registration pursuant to Section 1.2 of securities being sold for its own account or if other persons shall request inclusion in any registration pursuant to Section 1.2, the Initiating Holders shall offer to include such securities in the underwriting on behalf of all Holders and may condition such offer on their acceptance of the further applicable provisions of this Section 1 (including Section 1.12). The Company (together with all Holders and other persons proposing to distribute their securities through such underwriting) shall enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders, which underwriters shall be reasonably acceptable to the Company. Notwithstanding any other provision of this Section 1.2, if the representative of the underwriters advises the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the number of shares to be included in the underwriting or registration shall be allocated as set forth in Section 1.13 hereof. If a person who has requested inclusion in such registration as provided above does not agree to the terms

6 - Investors' Rights Agreement


of any such underwriting, such person shall be excluded therefrom by written notice from the Company, the underwriter or the Initiating Holders. Any Registrable Securities or other securities so excluded shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of shares to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 1.2(d), then the Company shall offer to all Holders who have retained rights to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Holders requesting additional inclusion in accordance with Section 1.13.

1.3 COMPANY REGISTRATION.

(a) If the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders exercising their respective demand registration rights (other than pursuant to Sections 1.2 or 1.5 hereof), other than a registration relating solely to employee benefit plans, a registration relating solely to a Rule 145 transaction or a registration on any registration form that does not permit secondary sales, the Company will:

(i) promptly give to each Holder written notice thereof; and

(ii) use its best efforts to include in such registration (and any related qualification under applicable state securities laws or other compliance), except as set forth in Section 1.3(b) below and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests made by any Holder within 20 days after the written notice from the Company described in clause (i) above is given. Such written request may specify all or any number of a Holder's Registrable Securities.

(b) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section
1.3(a)(i). In such event, the right of any Holder to registration pursuant to this Section 1.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting (together with the Company and the other Holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) shall enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company.

7 - Investors' Rights Agreement


Notwithstanding any other provision of this Section 1.3, if the representative of the underwriters advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the representative may exclude all Registrable Securities from or limit the number of Registrable Securities to be included in the registration and underwriting (subject to the limitations set forth below). The Company shall so advise all Holders of securities requesting registration and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated first to the Company for securities being sold for its own account and thereafter as set forth in Section 1.13. If any person does not agree to the terms of any such underwriting, such person shall be excluded therefrom by written notice from the Company or the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.

If shares are so withdrawn from the registration or if the number of shares of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors, the Company shall then offer to all persons who have retained the right to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among the persons requesting additional inclusion in accordance with Section 1.13 hereof.

1.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 1.3 and 1.5 hereof and all Registration Expenses and reasonable fees of one counsel for the selling Shareholders in the case of registrations pursuant to Section 1.2 shall be borne by the Company; provided, however, that if the Holders bear the Registration Expenses for any registration proceeding begun pursuant to Section 1.2 and subsequently withdrawn by the Holders registering shares therein, such registration proceeding shall not be counted as a requested registration pursuant to Section 1.2 hereof. Furthermore, in the event that such withdrawal is based upon material adverse information relating to the Company that is different from the information known or reasonably available (upon request from the Company or otherwise) to the Holders requesting registration at the time of their request for registration under Section 1.2, such registration shall not be treated as a counted registration for purposes of Section 1.2 hereof, even though the Holders do not bear the Registration Expenses for such registration. All Selling Expenses relating to securities so registered shall be borne by the Holders of such securities pro rata on the basis of the number of shares of securities so registered on their behalf.

1.5 REGISTRATION ON FORM S-3.

(a) After its Initial Public Offering, the Company shall use its best efforts to qualify for registration on Form S-3 or any comparable or successor form or forms. After the Company has qualified for the use of Form S-3, the Holders of Registrable Securities shall have the right, in addition to the rights contained in the foregoing provisions of this Section 1, to

8 - Investors' Rights Agreement


request registrations on Form S-3 (such requests to be in writing and to state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Holder or Holders); provided, however, that the Company shall not be obligated to effect any such registration (i) if the Holders, together with the Holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) on Form S-3 at an aggregate price to the public of less than $1,000,000, (ii) if the Company shall furnish the certification described in Section 1.2(b)(ii) (but subject to the limitations set forth therein), (iii) if in a given 12-month period the Company has effected one such registration in any such period, or (iv) if it is to be effected more than five years after the Company's Initial Public Offering, (v) if Form S-3 is not available for such offering by the Holders, or (vi) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance.

(b) If a request complying with the requirements of Section 1.5(a) hereof is delivered to the Company, the provisions of Sections 1.2(a)(i) and (ii) and 1.2(b) hereof shall apply to such registration. If the registration is for an underwritten offering, the provisions of Sections 1.2(c) and 1.2(d) hereof shall apply to such registration.

1.6 REGISTRATION PROCEDURES. In the case of each registration effected by the Company pursuant to Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will use its best efforts to:

(a) Keep such registration effective for a period of 120 days or until the Holder or Holders shall have completed the distribution described in the registration statement relating thereto, whichever first occurs; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 145 or any successor rule under the Securities Act permits an offering on a continuous or delayed basis and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment that (A) includes any prospectus required by Section 10(a)(3) of the Securities Act, or (B) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in clauses (A) and (B) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement;

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(b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;

(c) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request;

(d) Notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing and, at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing;

(e) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities market on which similar securities issued by the Company are then listed;

(f) Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; and

(g) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months, but not more than 18 months, beginning with the first month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; and

(h) In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 1.2 hereof, enter into an underwriting agreement reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains customary underwriting provisions and provided further that, if the underwriter so requests, the underwriting agreement will contain customary contribution provisions.

1.7 INDEMNIFICATION.

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(a) The Company will indemnify each Holder, each of its officers, directors, members, partners, legal counsel and accountants and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 1 and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance and will reimburse each such Holder, each of its officers, directors, members, partners, legal counsel and accountants and each person controlling such Holder, each such underwriter and each person who controls any such underwriter for any legal and other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. It is agreed that the indemnity agreement contained in this Section 1.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent has not been unreasonably withheld).

(b) Each Holder, if any Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, will indemnify the Company, each of its directors, officers, partners, legal counsel and accountants and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other Holder and each of its officers, directors, members and partners and each person controlling such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and will reimburse the Company and other Holders and each of their respective directors, officers, members, partners, legal counsel and accountants, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus,

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offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder; provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); and provided that in no event shall any indemnity under this Section 1.7 exceed the gross proceeds received by the Holder from the sale of Registrable Securities in the offering.

(c) Each party entitled to indemnification under this Section
1.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, however, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld) and the Indemnified Party may participate in such defense at such party's expense; and, provided further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1.7 to the extent such failure is not prejudicial. No Indemnifying Party, in the defense of any such claim or litigation, shall consent, except with the consent of each Indemnified Party, to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom.

(d) If the indemnification provided for in this Section 1.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

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(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

1.8 INFORMATION BY HOLDER. Each Holder of Registrable Securities shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Section 1.

1.9 LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES. From and after the date of this Agreement, the Company, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, shall not enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder any registration rights the terms of which are more favorable than the registration rights granted to the Holders hereunder.

1.10 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of Registrable Securities to the public without registration, the Company agrees to use its best efforts to:

(a) Make and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after 90 days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;

(b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements;

(c) As long as a Holder owns any Registrable Securities furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public) and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration.

1.11 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS.

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(a) Except as provided in Section 1.11(b) below, the rights to cause the Company to register securities granted to a Holder by the Company under this Section 1 may be transferred or assigned by a Holder only to a transferee or assignee of not fewer than 50,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and the like); provided, however, that the Company shall be given written notice at the time of or within a reasonable time after such transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned; and, provided further, that the transferee or assignee of such rights shall assume the obligations of such Holder under this Section 1.

(b) The rights to cause the Company to register securities granted to a Holder by the Company under this Section 1 may not be transferred or assigned by any Founder.

1.12 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an underwriter of Common Stock (or other securities) of the Company, a Holder shall not sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) during the 120-day period following the effective date of a registration statement of the Company filed under the Securities Act, provided that:

(a) such agreement shall only apply to the first such registration statement of the Company, including securities to be sold on its behalf to the public in an underwritten offering; and

(b) all Holders and officers and directors of the Company enter into similar agreements.

The obligations described in this Section 1.12 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of such 120-day period.

1.13 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in which all of the Registrable Securities requested to be included in a registration on behalf of the Holders and all of the shares held by any other Shareholders cannot be so included as a result of limitations of the aggregate number of shares of Registrable Securities and other shares that may be so included, the number of shares of Registrable Securities and other shares that may be so included shall be allocated as follows:

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(a) first, among the Holders other than the Founders (the "Non-founding Holders") requesting inclusion of shares pro rata on the basis of the number of shares of Registrable Securities other than Founder Shares (the "Non-founder Registrable Securities") that would be held by the Non-founding Holders, assuming conversion; provided, however, that, in order that such allocation shall not operate so as to reduce the aggregate number of Non-founder Registrable Securities to be included in such registration, if any Non-founding Holder does not request inclusion of the maximum number of shares of Non-founder Registrable Securities allocated to such Non-founding Holder pursuant to the procedure described in this Section 1.13, the remaining portion of such Non-founding Holder's allocation shall be reallocated among those requesting Non-founding Holders whose allocations did not satisfy their requests pro rata on the basis of the number of shares of Non-founder Registrable Securities which would be held by such Non-founding Holders, assuming conversion; and, provided further, that this procedure shall be repeated until all of the shares of the Non-founder Registrable Securities which may be included in the registration on behalf of the Non-founding Holders have been so allocated;

(b) second, among the Founders requesting inclusion of shares pro rata on the basis of the number of Founder Shares' that would be held by such Founders; and

(c) finally, among any other Shareholders requesting inclusion of their shares of the Company's Common Stock pro rata on the basis of the number of such shares that would be held by such Shareholders.

In no event shall the Company limit the number of Non-founder Registrable Securities to be included in a registration pursuant to this Agreement in order to include shares held by Founders or Shareholders with no registration rights, or, except with respect to a registration pursuant to Sections 1.3 and 1.5 above, shares for the Company's own account.

1.14 DELAY OF REGISTRATION. No Holder shall have any right to take any action to restrain, enjoin or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.

1.15 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to request registration or inclusion in any registration pursuant to Section 1.2, 1.3 or 1.5 shall terminate on, or on such date after, the closing of the first Company-initiated registered public offering of Common Stock of the Company if all shares of Registrable Securities held or entitled to be held upon conversion by such Holder (and any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) can be sold in any three (3)-month period without registration in compliance with Rule 144.

1.16 RULE 144A. At the request of a Significant Holder, the Company will deliver to the Significant Holder (or a prospective transferee thereof) such information as is required under Rule 144A in order to permit compliance by the Significant Holder with Rule 144A in connection with a transfer of any Registrable Securities.

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SECTION 2.

COVENANTS OF THE COMPANY AND THE SHAREHOLDERS

The Company hereby covenants and agrees, as long as any Holder owns any Registrable Shares, as follows:

2.1 BASIC FINANCIAL INFORMATION. The Company will furnish the following reports to each Holder:

(a) As soon as practicable after the end of each fiscal year of the Company and in any event within 90 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of recognized national standing selected by the Company;

(b) As soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period and consolidated statements of income and cash flows of the Company and its subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year subject to changes resulting from normal year-end audit adjustments, all in reasonable detail and certified by the principal financial or accounting officer of the Company, except that such financial statements need not contain the notes required by generally accepted accounting principles; and

2.2 ADDITIONAL INFORMATION AND RIGHTS.

(a) The Company will permit any Significant Holder (or its representative) to visit and inspect any of the properties of the Company, including its books of account and other records (and make copies thereof and take extracts therefrom) and to discuss its affairs, finances and accounts with the Company's officers and its independent public accountants, all at such reasonable times and as often as any such person may reasonably request.

(b) The Company will deliver the reports described below in this Section 2.2 to each Significant Holder:

(i) As soon as practical after the end of each month and in any event within 30 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if

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any, as at the end of such month and consolidated statements of income and cash flows of the Company and its subsidiaries, for each month and for the current fiscal year of the Company to date, all subject to normal year-end audit adjustments, prepared in accordance with generally accepted accounting principles consistently applied and certified by the principal financial or accounting officer of the Company, together with a comparison of such statements to the corresponding periods of the prior fiscal year and to the Company's operating plan then in effect and approved by its Board of Directors;

(ii) Not later than 30 days after the commencement of each fiscal year of the Company, the business plan of the Company, in such manner and form as approved by the Board of Directors of the Company, which business plan shall include a projection of income and a projected cash flow statement for such fiscal year and a projected balance sheet as of the end of such fiscal year. Any material changes in such business plan shall be submitted as promptly as practicable after such changes have been approved by the Board of Directors of the Company;

(iii) With reasonable promptness, notice of any material adverse change in the Company's business, assets or financial condition, including, but not limited to, notice of any material litigation involving the Company;

(iv) With reasonable promptness, such other information and data with respect to the Company and its subsidiaries as any Holder may from time to time reasonably request;

(v) As soon as practicable after the end of each fiscal year and in any event within 90 days thereafter, a copy of the annual management review letter of the Company's independent public accountants; and

(vi) As soon as practicable after transmission or occurrence and in any event within 10 days thereof, copies of any reports or communications delivered to any class of the Company's security holders.

(c) The provisions of Section 2.1 and this Section 2.2 shall not be in limitation of any rights which any Holder may have with respect to the books and records of the Company and its subsidiaries or to inspect their properties or discuss their affairs, finances and accounts, under the laws of the jurisdictions in which they are incorporated.

(d) Anything in Section 2 to the contrary notwithstanding, no Holder or Significant Holder by reason of this Agreement shall have access to any trade secrets or classified information of the Company; provided, however, that a Holder or Significant Holder shall have access to such information so long as the Holder or Significant Holder is a member of the Board of Directors of the Company or has designated a representative of such Holder or Significant Holder to the Board of Directors pursuant to Section 5.2(B)(3)(b) of the Company's

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Restated Articles of Incorporation. Each Holder hereby agrees to hold in confidence and trust and not to misuse or disclose any confidential information provided pursuant to this Section 2.2.

2.3 RIGHT OF FIRST REFUSAL.

(a) The Company hereby grants to each Significant Holder a right of first refusal to purchase its pro rata share of New Securities (as defined below) which the Company, from time to time, may propose to sell and issue. A Significant Holder's pro rata share, for purposes of this right of first refusal, is the ratio of the number of shares of Common Stock owned by the Significant Holder immediately prior to the issuance of New Securities, assuming full conversion of the Shares, to the total number of shares of Common Stock outstanding immediately prior to the issuance of New Securities, assuming full conversion of the Shares and exercise of all outstanding rights, options and warrants to acquire Common Stock of the Company. This right of first refusal shall be subject to the following provisions:

(b) "NEW SECURITIES" shall mean any capital stock (including Common Stock or Preferred Stock) of the Company, whether now authorized or not, any rights, options or warrants to purchase such capital stock and securities of any type whatsoever that are or may become, convertible into capital stock; provided, however, that the term "New Securities" does not include (i) securities purchased under the Series C Preferred Stock Purchase Agreement; (ii) securities issued upon conversion of the Shares; (iii) any borrowings, direct or indirect, from financial institutions or other persons by the Company, whether or not presently authorized, including any type of loan or payment evidenced by any type of debt instrument, provided such borrowings do not have any equity features including warrants, options or other rights to purchase capital stock and are not convertible into capital stock of the Company; (iv) securities issued to employees, consultants, officers or directors of the Company pursuant to any stock option, stock purchase or stock bonus plan, agreement or arrangement approved by the Board of Directors; (v) securities issued in connection with obtaining lease financing, whether issued to a lessor, guarantor or other person; (vi) securities issued in a firmly underwritten public offering pursuant to a registration under the Securities Act; (vii) securities issued in connection with any stock split, stock dividend or recapitalization of the Company; (viii) securities issued for a consideration less than $500,000 in any single transaction where the purchase price per share is not less than the then applicable conversion price of the Series C Preferred Stock, provided that the aggregate amount of all such transactions shall not exceed $1,500,000, (ix) Series C Preferred Stock issued upon the exercise of the Series C Preferred Stock Warrant, and (x) any right, option or warrant to acquire any security convertible into the securities excluded from the definition of New Securities pursuant to clauses (i) through (viii) above.

(c) In the event the Company proposes to undertake an issuance of New Securities, it shall give each Significant Holder written notice of its intention, describing the type of New Securities and their price and the general terms upon which the Company proposes to issue the same. Each Significant Holder shall have 30 days after any such notice is effective to agree to purchase its pro rata share of such New Securities for the price and upon the terms

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specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased, including the number of New Securities the Significant Holder will purchase if one or more other Significant Holders fail to notify the Company of their intention to purchase any New Securities or elects not to purchase their full pro rata share of New Securities as determined in accordance with Section 2.3(a). Failure to respond in writing to the Company's notice shall be deemed a rejection by the Significant Shareholder of the right to acquire its pro rata share of the New Securities. In the event one or more Significant Holders elects not to purchase the New Securities available to them, such New Securities shall be allocated on a pro rata basis to the other Significant Shareholders who requested New Securities in addition to their pro rata allotment.

(d) Following expiration of both the 30-day notice period referred to in Section 2.3(c) and the 10-day period for the exercise of the overallotment provisions of Section 2.3(a), the Company shall have 120 days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within 120 days from the date of such agreement) to sell the New Securities with respect to which the Significant Holders' right of first refusal option set forth in this Section 2.3 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice to the Significant Holders pursuant to Section 2.3(c). In the event the Company has not sold all of the New Securities within such 120-day period or entered into an agreement to sell the New Securities in accordance with the foregoing within 120 days from the date of such agreement, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Significant Holders in the manner provided in Section 2.3(c) above.

(e) The right of first refusal granted hereunder shall expire upon, and shall not be applicable to, the Qualified Public Offering.

(f) The right of first refusal set forth in this Section 2.3 may not be assigned or transferred, except that such right is assignable by a Significant Holder to any wholly owned subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Securities Act, controlling, controlled by or under common control with, any Significant Holder.

2.4 RIGHT TO REMAIN EQUAL TO THE LARGEST OUTSIDE SHAREHOLDER. Agilent Technologies shall have the right at any time to purchase, at a price per share equal to its then fair market value as determined in good faith by the Company's Board of Directors, such number of shares of the Company's Common Stock so as to hold, following such purchase, a total number of shares on an as-converted basis that is at least equal to the total number of shares on an as-converted basis that is held by the Company's largest outside Shareholder. Notwithstanding the foregoing sentence, if Agilent Technologies disputes the good faith valuation by the Company's Board of Directors, then the per share fair market value shall be determined by a nationally recognized independent investment banking firm selected unanimously by the Board of Directors in good faith. In the event that the investment banking

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firm's valuation is 90% or less than the valuation established by the Board of Directors, then all costs of such independent valuation shall be borne by the Company. Otherwise, all cost of the independent valuation shall be borne by Agilent Technologies.

2.5 RIGHT TO MAKE COMPETING OFFER.

(a) In the event that the Company proposes (i) to merge or consolidate the Company with or into any other corporation or any other entity or person, other than to merge the Company into a wholly-owned subsidiary corporation solely for the purpose of reincorporating the Company in another state, (ii) to merge, consolidate or undertake any other corporate reorganization, reclassification or other change of any stock or any recapitalization of the Company or any of its subsidiaries as a result of which the Company shall not be the surviving entity or the holders of the outstanding capital stock of the Company immediately prior to any such event shall own less than a majority of the outstanding capital stock of the Company on an as-converted basis immediately after the consummation of any such event, (iii) to sell, lease, assign, transfer or otherwise convey all or substantially all of the assets of the Company, including without limitation a sale of all or substantially all of the assets of the Company to any of its subsidiaries, or
(iv) to undertake a reorganization of the Company as defined in Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended, or in which more than a majority of the outstanding stock of the Company is exchanged in any three-month period (each of such proposed transactions shall be referred to herein as a "Change of Control"), the Company shall notify Agilent Technologies in writing within seven days of receiving a good faith written offer from a corporation, entity or person (a "Proposing Party") to engage in any such Change of Control, which notice shall include, to the full extent known to the Company, the terms and conditions of the proposed Change of Control and the name or names of the Proposing Party.

(b) Following delivery of such notice, Agilent Technologies shall have 15 days to notify the Company in writing whether it intends to submit a written competing offer (a "Competing Offer") within the next 30 days for consideration by the Company and its Board of Directors and, if applicable, its other Shareholders.

(c) If Agilent Technologies so notifies the Company that it intends to submit a Competing offer, the Company, without the prior written consent of Agilent Technologies, shall not consummate any Change of Control with any other corporation, entity or person until Agilent Technologies has delivered its Competing Offer to the Company or notified the Company in writing that it does not intend to submit a Competing Offer.

(d) If Agilent Technologies delivers a Competing Offer to the Company within such 30-day period, the Company and its Board of Directors shall be obligated to consider the Competing Offer in good faith. If the Competing Offer is a cash offer at a higher price than a cash offer by the Proposing Party, the Company and its Board of Directors shall be obligated to accept the Competing Offer or, if the Proposing Party's offer is to the Company's Shareholders, to recommend that such Shareholders accept the Competing Offer. If (i) the

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Proposing Party's offer includes, in whole or in part, securities or assets other than cash as part of the consideration to be paid to the Company or its Shareholders, and (ii) the Competing Offer is determined to be of value equal to or greater than the value of the Proposing Party's offer, as determined by one or more nationally recognized independent investment banking firms selected unanimously by the Company's Board of Directors to advise it in connection with such transaction, then the Company shall be obligated to accept the Competing Offer or, if the Proposing Party's offer is to the Company's Shareholders, to recommend that such Shareholders accept the Competing Offer. All costs of such independent valuation shall be borne by the Company.

(e) Each party shall bear its own costs and expenses in connection with the operation of this Section 2.5.

(f) The Company's Board of Directors shall be obligated to comply with the provisions of this Section 2.5 with respect to each subsequent counteroffer by the Proposing Party or any other corporation, entity or person following the submission of a Competing Offer.

2.6 COMPANY REPURCHASE OPTION.

(a) As provided in this Section 2.6, the Company or the Designee (as defined below) shall have an option to repurchase (the "Repurchase Option") all, but not fewer than all, Registrable Securities that a Shareholder proposes to sell, assign, pledge, encumber, transfer or otherwise dispose of for value (the "Offered Shares") to any party that (i) is in the business of manufacturing, distributing or selling any product or service which competes with any product or service of the Company, (ii) is in the business of manufacturing, distributing or selling any semiconductor test or measurement product or service to any party that manufactures semiconductors or integrated circuits, whether or not such semiconductor test or measurement product or service competes with any products or services of the Company, (iii) is in the business of manufacturing, distributing or selling semiconductors or integrated circuits, or (iv) is an affiliate of any of the foregoing unless the affiliate is a "qualified institutional buyer" as that term is defined in Rule 144A(a)(1) of the Securities Act.

(b) In the event a Shareholder desires to accept a bona fide third party offer for any or all of the Offered Shares, the Shareholder shall promptly deliver to the Secretary of the Company, or such designee as the Company shall indicate to the Shareholder by prompt written notice (the "Designee"), written notice (the "Disposition Notice") of the offer and the basic terms and conditions thereof, including without limitation the proposed purchase price and the identity of the third party.

(c) The Company or the Designee, as the case may be, shall have 30 days following receipt of the Disposition Notice to exercise the Repurchase Option to repurchase all of the Offered Shares, which repurchase, except as provided in Section 2.6(d) below, shall be upon the same terms and conditions specified in the Disposition Notice. In order to exercise the

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Repurchase Option, the Company or the Designee, as the case may be, shall deliver a written notice (the "Exercise Notice") to the Shareholder prior to the expiration of such 30-day period. If the Company or the Designee, as the case may be, exercises the Repurchase option with respect to all of the Offered Shares specified in the Disposition Notice, then the Company or the Designee, as the case may be, shall repurchase the Offered Shares within seven days after delivery of the Exercise Notice; and at such time the Shareholder shall deliver to the Company or the Designee, as the case may be, the certificate(s) representing the Offered Shares to be repurchased, each certificate properly endorsed for transfer.

