Selling Our Company

1
Selling Our Company

• Wen Chen
• Cascade Semiconductor

2
About Cascade Semiconductor

• Fabless design house
• Founded 2001 by former Intel CPU/memory designers
• Product Pseudo-SRAM - SRAM chips using DRAM
  process
• 3-5X cost reduction from SRAM
• Mobile memory trend SRAM?PSRAM?DRAM (10X SRAM
  density)
• Supply chain
• Design in US (5)
• DRAM foundry in Taiwan also a major investor
• Manufacturing team in Taiwan (6)
• Customers Worldwide
• Flash/SRAM MCP (US) Camera module (Korea)
  Low-cost cell phones (China)
• Financials
• Q402 50K Q103 200K Q203 1M Q303
  4M.
• GM 35-45.

3
Acquisition Timeline

• Initial discussion Mar03.
• Term sheet Aug03.
• Definitive agreement Oct03.
• Closing Jan04.

4
Why sell?

• Weakness in fabless commodity biz model
• Capacity bottleneck in up cycle.
• Risks in cell phone market
• Big volume, concentrated accounts.
• Fast change Mfg lead time gt business change.
• ? Inventory risks
• Consistent with our goals
• Founders/employees/investors exit strategy
• Investor (foundry) more business with a larger
  customer

5
Finding a buyer

• Qualifications
• Publicly held with stock/cash
• Privately held with cash (unlikely)
• Likely characteristics
• Competitor, lagging behind
• New entrant, lacking expertise
• Customer, interested in going upstream and/or
  securing supply(We missed the last category
  until after deal announcement.)

6
Engaging Cypress

• Why buy?
• Complementary products
• Cascade lower density focus
• Cypress higher density focus
• Expertise
• We did it in 6 months. They were relatively
  behind.
• Revenue Opportunity
• Their customers our customers

7
Valuation

• Amount
• Numerical metrics not a major consideration P/E,
  P/S, etc.
• What works for everyone?
• Cypress proposed the first number
• Desire for a deal is weakness in negotiation
• Exit
• Limited acquirer candidates
• Stock market cycle is a factor CY share was up
• Negotiation is a major distraction to business

8
The devil in the details

• Details can be overwhelming
• Each rev of DA hours of keeping up with legal
  team
• Difficult to delegate confidentiality,
  authority.
• Can lose track of some issues
• First time through poor planning
• Deal complexity works against a small firm

9
After the deal

• Cypress good revenue from our products,
  exceeding expectation
• Employees all but 1 remain at Cypress
• Investors wafer sales to Cypress
• Generally a good deal for everyone.