(d) If the purchase price specified in the Disposition Notice is payable in the form of property other than cash or in the form of indebtedness or cancellation of indebtedness, the Company or the Designee, as the case may be, shall pay the Shareholder, in lieu of such property, indebtedness or cancellation of indebtedness, an equal amount of cash as provided herein. If the Company or the Designee, as the case may be, and the Shareholder cannot agree on such cash value within 10 days after the receipt by the Company or the Designee, as the case may be, of the Disposition Notice, the valuation shall be made by one nationally recognized independent investment banking firm selected jointly and unanimously by the Company's Board of Directors or the Designee, as the case may be, and the Shareholder to advise the Company or the Designee, as the case may be, and the Shareholder in connection with the exercise of the Repurchase Option. In the event that the Company's Board of Directors or the Designee, as the case may be, and the Shareholder cannot agree on the selection of such firm, the Company's Board of Directors or the Designee, as the case may be, and the Shareholder shall each select one firm, and the two firms so selected shall jointly select a third firm, which firm alone shall complete the valuation required by this Section 2.6(d). The Company or the Designee, as the case may be, and the Shareholder shall share equally any fees charged by any such firm or firms and any other related expenses.

(e) In the event that the Company or the Designee, as the case may be, does not provide the Shareholder with the Exercise Notice within 30 days after the receipt by the Company or the Designee, as the case may be, of the Disposition Notice or otherwise fails to comply with the requirements of this
Section 2.6, the Shareholder shall have 30 days from the expiration of such 30-day period in which to sell or otherwise dispose of the Offered Shares upon terms or conditions (including without limitation the purchase price) no more favorable to the third party purchaser than those specified in the Disposition Notice, and the third party purchaser shall then own the Offered Shares free and clear of the Repurchase Option. In the event that the Shareholder does not sell or otherwise dispose of the Offered Shares within such latter 30-day period, the Repurchase Option shall continue to apply to any subsequent proposed sale or disposition of the Offered Shares by the Shareholder.

(f) All certificates representing Registrable Securities held by the Shareholders that are subject to the Repurchase Option shall be endorsed with the following legend:

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"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, PLEDGED, ENCUMBERED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."

(g) In the event (i) a Shareholder desires to accept a bona fide third party offer for fewer than seventy-five percent (75%) of the Registrable Securities then held by such Shareholder, and (ii) the Company desires to indicate a Designee as provided in Section 2.6(b) above, the Shareholder shall have the right to approve the Designee, which approval shall not be unreasonably withheld. The Shareholder must deliver such approval in writing to the Company, and the 30 day period described in Section 2.6(c) above shall not commence until the Shareholder has delivered such approval.

2.7 RIGHT OF CO-SALE. No Founder will sell, assign, pledge or in any manner transfer any Founder Shares, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer that meets the requirements set forth in this Section 2.7.

(a) If a Founder desires to sell or otherwise transfer any Founder Shares, then the Founder will first give written notice thereof to the Company and to each Significant Holder. The notice will name the proposed transferee and state the number and type of Founder Shares to be transferred, the proposed consideration and all other terms and conditions of the proposed transfer.

(b) Each Significant Holder will have the right, exercisable upon written notice to the Founder within 30 days after receipt of the Founder's notice pursuant to Section 2.5(a), to participate in such sale of shares by the Founder on a pro rata basis on the same terms and conditions. Such notice will indicate the number of shares such Significant Holder wishes to transfer pursuant to this Section 2.7. To the extent one or more of the Significant Holders exercise such co-sale right, the number of Founder Shares the Founder may transfer in the transaction will be correspondingly reduced. For purposes of this Section 2.7, "participate on a pro rata basis" means that a Significant Holder may sell such proportion of the shares described in the Founder's notice equal to the ratio of (x) the number of shares of the Company's Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares) held by such Significant Holder to (y) the total number of shares of the Company's Common stock (including all shares issued or issuable upon conversion of the

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Shares) deemed to be held by the participating Significant Holders and the selling Founder as a whole at the close of business on the 10th day following the date of the Founder's notice described above.

(c) Each Significant Holder will effect its participation in the sale by promptly delivering to the Founder for transfer to the prospective transferee one or more certificates, properly endorsed for transfer, that represent the number of shares that such Significant Holder elects to transfer. The certificate or certificates that each Significant Holder delivers to the Founder will be transferred to the prospective transferee in consummation of the transfer of shares pursuant to the terms and subject to the conditions specified in the Founder's notice, and the Founder will concurrently therewith remit to such Significant Holder that portion of the sale proceeds to which such Significant Holder is entitled by reason of its participation in such sale. To the extent that any prospective transferee prohibits such assignment or otherwise refuses to purchase shares from a Significant Holder exercising its right of co-sale hereunder, the Founder will not transfer to such prospective transferee Founder Shares unless and until, simultaneously with such sale, the Founder purchases from such Significant Holder the shares such Significant Holder proposed to transfer hereunder.

(d) If, after the exercise of the right of co-sale (or failure to do so) by the Significant Holder(s), there is an unsubscribed number of shares, the Founder will have 90 days thereafter to sell that number of his or her Founder Shares equal to all of such unsubscribed shares subject to such Founder's notice at a price and upon general terms and conditions materially no more favorable to the purchasers thereof than specified in the Founder's notice. If the Founder has not sold such Founder Shares within said 90-day period, the Founder will not thereafter issue or sell such Founder Shares without first offering such securities to the Company and, if applicable, the Significant Holders in the manner provided in this Section 2.7.

(e) In the event that any Founder makes a transfer in contravention of this Section 2.7 (a "Prohibited Transfer"), each Significant Holder, in addition to such other remedies as may be available at law, in equity or hereunder, will have the put option provided below, and the Founder will be bound by the applicable provisions of such option. In the event of a Prohibited Transfer, each Significant Holder will have the right to sell to the Founder the type and number of shares equal to the type and number of shares such Significant Holder would have been entitled to transfer to the transferee had the Prohibited Transfer been effected in compliance with this Agreement. Such sale will be made on the following terms and subject to the following conditions:

(i) The price at which the Founder Shares are to be sold to the Founder will be equal to the price paid by the transferee to the Founder in the Prohibited Transfer. The Founder will also reimburse each Significant Holder for any and all fees and expenses, including reasonable legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of the Significant Holder's rights hereunder.

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(ii) Within 30 days after the later of (1) the date on which a Significant Holder received notice of the Prohibited Transfer or (2) the date on which such Significant Holder otherwise became aware of the Prohibited Transfer, such Significant Holder will, if exercising the put option created hereby, deliver to the Founders the certificate or certificates representing shares to be sold, each certificate to be properly endorsed for transfer.

(f) Anything to the contrary contained herein notwithstanding, the following transfers will be exempt from the provisions of this Section 2.7:
(i) a transfer of Founder Shares by a Founder to his or her spouse or one or more of such Founder's family members, or a family trust, limited liability company or partnership for the benefit of one or more of such Founder's family members, (ii) a transfer of Founder Shares that is not exempt under (i) above and where the amount of Founder Shares transferred constitutes, when aggregated with other transfers made by such Founder not exempt under (i), less than 10% of the total number of shares held by the Founder as of the date of this Agreement, and (iii) as to K. Reed Gleason only, in addition to transfers under (ii) above, the sale of Founder's Shares for an amount up to $1,000,000 to the Company on terms approved by the Board of Directors, provided, however, that such sale is completed not more than six months from the date of this Agreement. In the case of any transfer under (i) above, the transferee of the Founder Shares will receive and hold such Founder Shares subject to the provisions of this Agreement, and there will be no further transfer of such Founder Shares except in accord with this Agreement. In the case of a transfer under (ii) or (iii) above, the transferee will receive and hold the Founder Shares free and clear of the obligations of this Agreement.

(g) Any certificates or other documents representing Founder Shares held by Founder will bear on their face the following legend so long as the foregoing right of co-sale remains in effect:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF CO-SALE IN FAVOR OF CERTAIN SHAREHOLDERS OF THE CORPORATION AS SET FORTH IN THAT CERTAIN INVESTORS' RIGHTS AGREEMENT, DATED AS OF JULY 21, 1999, AND AS AMENDED FROM TIME TO TIME, AMONG THE CORPORATION AND CERTAIN OF ITS SHAREHOLDERS, A COPY OF WHICH IS AVAILABLE UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.

(h) The right of co-sale established by this Section 2.7 will terminate upon the effective date of the registration statement pertaining to the Qualified Public Offering.

(i) The co-sale right set forth in this Section 2.7 may not be assigned or transferred, except that such right is assignable by a Significant Holder to any wholly owned

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subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Securities Act, controlling, controlled by or under common control with, any Significant Holder.

2.8 PROMPT PAYMENT OF TAXES, ETC. The Company will promptly pay and discharge or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company or any subsidiary; provided, however, that any such tax, assessment charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto; and, provided further, that the Company will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor. The Company will promptly pay or cause to be paid when due or in conformance with customary trade terms or otherwise in accordance with policies related thereto adopted by the Company's Board of Directors, all other indebtedness incident to the operations of the Company.

2.9 MAINTENANCE OF PROPERTIES AND LEASES. The Company will keep its properties and those of its subsidiaries in good repair, working order and condition, reasonable wear and tear excepted and from time to time will make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and the Company and its subsidiaries will at all times comply with each material provision of all leases to which any of them is a party or under which any of them occupies property if the breach of such provision might have a material and adverse effect on the condition, financial or otherwise, or operations of the Company.

2.10 INSURANCE. Except as otherwise decided in accordance with policies adopted by the Company's Board of Directors, the Company will keep its assets and those of its subsidiaries which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in the Company's line of business and the Company will maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated.

2.11 KEY PERSON LIFE INSURANCE. The Company has obtained, from financially sound and reputable insurers, and shall maintain at all times, term life insurance on the lives of Eric W. Strid in the amount of $1,000,000 and K. Reed Gleason in the amount of $900,000. Such policies shall name the Company as loss payee and shall not be cancelable by the Company without prior approval of the Board of Directors.

2.12 ACCOUNTS AND RECORDS. The Company will keep true records and books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis.

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2.13 INDEPENDENT ACCOUNTANTS. The Company will retain independent public accountants of recognized national standing who shall (i) provide an unqualified opinion on the Company's financial statements at the end of each fiscal year or set forth in writing the reasons for any qualification of such opinion; and (ii) deliver, to the Holders, a copy of any notice of termination of such accountants' engagement as the Company's public auditors, together with a description of the reasons for such termination.

2.14 COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES. The Company and all its subsidiaries shall duly observe and conform to all valid requirements of governmental authorities relating to the conduct of their businesses or to their properties or assets, the violation of which may have a material and adverse effect on the financial condition or operations of the Company.

2.15 MAINTENANCE OF CORPORATE EXISTENCE, ETC. The Company shall maintain in full force and effect its corporate existence, rights and franchises and all licenses and other rights in or to use patents, processes, licenses, trademarks, trade names, or copyrights and similar rights owned or possessed by it or any subsidiary and deemed by the Company to be necessary to the conduct of their business.

2.16 EMPLOYEE INVENTION AND CONFIDENTIALITY AGREEMENT. The Company will cause each employee or consultant now or hereafter employed or engaged by it or any subsidiary with access to confidential information to enter into an Employee Invention and Confidentiality Agreement substantially in the form attached as EXHIBIT A hereto.

2.17 EMPLOYEE AND OTHER STOCK ARRANGEMENTS. Without the approval of the Board of Directors, the Company will not issue any of its capital stock, or grant an option or rights to subscribe for, purchase or acquire any of its capital stock, to any director, officer or employee of, or consultant to, the Company or any subsidiary thereof except for the issuance of up to an aggregate of 2,200,000 shares of Common Stock pursuant to stock purchase agreements or the exercise of stock options granted or to be granted, under the Company's 1993 Stock Incentive Plan, as amended. Each acquisition of any shares of capital stock of the Company or any option or right to acquire any shares of capital stock of the Company by any such person will be conditioned upon the execution and delivery by the Company and such person of an agreement substantially in a form approved by the Board of Directors of the Company.

2.18 BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD. The Company shall use its best efforts to cause the election to its Board of Director of the persons designated by the holders of Series A, Series B and Series C Preferred Stock pursuant to the Company's Restated Articles of Incorporation, as amended from time to time. The person designated as a director by the holders of the Series C Preferred Stock shall have the right to attend each and every committee of the Board of Directors which may be established from time to time.

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2.19 ATTENDANCE AT BOARD AND COMMITTEE MEETINGS. In the event that the holders of Series A, Series B or Series C Preferred Stock shall fail for any reason to designate a representative to be elected to the Company's Board of Directors pursuant to the Company's Restated Articles of Incorporation, as amended from time to time, or the person so designated by the holders of Series A, Series B or Series C Preferred Stock shall not be elected to the Company's Board of Directors for any reason, then, and in either such event, the holders of not less than a majority of the shares of Series A, Series B or Series C Preferred Stock, as the case may be, may designate a person (and in the case of the holders of Series C Preferred Stock, three persons) who, upon approval by the Company of his or her designation, which approval shall not be unreasonably withheld, shall have the right to attend all meetings of the Board of Directors and any committee thereof in a nonvoting observer capacity, to receive notice of such meetings and to receive the information provided by the Company to the Board of Directors and its committees at the same time as such Board or Committee members shall receive such information or as soon thereafter as practicable; provided, however, that in the case of the three designees of the holders of the Series C Preferred Stock, their attendance at the meetings of the Board of Directors and its committees is limited to any two of such three designees. The holders of Series A, Series B and Series C Preferred Stock may change their respective persons designated under this Section 2.19 upon 10 days advance written notice to the Company.

2.20 INDEBTEDNESS. The Company shall not, without the prior approval of the Board of Directors of the Company, incur any indebtedness in excess of $250,000, other than trade credit incurred in the ordinary course of business.

2.21 EXTENSION OF CREDIT. The Company shall not, without the prior approval of the Board of Directors of the Company, extend credit by any method or in any form or manner in excess of $250,000, other than open account credit extended to customers in the ordinary course of business.

2.22 COMPENSATION OF EMPLOYEES. The Company shall not, without the prior approval of the Board of Directors of the Company, compensate any of its employees, including officers, in an amount greater than $150,000, which amount shall include the employee's base salary and bonus, as well as the fair market value, as of the date of grant or issuance, of any shares of the Company's Common Stock granted or issued to the employee by option or otherwise.

2.23 TRANSACTIONS WITH AFFILIATES. The Company, without the approval of the disinterested members of the Company's Board of Directors, shall not engage in any loans, leases, contracts or other transactions with any director, officer or key employee of the Company or any member of any such person's immediate family, including the parents, spouse, children and other relatives of any such person, on terms less favorable than the Company would obtain in a transaction with an unrelated party, as determined in good faith by the Board of Directors.

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2.24 CONFIDENTIAL DISCLOSURE AGREEMENT. Prior to and as a condition to the fulfillment by the Company of any of the covenants, or the exercise by the Shareholders of any of the rights, set forth in Sections 2.1(a) and (b), 2.2 and 2.18 above, the Shareholders shall execute and deliver to the Company a Nondisclosure and Restricted Use Agreement in substantially the form attached hereto as EXHIBIT B.

2.25 SERIES C PREFERRED STOCK PUT RIGHT.

(a) At any time after the fifth anniversary of the date of this Agreement, holders of 50% or more of the Series C Preferred Stock then outstanding, upon notice to the Company (the "Put Notice"), shall be entitled to sell, and the Company shall be obligated to purchase from such holders, all, but not less than all, of the Series C Preferred Stock held by such holders at a per share purchase price (the "Put Option Purchase Price") equal to the greater of the Fair Market Value (as defined below) or $8.00 per share of Series C Preferred Stock (as adjusted for any stock splits, stock dividends, recapitalizations or the like) plus all declared but unpaid dividends on such share. For purposes of this Section 2.25, the Fair Market Value shall be the fair value of a share of Common Stock of the Company calculated on a fully-diluted basis as if all shares of Preferred Stock and all convertible securities had been fully converted into shares of Common Stock and any outstanding warrants, options or other rights for the purchase of shares of stock or convertible securities had been fully exercised as of the date of such valuation and all consideration paid upon such exercise had been received by the Company. The Fair Market Value shall be determined in good faith by the Board of Directors as of the date of receipt of a Put Notice. Notwithstanding the foregoing sentence, if the holders of not less than a majority of the Series C Preferred Stock dispute the good faith valuation by the Company's Board of Directors, then the Fair Market Value shall be determined by a nationally recognized independent investment banking firm selected unanimously by the Board of Directors in good faith. In the event that the investment banking firm's valuation is 110% or more than the valuation established by the Board of Directors, then all costs of such independent valuation shall be borne by the Company. Otherwise, all costs of the independent valuation shall be borne pro rata based on share holdings by those holders of the Series C Preferred Stock who elect to dispute the good faith valuation by the Company's Board of Directors.

(b) Upon receipt of the Put Notice, the Company shall be obligated to purchase the shares of Series C Preferred Stock specified therein, at the Put Option Purchase Price therefor, and shall, subject to Section 2.25(c) hereof, pay to each of the holders of the Series C Preferred Stock, against delivery of the securities evidencing any such Series C Preferred Stock, an amount equal to the Put Option Purchase Price multiplied by the number of shares of Series C Preferred Stock held by such holder, such amount to be payable in immediately available funds on such date as the Company shall specify to such holders, but in any event not later than 180 days after the receipt by the Company of the Put Notice. Any Series C Preferred Stock purchased by the Company pursuant to this Section 2.25 shall be canceled and shall not be reissued.

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(c) In lieu of paying all or any portion of the Put Option Purchase Price in immediately available funds, the Company may, at its sole election, pay any portion of the Put Option Purchase Price in the form of one or more Installment Purchase Notes (as hereinafter defined) the principal amount of which Installment Purchase Note(s), together with any immediately available funds, if any, paid to the holders of the Series C Preferred Stock, shall equal the number of shares of Series C Preferred Stock then outstanding multiplied by the Put Option Purchase Price. An "Installment Purchase Note" shall mean an unsecured note of the Company, payable in three (3) equal annual installments of principal and interest, bearing interest at a rate of 6% per annum from the date of issue and having the terms and conditions substantially the same as those set forth in EXHIBIT C hereto.

(d) Nothing in this Section 2.25 shall obligate the Company to purchase the Series C Preferred Stock following receipt of the Put Notice if the funds legally available at the time of the proposed purchase (including by way of issuance of Installment Purchase Notes) are insufficient to purchase all such shares. In the event such purchase shall be deemed by the Company to be unlawful, then the Company shall promptly so notify the holders of the Series C Preferred Stock who may elect, by notice to the Company from the holders of not less than a majority of the Series C Preferred Stock, sent within 15 days of the receipt of notice of nonpayment from the Company, to (i) withdraw the Put Notice, in which case the put right described in this Section 2.25 shall remain in full force and effect, or (ii) keep such Put Notice in effect, in which case the Company shall be obligated to initially purchase, in accordance with Section 2.25(b), only those number of shares of Series C Preferred Stock for which it has funds legally available at the time of the proposed purchase (including by way of issuance of Installment Purchase Notes), and subsequently purchase the remaining shares of Series C Preferred Stock as soon as such purchase is no longer unlawful.

(e) The put right provided for in this Section 2.25 shall terminate upon the earlier to occur of (i) a Qualified Public Offering, (ii) the closing of any acquisition of the Company by means of merger or other form of corporate reorganization in which more than 50% of the outstanding shares of the Company are exchanged for securities or other consideration issued or caused to be issued by the acquiring corporation or its subsidiary (other than a mere reincorporation transaction), (iii) the closing of a sale of all or substantially all of the assets of the Company, (iv) the date specified by vote, written consent or agreement of holders of at least a majority of the shares of Series C Preferred Stock then outstanding, and (v) the date on which all of the Series C Preferred Stock has been converted into shares of Common Stock or redeemed.

2.26 AMENDMENT OF RESTATED ARTICLES OF INCORPORATION; VOTING AGREEMENT. In order to increase the size of the Board of Directors of the Company to provide enough authorized Board seats to permit TIAA to designate a person to the Board without the need to terminate the service of any current Board member, the Company hereby agrees, at its next meeting of shareholders, but in any event not later than July 31, 2000, to (i) amend its Restated Articles of Incorporation to delete the first sentence of Section 5.2 (A)(3)(b) relating to the variable size of

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its Board of Directors and (ii) adopt an amendment to the Bylaws of the Company providing that the authorized number of directors of the Company shall be fixed by the Board of Directors, but in no event shall there be fewer than five (5) nor more than (9) members. At any such meeting of shareholders of the Company called for such purpose, whether by ballot, written consent, proxy or otherwise, each of the Shareholders, Eric W. Strid, Cynthia Strid, K. Reed Gleason and TIAA, hereby agrees to (i) vote all shares of the Company's capital stock held by such person to amend the Company's Restated Articles of Incorporation in the manner described in the foregoing sentence and (ii) to direct their respective designees to the Board of Directors to vote for an amendment to the Company's Bylaws in the manner described in the foregoing sentence.

2.27 PROTECTIVE COVENANT. From and after the date of the Agreement, the Company, without the prior written consent of (i) Agilent Technologies with respect to Sections 2.4 and 2.5, (ii) the holders of not less than a majority of the shares of each of the Series A, Series B, and Series C Preferred Stock with respect to Sections 2.7, 2.18, 2.19 and this Section 2.27, (iii) the holders of not less than a majority of the shares of Series C Preferred Stock with respect to Sections 2.25 and 2.26, and (iv) the holders of a majority of the Registrable Securities as to all other rights and covenants in this Section 2, shall not enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder any rights the terms of which are more favorable than the rights and covenants granted to the Holders and Significant Holders in this Section 2.

2.28 TERMINATION OF COVENANTS. Unless otherwise provided in the Section describing a particular covenant, each of the covenants set forth in this
Section 2 shall terminate as follows:

(a) The covenants set forth in Sections 2.1 and 2.2 shall terminate and be of no further force or effect upon the earlier to occur of an Initial Public Offering or when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act.

(b) The covenants set forth in Sections 2.4 and 2.5 shall terminate and be of no further force or effect immediately prior to an Initial Public Offering.

(c) The covenants set forth in Section 2.3 and Sections 2.6 through 2.27 shall terminate and be of no further force or effect upon a Qualified Public Offering.

SECTION 3.

MISCELLANEOUS

3.1 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of Oregon.

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3.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

3.3 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including any Exhibits hereto) constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Subject to the limitations of Section 2.27 hereof, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the Company and the Holders of at least a majority of the outstanding Registrable Securities, and any such amendment, waiver, discharge or termination shall be binding on all the Holders, but in no event shall the obligation of any Holder hereunder be materially increased, except upon the written consent of such Holder.

3.4 NOTICES. Unless otherwise provided, any notice or other communication required or permitted under this Agreement shall be given in writing and shall be mailed by United States first-class mail, postage prepaid, sent by facsimile and immediately followed by first-class mail, or delivered personally by hand or by a nationally recognized overnight courier addressed to the party to be notified at the address or facsimile number indicated for such party on the signature page hereof or at such other address as such party may designate by 10 days' advance written notice to the other parties hereto. All such notices and other written communications shall be effective (i) if mailed, three days after mailing, (ii) if delivered personally by hand, immediately,
(iii) if delivered by a nationally recognized overnight courier, one day after the date deposited with such courier, or (iv) if sent by confirmed facsimile, immediately if sent during normal business hours of the recipient, if not, then on the next business day. In the case of any notice to the Company, a copy of such notice shall be sent to Jack W. Schifferdecker, Jr., Esq., Ater Wynne LLP, 222 S.W. Columbia, Suite 1800, Portland, Oregon 97201, in the case of any notice to Agilent Technologies, a copy of such notice shall be sent to Mario Oh Huber, Assistant Secretary and Corporate Counsel, Agilent Technologies, Inc., 3000 Hanover Street, MS: 20BQ, Palo Alto, California, 94304, in the case of any notice to Maristeth, a copy of such notice shall be sent to Mario D. Parisio, Esq., Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C., 1201 Pacific Avenue, Suite 2200, Tacoma, Washington 98401-1157, in the case of any notice to Electroglas, a copy of such notice shall be sent to Nelson D. Crandall, Esq., Enterprise Law Group, Inc., 4400 Bohannon Drive, Menlo Park, California 94025-1041 and in the case of any notice to TIAA, a copy of such notice shall be sent to Robert Belke, Private Direct Equity Team, 730 Third Avenue, New York, New York 10017.

3.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any Holder upon any breach or default of the Company under this Agreement shall impair any such right, power or remedy of such Holder and it shall not be construed to be a waiver of any such breach or default or an acquiescence therein or in any similar breach or default thereafter occurring; and no waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Holder of any

32 - Investors' Rights Agreement


breach or default under this Agreement or any waiver on the part of any Holder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any Holder, shall be cumulative and not alternative.

3.6 RIGHTS; SEVERABILITY. Unless otherwise expressly provided herein, a Holder's rights hereunder are several rights, not rights jointly held with any of the other Holders. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

3.7 TITLES AND SUBTITLES. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

3.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

3.9 TERMINATION OF JULY 1999 INVESTORS' RIGHTS AGREEMENT. This Agreement supersedes and replaces the July 1999 Investors' Rights Agreement which, upon execution of this Agreement, is hereby terminated.

[REMAINDER OF PAGE DELIBERATELY LEFT BLANK]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

CASCADE MICROTECH, INC.

By: /s/ Craig M. Swanson
    ---------------------------------
         Craig M. Swanson
         Chief Financial Officer

                                 Address:          2430 N.W. 206th Avenue
                                                   Beaverton, OR 97006

33 - Investors' Rights Agreement


CASCADE MICROTECH, INC.

SIGNATURE PAGE
TO
INVESTORS' RIGHTS AGREEMENT

Dated as of December 16 , 1999

The undersigned Shareholder hereby executes and delivers the Investors' Rights Agreement to which this Signature Page is attached; which Investors' Rights Agreement Signature Page, together with the Investors' Rights Agreement and Signature Pages of other Shareholders, shall constitute counterpart copies thereof in accordance with the terms of the Investors' Rights Agreement.

Shareholder:

AGILENT TECHNOLOGIES, INC.
(Formerly known as Hewlett-Packard Company)

By:   /s/  Scott R. Wright
      --------------------------------------
         Scott R. Wright
         General Manager
         Component Test Unit

                                 Address:          1400 Fountaingrove Parkway
                                                   MS 3USP
                                                   Santa Rosa, CA 95403-1799

34 - Investors' Rights Agreement


CASCADE MICROTECH, INC.

SIGNATURE PAGE
TO
INVESTORS' RIGHTS AGREEMENT

Dated as of December 16 , 1999

The undersigned Shareholder hereby executes and delivers the Investors' Rights Agreement to which this Signature Page is attached; which Investors' Rights Agreement Signature Page, together with the Investors' Rights Agreement and Signature Pages of other Shareholders, shall constitute counterpart copies thereof in accordance with the terms of the Investors' Rights Agreement.

Shareholder:

MARISTETH FUND III, LLC

By: /s/  F. Paul Carlson
         -----------------------------------
         F. Paul Carlson, Sole Manager
         Maristeth Fund III, LLC

                                 Address:       1201 Pacific Avenue, Suite 1702
                                                Tacoma, WA 98402

35 - Investors' Rights Agreement


CASCADE MICROTECH, INC.

SIGNATURE PAGE
TO
INVESTORS' RIGHTS AGREEMENT

Dated as of December 16 , 1999

The undersigned Shareholder hereby executes and delivers the Investors' Rights Agreement to which this Signature Page is attached; which Investors' Rights Agreement Signature Page, together with the Investors' Rights Agreement and Signature Pages of other Shareholders, shall constitute counterpart copies thereof in accordance with the terms of the Investors' Rights Agreement.

Shareholder:

ELECTROGLAS, INC.

By: /s/ Curtis S. Wozniak
    --------------------------------------
         Curtis S. Wozniak
         Chief Executive Officer

                                 Address:          3045 Sender Way
                                                   Santa Clara, CA    95054

36 - Investors' Rights Agreement


CASCADE MICROTECH, INC.

SIGNATURE PAGE
TO
INVESTORS' RIGHTS AGREEMENT

Dated as of December 16, 1999

The undersigned Shareholder hereby executes and delivers the Investors' Rights Agreement to which this Signature Page is attached; which Investors' Rights Agreement Signature Page, together with the Investors' Rights Agreement and Signature Pages of other Shareholders, shall constitute counterpart copies thereof in accordance with the terms of the Investors' Rights Agreement.

Shareholder:

TEACHERS INSURANCE & ANNUITY
ASSOCIATION OF AMERICA

By: /s/ Thomas E. Solano
    -----------------------------------
Name: Thomas E. Solano
      ---------------------------------
Title:   Managing Director
        ------------------------------

                                 Address:          730 Third Avenue
                                                   New York, NY 10017

37 - Investors' Rights Agreement


CASCADE MICROTECH, INC.

SIGNATURE PAGE
TO
INVESTORS' RIGHTS AGREEMENT

Dated as of December 9, 1999

The undersigned Founders hereby execute and deliver the Investors' Rights Agreement to which this Signature Page is attached; which Investors' Rights Agreement Signature Page, together with the Investors' Rights Agreement and Signature Pages of the Shareholders, shall constitute counterpart copies thereof in accordance with the terms of the Investors' Rights Agreement.

Founders:

/s/ Eric W. Strid
----------------------------------
Eric W. Strid


/s/ Cynthia Strid
----------------------------------
Cynthia Strid


/s/ K. Reed Gleason
----------------------------------
K. Reed Gleason

38 - Investors' Rights Agreement


EXHIBIT C

[FORM OF PURCHASE INSTALLMENT NOTE]

CASCADE MICROTECH, INC.

6% INSTALLMENT NOTE

No._________ ________________ , 19___
$________________ PPN______________

FOR VALUE RECEIVED, the undersigned, Cascade Microtech, Inc. (the "Company"), a corporation organized and existing under the laws of the State of Oregon hereby promises to pay to Teachers Insurance and Annuity Association of America, or its registered assigns, the principal sum of _________________DOLLARS in three equal installments each in the amount of $____________________DOLLARS, the first payment to occur on _________,_____ with like payments to be made on the first and second anniversaries of such date. This Purchase Installment Note ("Note") shall bear interest (computed on the basis of a 360-day year) on the unpaid balance thereof at the rate of 6% per annum from the date hereof, and all accrued but unpaid interest shall be paid on the dates on which Note principal is to be paid as set forth in the preceding sentence.

Payments of principal and interest on this Note shall be made in lawful money of the United States of America at ________________ or at such other place as the holder of this Note shall have designated by written notice to the Company as provided in the Investors' Rights Agreement referred to below.

This Note is issued pursuant to Section 2.25 of the Investors' Rights Agreement, dated as of December 16, 1999 (as amended from time to time, the "Investors' Rights Agreement"), among and between the Company and the respective Investors and Shareholders named therein. Each holder of this Note will be deemed, by its acceptance hereof to have agreed to the confidentiality provisions set forth in the Nondisclosure and Restricted Use Agreement attached as Exhibit C to the Investors' Rights Agreement.

Any unpaid principal and accrued interest of this Note may be prepaid, in whole or from time-to-time in part, without penalty, at the sole election of the Company.

So long as this Note is outstanding, the registered holder shall be entitled to receive the following financial information of the Company:

(a) As soon as practicable after the end of each fiscal year of the Company and in any event within 90 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently

1 - Exhibit C


applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of recognized national standing selected by the Company;

(a) as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period and consolidated statements of income and cash flows of the Company and its subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year subject to changes resulting from normal year-end audit adjustments, all in reasonable detail and certified by the principal financial or accounting officer of the Company, except that such financial statements need not contain the notes required by generally accepted accounting principles.

This Note is transferrable upon 10 days' prior written notice to the Company; provided, however, that this Note may not be transferred to any party that (i) is in the business of manufacturing, distributing or selling any product or service which competes with any product or service of the Company,
(ii) is in the business of manufacturing, distributing or selling any semiconductor test or measurement product or service to any party that manufactures semiconductors or integrated circuits, whether or not such semiconductor test or measurement product or service competes with any products or services of the Company, (iii) is in the business of manufacturing, distributing or selling semiconductors or integrated circuits, or (iv) is an affiliate of any of the foregoing unless the affiliate is a "qualified institutional buyer" as that term is defined in Rule 144A(a)(1) of the Securities Act.

This Note is governed by the laws of the State of Oregon. The parties acknowledge that the state or federal courts located in Portland, Oregon constitute the sole and exclusive venue, and the exclusive jurisdiction, for disputes arising hereunder.

CASCADE MICROTECH, INC.

By: ________________________________
Name: ______________________________
Title: _____________________________

2 - Exhibit C


Exhibit 4.4

THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND NO INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES, OR (ii) THE ISSUER RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF SAID SECURITIES SATISFACTORY TO THE ISSUER STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.

WARRANT TO PURCHASE
SHARES OF COMMON STOCK

STOCK PURCHASE WARRANT
TO PURCHASE SHARES OF COMMON STOCK
OF
CASCADE MICROTECH, INC

For value received, Cascade Microtech, Inc., an Oregon corporation (the "Company"), grants to Veber Investments V, L.L.C. (the "Initial Holder") the right, subject to the terms of this Stock Purchase Warrant (this "Warrant"), to purchase at any time and from time to time during the period commencing on the "Initial Exercise Date" (as defined below) and ending on the "Expiration Date" (as defined below), that number of fully paid and nonassessable shares of Common Stock of the Company as determined in accordance with Section 2 below. The exercise price shall be $3.80 per share (the "Exercise Price"). The Exercise Price and the number of shares that may be purchased are subject to adjustment under the terms of this Warrant.

SECTION 1. DEFINITIONS

As used in this Warrant, unless the context otherwise requires:

"COMMON STOCK" means the Company's common stock as authorized on the date of this Warrant, and any other securities into which or for which any of the securities described above may be converted or exchanged pursuant to a plan or reorganization, merger, sale of assets or otherwise.

1 - STOCK PURCHASE WARRANT


"COMPANY" means Cascade Microtech, Inc. and any corporation or entity that shall succeed to or assume the obligations of Cascade Microtech, Inc. hereunder.

"EXERCISE DATE" means any date when this Warrant is exercised, in whole or in part, in the manner indicated in Sections 3.1 and 3.2 below.

"EXERCISE PRICE" means the price at which Warrant Shares may be purchased upon exercise of this Warrant, as stated in the introductory paragraph; PROVIDED, HOWEVER, that if an adjustment is required under Section 8.1 of this Warrant, then the "Exercise Price" means, after such adjustment, the price at which each Warrant Share may be purchased upon exercise of this Warrant immediately after the last such adjustment.

"EXPIRATION DATE" means 12:00 midnight (Portland time) on the earlier of (i) December 31, 2003, or (ii) the date specified in Section 8.1(d) hereof.

"HOLDER" means the Initial Holder or, upon assignment of this Warrant by the Initial Holder (or a subsequent Holder), such assignee.

"INITIAL EXERCISE DATE" means the date of this Warrant.

"INITIAL HOLDER" has the meaning specified in the introductory paragraph.

"PERSON" means an individual, corporation, partnership, trust, joint venture or other form of business entity.

"SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and all rules and regulations promulgated thereunder, or any act, rules or regulations which replace the Securities Act or any such rules and regulations.

"SUBSEQUENT WARRANT" has the meaning specified in Section 3.2(c) below.

"WARRANT SHARE(S)" means any share(s) of Common Stock, or other securities, issued or issuable upon exercise of this Warrant.

SECTION 2. NUMBER OF SHARES SUBJECT TO WARRANT

2.1 IMMEDIATELY EXERCISABLE. This Warrant is exercisable at any time with respect to 15,000 Warrant Shares.

2 - STOCK PURCHASE WARRANT


2.2 EXERCISABLE ONLY UPON COMPLETION OF EQUITY OR DEBT FINANCING. If, during the term of the Engagement Agreement between the Company and Veber Investments V, L.L.C. dated December 3, 1998 (the "Engagement Agreement") and for a period of one year thereafter, the Company completes a debt or equity financing pursuant to which the Company issues its debt or equity securities solely in exchange for cash, then this Warrant shall be exercisable for (i) 30,000 Warrant Shares for each $1.0 million dollars raised in such financing from parties contacted on behalf of the Company by Veber Investments V, L.L.C., up to a total of $2.0 million, and (ii) 15,000 Warrant Shares for each additional $1.0 million raised in excess of $2.0 million from parties contacted on behalf of the Company by Veber Investments V, L.L.C. For purposes of determining whether cash has been received in a financing from one or more parties contacted on behalf of the Company by Veber Investments V, L.L.C., Veber Investments V, L.L.C. shall deliver to the Company, on the first day of each week in which the Engagement Agreement remains in effect, an updated list of the persons and entities which Veber Investments V, L.L.C. has contacted on behalf of the Company, which list shall set forth (i) the name, address and phone number of the person or entity contacted, and (ii) a short summary of the current status of each party's interest in a possible transaction with the Company.

2.3 EXERCISABLE ONLY UPON COMPLETION OF A MERGER, SALE OR TECHNOLOGY LICENSE TRANSACTION. If the Company completes a merger, sale or technology license transaction, as those terms are defined below, with any party that Veber Investments V, L.L.C. provides substantive consulting services to the Company under the Engagement Agreement, including but not limited to Electroglas, Inc., then this Warrant shall be exercisable for 10,000 Warrant Shares at any time following the completion of such transaction. For purposes of this Section 2.3, the term "merger or sale transaction" shall mean (i) a merger or consolidation of the Company with or into any other corporation or any other entity or person, other than a merger of the Company into a wholly owned subsidiary corporation solely for the purpose of reincorporating the Company in another state, (ii) a merger, consolidation or any other corporate reorganization, reclassification or recapitalization of the Company as a result of which the holders of the outstanding capital stock of the Company immediately prior to any such event shall own less than a majority of the outstanding capital stock of the Company on an as-converted basis immediately after the consummation of any such event, (iii) any sale, lease, assignment, transfer or other conveyance of 50% or more of the assets of the Company, or (iv) any sale or transfer of a principal business unit of the Company. For purposes of this
Section 2.3, the term "technology license" shall mean the execution of a license or use agreement with a third party granting such party the right to commercial use of one or more of the principal technologies of the Company in exchange for the payment of cash or other consideration to the Company with an expected value of not less than $1,000,000.

SECTION 3. DURATION AND EXERCISE OF WARRANT

3 - STOCK PURCHASE WARRANT


3.1 EXERCISE PERIOD. Subject to the provisions hereof, this Warrant may be exercised at any time and from time to time in whole or in part during the period commencing on the Initial Exercise Date and ending on the Expiration Date. After the Expiration Date, this Warrant shall become void and all rights to purchase Warrant Shares hereunder shall thereupon cease.

3.2 METHOD OF EXERCISE AND PAYMENT.

(a) METHOD OF EXERCISE. Subject to Section 3.1 hereof and compliance with all applicable Federal and state securities laws, the purchase right represented by this Warrant may be exercised, in whole or in part, by the Holder by (i) surrender of this Warrant and delivery of the Exercise Form attached hereto as Exhibit A, duly executed, at the principal office of the Company, and (ii) payment to the Company of an amount equal to the product of the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased.

(b) CONVERSION RIGHT. In lieu of exercising this Warrant as specified in Section 3.2(a), Holder may from time to time convert this Warrant, in whole or in part, into a number of Warrant Shares determined by dividing (i) the aggregate fair market value of the Warrant Shares issuable upon exercise of this Warrant, minus the aggregate Exercise Price of such Warrant Shares by (ii) the fair market value of one Warrant Share. The fair market value of the Warrant Shares shall be determined as follows: If the Company's Common Stock is traded in a public market, the fair market value of the Warrant Shares shall be the closing price of the Common Stock reported for the business day immediately before Holder delivers its Exercise Form to the Company. If the Company's Common Stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.

(c) METHOD OF PAYMENT. Payment shall be made either (i) by check drawn on a United States bank and for United States funds made payable to the Company, (ii) by wire transfer of United States funds for the account of the Company, (iii) by the cancellation of indebtedness of the Company to the Holder, but only at the option of the Holder, or (iv) any combination of the foregoing at the option of the Holder.

(d) DELIVERY OF CERTIFICATE. In the event of any exercise of the purchase right represented by this Warrant, certificates for the Warrant Shares so purchased shall be delivered to the Holder within thirty (30) days of delivery of the Exercise Form and payment and, unless this Warrant has been fully exercised or has expired, a new warrant representing the portion of the Warrant Shares with respect to which this Warrant shall not then have been exercised (the "Subsequent Warrant") shall also be issued to the Holder within such thirty (30)-day period.

4 - STOCK PURCHASE WARRANT


3.3 SECURITIES ACT COMPLIANCE/RESTRICTIONS UPON TRANSFER. Unless the issuance of the Warrant Shares shall have been registered under the Securities Act, as a condition of its delivery of certificates for the Warrant Shares, the Company may require the Holder (including the transferee of the Warrant Shares in whose name the Warrant Shares are to be registered) to deliver to the Company, in writing, representations regarding the Holder's sophistication, investment intent, acquisition for his own account and such other matters as are reasonable and customary for purchasers of securities in an unregistered private offering of securities. The Company may place conspicuously upon each Subsequent Warrant and upon each certificate representing the Warrant Shares a legend substantially in the following form, the terms of which are agreed to by the Holder (including any and all transferees):

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND NO INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES, OR
(ii) THE ISSUER RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF SAID SECURITIES SATISFACTORY TO THE ISSUER STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.

The Company need not register a transfer of this Warrant or the Warrant Shares unless the conditions specified in such legend are satisfied. Subject to the foregoing transfer restrictions set forth in this Section 3.3, this Warrant is transferable, in whole or in part, on the books of the Company, upon surrender of this Warrant to the Company, together with a written assignment duly executed by the Holder and delivery of funds sufficient to pay any transfer taxes payable by reason of such transfer.

3.4 TAXES. The Company will pay any stamp, transfer or similar tax that may be payable in respect of the issuance of the Warrant Shares.

SECTION 4. VALIDITY AND RESERVATION OF WARRANT SHARES

The Company represents and warrants that all Warrant Shares issued upon exercise of this Warrant will be validly issued, fully paid nonassessable and not subject to preemptive or similar rights. The Company agrees that, as long as this Warrant may be exercised, the Company will have authorized and reserved for issuance upon exercise of this Warrant a sufficient number of shares of Common Stock to provide for exercise in full of this Warrant.

5 - STOCK PURCHASE WARRANT


SECTION 5. FRACTIONAL SHARES

No fractional Warrant Shares shall be issued upon the exercise of this Warrant, and the number of Warrant Shares to be issued shall be rounded to the nearest whole number.

SECTION 6. LIMITED RIGHTS OF WARRANT HOLDER

The Holder shall not, solely by virtue of being the Holder of this Warrant, have any of the rights of a shareholder of the Company, either at law or equity, until this Warrant shall have been exercised.

SECTION 7. LOSS OF WARRANT

Upon receipt by the Company of satisfactory evidence of the loss, theft, destruction or mutilation of this Warrant and either (in the case of loss, theft or destruction) reasonable indemnification and a bond satisfactory to the Company if requested by the Company or (in the case of mutilation) the surrender of this Warrant for cancellation, the Company will execute and deliver to the Holder, without charge, a new warrant of like denomination.

SECTION 8. CERTAIN ADJUSTMENTS OF EXERCISE PRICE

8.1 ADJUSTMENT OF EXERCISE PRICE. The number, class and Exercise Price of securities for which this Warrant may be exercised are subject to adjustment from time to time upon the happening of certain events as hereinafter provided:

(a) STOCK SPLITS AND STOCK DIVIDENDS. In the event the Company should at any time or from time to time after the date hereof fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of shares of Common Stock issuable upon exercise of this Warrant shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents.

6 - STOCK PURCHASE WARRANT


(b) COMBINATIONS. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Exercise Price shall be appropriately increased and the number of shares of Common Stock issuable upon exercise of this Warrant shall be decreased in proportion to such decrease in outstanding shares.

(c) RECAPITALIZATIONS. If at any time or from time to time there shall be a merger, consolidation, reclassification, reorganization or other change in the capital structure of the Company (a "Recapitalization") (other than an event described in Sections 8.1(a) or 8.1(b) above or Section 8.1(d) below), provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant the number of shares of stock or other securities or property of the Company, or otherwise, to which a holder of Common Stock deliverable upon exercise would have been entitled on such Recapitalization. In any such case, appropriate adjustment shall be made in application of the provisions of Section 8.1 with respect to the rights of the Holder after the Recapitalization to the end that the provisions of Section 8.1 (including adjustment of the Exercise Price then in effect and the number of shares purchasable upon exercise of this Warrant) shall be applicable after that event, as nearly equivalent as may be practicable, in relation to any shares of stock or other property thereafter deliverable upon the exercise of this Warrant.

(d) OTHER RECAPITALIZATIONS. Notwithstanding the foregoing, in the event of (i) a the dissolution or complete liquidation of the Company, (ii) a Recapitalization resulting in the shareholders immediately preceding such Recapitalization, as a group, holding less than a majority of the outstanding capital stock of the Company immediately following such Recapitalization, including such Recapitalizations where the Company will not be the surviving corporation, or (iii) the sale of all or substantially all of the assets of the Company, the Warrant shall expire and become void and all rights to purchase Warrant Shares hereunder shall cease following the expiration of the notice period specified in Section 8.1(e) below.

(e) NOTICE. The Company shall provide the Holder with at least 20 days' prior written notice of the date when any such change in the capital structure of the Company as described in Section 8.1 shall take place.

(f) NO IMPAIRMENT. The Company will not, by amendment of its Articles of Incorporation or through any Recapitalization, transfer of assets, dissolution or liquidation, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of Section 8.1 and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.

7 - STOCK PURCHASE WARRANT


(g) MINIMUM ADJUSTMENT NOT REQUIRED. Anything in Section 8.1 to the contrary notwithstanding, the Company shall not be required, except as hereinafter provided, to make any adjustment of the Exercise Price in any case in which the amount by which such Exercise Price would be increased or reduced, in accordance with the foregoing provisions, would be less than $0.01 per share, but in such a case, any adjustment that would otherwise be required to be made will be carried forward and made at the time and together with the next subsequent adjustment.

8.2 NOTICE OF ADJUSTMENT. Whenever an event occurs requiring any adjustment to be made pursuant to Section 8.1, the Company shall promptly file with its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, a certificate of its chief executive officer specifying such adjustment, setting forth in reasonable detail the acts requiring such adjustment, and stating such other facts as shall be necessary to show the manner and figures used to compute such adjustment. Such chief executive officer's certificate shall be made available at all reasonable times for inspection by the Holder. Promptly (but in no event more than thirty (30) days) after each such adjustment, the Company shall give a copy of such certificate by certified mail to the Holder.

SECTION 9. SUBDIVISION OF WARRANT

At the request of the Holder in connection with a transfer of a portion of this Warrant, upon surrender of this Warrant for such purpose to the Company at its principal office, the Company, at its expense (except for any transfer tax payable), will issue and exchange therefor new Warrants of like tenor and date representing in the aggregate the amount of the Warrant Shares.

SECTION 10. REPRESENTATIONS AND WARRANTIES BY THE HOLDER

The Holder represents and warrants to the Company as follows:

10.1 This Warrant and the Warrant Shares issuable upon exercise thereof are being acquired for its own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act. Upon exercise of this Warrant, the Holder shall, if so requested by the Company, confirm in writing, in a form satisfactory to the Company, that the securities issuable upon exercise of this Warrant are being acquired for investment and not with a view toward distribution or resale.

10.2 The Holder understands that the Warrant and the Warrant Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act pursuant to Section 4(2) thereof, and that they must be held by the Holder indefinitely, and that the Holder must therefore

8 - STOCK PURCHASE WARRANT


bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Securities Act or is exempted from such registration.

10.3 The Holder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of this Warrant and the Warrant Shares purchasable pursuant to the terms of this Warrant and of protecting its interests in connection therewith.

10.4 The Holder is able to bear the economic risk of the purchase of the Warrant Shares pursuant to the terms of this Warrant.

SECTION 11. REGISTRATION RIGHTS

The Holder shall have the right to have the Warrant Shares registered for sale with the Securities and Exchange Commission in accordance with the piggyback and Form S-3 registration rights set forth in Sections 1.3 and 1.5, respectively, of the Investor Rights Agreement dated May 1, 1990 (the "Investor Rights Agreement"), the pertinent portions of which are attached hereto and incorporated herein as Exhibit B. Consistent with the allocation provisions set forth in Section 1.13 of the Investor Rights Agreement, Holder hereby acknowledges that the registration rights granted in this Section 11 shall be subordinate in priority and allocation to (i) the registration rights granted to Hewlett-Packard Company and the "Founders" as that term is defined in the Investor Rights Agreement attached hereto as Exhibit B, and (ii) unless otherwise specified in writing, any other registration rights which the Company may grant in the future, including but not limited to any registration rights which may be granted to investors, strategic or joint venture partners and the like in connection with a transaction in which the Company receives consulting services from Veber Investments V, L.L.C. under the Engagement Agreement. Further, Holder hereby acknowledges that in no event will Holder have registration rights which are superior to the piggyback and Form S-3 registration rights granted under the Investor Rights Agreement.

SECTION 12. MISCELLANEOUS

12.1 SUCCESSORS AND ASSIGNS. The provisions of this Warrant shall be binding upon and inure to the benefit of the Company, the Holder and their respective permitted successors and assigns hereunder.

12.2 NOTICE. All notices and statements provided for herein shall be in writing and shall be deemed given (i) three (3) days after deposit in the U.S. mail if sent by Registered or Certified mail, postage prepaid, addressed to the parties at their addresses set forth below; (ii) immediately upon personal deliver to a party, (iii) if by courier, on the date that the courier warrants that delivery will occur, or (iv) if by telex or facsimile, when receipt is confirmed by

9 - STOCK PURCHASE WARRANT


the transmission equipment or acknowledged by the addressee. A party may change its address by giving notice thereof to the other party as provided herein.

10 - STOCK PURCHASE WARRANT


IF TO THE COMPANY:                         IF TO THE HOLDER:

Cascade Microtech, Inc                     Veber Investments V, L.L.C.
Attention: Chief Financial Officer         4380 S.W. Macadam, Suite 250
2430 N.W. 206th Avenue                     Portland, OR 97201-6408
Beaverton, OR 97005

12.3 APPLICABLE LAW. The validity, interpretation and performance of this Warrant shall be governed by the laws of the State of Oregon.

12.4 HEADINGS. The headings herein are for convenience only and are not part of this Warrant and shall not affect the interpretation thereof.

DATED this _____ day of December, 1998.

CASCADE MICROTECH, INC.

By   /s/ Randy Sadewic
   ---------------------------------------
     Randy Sadewic
     Chief Financial Officer

VEBER INVESTMENTS V, L.L.C.

By:  /s/ Gayle Veber
   ---------------------------------------
     Gayle Veber

11 - STOCK PURCHASE WARRANT


EXHIBIT A

NOTICE OF EXERCISE

1. The undersigned hereby elects to purchase ___________ shares of the Common Stock of Cascade Microtech, Inc. pursuant to the term of the attached Stock Purchase Warrant dated December , 1998 (the "Warrant"), and tenders herewith payment of the purchase price of such shares in full in the following manner:

(a) ______ Check in the amount of $______________
(b) ______ Wire transfer in the amount of $____________
(c) ______ Cancellation of indebtedness in the amount of $_________.

2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:


(Name)



(Address)

3. The undersigned represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of shares of Common Stock of the Company and that it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws.


(Signature)

(Date)

12 - STOCK PURCHASE WARRANT


THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT (OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT) AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION THEREFROM.

CASCADE MICROTECH, INC.
Series C Preferred
Stock Purchase Warrant
Expiring December 31, 2002

No. W-1 Beaverton, Oregon
Private Placement Number: 14732 # 11 0 December 16, 1999

Cascade Microtech, Inc. (the "COMPANY"), an Oregon corporation, for value received, hereby certifies that Teachers Insurance and Annuity Association of America, or registered assigns, is entitled to purchase from the Company 250,000 duly authorized, validly issued, fully paid and nonassessable shares of Series C Preferred Stock, par value $.01 per share, of the Company (the "WARRANT SHARES") at an exercise price per share as determined below (the "EXERCISE PRICE"), at any time or from time to time prior to 5:00 P.M., New York City time, on December 31, 2002, all subject to the terms, conditions and adjustments set forth below in this Warrant.

Section 1. EXERCISE OF WARRANTS. (a) Upon the terms and subject to the conditions set forth in this Warrant, the holder of the Warrant (the "HOLDER") shall have the right, which may be exercised until 5:00 p.m., New York City time, on December 31, 2002 (the "EXPIRATION TIME"), to receive from the Company the number of fully paid and nonassessable Warrant Shares which the Holder may at the time be entitled to receive upon exercise of this Warrant and payment of the Exercise Price then in effect for such Warrant Shares.

The "EXERCISE PRICE" at any date of determination shall, except as provided


herein, be based on the total revenues of the Company from the sale of products sold by the Company's Pyramid Probe Division (excluding contract research revenues) as reflected in the general ledger of the Company for the calendar year ending December 31, 2000, with such Exercise Price determined in accordance with the following schedule:

(i) If revenues are greater than or equal to $11,000,000, then the Exercise Price shall be $18.00 per share.

(ii) If revenues are less than $11,000,000 and greater than $4,700,000, then the Exercise Price is equal to the sum of (x) $6.00, plus (y) .000001904 times the excess of such revenue over $4,700,000 per share.

(iii) If revenues are less than or equal to $4,700,000, then the Exercise Price shall be $6.00 per share.

The above determination shall be concluded by the Company not later than 90 days after the calendar year ending December 31, 2000, PROVIDED, however, that the initial Holder shall have the right to inspect the records and books of the Company in connection with such determination made by the Company. In the event that the initial Holder disputes the good faith determination by the Company, then such determination shall be made by a nationally recognized independent accounting firm selected unanimously by the Board of Directors of the Company in good faith. In the event that the accounting firm's determination is 105% or more than the determination of the Company, then all costs of such independent determination shall be borne by the Company. Otherwise, all costs of the independent determination shall be borne by the initial Holder.

As agreed to by the Company and the initial Holder, the Exercise Price for any exercise of the Warrant prior to final determination of the revenue of the Pyramid Probe Division for the calendar year 2000, is $10 per share, without further adjustment, except as provided in Section 5 hereof, and regardless of the revenue of the Pyramid Probe Division for the calendar year 2000.

(b) Warrants may be exercised upon surrender of this Warrant to the Company at its principal office during normal business hours on any business day, with the form of election to purchase attached hereto duly filled in and signed and upon payment to the Company of the Exercise Price for each of the Warrant Shares in respect of which such Warrants are then exercised. Payment of the aggregate Exercise Price shall be made by wire transfer or certified or official bank check to the order of the Company.


(c) Each exercise of the Warrant shall be deemed to have been effected immediately prior to the close of business on the business day on which the Warrant shall have been surrendered to the Company as provided in Section
1(b), and at such time the person or persons in whose name or names any certificate or certificates for Warrant Shares shall be issuable upon such exercise as provided in Section 1(c) shall be deemed to have become the holder or holders of record thereof.

(d) Subject to the provisions of Section 2 hereof, upon such surrender of Warrants and payment of the aggregate Exercise Price, the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the Holder and in such name or names as the Holder may designate, (i) a certificate or certificates for the number of duly authorized, validly issued, fully paid and nonassessable Warrant Shares to which such Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash in an amount equal to the same fraction of the market price per Warrant Share on the business day next preceding the date of such exercise, and (ii) in case such exercise is in part only, a new Warrant or Warrants of like tenor, calling in the aggregate on the face or faces thereof for the number of Warrant Shares to the number of such shares called for on the face of the Warrant minus the number of such shares designated by the Holder upon such exercise as provided in Section 1(b); PROVIDED that if any consolidation, merger, transfer or lease of assets is proposed to be effected by the Company as described in Section 5 hereof, or a tender offer or an exchange offer for Warrant Shares shall be made, upon such surrender of Warrants and payment of the Exercise Price as aforesaid, the Company shall, as soon as possible, but in any event not later than three business days thereafter, issue and cause to be delivered the full number of Warrant Shares issuable upon the exercise of such Warrants in the manner described in this sentence and/or any other consideration to be issued to such Holder pursuant to Section 5 hereof. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrants and payment of the Exercise Price.

(e) The Warrants shall be exercisable, at the election of the holders thereof, either in full or from time to time in part, and, in the event that a certificate evidencing Warrants is exercised in respect of fewer than all of the Warrant Shares issuable upon such exercise at any time prior to the date of expiration of the Warrants, a new certificate evidencing the remaining Warrant or Warrants will be issued and delivered pursuant to the provisions of
Section 1(d).

Section 2. PAYMENT OF TAXES. The Company will pay all documentary


stamp taxes attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; PROVIDED that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant or any certificates for Warrant Shares in a name other than that of the registered Holder, and the Company shall not be required to issue or deliver such Warrant or certificates for Warrant Shares unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

Section 3. MUTILATED OR MISSING WARRANT. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of, and (a) in the case of loss, theft or destruction, reasonable indemnity (which in the case of the initial Holder or another institutional Holder, may be such person's own unsecured agreement of indemnity), and (b) in the case of mutilation, upon surrender and cancellation of this Warrant, the Company will make and deliver in lieu of this Warrant a new Warrant of the same series and of like tenor of this Warrant.

Section 4. RESERVATION OF WARRANT SHARES AND CONVERSION SHARES. (a) The Company shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Series C Preferred Stock or its authorized and issued Series C Preferred Stock held in its treasury, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the maximum number of shares of Series C Preferred Stock which may then be deliverable upon the exercise of all outstanding Warrants. The Company covenants that all Warrant Shares which may be issued upon exercise of Warrants shall be duly authorized and will, upon payment of the Exercise Price therefor and the issuance thereof, be validly issued, fully paid, nonassessable with no liability on the part of the Holders thereof, free of preemptive rights, free from all taxes and free from all liens, charges and security interests, created by or through the Company, with respect to the issue thereof.

(b) The Company will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its authorized and issued Common Stock held in its treasury, for the purpose of enabling it to satisfy any obligation to issue Common Stock upon conversion of Series C Preferred Stock issued or issuable upon exercise of Warrants, the maximum number of shares of Common Stock (the "CONVERSION SHARES") which may then be deliverable upon the conversion of all Series C Preferred Stock issuable upon exercise of all outstanding Warrants. The Company covenants that all Conversion Shares which may be issued thereby, be fully paid, nonassessable, free of preemptive rights, free from all taxes and free from all liens, charges and security interests, created by or through the Company,


with respect to the issue thereof.

Section 5. REORGANIZATION OF THE COMPANY. (a) CONSOLIDATION, MERGER, SALE OF ASSETS, REORGANIZATION, ETC. In case at any time the Company shall be a party to any transaction (including without limitation a merger, consolidation, sale or lease of all or substantially all of the Company's assets or recapitalization of the Series C Preferred Stock) in which the previously outstanding Series C Preferred Stock shall be changed into or exchanged for different securities of the Company or changed into or exchanged for common stock or other securities of another corporation or interests in a noncorporate entity or other property (including cash) or any combination of any of the foregoing (each such transaction being hereinafter referred to as the "TRANSACTION") then, as a condition to the consummation of the Transaction, lawful and adequate provisions shall be made so that, upon the basis and terms and in the manner provided in this Section 5, the Holder, upon the exercise of the Warrant, shall be entitled to receive, in lieu of the Series C Preferred Stock issuable upon such exercise prior to such consummation, the stock and other securities, cash and property to which the Holder would have been entitled upon the consummation of the Transaction if the Holder had exercised the Warrant immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equival ent as possible to the adjustments provided for under the terms of the Series C Preferred Stock.

(b) Notwithstanding anything contained herein to the contrary, the Company will not effect any Transaction unless, prior to the consummation thereof, each corporation or entity (other than the Company) which may be required to deliver any stock, securities, cash or property upon the exercise of the Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder, (i) the obligations of the Company hereunder (and if the Company shall survive the consummation of such Transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company hereunder) and (ii) the obligation to deliver to the Holder such shares of stock, securities, cash or property as, in accordance with the foregoing provisions, the Holder may be entitled to receive, and such corporation or entity shall have similarly delivered to the Holder an opinion of counsel for such corporation or entity, which counsel shall be reasonably satisfactory to the Holder, stating that the Warrant shall thereafter continue in full force and effect and the terms hereof shall be applicable to the stock, securities, cash or property which such corporation or entity may be required to deliver upon any conversion of any Warrants or the exercise of any rights pursuant hereto.


(c) Upon any liquidation, dissolution or winding up of the Company, the Holder shall receive such cash or property (less the Exercise Price) which the Holder would have been entitled to receive upon the happening of such liquidation, dissolution or winding up had the Warrant been exercised in full and the shares of Series C Preferred Stock in respect of such exercise issued immediately prior to the occurrence of such liquidation, dissolution or winding-up.

Section 6. CHANGES AFFECTING THE SERIES C PREFERRED STOCK. If the Company at any time while this Warrant, or any portion thereof, remains outstanding and unexpired shall pay any dividend or make any other distribution on the Series C Preferred Stock payable in shares of Series C Preferred Stock or shall split, subdivide or combine the Series C Preferred Stock into a different number of securities of the same class, the Exercise Price for such securities shall be proportionately decreased in the case of a stock dividend, split or subdivision or proportionately increased in the case of a combination and the number of the securities as to which purchase rights under this Warrant exist shall be increased or decreased proportionately in accordance with such stock dividend, split, subdivision or combination.

Section 7. NOTICES OF CORPORATE ACTION. In the event of

(a) any taking by the Company of a record of the holders of its Series C Preferred Stock for the purpose of determining the holders thereof who are entitled to receive any right,

(b) any subdivision of outstanding shares of Series C Preferred Stock into a larger number of shares of Series C Preferred Stock, or any combination of such shares into smaller number of shares of Series C Preferred Stock,

(c) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Company and any other person or any transfer of all or substantially all the assets of the Company to any other person, or

(d) any voluntary or involuntary dissolution, liquidation or winding-up of the Company,


the Company shall mail to each Holder a notice specifying (I) the date or expected date on which any such record is to be taken for the purpose of such right, and (II) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Series C Preferred Stock shall be entitled to exchange their Warrant Shares for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least 15 business days prior to the date specified in subdivisions (i) and (ii) above.

Section 8. OWNERSHIP, TRANSFER AND SUBSTITUTION OF THE WARRANT. OWNERSHIP OF WARRANT. (a) The Company or such designee as the Company shall indicate to the initial Holder by prompt written notice, shall have an option to repurchase the Warrant if the initial Holder proposes to sell, assign, pledge, encumber, transfer or otherwise dispose of for value the Warrant to any party that (I) is in the business of manufacturing, distributing or selling any product or service which competes with any product or service of the Company,
(II) is in the business of manufacturing, distributing or selling any semiconductor test or measurement product or service to any party that manufactures semiconductors or integrated circuits, whether or not such semiconductor test or measurement product or service competes with any products or services of the Company, (III) is in the business of manufacturing, distributing or selling semiconductors or integrated circuits, or (IV) is an affiliate of any of the foregoing unless the affiliate is a "qualified institutional buyer" as that term is defined in Rule 144A(a)(1) of the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.

(b) The Company may treat the person in whose name the Warrant, or any Warrant or Warrants issued in substitution therefor, is registered on the register kept at the principal office of the Company as the owner and the Holder thereof for all purposes, notwithstanding any notice to the contrary, except that, if and when any Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer thereof as the owner of such Warrant for all purposes, notwithstanding any notice to the contrary. A Warrant, if properly assigned, may be exercised by a new Holder without first having a new Warrant issued.

Section 9. TRANSFER AND EXCHANGE OF THE WARRANT. Upon the surrender of the Warrant, properly endorsed, for registration of transfer or for exchange at the principal office of the Company, the Company at its expense shall execute and deliver to or upon the order of the Holder thereof a new Warrant or Warrants of like tenor, in the


name of such Holder or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Series C Preferred Stock called for on the face or faces of the Warrant or Warrants so surrendered.

Section 10. REMEDIES. The Company stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of the Warrant are not and shall not be adequate and hereby agrees, to the fullest extent permitted by law, (A) such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise, and (B) to waive the defense in any action for specific performance that a remedy at law would be adequate.

Section 11. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in the Warrant shall be construed as conferring upon the Holder hereof any rights as a stockholder of the Company or as imposing any liabilities on such Holder to purchase any securities or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise.

Section 12. NOTICES. All notices and other communications under the Warrant, except notices of the exercise of any Warrant (which shall be effected in the manner provided in Section 1), shall be in writing and shall be mailed by registered or certified mail, return receipt requested, addressed as follows or to such other address as such party may have designated to the other in writing:

(a) if to the initial Holder, at:

Teachers Insurance and Annuity Association of America 730 Third Avenue New York, New York 10017 Attention: Robert Belke Private Direct Equity Team

or

(b) if to the Company, to it at:

Ater Wynne L.L.P.

222 S.W. Columbia, Suite 1800


Portland, OR 97201 Attn: Jack W. Schifferdecker, Jr., Esq.

or

(c) if to any other Holder, as such Holder may have specified in writing to the Company.

Section 13. GOVERNING LAW. (a) This Agreement shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents entered into and to be performed entirely within New York.

(b) Notwithstanding the other provisions of this Warrant, this Warrant is subject to the limitations (including, without limitation, any restrictions on transfer) and rights applicable thereto specified in the Investors' Rights Agreement.

Section 14. MISCELLANEOUS. The Warrant and any term hereof may be changed, waived, discharged or terminated (other than the expiration of this Warrant pursuant to its terms) only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. The agreements of the Company contained in the Warrant other than those applicable solely to the Warrant and the Holder thereof shall inure to the benefit of and be enforceable by any Holder or Holders at the time of any Warrant Shares issued upon the exercise of the Warrant, whether so expressed or not. The section headings in the Warrant are for purposes of convenience only and shall not constitute a part hereof.


IN WITNESS WHEREOF, Cascade Microtech, Inc. has caused this Warrant to be duly executed, as of December 16, 1999.

CASCADE MICROTECH, INC.

By: /s/ Craig M. Swanson
   ------------------------------------
   Name: Craig M. Swanson
   Title: Vice President - Finance and
          Chief Financial Officer


FORM OF ELECTION TO PURCHASE

(To be Executed Upon Exercise of Warrant)

To:____________________

The undersigned hereby irrevocably elects to exercise Warrants for, and purchases thereunder, ____* shares of Series C Preferred Stock of Cascade Microtech, Inc. and has tendered tenders payment for such shares to the order of Cascade Microtech, Inc. in the amount of $______ per share of Series C Preferred Stock in accordance with the terms
hereof.

The undersigned requests that a certificate for such shares be registered in the name of _______________, whose address is _____________________, and that such shares be delivered to __________________, whose address is ____________________.

If said numbers of shares is less than all of the shares of Series C Preferred Stock purchasable under the Warrant, the undersigned requests that a new Warrant representing the remaining balance of such Warrants be registered in the name of _______________, whose address is _____________________, and that such shares be delivered to __________________, whose address is ____________________.

Dated:_______________________

                                    Your Signature:      [HOLDER]**
                                                         [Address]


--------

* Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised). In the case of a partial exercise, a new Warrant or Warrants shall be issued and delivered, representing the unexercised portion of the Warrant, to the holder surrendering the same. ** Signature must conform in all respects to name of holder as specified on the face of the Warrant.

By:_________________________ Name:


Title:


FORM OF ASSIGNMENT

(To be executed only upon transfer of Warrant)

For value received, the undersigned registered holder of the within Warrant hereby sells, assigns and transfers unto ________________ the right represented by such Warrant to purchase ______ shares of Series C Preferred Stock of Cascade Microtech, Inc. to which such Warrant relates, and appoints ___________ Attorney to make such transfer on the books of Cascade Microtech, Inc. maintained for such purpose, with full power of substitu tion in the premises.

Dated: ______________

[HOLDER]*
[Address]

By__________________________ Name:


Title:

Signed in the presence of:



* Signature must conform in all respects to name of holder as specified on the

face of the Warrant.


Exhibit 10.1

INDEMNITY AGREEMENT

This Agreement is made as of the day of _____, 20__, by and between Cascade Microtech, Inc., an Oregon corporation (the "Corporation"), and __________ ("Indemnitee"), a director or officer of the Corporation.

WHEREAS, it is essential to the Corporation to retain and attract as directors and officers the most capable persons available; and

WHEREAS, the increase in corporate litigation subjects directors and officers to expensive litigation risks at the same time that the availability and coverage of directors' and officers' liability insurance has been reduced; and

WHEREAS, it is now and has been the express policy of the Corporation to indemnify its directors and officers so as to provide them with the maximum possible protection permitted by law; and

WHEREAS, the articles of incorporation or bylaws of the Corporation require indemnification of the officers and directors of the Corporation to the fullest extent permitted by the Oregon Business Corporation Act {the "Act"); the Act contemplates that contracts may be entered into between the Corporation and members of the Board of Directors and officers with respect to indemnification of directors and officers; and

WHEREAS, Indemnitee does not regard the protection available under the Corporation's articles of incorporation, bylaws and insurance adequate in the present circumstances, and may not be willing to serve as a director or officer without adequate protection, and the Corporation desires Indemnitee to serve in such capacity.

NOW, THEREFORE, the Corporation and Indemnitee agree as follows:

1. AGREEMENT TO SERVE. Indemnitee agrees to serve or continue to serve as a director or officer of the Corporation for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders a resignation in writing.

2. DEFINITIONS. As used in this Agreement:

(a) The term "Proceeding" shall include threatened, pending or completed action, suit or proceeding, whether brought in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, in which Indemnitee may be or may have been involved as a party or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer,

1 - INDEMNITY AGREEMENT


employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement.

(b) The term "Expenses" includes, without limitation, expense of investigations, judicial or administrative proceedings or appeals, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Section 11 of this Agreement, but shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include any excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner reasonably believed to be in the interest of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Agreement.

3. INDEMNITY IN THIRD-PARTY PROCEEDINGS. The Corporation shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is a party to or threatened to be made a party to any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with such Proceeding, but only if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation and, in the case of a criminal proceeding, in addition, had no reasonable cause to believe that Indemnitee's conduct was unlawful.

4. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is a party to or threatened to be made a party to any Proceeding by or in the right of the Corporation to procure a judgment in its favor against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, but only if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which such person shall have been finally adjudged by a court to be liable to the Corporation, unless and only to the extent that any court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstance of the case, Indemnitee is fairly and reasonably entitled to indemnity.

2 - INDEMNITY AGREEMENT


5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTS. Not withstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful, on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.

6. ADDITIONAL INDEMNIFICATION.

(a) Notwithstanding any limitation in Sections 3, 4 or 5, the Corporation shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Corporation to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with such Proceeding, provided that no indemnity shall be made under this Section 6(a) on account of Indemnitee's conduct which constitutes a breach of Indemnitee's duty of loyalty to the Corporation or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.

(b) Notwithstanding any limitation in Sections 3, 4, 5 or
6(a), the Corporation shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Corporation to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with such Proceeding.

(c) For purposes of Sections 6(a) and 6(b), the meaning of the phrase "to the fullest extent permitted by law" shall include, but not be limited to: (i) to the fullest extent permitted by the provision of the Act that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the Act; and (ii) to the fullest extent authorized or permitted by any amendments to or replacements of the Act adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.

7. EXCLUSIONS. Notwithstanding any provision in this Agreement, the Corporation shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under such insurance or other indemnity provision;

(b) for any transaction from which Indemnitee derived an improper personal benefit;

3 - INDEMNITY AGREEMENT


(c) for an accounting of profits made from the purchase and sale by Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any state statutory law or common law;

(d) if a court having jurisdiction in the matter shall finally determine that such indemnification is not lawful under any applicable statute or public policy (and, in this respect, both the Corporation and Indemnitee have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); or

(e) in connection with any Proceeding (or part thereof) initiated by Indemnitee, or any Proceeding by Indemnitee against the Corporation or its directors, officers, employees or other indemnitees, unless: (i) such indemnification is expressly required to be made by law; (ii) the Proceeding was authorized by the Board of Directors of the Corporation; (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under applicable law; or (iv) the Proceeding is initiated pursuant to Section 11 hereof and Indemnitee is successful in whole or in part in such Proceeding.

8. ADVANCES OF EXPENSES. The Expenses incurred by Indemnitee in any Proceeding shall be paid by the Corporation in advance at the written request of Indemnitee, if Indemnitee:

(a) furnishes the Corporation a written affirmation of the Indemnitee's good faith belief that Indemnitee is entitled to be indemnified by the Corporation under this Agreement; and

(b) furnishes the Corporation a written undertaking to repay such advances to the extent that it is ultimately determined by a court that Indemnitee is not entitled to be indemnified by the Corporation. Such advances shall be made without regard to Indemnitee's ability to repay such expenses and without regard to Indemnitee's ultimate entitlement to indemnification under the other provisions of this Agreement.

9. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; provided, however, that the omission to notify the Corporation will not relieve the Corporation from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any such Proceeding as to which Indemnitee notifies the Corporation of the commencement thereof:

(a) The Corporation will be entitled to participate therein at its own expense.

(b) Except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense,

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assume the defense thereof, with legal counsel reasonably satisfactory to Indemnitee. Indemnitee shall have the right to employ separate counsel in such Proceeding, but the Corporation shall not be liable to Indemnitee under this Agreement, including Section 8 hereof, for the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense, unless: (i) Indemnitee reasonably concludes that there may be a conflict of interest between the Corporation and Indemnitee in the conduct of the defense of such Proceeding; or (ii) the Corporation does not employ counsel to assume the defense of such Proceeding. The Corporation shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Corporation or as to which Indemnitee shall have made the conclusion provided for in (i) above.

(c) If two or more persons who may be entitled to indemnification from the Corporation, including the Indemnitee, are parties to any Proceeding, the Corporation may require Indemnitee to engage the same legal counsel as the other parties. Indemnitee shall have the right to employ separate legal counsel in such Proceeding, but the Corporation shall not be liable to Indemnitee under this Agreement, including Section 8 hereof, for the fees and expenses of such counsel incurred after notice from the Corporation of the requirement to engage the same counsel as other parties, unless the Indemnitee reasonably concludes that there may be a conflict of interest between Indemnitee and any of the other parties required by the Corporation to be represented by the same legal counsel.

(d) The Corporation shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its written consent, which shall not be unreasonably withheld. The Corporation shall be permitted to settle any Proceeding the defense of which it assumes, except the Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent, which may be given or withheld in Indemnitee's sole discretion.

10. PROCEDURE UPON APPLICATION FOR INDEMNIFICATION. Any indemnification under Sections 3, 4, 5 or 6 of this Agreement shall be made no later than 90 days after receipt of the written request of Indemnitee for such indemnification and shall not require that a determination be made in accordance with the Act by the persons specified in the Act that indemnification is required under this Agreement; provided, however, that, unless it is ordered by a court in an enforcement action under Section 11 of this Agreement, no such indemnification shall be made if a determination is made within such 90-day period by: (a) the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such Proceeding; or (b) independent legal counsel in a written opinion (which counsel shall be appointed if such a quorum is not obtainable), that the Indemnitee is not entitled to indemnification under this Agreement.

11. ENFORCEMENT. Any right to indemnification or advances granted by this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within 90 days of a written request therefor. Indemnitee, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of

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prosecuting the claim. It shall be a defense to any such enforcement action (other than an action brought to enforce a claim for advancement of expenses pursuant to Section 8 hereof if the required affirmation and undertaking have been tendered to the Corporation) that Indemnitee is not entitled to indemnification under this Agreement, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or its shareholders) to make a determination prior to the commencement of such enforcement action that indemnification of Indemnitee is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors or its shareholders) that such indemnification is improper shall be a defense to the action or create a presumption that Indemnitee is not entitled to indemnification under this Agreement or otherwise. The termination of any Proceeding by judgment, order of court, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that Indemnitee is not entitled to indemnification under this Agreement or otherwise.

12. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provisions of this Agreement to indemnification by the Corporation for some or a portion of the Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Corporation shall indemnify Indemnitee for the portion of such Expenses, judgments, fines and amounts paid in settlement to which Indemnitee is entitled.

13. NON-EXCLUSIVITY AND CONTINUITY OF RIGHTS. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the articles of incorporation, the bylaws, any other agreement, any vote of shareholders or directors, the Act, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though Indemnitee ceases to be a director or officer and shall inure to the benefit of the heirs and personal representatives of Indemnitee.

14. SEVERABILITY. If this Agreement or any portion thereof is invalidated on any ground by any court of competent jurisdiction, the Corporation shall indemnify Indemnitee as to Expenses, judgments, fines and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that is not invalidated or by any other applicable law.

15. SUBROGATION. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights.

16. MODIFICATION AND WAIVER. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of

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any of the provisions of this Agreement shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

17. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, at the time of such delivery, or (ii) if mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a) If to Indemnitee, at the address indicated on the signature page hereof;

(b) If to the Corporation, to:

2430 N.W. 206th Avenue Beaverton, Oregon 97006 Attention: Chief Executive Officer

or to such other address as may have been furnished to Indemnitee by the Corporation.

18. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall constitute the original.

19. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the law of the state in which the Corporation is incorporated.

20. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Corporation and its successors and assigns.

[REMAINDER OF PAGE DELIBERATELY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be duly executed and signed as of the day and year first above written.

CASCADE MICROTECH, INC.

By:________________________________________
Eric W. Strid
Chief Executive Officer

INDEMNITEE:


Signature


Type or Print Name


Address


City State Zip Code

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Exhibit 10.2

CASCADE MICROTECH, INC.

1993 STOCK INCENTIVE PLAN
AS AMENDED

(INCLUDING AMENDMENT AND RESTATEMENT OF THE
1986 NON-QUALIFIED STOCK OPTION PLAN)

1. PURPOSES OF THE PLAN. The purposes of this Stock Incentive Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company's business.

Options granted hereunder may be either "incentive stock options," as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or "nonqualified stock options," at the discretion of the Board and as reflected in the terms of the written option agreement. In addition, shares of the Company's Common Stock may be Sold hereunder independent of any Option grant.

The Company's 1986 Non-Qualified Stock Option Plan (the "1986 Plan") is hereby amended and restated in its entirety. All outstanding options granted under the 1986 Plan shall be deemed Nonqualified Stock Options under this Plan subject to the terms and conditions hereof.

2. DEFINITIONS. As used herein, the following definitions shall apply:

(a) "BOARD" shall mean the Committee, if one has been appointed, or the Board of Directors of the Company, if no Committee is appointed.

(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.

(c) "COMMON STOCK" shall mean the Common Stock of the Company.

(d) "COMPANY" shall mean Cascade Microtech, Inc., an Oregon corporation.

(e) "COMMITTEE" shall mean the Committee appointed by the Board of Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is appointed.

(f) "CONSULTANT" shall mean any person who is engaged by the Company or any Subsidiary to render consulting services and is compensated for such consulting services and any director of the Company whether compensated for such services or not.

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(g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than ninety days or reemployment upon the expiration of such leave is guaranteed by contract or statute.

(h) "EMPLOYEE" shall mean any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company.

(i) "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(j) "NONQUALIFIED STOCK OPTION" shall mean an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(k) "OPTION" shall mean a stock option granted pursuant to the Plan.

(l) "OPTIONED STOCK" shall mean the Common Stock subject to an Option.

(m) "OPTIONEE" shall mean an Employee or Consultant who receives an Option.

(n) "PARENT" shall mean a "parent corporation," whether now or hereafter existing, as defined in Section 425(e) of the Code.

(o) "PLAN" shall mean this Stock Incentive Plan.

(p) "SALE" or "SOLD" shall include, with respect to the sale of Shares under the Plan, the sale of Shares for consideration in the form of cash or notes, as well as a grant of Shares without consideration, except past or future services.

(q) "SHARE" shall mean a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan.

(r) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 425(f) of the Code.

3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of shares which may be optioned and/or Sold under the Plan is 2,200,000 shares of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock.

2 - STOCK INCENTIVE PLAN


If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future Option grants and/or Sales under the Plan. If Shares Sold under the Plan are repurchased by the Company pursuant to restrictions applicable to such Shares, the number of Shares repurchased shall, unless the Plan shall have been terminated, become available for future Option grants and/or Sales under the Plan.

4. ADMINISTRATION OF THE PLAN.

(a) PROCEDURE. The Plan shall be administered by the Board of Directors of the Company.

(i) Subject to subparagraph (ii), the Board of Directors may appoint a Committee consisting of not less than three (3) members of the Board of Directors to administer the Plan on behalf of the Board of Directors, subject to such terms and conditions as the Board of Directors may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board of Directors. From time to time the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan.

Members of the Board who are either eligible for Options and/or Sales or have been granted Options or Sold Shares may vote on any matters affecting the administration of the Plan or the grant of any Options or Sale of any Shares pursuant to the Plan, except that no such member shall act upon the granting of an Option or Sale of Shares to himself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting of Options or Sale of Shares to him.

(ii) Notwithstanding the foregoing subparagraph
(i), if and in any event the Company registers any class of any equity security pursuant to Section 12 of the Securities Exchange Act of 1934, from the effective date of such registration until six (6) months after the termination of such registration, any grants of options to officers or directors shall only be made by the Board; provided, however, that if any member of the Board has received an option grant or stock award under this Plan or any other stock option or other stock plan of the Company, or any of its affiliates, at any time within the preceding year, any grants of options to officers or directors must be made by, or only in accordance with the recommendation of, a Committee consisting of two or more persons, each of whom must be a member of the Board of Directors of the Company, appointed by the Board and having full authority to act in the matter, and none of whom has received any option grant or stock award under this Plan or any other stock option or other stock plan of the Company, or any of its affiliates at any time within the preceding year.

(b) POWERS OF THE BOARD. Subject to the provisions of the Plan, the Board shall have the authority, in its discretion: (i) to grant Incentive Stock Options in accordance with

3 - STOCK INCENTIVE PLAN


Section 422 of the Code, or nonqualified stock Options; (ii) to authorize Sales of Shares of Common Stock hereunder; (iii) to determine, upon review of relevant information and in accordance with Sec tion 8(b) of the Plan, the fair market value of the Common Stock; (iv) to determine the exercise/purchase price per share of Options to be granted or Shares to be Sold, which exercise/purchase price shall be determined in accordance with Section 8(a) of the Plan; (v) to determine the Employees or Consultants to whom, and the time or times at which, Options shall be granted and the number of Shares to be represented by each Option; (vi) to determine the Employees or Consultants to whom, and the time or times at which, Shares shall be Sold and the number of Shares to be Sold; (vii) to interpret the Plan; (viii) to prescribe, amend and rescind rules and regulations relating to the Plan; (ix) to determine the terms and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each Option; (x) to determine the terms and provisions of each Sale of Shares (which need not be identical) and, with the consent of the purchaser thereof, modify or amend each Sale; (xi) to accel erate or defer (with the consent of the Optionee) the exercise date of any Option, consistent with the provisions of Section 9 of the Plan; (xii) to accelerate or defer (with the consent of the Optionee or purchaser of Shares) the vesting restrictions applicable to Shares Sold under the Plan or pursuant to Options granted under the Plan; (xiii) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option or Sale of Shares previously granted or authorized by the Board; (xiv) to determine the restrictions on transfer, vesting restrictions, repurchase rights, or other restrictions applicable to Shares issued under the Plan; (xv) to effect, at any time and from time to time, with the consent of the affected Optionees, the cancellation of any or all outstanding Options under the Plan and to grant in substitution therefor new Options under the Plan covering the same or different numbers of Shares, but having an Option price per Share con sistent with the provisions of Section 8 of this Plan as of the date of the new Option grant; and
(xvi) to make all other determinations deemed necessary or advisable for the administration of the Plan.

(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan or Shares Sold under the Plan.

5. ELIGIBILITY.

(a) PERSONS ELIGIBLE. Options may be granted and/or Shares Sold only to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Sold Shares may, if he is otherwise eligible, be granted an additional Option or Options or Sold additional Shares.

(b) ISO LIMITATION. No Incentive Stock Option may be granted to an Employee which, when aggregated with all other Incentive Stock Options granted to such Employee by the Company or any Parent or Subsidiary, would result in Shares having an aggregate fair market value (determined for each Share as of the date of grant of the Option covering such Share) in excess of

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$100,000 becoming first available for purchase upon exercise of one or more Incentive Stock Options during any calendar year.

(c) SECTION 5(b) LIMITATIONS. Section 5(b) of the Plan shall apply only to an Incentive Stock Option evidenced by an "Incentive Stock Option Agreement" which sets forth the intention of the Company and the Optionee that such Option shall qualify as an Incentive Stock Option. Section 5(b) of the Plan shall not apply to any Option evidenced by a "Nonqualified Stock Option Agreement" which sets forth the intention of the Company and the Optionee that such Option shall be a Nonqualified Stock Option.

(d) NO RIGHT TO CONTINUED EMPLOYMENT. The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his right or the Company's right to terminate his employment or consulting relationship at any time.

6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company as described in Section 17 of the Plan. It shall continue in effect for a term of ten (10) years, unless sooner terminated under
Section 13 of the Plan.

7. TERM OF OPTION. The term of each Incentive Stock Option shall be ten (10) years from the date of grant thereof or such shorter term as may be provided in the Stock Option Agreement. The term of each Nonqualified Stock Option shall be ten (10) years and one (1) day from the date of grant thereof or such shorter term as may be provided in the Stock Option Agreement. However, in the case of an Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, (a) if the Option is an Incentive Stock Option, the term of the Option shall be five (5) years from the date of grant thereof or such shorter time as may be provided in the Stock Option Agreement, or (b) if the Option is a Nonqualified Stock Option, the term of the Option shall be five (5) years and one (1) day from the date of grant thereof or such shorter term as may be provided in the Stock Option Agreement.

8. EXERCISE/PURCHASE PRICE AND CONSIDERATION.

(a) EXERCISE/PURCHASE PRICE. The per-Share exercise/purchase price for the Shares to be issued pursuant to exercise of an Option or a Sale (other than a Sale which is a grant for which no purchase price is payable) shall be such price as is determined by the Board, but shall be subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting

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power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten percent (110%) of the fair market value per Share on the date of the grant.

(B) granted to any other Employee, the per Share exercise price shall be no less than one hundred percent (100%) of the fair market value per Share on the date of grant.

(ii) In the case of a Nonqualified Stock Option or Sale.

(A) granted or Sold to a person who, at the time of the grant of such Option or authorization of such Sale, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise/purchase price shall be no less than one hundred ten percent (110%) of the fair market value per Share on the date of the grant or authorization of Sale.

(B) granted or Sold to any other person, the per Share exercise/purchase price shall be no less than eighty-five percent (85%) of the fair market value per Share on the date of grant or authorization of Sale.

(iii) In the case of an Option granted or Sale authorized on or after the effective date of registration of any class of equity security of the Company pursuant to Section 12 of the Exchange Act and prior to six (6) months after the termination of such registration, the per Share exercise/purchase price shall be no less than one hundred percent (100%) of the fair market value per Share on the date of grant or authorization of Sale.

(b) FAIR MARKET VALUE. The fair market value per Share shall be determined by the Board in its discretion; provided, however, that where there is a public market for the Common Stock, the fair market value per Share shall be the mean of the bid and asked prices of the Common Stock for the date of grant or authorization of Sale, as reported in THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a stock exchange (including NASDAQ), the fair market value per Share shall be the closing price on such exchange on the date of grant of the Option or authorization of Sale, as reported in THE WALL STREET JOURNAL.

(c) CONSIDERATION. The consideration to be paid for the Shares to be issued upon exercise of an Option or pursuant to a Sale, including the method of payment, shall be determined by the Board and may consist entirely of cash, check, promissory note, other Shares of Common Stock having a fair market value on the date of surrender equal to the aggregate exercise/purchase price of the Shares as to which said option shall be exercised or Sale consummated, or any combination of such methods of payment for the issuance of Shares.

9. EXERCISE OF OPTION.

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(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Each Optionee who exercises an Option shall, upon notification of the amount due (if any) and prior to or concurrent with delivery of the certificate representing the Shares, pay to the Company amounts necessary to satisfy applicable federal, state and local tax withholding requirements. An Optionee must also provide a duly executed copy of any shareholder stock transfer agreement then in effect and determined to be applicable by the Board. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan.

Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. If an Employee or Consultant ceases to serve as an Employee or Consultant (as the case may be), he may, but only within three (3) months (or with respect to Nonqualified Stock Options, such other period of time not exceeding the limitations of Section 7 above as is determined by the Board at the time of grant of the Nonqualified Stock Option) after the date he ceases to be an Employee or Consultant (as the case may be) of the Company, exercise his Option to the extent that he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Option at the date of such termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate.

(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 9(b) above, in the event an Employee or Consultant is unable to continue his employment or consulting relationship (as the case may be) with the Company as a result of his total and permanent disability (as defined in Section 22(e)(3) of the Code), he may, but only within twelve (12) months (or with respect to Nonqualified Stock Options, such other period of time not exceeding the limitations of Section 7 above as is determined by the Board at the time of grant of the Nonqualified Stock Option)

7 - STOCK INCENTIVE PLAN


from the date of termination, exercise his Option to the extent he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Option at the date of termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate.

(d) DEATH OF OPTIONEE. In the event of the death of an Optionee during the term of the Option who is at the time of his death an Employee or Consultant of the Company and who shall have been in Continuous Status as an Employee or Consultant since the date of grant of the Option, the Option may be exercised, at any time within twelve (12) months (or such other period of time not exceeding the limitations of Section 7 above as is determined by the Board at the time of grant of the Option) following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise as of the date of death.

10. NONTRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of the Optionee only by the Optionee.

11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or sales made or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.

In the event of the proposed dissolution or liquidation of the Company, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Option shall be assumed or an equivalent option shall be substituted by such successor corporation

8 - STOCK INCENTIVE PLAN


or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Optionee shall have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. If the Board makes an Option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice or such shorter period as the Board may specify in the notice, and the Option will terminate upon the expiration of such period.

12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date on which the Board makes the determination granting such Option. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant.

13. AMENDMENT AND TERMINATION OF THE PLAN.

(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided that, the following revisions or amendments shall require approval of the stockholders of the Company in the manner described in Section 17 of the Plan:

(i) any increase in the number of Shares subject to the Plan, other than in connection with an adjustment under Section 11 of the Plan;

(ii) any change in the designation of the class of Employees or Consultants eligible to be granted Options; or

(iii) if the Company has a class of equity security registered under Section 12 of the Exchange Act at the time of such revision or amendment, any material increase in the benefits accruing to participants under the Plan.

(b) STOCKHOLDER APPROVAL. If any amendment requiring stockholder approval under Section 13(a) of the Plan is made subsequent to the first registration of any class of equity security by the Company under Section 12 of the Exchange Act, such stockholder approval shall be solicited as described in Section 17(a) of the Plan.

(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company.

9 - STOCK INCENTIVE PLAN


14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option or a Sale unless the exercise of such Option or consummation of the Sale and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, applicable state securities laws, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an Option or a Sale, the Company may require the person exercising such Option or to whom Shares are being Sold to represent and warrant at the time of any such exercise or Sale that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.

15. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

16. OPTION AGREEMENT. Options shall be evidenced by written option agreements in such form as the Board shall approve.

17. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve months before or after the date the Plan is adopted. If such stockholder approval is obtained at a duly held stockholders' meeting, it may be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company, such holders being present or represented and entitled to vote thereon. If and in the event that the Company registers any class of any equity security pursuant to Section 12 of the Exchange Act, the approval of such stockholders of the Company shall be:

(a) SOLICITATION.

(i) solicited substantially in accordance with
Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder, or

(ii) solicited after the Company has furnished in writing to the holders entitled to vote substantially the same information concerning the Plan as that which would be required by the rules and regulations in effect under Section 14(a) of the Exchange Act at the time such information is furnished; and

10 - STOCK INCENTIVE PLAN


(b) TIME. Obtained at or prior to the first annual meeting of stockholders held subsequent to the first registration of any class of equity securities of the Company under Section 12 of the Exchange Act.

If such stockholder approval is obtained by written consent, it must be obtained by the written consent of stockholders of the Company in compliance with the requirements of applicable state law.

/s/ Eric W. Strid
---------------------------------------
Eric Strid, President

ADOPTED: FEBRUARY 5, 1993

11 - STOCK INCENTIVE PLAN


Exhibit 10.5

CASCADE MICROTECH, INC.

EXECUTIVE EMPLOYMENT AGREEMENT

PARTIES: CASCADE MICROTECH, INC. ("COMPANY")

2430 N.W. 206th Avenue
Beaverton, Oregon 97006

CRAIG M. SWANSON ("EXECUTIVE")
17580 Tree Top Way
Lake Oswego, Oregon 97034

DATE: October 11, 1999

RECITAL

Company wishes to obtain the services of Executive for the term of this Agreement, and Executive wishes to provide his services for such period, all upon the terms and conditions set out in this Agreement.

AGREEMENT

NOW, THEREFORE, for valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

ARTICLE 1.
DEFINITIONS

1.1 "BASE SALARY" shall mean regular cash compensation paid to Executive on a periodic basis exclusive of benefit, bonuses or incentive payments.

1.2 "BOARD" shall mean the Board of Directors of Cascade Microtech, Inc.

1.3 "DISABILITY" shall mean, as reasonably determined by the Board after consultation with a qualified physician selected by the Board, the inability of Executive to perform, with reasonable accommodation, an essential function of his position under this

1 - Executive Employment Agreement


Agreement because of physical or mental incapacity for a period of three (3) months, and the determination that such inability is likely to continue for at least two (2) additional months. Executive shall cooperate in any physical examination and shall produce such medical records as may assist the Board in making a determination regarding disability.

1.4 "COMPANY" shall mean Cascade Microtech, Inc., and, any successor in interest by way of consolidation, operation of law, merger or otherwise.

ARTICLE 2.
EMPLOYMENT, DUTIES AND TERM

2.1 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement, Company hereby employs Executive in the positions of (a) Vice President, Finance and (b) Chief Financial Officer, and Executive accepts such employment.

2.2 DUTIES. Executive shall devote his full-time and best efforts to Company and to fulfilling the duties of his position which shall include such duties as may from time to time be assigned him by the Chief Executive Officer. As part of his duties, Executive shall comply with Company's policies and procedures to the extent they are not inconsistent with this Agreement, in which case the provisions of this Agreement prevail.

2.3 TERM. This Agreement shall remain in effect until the earlier of: (i) termination pursuant to Article 4 or Article 6 of this Agreement or,
(ii) two (2) years from the date of this Agreement.

ARTICLE 3.
COMPENSATION

3.1 BASE SALARY. For all services rendered under this Agreement, Company shall pay Executive an initial annual Base Salary of One Hundred Seventy-Five Thousand and 00/100 Dollars ($175,000). If Executive's salary is increased from time to time during the term of this Agreement, the increased amount shall be the Base Salary for the remainder of the term. All amounts payable to Executive under this Agreement, whether by way of Base Salary, bonus, severance or otherwise, shall be reduced by such amounts as are required to be withheld by law.

3.2 SIGNING BONUS. Company shall pay Executive a signing bonus of $32,000 payable on the first regular payroll date following Executive's first day of employment with Company. If Executive's employment with Company terminates for any reason prior to the first anniversary of this Agreement, Executive shall promptly, but in no event later than 90 days following such termination, repay the entire signing bonus to Company.

3.3 BONUS AND INCENTIVE. Beginning in fiscal year 2000, Executive shall be eligible to participate in any Executive Bonus Plan that is generally applicable to comparable executives

2 - Executive Employment Agreement


of Company. Executive's target bonus for fiscal year 2000 shall be 40% of Executive's Base Salary. Notwithstanding any other provision of this Agreement, Company shall have the right to alter, amend or eliminate all or any part of the Executive Bonus Plan, without compensation to Executive.

3.4 STOCK OPTIONS. Subject to approval by the Board, Company shall grant Executive options to purchase up to 120,000 shares of Company stock at an exercise price equal to the fair market value on the date of the grant (the "Options"). The Options shall vest ratably at the rate of 10% every six months over the five-year period following the date of hire; provided, however, that as of: (a) the date of an initial underwritten public offering of Company's common stock pursuant to which shares of Company's Preferred Stock shall automatically convert into shares of Common Stock in accordance with Article V, Section 5.2(B)(4)(b) of Company's Articles of Incorporation ("IPO"), or (b) the date of a Change of Control Termination, as defined in Section 6.1.2 below, the lesser of: (i) 24,000 unvested Options or (ii) the entire remaining unvested Options held by Executive as of the date of the IPO or Change of Control Termination, shall vest and become immediately exercisable. The Options shall be subject to the terms and conditions of the Cascade Microtech, Inc. 1993 Stock Incentive Plan.

3.5 EXECUTIVE BENEFIT PLANS. Executive shall have the right to enroll and participate in any of Company's employee benefit plans from time to time established by Company for the benefit of its executives generally. The cost to Executive for these plans shall be consistent with the terms of the plans. Such benefits may be modified or eliminated at Company's discretion, without compensation to Executive.

3.6 BUSINESS EXPENSES. Company shall, in accordance with, and to the extent of, its policies in effect from time to time, reimburse all ordinary and necessary business expenses reasonably incurred by Executive in performing his duties as an employee of Company, provided that Executive accounts promptly for such expenses to Company in the manner prescribed by Company.

ARTICLE 4.
TERMINATION

4.1 TERMINATION. This Article 4 governs termination of this Agreement at any time during the term of the Agreement; provided, however, that this Article shall not govern a "Change of Control Termination" as defined in Article 6, which is governed by the provisions of Article 6.

4.2 TERMINATION FOR CAUSE. Company may terminate this Agreement and Executive's employment immediately for "Cause" as that term is defined herein, upon written notice to Executive.

3 - Executive Employment Agreement


4.2.1 DEFINITION OF CAUSE. "Cause" means any one of the following by Executive: (a) fraud, (b) misrepresentation, (c) theft or embezzlement of Company assets, (d) intentional violations of law involving moral turpitude, (e) the continued failure to satisfactorily perform his duties as reasonably assigned to Executive pursuant to Section 2.2 of this Agreement for a period of thirty (30) days after a written demand for such satisfactory performance which specifically and with reasonable detail identifies the manner in which it is alleged Executive has not satisfactorily performed such duties, or (f) any material breach of this Agreement.

4.2.2 PAYMENT UPON TERMINATION FOR CAUSE. In the event of termination for Cause pursuant to this Section 4.2, Executive shall be paid his Base Salary through the date of termination specified in any notice of termination. Executive will not be entitled to any bonuses or incentives which are not earned and payable at the time of the termination and will not be entitled to any severance pay or benefits continuation or any other compensation of any kind.

4.3 TERMINATION WITHOUT CAUSE. Either Executive or Company may terminate this Agreement and Executive's employment without Cause by providing at least two weeks written notice; provided, however, that Company shall have the option of making termination of the Agreement and termination of Executive's employment effective immediately upon notice, in which case Executive shall be paid his Base Salary through a notice period of two weeks. This Section 4.3 shall not be applicable where Cause for termination exists.

4.3.1 BY COMPANY. If the notice of termination is given by Company, upon Executive's execution and delivery to Company of a full release of all claims satisfactory to Company, Company shall:

4.3.1.1 pay Executive an amount equal to one year's Base Salary payable at Company's sole discretion in either a lump sum or in approximately equal installments over a period of 12 months following Executive's termination; and,

4.3.1.2 reimburse Executive for the premiums Executive pays to maintain group health coverage pursuant to the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA") until the earlier of: (i) 12 months following termination or (ii) the date Executive is no longer eligible for COBRA continuation coverage, and, provided Executive is eligible for and properly elects continuation of such coverage.

4.3.1.3 reimburse Executive for the reasonable and necessary expenses of executive outplacement assistance until the earlier of:
(i) 12 months following the date of termination or (ii) the date Executive secures full time employment; provided, however, in no event shall such total reimbursements exceed $23,000.

4.3.2 BY EXECUTIVE. If the notice of termination is given by Executive, Company shall pay Executive his Base Salary through the date of termination, subject to termination for

4 - Executive Employment Agreement


Cause in the interim. Company shall have no obligation to pay Executive a pro-rata portion of any bonus or incentive or severance pay or any other compensation of any kind.

4.4 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. This Agreement and Executive's employment shall terminate immediately in the event of death and may be terminated in the event of Disability. In the event of termination due to death or Disability, Executive shall be entitled to receive his Base Salary until the date of termination and shall be entitled to no further severance or bonus compensation or benefits of any kind under this Agreement.

4.5 ENTIRE TERMINATION PAYMENT. The compensation provided for in this Article 4 shall constitute Executive's sole remedy for termination pursuant to this Article.

ARTICLE 5.
CHANGE OF CONTROL

5.1 DEFINITIONS. For purposes of this Article 6, the following definitions shall be applied:

5.1.1 "CHANGE OF CONTROL" shall mean (a) a consolidation or merger of Company with or into another Company or other entity or person (excluding any merger effected exclusively for the purpose of changing Company's state of domicile), or any other corporate reorganization or other transaction or series of related transactions by Company, in any such case, in which more than 50 percent of the voting power of Company is transferred, or (b) a sale, conveyance or disposition of all or substantially all of the assets of Company.

5.1.2 "CHANGE OF CONTROL TERMINATION" shall mean, with respect to Executive, any of the following events occurring within twelve months after the earliest Change of Control event:

6.1.2.1 Termination of Executive's employment by Company for any reason other than death, disability, or for Cause, as Cause is defined in Section 4.2 of this Agreement.

6.1.2.2 Termination of employment with Company by Executive pursuant to Section 6.2 of this Article 6.

6.1.3 "GOOD REASON" shall mean that any one or more of the following events has occurred without Executive's express written consent, after a Change of Control, and Company's failure to correct such occurrence for a period of thirty (30) days following Executive's written notice to Company identifying the event alleged to provide Good Reason and stating Executive's intent to invoke Section 6.2 of this Article 6.

5 - Executive Employment Agreement


6.1.3.1 A change in Executive's titles or offices as in effect immediately prior to the Change of Control, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions, which has the effect of materially diminishing Executive's responsibility or authority;

6.1.3.3 A requirement by Company that Executive be based anywhere other than within twenty-five (25) miles of Executive's job location at the time of the Change of Control;

6.1.3.4 Unless applicable to all executives of Company: (i) a material diminishment of Executive's Base Salary, pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident, disability, or any other employee compensation or benefit plan, program or arrangement and/or any membership (collectively, "Benefit Plans"), in which Executive is participating immediately prior to a Change of Control; or (ii) the taking of any action by Company that would materially adversely affect Executive's participation or materially reduce Executive's benefits under any Benefit Plans or Benefit Plan;

5.2 CHANGE OF CONTROL TERMINATION RIGHT. For a period of twelve months following a Change of Control, Executive shall have the right to terminate employment with Company for Good Reason. Such termination shall be accomplished by, and effective upon, Executive giving written notice to Company of Executive's decision to terminate.

5.3 CHANGE OF CONTROL TERMINATION PAYMENT. In the event of a Change of Control Termination as defined in Section 6.1.2 and upon Executive's execution and delivery to Company of a full release of all claims satisfactory to Company the following shall occur:

6.3.1 SEVERANCE PAY. Within thirty (30) days of Executive's termination, Company shall pay Executive an amount equal to one year's Base Salary payable at Company's sole discretion in either a lump sum or in approximately equal installments over a period of 12 months following Executive's termination; and,

6.3.2 COBRA CONTINUATION. Company shall reimburse Executive for the premiums Executive pays to maintain group health coverage pursuant to the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA") until the earlier of: (i) 12 months following termination or (ii) the date Executive is no longer eligible for COBRA continuation coverage, and, provided Executive is eligible for and properly elects continuation of such coverage.

6.3.3 OPTION ACCELERATION. As of the date of the Change in Control Termination, the lesser of: (i) 24,000 unvested Options held by Executive or (ii) the entire remaining unvested Options held by Executive, shall vest and become immediately exercisable.

6.3.4 OUTPLACEMENT. Company shall reimburse Executive for the reasonable and necessary expenses of executive outplacement assistance until the earlier of: (i) 12 months

6 - Executive Employment Agreement


following the date of termination or (ii) the date Executive secures full time employment; provided, however, in no event shall such total reimbursements exceed $23,000.

ARTICLE 6.
GENERAL PROVISIONS

6.1 NOTICES. All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address as set forth at the beginning of this Agreement. Either party may change its address, by notice to the other party given in the manner set forth in this Section. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the third business day thereafter or when it is actually received, whichever is sooner.

6.2 CAPTION. The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.

6.3 GOVERNING LAW. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Oregon.

6.4 MEDIATION. In case of any dispute arising under this Agreement which cannot be settled by reasonable discussion, the parties agree that, prior to commencing any arbitration proceeding as contemplated by Section 7.5 they will first engage the services of a professional mediator agreed upon by the parties and attempt in good faith to resolve the dispute through confidential non-binding mediation. Each party shall bear one-half (1/2) of the mediator's fees and expenses and shall pay all of its own attorneys' fees and expenses related to the mediation.

6.5 ARBITRATION. Any dispute concerning the interpretation, construction, breach or enforcement of this Agreement or arising in any way from Executive's employment with Company or termination of employment shall be submitted to final and binding arbitration. Such arbitration is to be before a single arbitrator in Portland, Oregon. In the event the parties are unable to agree upon an arbitrator, an arbitrator shall be appointed by the court pursuant to ORS 36.320. The arbitration shall be conducted pursuant to the American Arbitration Association ("AAA") Employment Dispute Resolution Rules. Executive and Company agree that, except as provided in Section 7.6 below, the procedures outlined in Section 7.4 and 7.5 are the exclusive method of dispute resolution.

6.6 CONSENT TO INJUNCTION. Executive agrees that Company will or would suffer an irreparable injury if Executive were to violate the provisions of Article 5 hereto and that Company would by reason of such violation be entitled to injunctive relief in a court of appropriate jurisdiction and Executive stipulates to the entering of such injunctive relief.

7 - Executive Employment Agreement


6.7 ATTORNEY FEES. If any action at law, in equity or by arbitration is taken to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled, including fees and expenses on appeal.

6.8 CONSTRUCTION. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

6.9 WAIVERS. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law.

6.10 ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of Company and its successors and assigns, and shall be binding upon Executive, his administrators, executors, legatees, and heirs, In that this Agreement is a personal services contract, it shall not be assigned by Executive.

6.11 MODIFICATION. This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto.

6.12 ENTIRE AGREEMENT. This Agreement together with the Executive Invention and Confidentiality Agreement executed contemporaneously herewith constitute(s) the entire agreement and understanding between the parties hereto in reference to all the matters herein agreed upon. This Agreement replaces and supersedes all prior employment agreements or understandings of the parties hereto; provided, however, that the Executive Invention and Confidentiality Agreement continues in full force and effect according to its terms.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written.

EXECUTIVE                                   CASCADE MICROTECH, INC.

    /s/ Craig M. Swanson                       /s/ Eric W. Strid
-------------------------------------       ------------------------------------
Craig M. Swanson                            Eric W. Strid
                                            CEO / Chairman

8 - Executive Employment Agreement


Exhibit 10.6

SILICON VALLEY BANK

LOAN AND SECURITY AGREEMENT

Borrower:               Cascade Microtech, Inc.

Address:                14255 S.W. Brigadoon Court
                        Beaverton, OR  97005

Date:                   February 19, 1998

         THIS LOAN AND SECURITY AGREEMENT is entered into on the above date

between SILICON VALLEY BANK ("Silicon"), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and the borrower named above (the "Borrower"), whose chief executive office is located at the above address ("Borrower's Address").

1. LOANS.

1.1. LOANS. Silicon will make one or more loans to the Borrower (the "Loans") up to the amounts (the "Credit Limits") shown on the Schedule to this Agreement (the "Schedule") as the Credit Limit for such loans. The terms of the Loans are stated in this Agreement and in the Schedule. The terms of the Schedule are incorporated into this Agreement. The Borrower is responsible for monitoring the total amount of Loans and other Obligations outstanding from time to time, and the Borrower shall not permit the amount of any Loan to exceed at any time the applicable Credit Limit for such Loan. The Borrower shall not permit the total amount of Loans and all other obligations to exceed at any time the aggregate Credit Limit for the Loans. If at any time the total of all outstanding Loans and all other Obligations exceeds the aggregate Credit Limit, the Borrower shall immediately pay the amount of the excess to Silicon, without notice or demand.

Borrower and Silicon may also enter into a Loan and Security Agreement
(EXIM Program) and related documents (collectively, the "EXIM Documents")
relating to an Export-Import Bank of the United States credit facility (the "EXIM Loan"). The form of such documents is attached to this Agreement. As of the date of execution of this Agreement, the Borrower had not supplied Silicon with all documentation necessary for the Borrower to qualify for the EXIM Loan. No advances shall be allowed under the EXIM Loan until such documentation has been provided to Silicon. Within five business days after Borrower's receipt of a letter from Silicon to the effect that Silicon is prepared to activated the EXIM Loan, the Borrower shall execute and deliver to Silicon the EXIM Documents.

Page 1 - LOAN AND SECURITY AGREEMENT


1.2. INTEREST: DEBT TO DEPOSIT ACCOUNTS. All Loans and all other monetary Obligations shall bear interest at the applicable rates shown on the Schedule. Interest shall be payable monthly on the due date shown on the monthly billing from Silicon to the Borrower. The Borrower shall regularly deposit all funds received from its business activities in accounts maintained by the Borrower at Silicon. The Borrower hereby requests and authorizes Silicon to debit any of the Borrower's accounts with Silicon, including without limitation account no. 3300066372, for payments of interest and principal due on the Loans and all other obligations owing by the Borrower to Silicon. Silicon shall promptly notify the Borrower of all debits which Silicon makes against the Borrower's accounts. Any such debit against the Borrower's accounts shall in no way be deemed a setoff by Silicon.

1.3. FEES. The Borrower shall pay to Silicon at closing a commitment fee and other fees in the amounts shown on the Schedule. These fees are in addition to all interest and other sums payable to Silicon and are not refundable.

1.4. ADDITIONAL COSTS. In case of any law, regulation, treaty or official directive or the interpretation or application thereof by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law) which:

(a) subjects Silicon to any tax with respect to payments of principal or interest or any other amounts payable hereunder by the Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Silicon imposed by the United States of America or any political subdivision thereof);

(b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Silicon; or

(c) imposes upon Silicon any other condition with respect to its performance under this Agreement,

and the results of any of the foregoing is to increase the cost to Silicon, reduce the income receivable by Silicon or impose any expense upon Silicon with respect to any loans, Silicon shall notify the Borrower thereof. Borrower agrees to pay to Silicon the amount to such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by Silicon of a statement of the amount and setting forth Silicon's calculation thereof, all in reasonable detail.

2. GRANT OF SECURITY INTEREST.

2.1. OBLIGATIONS. The term "Obligations" as used in this Agreement means the following: the obligation to pay all Loans and all interest on the Loans when due, and to pay and perform when due all other present and future indebtedness (including but not limited to any

Page 2 - LOAN AND SECURITY AGREEMENT


amount outstanding under the EXIM Loan), liabilities, obligations, guarantees, covenants, agreements, warranties and representations of the Borrower to Silicon, whether joint or several, monetary or non-monetary, and whether created pursuant to this Agreement, the EXIM Documents or any other present or future agreement (such as future agreements relating to letters of credit issued by Silicon) or otherwise. Silicon may, in its discretion, require that the Borrower pay monetary Obligations in cash to Silicon, or charge them to the Borrower's Loan account, in which event they shall bear interest at the rates applicable to the Loan to which such amounts are charged.

2.2. COLLATERAL. As security for all Obligations, the Borrower hereby grants Silicon a continuing security interest in all of the Borrower's assets, including but not limited to all of the Borrower's interest in the types of property described below, whether now owned or hereafter acquired, and wherever located (collectively, the "Collateral"): (a) all accounts, contract rights, chattel paper, letters of credit, documents, securities, money, and instruments, and all other obligations now or in the future owing to the Borrower; (b) all inventory, goods, merchandise, materials, raw materials, work in process. finished goods, farm products, advertising, packaging and shipping materials, supplies, and all other tangible personal property which is held for sale or lease or furnished under contracts of service or consumed in the Borrower's business, and all warehouse receipts and other documents; (c) all equipment, including without limitation all machinery, fixtures, trade fixtures, vehicles, furnishing, furniture, materials, tools, machine tools, office equipment, computers, and peripheral devices, appliances, apparatus, parts, dies, and jigs; (d) all general intangibles including, but not limited to, deposit accounts, goodwill, names, trade names, trademarks and the goodwill of the business symbolized thereby, trademark applications, trade secrets, drawings, blueprints, customer lists, patents, patent applications, copyrights, copyright applications, security deposits, loan commitment fees, federal, state and local tax refunds and claims, all rights in all litigation presently or hereafter arising therefrom, all rights to purchase or sell real or personal property, all rights as a licenser or licensee of any kind, all royalties, licenses, processes, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation credit, liability, property and other insurance), and all other rights, privileges and franchise of every kind; (e) all books and records, whether stored on computers or otherwise maintained; (f) all of the Borrower's cash; and
(g) all substitutions, additions and accessions to any of the foregoing, and all products, proceeds and insurance proceeds of the foregoing, and all guaranties of and security for the foregoing; and all books and records relating to any of the foregoing. Silicon's security interest in any present or future technology (including patents, trade secrets, and other technology) shall be subject to any license or rights now or in the future granted by the Borrower to any third parties in the ordinary course of the Borrower's business; provided that if the Borrower proposes to sell, license or grant any other rights with respect to any technology in a transaction that, in substance, conveys a major part of the economic value of that technology, Silicon shall first be requested to release its security interest, and Silicon may withhold such release in its reasonable discretion. The Borrower shall not, either directly or through any agent, employee, license or designee, file any assignment of any patent, trademark, or copyright which the Borrower may acquire from a third party with the U.S. Patent and Trademark Office, the U.S. Copyright Office, or any similar office or agency in any other country, state, or political subdivision (the "Offices") unless the Borrower shall, on or prior to the date of such filing, notify Silicon of such filing, and upon request of

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Silicon, execute and deliver any and all assignments, agreements, instruments, documents and papers as Silicon may request to evidence Silicon's interest such patents, trademarks, or copyrights, as the case may be, including the goodwill and general intangibles of the Borrower relating thereto or represented thereby. The Borrower authorizes Silicon to amend any applicable notice of security interest or assignment executed pursuant to SECTION 4.9 of this Agreement without first obtaining the Borrower's approval of or signature to such amendment and to record such assignment with one or more of the Offices.

2.3. COLLATERAL DEFINITIONS. Notwithstanding SECTION 2.2, for purposes of this Agreement, the intellectual property comprising the Collateral may be further defined to include the following:

(a) Any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held, including without limitation those set forth in EXHIBIT A attached to the Intellectual Property Security Agreement (collectively, the "Copyrights");

(b) All patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, including without limitation the patents and patent applications set forth on EXHIBIT B attached to the Intellectual Property Security Agreement (collectively, the "Patents");

(c) Any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks, including without limitation those set forth on EXHIBIT C attached to the Intellectual Property Security Agreement (collectively, the "Trademarks"); and

(d) Any series of related images, however fixed or encoded (i) having or representing the predetermined, three-dimensional pattern of metallic, insulating or semiconductor material present or removed from the layers of a semiconductor chip product; and (ii) in which series the relation of the images to one another is that each image has the pattern of the surface of one form of the semiconductor chip product, including without limitation those set forth on EXHIBIT D attached to the Intellectual Property Security Agreement (collectively, the "Mask Works").

3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.

The Borrower represents and warrants to Silicon as follows, and the Borrower covenants that the following representations shall continue to be true, and that the Borrower shall comply with all of the following covenants:

3.1. CORPORATE EXISTENCE AND AUTHORITY. The Borrower is and shall continue to be

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duly authorized, validly existing and in good standing under the laws of the state of its incorporation, as identified on the copy of the Borrower's Articles of Incorporation delivered to Silicon. The Borrower is and shall continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would have a material adverse effect on the Borrower. The execution, delivery and performance by the Borrower of the Agreement, and all other documents executed by the Borrower in connection with the Loans have been duly and validly authorized, are enforceable against the Borrower in accordance with their terms, and do not violate any law or any provision of, and are not grounds for acceleration under, and agreement or instrument that is binding upon the Borrower.

3.2. NAME, TRADE NAMES AND STYLES. The name of the Borrower set forth in the heading to this Agreement is its correct name. Listed on an Exhibit to the Schedule are all prior names of the Borrower and all of the Borrower's present and prior trade names. The Borrower shall give Silicon 15 days' prior written notice before changing its name or doing business under any other name. The Borrower has complied, and shall in the future comply, with all laws relating to the conduct of business under a fictitious business name.

3.3. PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the heading to this Agreement is the chief executive office for the Borrower. In addition, the Borrower has places of business only at, and Collateral of the Borrower is located only at the locations set forth on the Schedule. The Borrower shall give silicon at least 15 days' prior written notice before changing its chief executive office or moving Collateral (other than inventory sold in the ordinary course of business) to any location other than a location listed on the Schedule.

3.4. TITLE OF COLLATERAL; PERMITTED LIENS. The Borrower is now, and shall at all times in the future be, the sole owner of all the Collateral, except for items of equipment that are leased by the Borrower and general intangibles subject to nonexclusive licenses granted by Borrower to its customers in charges, security interests, encumbrances and adverse claims, except of the following ("Permitted Liens"): (a) purchase money security interests in specific items of equipment financed by the Loans; (b) leases of specific items of equipment; (c) liens for taxes not yet payable; (d) additional security interests and liens consented to in writing by Silicon in its sole discretion; and (e) security interests being terminated substantially concurrently with this Agreement. Silicon shall have the right to require, as a condition to its consent under subparagraph (d) above, that the holder of the additional security interest or lien sign and intercreditor agreement on terms satisfactory to Silicon in its sole discretion, acknowledge that the holder's security interest is subordinate to Silicon's security interest. Silicon now has, and shall continue to have, a first priority, perfected and enforceable security interest in all of the Collateral. The Collateral shall not be subject to any other liens or security interests of any type except for the Permitted Liens. The Borrower shall at all times defend Silicon and the Collateral against all claims of others. None of the Collateral now is or shall be affixed to any real property in such a manner, or with such intent, as to become a fixture.

3.5. MAINTENANCE OF COLLATERAL. The Borrower shall maintain the Collateral in good working condition. The Borrower shall not use the Collateral for any unlawful purpose.

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3.6. BOOKS AND RECORDS. The Borrower has maintained and shall maintain at the Borrower's Address complete and accurate books and records, comprising an accounting system in accordance with generally accepted accounting principles.

3.7. FINANCIAL CONDITION AND STATEMENTS. All financial statements now or in the future delivered to Silicon have been, and shall be, prepared in conformity with generally accepted accounting principles and now and in the future shall completely and accurately reflect the financial condition of the Borrower, at the times and for the periods therein stated. Since the last date covered by any such statement, there has been no material adverse change in the financial condition or business of the Borrower. The Borrower is now and shall continue to be solvent.

3.8. TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. The Borrower has timely filed, and shall timely file, all tax returns and reports required by foreign, federal, state and local law. The Borrower has timely paid, and shall timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owned by the Borrower. The Borrower may, however, defer payment of any contested taxes, provided that the Borrower (a) in good faith contests the Borrower's obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Silicon in writing of the commencement of, and any material development in, the proceedings, and (c) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral. The Borrower is unaware of any claims or adjustments proposed for any of the Borrower's prior tax years which could result in additional taxes becoming due and payable by the Borrower. The Borrower has paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms. The Borrower has not and shall not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which could result in any liability of the Borrower, including, without limitation, any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

3.9. COMPLIANCE WITH LAW. The Borrower has complied, and shall comply, in all material respects, with all provisions of all foreign, federal, state and local laws and regulations relating to the Borrower, including, but not limited to, those relating to ownership of real or personal property, conduct and licensing of the Borrower's business, and environmental matters.

3.10. LITIGATION. Except as disclosed in the Schedule, there is no claim, suit, litigation, proceeding or investigation pending or (to best of the Borrower's knowledge) threatened by or against or affecting the Borrower in any court or before any governmental agency (or any basis therefore known to the Borrower) which may result, either separately or in the aggregate, in any material adverse change in the financial condition or business of the Borrower, or in any material impairment in the ability of the Borrower shall promptly inform Silicon in writing of any claim, proceeding, litigation or investigations in the future threatened or instituted by or against the Borrower involving amounts in excess of $100,000.

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3.11. USE OF PROCEEDS. All proceeds of all Loans shall be used solely for lawful business purposes.

3.12. NO PATENTS OR TRADEMARKS. The Borrower does not own, and the Borrower does not have pending any application for the registration of, any patent or trademark with the U.S. Patent and Trademark Office or any similar office or agency of any state of the United States of America or of any foreign jurisdiction, except as disclosed in the Schedule.

3.13. HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. The Borrower represents and warrants that: (a) the Borrower has no knowledge of (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance by any prior owners or occupants of any of the real properties owned or operated by the Borrower, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters; (b) neither the Borrower nor any subtenant, contractor, agent or other user authorized by Borrower of any of the real properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under or about any of the real properties owned or operated by the borrower except in compliance with all laws, regulations and ordinances described above. The Borrower authorizes Silicon and its agents, upon 24 hours' prior notice (which need not be in writing), to enter upon the real properties to make such inspections and tests as Silicon may deem appropriate to determine compliance of the real properties owned or operated by the Borrower with this
Section of the Agreement. Any inspections or test made by Silicon shall be at Silicon's expense and for Silicon's purpose only, with such expense to be reimbursed by Borrower if an environmental condition or hazard is discovered, and shall not be construed to create any responsibility or liability on the part of Silicon to the Borrower or to any other person unless Silicon or its agents create or exacerbate an environmental hazard. The Borrower hereby (a) release and waives any future claims against Silicon for indemnity or contribution in the event the Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Silicon against any and all claims, losses, liabilities, damages, penalties, and expenses which Silicon may directly or indirectly sustain or suffer resulting form a breach of this Section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to the Borrower's ownership or interest in the real properties, whether or not the same was or should have been by the negligence or willful misconduct of Silicon. The provisions of this Section of the Agreement, including the obligation to indemnify, shall survive the payment of the obligations and the termination or expiration of this Agreement and shall not be affected by Silicon's acquisition of any interest in

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any of the real properties, whether by foreclosure or otherwise.

3.14. NO CONFLICTS. Performance of this Agreement does not conflict with or result in a breach of any agreement to which Borrower is a party or by which Borrower is bound, except to the extent that certain intellectual property agreements prohibit the assignment of the rights thereunder to a third party without the licensor's or other party's consent and this Agreement constitutes an assignment.

3.15. NO TRANSFERS OR ENCUMBRANCES. During the term of this Agreement, Borrower will not transfer or otherwise encumber any interest in the Collateral, except for non-exclusive licenses granted by Borrower in the ordinary course of business or as set forth in this Agreement and the Permitted Liens.

3.16. VALIDITY OF PATENTS. To its knowledge, each of the Patents, patent applications and like provisions are valid and enforceable, and no part of the Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Collateral violates the rights of any third party.

3.17. NOTICE OF CHANGE IN COMPOSITION. Borrower shall promptly advise Silicon of any material change in the composition of the Collateral, including but not limited to any subsequent ownership right of the Borrower in or to any Trademark, Patent or Copyright not specified in this Agreement.

3.18. DUTY TO PROTECT AND DEFEND. Borrower shall (i) protect, defend and maintain the validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best efforts to detect infringements of the Trademarks, Patents and Copyrights and advise Silicon in writing on a quarterly basis of material infringements detected, and (iii) not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Silicon, which shall not be unreasonably withheld, unless Borrower determines that reasonable business practices suggest that abandonment is appropriate.

3.19. AFTER ACQUIRED COLLATERAL. This Agreement creates, and in the case of after acquired Collateral, this Agreement will create at the time Borrower first has rights in such after acquired Collateral, in favor of Silicon a valid and perfected first priority security interest in the Collateral in the United States securing the payment and performance of the obligations evidenced by the Loan Agreement upon making the filings refereed to in clause 3.20 below.

3.20. NO AUTHORIZATION NECESSARY TO PLEDGE. To its knowledge, except for, and upon, the filing with the United States Patent and Trademark office with respect to the pledged Patents and Trademarks and the Register of Copyrights with respect to the pledged Copyrights necessary to perfect the security interests and assignment created hereunder, and except as has been already made or obtained, no authorization, approval or other action by, and no notice to or filing with, any U.S. governmental authority or U.S. regulatory body is required either (i) for the grant by Borrower of the security interest granted hereby or for the execution, delivery or performance of this Agreement by Borrower in the U.S., or (ii) for the perfection in the United States or the

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exercise by Silicon of its rights and remedies hereunder.

3.21. ACCURATE INFORMATION. All information heretofore, herein or hereafter supplied to Silicon by or on behalf of Borrower with respect to the Collateral is accurate and complete in all material respects.

3.22. NO CONFLICTING AGREEMENT. Borrower shall not enter into any agreement that would materially impair or conflict with Borrower's obligations hereunder without Silicon's prior written consent, which consent shall not be unreasonably withheld. Borrower shall not permit the inclusion in any material contract to which it becomes a party of any provisions that could or might in any way prevent the creation of a security interest in Borrower's rights and interests in any property included within the definition of the Collateral acquired under such contracts, except that certain contracts may contain anti-assignment provisions that could in effect prohibit the creation of a security interest in such contracts.

3.23. NOTICE OF IMPAIRMENT OF VALUE. Upon any executive officer of Borrower obtaining actual knowledge thereof, Borrower will promptly notify Silicon in writing of any event that materially adversely affects the value of any Collateral, the ability of Borrower to dispose of any Collateral or the rights and remedies of Silicon in relation thereto, including the levy of any legal process against any of the Collateral.

4. ADDITIONAL DUTIES OF THE BORROWER

4.1. FINANCIAL AND OTHER COVENANTS. The Borrower shall at all times comply with the financial and other covenants set forth in the Schedule.

4.2. OVERADVANCE; PROCEEDS OF ACCOUNTS. If for any reason the total of all outstanding Loans and all other Obligations exceeds the total Credit Limit, as stated in the Schedule, the Borrower will pay Silicon the amount necessary to cure such over advance within two banking days of written or oral notice form Silicon to Borrower that such over advance exists. If Borrower does not make the full payment described in the preceding sentence within the time provided, then, without limiting Silicon's other remedies, and whether or not Silicon declares an Event of Default, the Borrower shall remit to Silicon all checks and other proceeds of the Borrower's accounts and general intangibles, in the same form as received by the Borrower, within one day after the Borrower's receipt of the same, to be applied to the Obligation in order as Silicon shall determine in its discretion.

4.3. INSURANCE. The Borrower shall at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to Silicon, in such form and amounts as Silicon may reasonably require. All such insurance policies shall name Silicon as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Silicon. Unless an Event of Default has occurred, Silicon shall release to the Borrower insurance proceeds with respect to equipment totaling less

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than $100,000, which shall be utilized by the Borrower for the replacement of the equipment with respect to which the insurance proceeds were paid. Silicon may require reasonable assurance that the insurance proceeds so released shall be so used. If the Borrower fails to provide or pay for any insurance, Silicon may, but is not obligated to, obtain the same at the Borrower's expense. The Borrower shall promptly deliver to Silicon copies of all reports made to insurance companies. Statutory notice regarding insurance:

WARNING

Unless you provide us with evidence of the insurance coverage as required by our contract or loan agreement, we may purchase insurance at your expense to protect our interest. This insurance may, but need not, also protect your interest. If the collateral becomes damaged, the coverage we purchase may not pay any claim you make or any claim made against you. You may later cancel this coverage by providing evidence that you have obtained property coverage elsewhere.

You are responsible for the cost of any insurance purchased by us. The cost of this insurance may be added to your contract or loan balance. If the cost is added to your contract or loan balance, the interest rate on the underlying contract or loan will apply to this added amount. The effective date of coverage may be the date your prior coverage lapsed or the date you failed to provide proof of coverage.

This coverage we purchase may be considerably more expensive than insurance you can obtain on your own and may not satisfy any need for property damage coverage or any mandatory liability insurance requirements imposed by applicable law.

4.4. REPORT. The Borrower shall provide Silicon with such written reports with respect to the Borrower as Silicon shall from time to time reasonably specify, including but not limited to the financial reports required as stated in the Schedule.

4.5. ACCESS TO COLLATERAL, BOOKS AND RECORDS. At all reasonable times, and upon one business day notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy the Borrower's accounting books, records, ledgers, journals, or registers and the Borrower's books and records relating to the Collateral, provided that no prior notice is required upon the occurrence and continuation of an Event of Default. Silicon shall take reasonable steps to keep confidential all information obtained in any such inspection or audit, but Silicon shall have the right to disclose any such information to its auditors, regulatory agencies and attorneys, and pursuant to any subpoena or other legal process. Silicon will provide notice and an opportunity for Borrower to object to such disclosures in those instances when Silicon, in its sole discretion, determines that such notice and opportunity to object are feasible. Silicon shall treat such confidential information with the same degree of care it would its own confidential information. The Borrower shall reimburse Silicon for Silicon's actual costs for conducting two such audits per year, in an amount not to exceed $1,250 per audit. Silicon may

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debit the Borrower's deposit accounts with Silicon for the cost of such audits, in which event Silicon shall send notification thereof to the Borrower.

4.6. NEGATIVE COVENANTS. Except as may be expressly permitted in the Schedule, the Borrower shall not, without Silicon's prior written consent, do any of the following: (a) merge or consolidate with another corporation, except that the Borrower may merge or consolidate with another corporation if the Borrower is the surviving corporation in the merger and the aggregate value of the assets acquired in the merger does not exceed 25% of the Borrower's Tangible Net Worth (as defined in the Schedule) as of the end of the month prior to the effective date of the merger, and the assets of the corporation acquired in the merger are not subject to any liens or encumbrances, except Permitted Liens; (b) acquire any assets, including stock of any other entity, outside the ordinary course of business for an aggregate purchase price (whether paid in cash, in stock of the Borrower or other consideration) exceeding 25% of the Borrower's Tangible Net Worth (as defined in the Schedule) as of the end of the month prior to the effective date of the acquisition; (c) enter into any other transaction outside the ordinary course of business (except as permitted by the other provisions of this Section); (d) sell or transfer any Collateral, except for the sale of finished inventory in the ordinary course of the Borrower's business; (e) make any loans of any money or any other assets to shareholders, employees or any other person except in the ordinary course of business; (f) incur any debts that are outside the ordinary course of business or that would have a material, adverse effect on the Borrower or on the prospect of repayment of the Obligations; (g) guarantee or otherwise become liable with respect to the obligations of another party or entity; (h) pay or declare any dividends on the stock of the Borrower (except for dividends payable solely in stock of the Borrower); (i) make any change in the Borrower's capital structure which has a material adverse effect on that Borrower or on the prospect of repayment of the Obligations; or (k) dissolve or elect to dissolve. Transactions permitted by the foregoing provisions of this Section are only permitted if no Event of Default and no event which (with notice or passage of time or both) would constitute an Event of Default would occur as a result of such transaction. Borrower will not unreasonably withhold consent with respect to clause (a) or clause (b) above.

4.7. LITIGATION COOPERATION. Should any third-party suit or proceeding be instituted by or against Silicon with respect to any Collateral or in any manner relating to the Borrower, the Borrower shall, without expense to Silicon, make available the Borrower and its officers, employees and agents and the Borrower's books and records to the extent that Silicon may deem reasonably necessary in order to prosecute or defend any such suit or proceeding.

4.8. VERIFICATION. Silicon may, from time to time, following prior notification to the Borrower, verify directly with the respective account debtors the validity, amount and other matters relating to the Borrower's accounts, by means of mail, telephone or otherwise, either in the name of the Borrower or Silicon or such other name as Silicon may reasonably choose, provided that no prior notification shall be required following an Event of Default. Silicon shall not be required to obtain the Borrower's consent prior to any such verification of accounts, whether or not an Event of Default has occurred.

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4.9. EXECUTE ADDITIONAL DOCUMENTATION. The Borrower agrees, as its expense, on request by Silicon, to execute from time to time all documents in form satisfactory to Silicon, as Silicon may deem reasonably necessary or useful in order to perfect and maintain Silicon's perfected security interest in the Collateral, and in order to fully consummate all of the transactions contemplated by this Agreement.

4.10. REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. The Borrower shall register or cause to be registered (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, those intellectual property rights listed on an exhibit to the Intellectual Property Security Agreement delivered to Silicon by the Borrower in connection with this Agreement within thirty (30) days of the date of this Agreement. Borrower shall register or cause to be registered with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, those additional intellectual property rights developed or acquired by Borrower from time to time in connection with any product prior to the sale or licensing of such product to any third party, including without limitation revisions or additions to the intellectual property rights listed on such exhibit to instruments and documents from time to time as Silicon shall reasonably request to perfect Silicon's security interest in such additional intellectual property rights.

5. TERM.

5.1. MATURITY DATE. This Agreement shall continue in effect until the payment in full of the Obligations, provided, however, that the Borrower shall repay in full each Loan described on the Schedule, with all accrued but unpaid interest on that Loan, on or before the Maturity Date stated on the Schedule for such Loan.

5.2. EARLY TERMINATION. Subject to SECTION 5.3, this Agreement may be terminated, without penalty, prior to the Maturity Date as follows: (a) by the Borrower, effective three business days after written notice of termination is given to Silicon; or (b) by Silicon at any time after the occurrence of an Event of Default, without notice, effective immediately.

5.3. PAYMENT OF OBLIGATION. On the due dates stated in the Schedule, or on any earlier effective date of termination, the Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable. Notwithstanding any termination of this Agreement, all of Silicon's security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that Silicon may, in its sole discretion, refuse to make any further Loans after termination. No termination shall in any way affect or impair any right or remedy of Silicon, nor shall any such termination relieve the Borrower of any Obligation to Silicon, until all of the Obligations have been paid and performed in full. Upon payment and performance in full of all the Obligations, Silicon shall promptly deliver to the Borrower termination statements, requests for reconveyances and such other documents as may be required to fully terminate any of Silicon's security interests.

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6. EVENTS OF DEFAULT AND REMEDIES.

6.1. EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement, and the Borrower shall give Silicon immediate written notice thereof: (a) any warranty, representation, statement, report or certificate made or delivered to Silicon by the Borrower or any of the Borrower's officers or employees, now or in the future, shall be untrue or misleading in any material respect; or (b) the Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation, including without limitation to the EXIM Loan; or (c) the total outstanding balance of any Loan exceeds the applicable Credit Limit, or the total Loans and other Obligations outstanding at any time exceed the aggregate Credit Limit for all Loans; or (d) the Borrower shall fail to comply with any of the financial covenants set forth in the Schedule or shall fail to perform any other non-monetary Obligation which by its nature cannot be cured; or (e) the Borrower shall fail to pay or perform any other non-monetary Obligation, under this Agreement or any other agreement or document relating to the Loans or under the EXIM Documents relating to the EXIM Loan; or (f) any levy, assessment, attachment, seizure, lien or encumbrance is made on all or any part of the Collateral; or (g) dissolution, termination of existence, insolvency or business failure of the Borrower, or appointment of a receiver, trustee or custodian for all or any part of the property of , assignment for the benefit of creditors by, or the commencement of any proceeding by the Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (h) the commencement of any proceeding against the Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within 90 days after the date commenced, or (i) revocation or termination of, or limitation of liability upon, any guaranty of the Obligations; or (j) commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (k) the Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations, unless such payment is permitted in the applicable subordination agreement, or if any person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; or (l) the Borrower shall generally not pay its debts as they become due; or the Borrower shall conceal, remove or transfer any part of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (m) either the Borrower or any other party thereto shall breach any subordination agreement executed in connection with the Loans; or (n) the current common and preferred shareholders of the Borrower shall cease to own more than 50% of the outstanding common stock of the Borrower other than as the result of an initial public offering of securities by Borrower. If any of the foregoing defaults, other than a failure to pay money and breach of a financial covenant set forth in Schedule, is curable, it may be cured (and no Event of Default shall have occurred) if the Borrower cures the default within thirty days (or within ninety days in the case of clause (h) of this SECTION 6.1). Silicon may cease making any Loans hereunder during the above cure periods, and thereafter if an Event of Default has occurred.

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6.2. REMEDIES. Upon the occurrence of any Event of Default and the expiration of any applicable cure period under SECTION 6.1, and at any time thereafter, Silicon, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by the Borrower), may do any one or more of the following: (a) cease making Loans or otherwise extending credit to the Borrower under this Agreement or any other document or agreement; (b) accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) take possession of any or all of the Collateral wherever it may be found, and for that purpose the Borrower hereby authorizes Silicon without judicial process to enter onto any of the Borrower's premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof without charge for so long as Silicon deems it reasonably necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Silicon seek to take possession of any or all of the Collateral by Court process, the Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Silicon retain possession of and not dispose of any such Collateral until after trial or final judgment; (d) require the Borrower to assemble any or all of the Collateral and make it available to Silicon at places designated by Silicon which are reasonably convenient to Silicon and the Borrower, and to remove the Collateral to such locations as Silicon may deem advisable; (e) require the Borrower to deliver to Silicon, in kind, all checks and other payments received with respect to all accounts and general intangibles, together with any necessary endorsements, within one day after the date received by the Borrower;
(f) complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Silicon shall have the right to use the Borrower's premises, vehicles, hoist, lifts, cranes, equipment and all other property without charge; (g) sell, lease or otherwise dispose of any of the Collateral in its condition at the time Silicon obtains possession of it or after further manufacturing, processing or repair, at any one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale; Silicon shall have the right to conduct such disposition on the Borrower's premises without charge, for such time or times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and the Collateral need not be located at the place of disposition; Silicon may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition; any sale or other disposition of Collateral shall not relieve the Borrower of any liability the Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (h) demand payment of, and collect any accounts and general intangibles comprising Collateral and, in connection therewith, the Borrower irrevocably authorizes Silicon to endorse or sign the Borrower's name on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to the Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in Silicon's sole discretion, to grant extensions of time to pay, compromise claims and settle accounts and the like for less than face value; (i) offset

Page 14 - LOAN AND SECURITY AGREEMENT


against any sums in any general, special or other deposit accounts maintained by the Borrower with Silicon; and (j) demand and receive possession of any of the Borrower's federal and state income tax returns and the books and records utilized in the preparation thereof or referring thereto. All reasonable fees of professionals (including attorney's fees, (expenses, costs, liabilities and obligations incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. Without limiting any of Silicon's rights and remedies, from and after the occurrence of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional two percent per annum above the rate otherwise applicable.

6.3. STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. The Borrower and Silicon agree that a sale or other disposition (collectively, "Sale") of any Collateral which complies with the following standards shall conclusively be deemed to be commercially reasonable: (a) notice of the Sale is given to the Borrower at least seven days prior to the Sale, and, in the case of a public Sale, notice of the Sale is published at least seven days before the Sale in a newspaper of general circulation in the country where the Sale is to be conducted; (b) notice of the Sale describes the Collateral in general, non-specific terms; (c) the Sale is conducted at the place designated by Silicon, with or without the Collateral being present; (d) the Sale commences at any time between 8:00 a.m. and 6:00 p.m.; (e) payment of the purchase price in cash or by cashier's check or wire transfer is required; (f) with respect to any Sale of any of the Collateral, Silicon may (but is not obligated to) direct any prospective purchaser to ascertain directly from the Borrower any and all information concerning the same. Silicon may employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable.

6.4. POWER OF ATTORNEY. Effective only upon the occurrence and during the continuance of an Event of Default, the Borrower hereby irrevocably appoints Silicon (and any of Silicon's designated officers, or employees) as the Borrower's true and lawful attorney to: (a) send requests for verification of accounts or notify account debtors of Silicon's security interest in the accounts; (b) endorse the Borrower's name on any checks or other forms of payment or security that may come into Silicon's possession; (c) sign the Borrower's name on any invoice or bill of lading relating to any account, drafts against account debtors, schedules and assignments of accounts, verifications of amounts, and notices to account debtors; (d) make, settle, and adjust all claims under and decisions with respect to the Borrower's policies of insurance; and
(e) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Silicon determines to be reasonable; provided Silicon may exercise such power of attorney to sign the name of the Borrower on any of the documents described in SECTION 4.9 regardless of whether an Event of Default has occurred. The appointment of Silicon as the Borrower's attorney in fact, and each and every one of Silicon's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Silicon's obligation to provide advances hereunder is terminated.

6.5. APPLICATION OF PROCEEDS. All proceeds realized as the result of any Sale of the Collateral shall be applied by Silicon first to the costs, expenses, liabilities, obligations and

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attorneys' fees incurred by Silicon in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as Silicon shall determine in its sole discretion. Any surplus shall be paid to the Borrower or other persons legally entitled thereto; the Borrower shall remain liable to Silicon for any deficiency. If Silicon, in its sole discretion, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any Sale or other disposition of Collateral, Silicon shall have the option, exercisable at any time, in its sole discretion, of either reducing the Obligations by the principal amount or purchase price or deferring the reduction of the Obligations until the actual receipt by Silicon of the cash therefor.

6.6. REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in this Agreement, Silicon shall have all the other rights and remedies accorded a secured party under the Uniform Commercial Code of Oregon and each state in which any Collateral is located, and under all other applicable laws, and under the EXIM Documents and any other instrument or agreement now or in the future entered into between Silicon and the Borrower, and all of such rights and remedies are cumulative and none is deemed an election, nor bar Silicon from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of Silicon to exercise any other rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed.

7. GENERAL PROVISIONS.

7.1. NOTICES. All notices to be given under this Agreement shall be in writing and shall be given either personally or by regular first-class mail, or certified mail return receipt requested, addressed to Silicon or the Borrower at the addressees shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party. In addition, Borrower shall send a copy of any notice to Silicon to the following address:
11000 S.W. Stratus, Suite 170, Beaverton, OR 97008-7113, Attn: Art Hiemstra. All notices shall be deemed to have been given upon delivery in the case of notices personally delivered to the Borrower or to Silicon, or at the expiration of two business days following the deposit thereof in the United States mail, with postage paid.

7.2. SEVERABILITY. Should any provisions of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect.

7.3. INTEGRATION. This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between the Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. UNDER OREGON LAW, MOST

Page 16 - LOAN AND SECURITY AGREEMENT


AGREEMENTS, PROMISES AND COMMITMENTS MADE BY SILICON AFTER OCTOBER 3, 1989, CONCERNIGN LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY SILICON TO BE ENFORCEABLE.

7.4. WAIVERS. The failure of Silicon at any time or times to require the Borrower to strictly comply with any of the provisions of this Agreement or any other present or future agreement between the Borrower and Silicon shall not waive or diminish any right of Silicon later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent thereto. None of the provisions of this Agreement or any other agreement now or in the future executed by the Borrower and delivered to Silicon shall be deemed to have been waived by any act or knowledge of Silicon or its agents or employees, but only by a specific written waiver signed by an officer of Silicon and delivered to the Borrower. The Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, general intangible, document or guaranty at any time held by Silicon on which the Borrower is or may in any way be liable, and notice of any action taken by Silicon, unless expressly required by this Agreement.

7.5. NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of its directors, officers, employees, agents, attorneys or any other person affiliated with or representing Silicon shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by the Borrower or any other party through the ordinary negligence of Silicon, or any of its directors, officers, employees, agents, attorneys or any other person affiliated with or representing Silicon.

7.6. AMENDMENT. The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by the Borrower and a duly authorized officer of Silicon.

7.7 TIME OF ESSENCE. Time is of the essence in the performance by the Borrower of each and every obligation under this Agreement.

7.8. ATTORNEY'S FEES AND COSTS. The Borrower shall reimburse Silicon for all reasonable attorney's fees and fees of other professionals, and all filing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable attorney's fees and costs Silicon incurs in order to do the following: prepare and negotiate this Agreement and the documents relating to this Agreement; obtain legal advice in connection with this Agreement; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, account debtors; commence, intervene in, or defend any action or proceeding (including any appeal or review); initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of the Borrower's books and records; or protect, obtain possession of, lease, dispose of, or

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otherwise enforce Silicon's security interest in, the Collateral and otherwise represent Silicon in any litigation relating to the Borrower. If either Silicon or the Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and professionals' fees, including (but not limited to) reasonable attorneys' fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment, and in any appeal or review by an appellate court. All fees and costs to which Silicon may be entitled pursuant to this Section shall immediately become part of the Borrower's Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations.

7.9. BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of the parties hereto; provided, however, that the Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of Silicon, and any prohibited assignment shall be void. No consent by Silicon to any assignment shall release the Borrower from its liability for the Obligations. The Borrower agrees and consents to Silicon's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related to unrelated to Silicon. Silicon may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Silicon may have about the Borrower or about any other matter relating to the Loans and the Borrower hereby waives any rights to privacy it may have with respect to such matters. Silicon shall require any such purchasers or potential purchasers to enter into a confidentiality agreement, in such form as Silicon may specify in its sole discretion, and such confidentiality agreement shall by its terms be enforceable by Borrower. The Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Silicon shall sell participation interests only to financial institutions it deems financially sound and responsible. The Borrower also agrees that the purchaser of any such participation interests shall be considered as the absolute owners of such interest in the Loans and shall have all the rights granted under the participation agreement or agreements governing the sale of such participation interests.

7.10. SECTION HEADINGS; CONSTRUCTION. Section headings are only used in this Agreement for convenience. The Borrower acknowledges that the headings may not describe completely the subject matter of the applicable section, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against Silicon or the Borrower under any rule of construction or otherwise.

7.11. MUTUAL WAIVER OF JURY TRIAL. The Borrower and Silicon each hereby waive the right to trial by jury in any action or proceeding based upon, arising out of, or in any way relating to, this Agreement or any other present or future instrument or agreement between Silicon and the Borrower, or any conduct, acts or omissions of Silicon or the Borrower or any of their

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directors, officers, employees, agents, attorneys or any other person affiliated with Silicon or the Borrower, in all of the foregoing cases, whether sounding in contract or tort or otherwise.

7.12. GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and transactions hereunder and all rights and obligations of Silicon and the Borrower shall be governed by, and construed in accordance with, the laws of the State of Oregon. Any undefined term used in this Agreement that is defined in the Oregon Uniform Commercial Code shall have the meaning assigned to that term in the Oregon Uniform Commercial Code. As a material part of the consideration to Silicon to enter into this Agreement, the Borrower (i) agrees that all actions and proceedings relating directly or indirectly hereto shall at Silicon's option, be litigated in courts located within Oregon, and that the exclusive venue therefor shall be, at Silicon's option, Washington County or Multnomah County, Oregon; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights the Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding.

7.13. OTHER LOAN. Silicon has been informed that a subsidiary of Borrower, Cascade Microtech, Japan has borrowed 130,000,000 yen from Bank of Tokyo - Mitsubishi Ltd., which is guaranteed by Cascade Microtech, Inc.

BORROWER:

CASCADE MICROTECH, INC.

By:      /s/  Randall Sadewic
   -----------------------------------------

Title:   CFO
      --------------------------------------

SILICON:

SILICON VALLEY BANK

By:      /s/  Bruce Helberg
   -----------------------------------------
Title:        Vice- President
      --------------------------------------

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SCHEDULE TO LOAN AND SECURITY AGREEMENT

BORROWER: Cascade Microtech, Inc.

SECURED ACCOUNTS RECEIVABLE LINE OF CREDIT

CREDIT LIMIT:              An amount not to exceed the lesser of: (i) $4,000,000
                           at any one time outstanding; or (ii) the amount of
                           the "Borrowing Base", as defined below. For purposes
                           of this Schedule, the "Borrowing Base" shall mean the
                           sum of 80% of the Net Amount of Borrower's eligible
                           accounts receivable. With respect to Borrower's
                           accounts, "Net Amount" means the gross amount of the
                           account, minus all applicable sales, use, excise and
                           other similar taxes and minus all discounts, credits
                           and allowances of any nature granted or claimed. All
                           Letters of Credit and Exchange Contracts issued under
                           this Secured Accounts Receivable Line of Credit shall
                           reduce dollar for dollar the amount otherwise
                           available for borrowing under this Loan.

                           Without limiting the fact that the determination of
                           which accounts are eligible for borrowing is a matter
                           of Silicon's discretion, the following shall not be
                           deemed eligible for borrowing: accounts in which
                           Silicon does not have a first priority, perfected
                           security interest; accounts outstanding for more than
                           90 days from the invoice date, accounts subject to
                           any contingencies, accounts owing from an account
                           debtor outside the United States (except as approved
                           in writing by Silicon), accounts owing from
                           governmental agencies in excess of $500,000, accounts
                           owing form one account debtor to the extent they
                           exceed 25% of total eligible accounts owing from an
                           account debtor to whom the Borrower is or may be
                           liable for goods purchased from such account debtor
                           or otherwise ("Contra Accounts"). Contra Accounts
                           shall be eligible to the extent of the net difference
                           between the account receivable and the account
                           payable; however, if the account payable exceeds the
                           account receivable, the entire account receivable
                           shall be ineligible. In addition, if more than 50% of
                           the total dollar amount of accounts owing from an
                           account debtor are outstanding more than 90 days from
                           the invoice date or are otherwise not eligible
                           accounts, then all accounts owing from that account
                           debtor shall be deemed ineligible for borrowing.
                           Account owing from a debtor outside of the United
                           States may, in Silicon's sole discretion, be
                           considered eligible for borrowing if they are
                           supported by letters of credit from foreign banks
                           acceptable to Silicon.

INTEREST RATE:             The interest rate applicable to this Loan shall be a
                           rate

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                           equal to the "Prime Rate" in effect from time to
                           time, plus 0.255 per annum. Interest calculations
                           shall be made on the basis of a 360-day year and the
                           actual number of days elapsed. "Prime Rate" means the
                           rate announced from time to time by Silicon as its
                           "prime rate", it is a base rate upon which other
                           rates charged by Silicon are based, and it is not
                           necessarily the best rate available at Silicon. The
                           interest rate applicable to the Obligations shall
                           change on each date there is a change in the Prime
                           Rate.

COMMITMENT FEE:            One-quarter of one percent per annum of the maximum
                           commitment amount of $6,000,000 or $15,000, which
                           fully earned and payable at closing. (Any Commitment
                           Fee previously paid by the Borrower in connection
                           with this loan shall be credited against this Fee.)

MATURITY DATE:             February 18, 2000, at which time all unpaid principal
                           and accrued but unpaid interest shall be due and
                           payable.

LETTERS OF CREDIT:         Subject to the terms of this Agreement, as amended
                           from time to time, Silicon shall issue or cause to be
                           issued under the Credit Limit standby and commercial
                           letters of credit for the account of Borrower in an
                           aggregate face amount not to exceed the Credit Limit.
                           Each such standby letter of credit that has an expire
                           date later than the Maturity Date shall be secured by
                           cash in Silicon's possession on and after the
                           Maturity Date in an amount equal to the face amount
                           of such letter of credit. All such letters of credit
                           shall be, in form and substance, acceptable to
                           Silicon in its sole discretion and shall be subject
                           to the terms and conditions of Silicon's form
                           application and letter of credit agreement.

FOREIGN EXCHANGE
SUBLIMIT:                  Borrower may utilize up to the Credit Limit for spot
                           and future foreign exchange contracts (the "Exchange
                           Contracts"). Exchange Contracts that provide for
                           delivery of settlement after the Maturity Date in an
                           amount equal to 10% of the gross amount of such
                           Exchange Contracts that provide for delivery of
                           settlement after the Maturity Date. The limit
                           available at any time shall be reduced by the
                           following amounts (the "Foreign Exchange Reserve") on
                           each day (the "Determination date"): (i) on all
                           outstanding Exchange Contracts on which delivery is
                           to be effected or settlement allowed more than two
                           business days from the determination Date, 10% of the
                           gross amount of the Exchange Contracts; plus (ii) on
                           all outstanding Exchange Contracts on which delivery
                           is to be effected or settlement allowed within two
                           business days after the Determination Date, 100% of
                           the gross amount of the Exchange Contract, the
                           Borrower may request that Silicon debit the
                           Borrower's bank account with Silicon for such amount,
                           provided Borrower has immediately available funds in
                           such amounts in its bank account.

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Whenever Borrower desires an advance, Borrower will notify Silicon by facsimile transmission or by telephone not later than 11:00 a.m. California time, two business days before the advance is to be made. Each such notification shall be promptly confirmed by a borrowing base certificate. Silicon shall be entitled to rely on any such telephone notice given by any person who Silicon reasonably believes to be an officer of Borrower, and Borrower shall indemnify and hold Silicon harmless for any damages or loss suffered by Silicon as a result of such reliance.

Silicon may, in its discretion, terminate the Exchange Contracts at any time (a) that an Event of Default occurs or (b) that there is no sufficient availability under the Credit Limit and Borrower does not have available funds in its bank account to satisfy the Foreign Exchange Reserve. If Silicon terminates the Exchange Contracts, and without limitation of the FX Indemnity Provisions (as referred to below), Borrower agrees to reimburse Silicon for any and all fees, costs and expenses relating thereto or arising in connection therewith.

Borrower shall not permit the total gross amount of all Exchange Contracts on which delivery is to be effected and settlement allowed in any two business day period to be more than the Credit Limit, nor shall Borrower permit the total gross amount of all Exchange Contracts of which Borrower is a party, outstanding at any one time, to exceed the Credit Limit.

The Borrower shall execute all standard form applications and agreements of Silicon in connection with the Exchange Contracts, and without limiting any of the terms of such applications and agreements the Borrower will pay all standard fees and charges of Silicon in connection with Exchange Contracts.

Without limiting any of the other terms of this Agreement or any such standard form applications and agreement of Silicon, Borrower agrees to indemnify Silicon and hold it harmless, from and against any and all claims, debts, liabilities, demands, obligations, actions, costs and expenses (including, without limitation, attorneys fees of counsel of Silicon's choice), of every nature and description which it may sustain or incur, based upon, arising out of, or in any way relating to any of the Exchange Contracts or any transactions relating thereto or contemplated thereby (collectively referred to as the "FX Indemnity Provisions").

Page 23 - LOAN AND SECURITY AGREEMENT


SECURED TERM LOAN NO. 1

CREDIT LIMIT:              An amount not to exceed $2,150,000 at any one time
                           outstanding

                           Once the maximum amount of the principal has been
                           advanced under this Secured Term Loan No. 1,
                           Borrower is no longer entitled to further advances
                           on this Loan. Borrower shall not have the right to
                           reborrow any amount on this Secured Term Loan No.
                           1 that has been repaid by Borrower. Advances may
                           be requested in writing by Borrower or an
                           authorized person. Silicon may, but need not,
                           require that all oral requests be confirmed in
                           writing. The unpaid principal balance owing on
                           this Secured Term Loan No. 1 at any time may be
                           evidenced by Silicon's internal records, including
                           daily computer print-outs (which Silicon shall
                           provide to Borrower periodically).

PURPOSE:                   Borrowers shall use the proceeds of this Secured Term
                           Loan No. 1 to repay the existing term loan payable to
                           Bank of America.

INTEREST RATE:             The interest rate applicable to the Secured Term Loan
                           No.1 shall be a fixed rate of 7.71% per annum.
                           Interest calculations shall be made on the basis of a
                           360-day year and the actual number of days elapsed.

AMORTIZATION:              Borrower shall pay Silicon on the last day of each
                           month, commencing with March, 1998, payments of
                           principal and interest in the amount necessary to
                           repay fully the amount of the Secured Term Loan No. 1
                           in 48 equal month payments.

MATURITY DATE:             February 28, 2002, at which time all unpaid principal
                           and accrued but unpaid interest, fees and other
                           charges shall be due and payable.

COMMITMENT
FEE:                       None.

SECURED EQUIPMENT TERM LOAN NO.2

CREDIT LIMIT:              An amount not to exceed the lesser of (i) $1,500,000
                           at any one time outstanding; or (ii) the amount of
                           the "Equipment Borrowing Base", as defined below. For
                           purposes of this Schedule, the "Equipment Borrowing
                           Base" shall mean 100% of the invoice value of
                           equipment purchased by Borrower after December 1,
                           1997. Silicon will make advances against

Page 24 - LOAN AND SECURITY AGREEMENT


                           software and leasehold improvements in an amount not
                           to exceed 35% of the commitment amount of this Loan.
                           Silicon shall have no obligation to advance against
                           taxes, freight charges, installation charges or other
                           similar amounts relating to Borrower's equipment,
                           whether or not such amounts are identified on the
                           invoices submitted to Silicon. Equipment to be
                           included in the Equipment Borrowing Base must be new
                           equipment, at the time of purchase by Borrower, owned
                           by Borrower, in good working order, must not be
                           subject to any liens in favor of any person or entity
                           other than Silicon, and must be subject to a first
                           priority, perfected security interest in favor of
                           Silicon. Silicon shall have no obligation to make
                           advances against non-standard equipment. Silicon
                           shall have no obligation to make advances on this
                           Secured Equipment Term Loan No. 2 after that date
                           which is one year from the date of execution of this
                           Agreement. Advances under this Secured Equipment Term
                           Loan No. 2 will not be made until the third quarter
                           of 1998 and at such time as Borrower has provided
                           sufficient evidence, in Silicon's sole discretion,
                           that Borrower will be in compliance with the Debt
                           Service Coverage Ratio covenant set forth below. At
                           that time, Silicon shall make advances under this
                           Secured Equipment Term Loan NO. 2 from time to time,
                           based on invoices and other documentation as shall be
                           requested by Silicon to support such advances. The
                           Borrower's indebtedness to Silicon with respect to
                           this Schedule and the Loan Agreement, not by a
                           separate promissory note unless required by Silicon.

                           Borrower shall submit to Silicon such invoices,
                           advance requests and other information, in form
                           acceptable to Silicon, as Silicon shall reasonably
                           require from time to time.

                           Once the maximum amount of the principal has been
                           advanced under this Secured Equipment Term Loan No.
                           2, Borrower is no longer entitled to further advances
                           on this Loan. Borrower shall not have the right to
                           reborrow any amount on this Secured Equipment Term
                           Loan No. 2 that has been repaid by Borrower. Advances
                           may be requested in writing by Borrower or an
                           authorized person. Silicon may, but need not, require
                           that all oral requests be confirmed in writing. The
                           unpaid principal balance owing on this Secured
                           Equipment Term Loan No. 2 at any time may be
                           evidenced by Silicon's internal records, including
                           daily computer print-outs (which Silicon shall
                           provide to Borrower periodically).

PURPOSE:                   Borrowers shall use the proceeds of this Secured
                           Equipment Term Loan No. 2 to finance the purchase of
                           new equipment, software and leasehold improvements.

INTEREST RATE:             The interest rate applicable to the Secured Equipment
                           Term Loan No. 2 shall be a rate equal to the "Prime
                           Rate" (as defined above) in effect from

Page 25 - LOAN AND SECURITY AGREEMENT


                           time to time, plus 0.50% per annum. Interest
                           calculations shall be made on the basis of a 360-day
                           year and the actual number of days elapsed. The
                           interest rate applicable to the Obligations shall
                           change on each date there is a change in the Prime
                           Rate. At the conclusion of the advance period, a
                           fixed rate alternative (set at 275 basis points in
                           excess of the yield of U.S. Treasury Bills of similar
                           maturity, as publicly announced in the Wall Street
                           Journal or other public source) will be made
                           available to Borrower by Silicon.

AMORTIZATION:              Borrower shall pay Silicon monthly payments of
                           interest only on the last day each month commencing
                           with March, 1998. In addition, Borrower shall pay
                           Silicon on the last day of each month, commencing
                           with March 31, 1999, the amount necessary to repay
                           fully the amount of the Secured Equipment Term Loan
                           No. 2 in 36 monthly payments.

MATURITY DATE:             February 28, 2002, at which time all unpaid principal
                           and accrued but unpaid interest, fees and other
                           charges shall be due and payable.

COMMITMENT
FEE:                       $5,000 payable at closing. This fee is fully earned
                           at closing and is non-refundable. (Any Commitment Fee
                           previously paid by the Borrower in connection with
                           this loan shall be credited against this Fee.)

PRIOR NAMES OF
BORROWER:                  See attached Exhibit B

TRADE NAMES OF
BORROWER:                  See attached Exhibit B

TRADEMARKS OF
BORROWER:                  See attached Exhibit B

OTHER LOCATIONS
AND ADDRESSES:             See attached Exhibit B

MATERIAL ADVERSE
LITIGATION:                See attached Exhibit B

FINANCIAL
COVENANTS:                 The Borrower shall at all time comply with all of the
                           following covenants, all of which shall be determined
                           and measured on a quarterly basis in accordance with
                           generally accepted accounting principles, on a
                           consolidated basis with any subsidiary of Borrower,

except as otherwise stated below:

Page 26 - LOAN AND SECURITY AGREEMENT


TANGIBLE NET
WORTH: Borrower shall at all times maintain a Tangible Net Worth of not less than $9,000,000.

DEBT TO TANGIBLE

NET WORTH RATIO:           Borrower shall at all times maintain a ratio of total
                           liabilities to Tangible Net Worth of not more than
                           1.50:1.00. For purposes of this calculation, total
                           liabilities shall exclude deferred revenues and debt,
                           if any, that has been subordinated to the Loans in a
                           written subordination agreement on terms satisfactory
                           to Silicon.

QUICK RATIO:               Borrower shall maintain a ratio of Quick Assets
                           (defined below) to current liabilities less deferred
                           revenue of not less than .85:1.00 for the quarter
                           ending March 31, 1999 increasing to 1.00:1.00
                           beginning with the quarter following Borrower's
                           receipt of new equity in an amount not less than
                           $2,000,000 as reflected on Borrower's financial
                           statement (2/18/99).

DEBT SERVICE
COVERAGE RATIO:            Borrower shall maintain (2/18/99) on a quarterly
                           basis, a Debt Service Coverage Ratio of not less than
                           1.50:1.00 measured on an annualized basis as of the
                           end of each fiscal quarter or Minimum Liquidity
                           Coverage. Borrower shall maintain on a quarterly
                           basis, a ratio of unrestricted cash (and equivalents)
                           plus not availability under the Revolving Facility
                           divided by all outstandings under Secured Term Loan
                           No. 1.

DEFINITIONS:               "Quick Assets" means cash on hand or on deposit in
                           banks, readily marketable securities issued by the
                           United States, readily marketable commercial paper
                           rated "A-1" by Standard & Poor's Corporation (or a
                           similar rating by a similar rating organization),
                           certificates of deposit and banker's acceptances, and
                           accounts receivable (net of allowance for doubtful
                           accounts).

                           "Tangible Net Worth" means stockholders' equity plus
                           debt, if any, that has been subordinated to the Loans
                           in a written subordination agreement on terms of
                           satisfactory to Silicon, and accrued interest
                           thereon, less goodwill, patents, capitalized software
                           costs, deferred organizational costs, tradenames,
                           trademarks, and all other assets which would be
                           classified as intangible assets under generally
                           accepted accounting principles.

                           "Debt Service Coverage Ratio" means Earnings Before
                           Interest, Taxes, Depreciation and Amortization
                           (EBITDA), divided by the Current Maturities of
                           Long-Term Debt (CMLTD) plus interest, on an
                           annualized basis. For quarterly calculations,
                           quarterly EBITDA is matched against 25% of CMLTD plus
                           interest.

Page 27 - LOAN AND SECURITY AGREEMENT


OTHER COVENANTS:           Borrower shall at all times comply with all of the
                           following additional covenants:

                           BANKING RELATIONSHIP. Borrower and its subsidiaries
                           shall at all times maintain their primary banking
                           relationship with Silicon. Neither Borrower nor its
                           subsidiaries shall establish any deposit accounts of
                           any type with any bank or other financial institution
                           other than Silicon without Silicon's prior written
                           consent.

                           FINANCIAL STATEMENTS AND REPORTS. The Borrower shall
                           provided Silicon: (a) within 30 days after the end of
                           each month, a monthly financial statement (consisting
                           of a income statement and a balance sheet) prepared
                           by the Borrower in accordance with generally accepted
                           accounting principles; (b) within 20 days after the
                           end of each moth, an accounts receivable aging report
                           and an accounts payable aging report, in such form as
                           silicon shall reasonably specify; (c) within 20 days
                           after the end of each month, a Borrowing Base
                           Certificate in the form attached to this Agreement as
                           Exhibit A, as Silicon may reasonably modify such
                           Certificate from time to time, signed by the Chief
                           Financial Officer of the Borrower only at such times
                           as (i) there are outstandings under the Revolving
                           Facility and prior to a disbursement when there are
                           no outstandings, or (ii) exposure under the Foreign
                           Exchange sublimit is greater than $500,000.(5/7/99);
                           (d) within 30 days after the end of each quarter, a
                           Compliance Certificate in such form as Silicon shall
                           reasonably specify, signed by the Chief Financial
                           Officer of the Borrower, setting forth calculations
                           showing compliance (at the end of each such calendar
                           quarter) with the financial covenants set forth on
                           the Schedule, and certifying that throughout such
                           quarter the Borrower was in full compliance with all
                           other terms and conditions of this Agreement and the
                           Schedule, and providing such other information as
                           Silicon shall reasonably request; (e) within 90 days
                           following the end of the Borrower's fiscal year,
                           complete annual CPA-audited financial statements,
                           such audit being conducted by independent certified
                           public accountants reasonably acceptable to Silicon,
                           together with an unqualified opinion of such
                           accountants; and (f) within 30 days after the end of
                           each quarter, an updated list of all Borrower's
                           Patents, Trademarks, Copyrights and Mask Works and a
                           report of material infringement claims under Section
                           3.18.

CONDITIONS TO
CLOSING:                   Before requesting any such advance, the Borrower

shall satisfy each of the following conditions:

1. LOAN DOCUMENTS:

Page 28 - LOAN AND SECURITY AGREEMENT


Silicon shall have received this Agreement, the Schedule, an Intellectual Property Security Agreement if requested by Silicon, executed by the Borrower, and such other loan documents as Silicon shall require, each duly executed and delivered by the parties thereto.

2. DOCUMENTS RELATING TO AUTHORITY, ETC.:

Silicon shall have received each of the following in form and substance satisfactory to it:

(a) Certified Copies of the Articles of Incorporation and Bylaws of the Borrower;

(b) A Certificate of Good Standing issued by the Secretary of State of the Borrower's state of incorporation and such other states as Silicon may reasonably request with respect to the Borrower;

(c) A certified copy of a Resolution adopted by the Board of Directors of the Borrower authorizing the execution, delivery and performance of this Agreement, and any other