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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 2001

REGISTRATION NO. 333-43192
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 7

TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PDF SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE                                 7379                                25-1701361

(STATE OR OTHER JURISDICTION OF          (PRIMARY STANDARD INDUSTRIAL                 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)          CLASSIFICATION CODE NUMBER)               IDENTIFICATION NUMBER)

333 WEST SAN CARLOS STREET, SUITE 700
SAN JOSE, CA 95110
(408) 280-7900
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JOHN K. KIBARIAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
333 WEST SAN CARLOS STREET
SUITE 700
SAN JOSE, CA 95110
(408) 280-7900
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

COPIES TO:

PETER COHN                                 MARK A. BERTELSEN
LOWELL D. NESS                                 JOSE F. MACIAS
M. ELISE ALEXANDER                              BURKE F. NORTON
ORRICK, HERRINGTON & SUTCLIFFE LLP                      ELISE M. BRINCK
1020 MARSH ROAD                        WILSON SONSINI GOODRICH & ROSATI
MENLO PARK, CA 94025                         PROFESSIONAL CORPORATION
(650) 614-7400                               650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

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

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

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

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

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED JULY 9, 2001

4,500,000 Shares

[PDF Solutions, Inc. Logo]
Common Stock
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Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $11.00 and $13.00 per share. We have applied to list our common stock on
The Nasdaq Stock Market's National Market under the symbol "PDFS."

The underwriters have an option to purchase a maximum of 675,000 additional
shares to cover over-allotments of shares.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.

UNDERWRITING
PRICE TO     DISCOUNTS AND    PROCEEDS TO
PUBLIC       COMMISSIONS    PDF SOLUTIONS
-----------   -------------   -------------

Per Share............................................       $                   $               $
Total................................................  $              $               $

Delivery of the shares of common stock will be made on or about           ,
2001.

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.

CREDIT SUISSE FIRST BOSTON

ROBERTSON STEPHENS

DAIN RAUSCHER WESSELS

The date of this prospectus is                     , 2001.

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[INSIDE FRONT COVER]

[COLOR ARTWORK]

[The artwork depicts a bridge between IC design and manufacturing.]

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TABLE OF CONTENTS

PAGE
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PROSPECTUS SUMMARY....................    3
RISK FACTORS..........................    6
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS..................   16
USE OF PROCEEDS.......................   17
DIVIDEND POLICY.......................   17
CAPITALIZATION........................   18
DILUTION..............................   19
SELECTED CONSOLIDATED FINANCIAL
DATA................................   20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.......................   22
BUSINESS..............................   32

PAGE
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MANAGEMENT............................   42
RELATED-PARTY TRANSACTIONS............   52
PRINCIPAL STOCKHOLDERS................   55
DESCRIPTION OF CAPITAL STOCK..........   58
SHARES ELIGIBLE FOR FUTURE SALE.......   61
UNDERWRITING..........................   63
NOTICE TO CANADIAN RESIDENTS..........   66
LEGAL MATTERS.........................   67
EXPERTS...............................   67
WHERE TO FIND ADDITIONAL
INFORMATION.........................   67
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS..........................  F-1

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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.

DEALER PROSPECTUS DELIVERY OBLIGATION

UNTIL             , 2001 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
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 DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information and our Consolidated Financial Statements and Notes thereto
appearing elsewhere in this prospectus. Unless otherwise stated, information in
this prospectus assumes (i) no exercise of the underwriters' over-allotment
option, (ii) the two-for-three reverse stock split of our common and preferred
stock, which was completed on July 6, 2001, and (iii) the conversion of all
outstanding shares of preferred stock into 6,333,318 shares of common stock upon
completion of the offering.

PDF SOLUTIONS, INC.

Our comprehensive technologies and services enable semiconductor companies
to improve yield and performance of manufactured integrated circuits by
providing infrastructure to integrate the design and manufacturing processes. We
believe that our solutions can significantly improve a semiconductor company's
time to market, the rate at which yield improves and product profitability. To
date, we have sold our technologies and services to, and established ongoing
relationships with, key integrated device manufacturers such as Toshiba
Corporation, Sony Corporation, Conexant Systems, Inc., Philips Semiconductor and
Texas Instruments Incorporated.

Customers for electronic products continue to demand new applications with
more power, reduced cost and smaller size. This leads semiconductor companies to
adopt diverse new technologies for integrated circuits, or ICs. At the same
time, they face dramatically compressed product life cycles. This has reduced
the time for semiconductor companies to successfully bring a product to market
in high volumes to achieve dominant market share and high-margin revenues. In
the current environment, semiconductor companies have encountered significant
challenges in their attempt to achieve competitive yields and optimize
performance, which are critical drivers of IC companies' financial results.
Disaggregation of the semiconductor industry into several separate specialized
organizations and entities has further complicated IC companies' ability to
maximize yield and optimize performance by fragmenting design and manufacturing
process knowledge. The combination of these factors has left a gap between the
design of an IC and its manufacture. We call this gap the design-to-silicon
yield gap.

We provide comprehensive silicon-infrastructure technologies and services
to address and bridge the design-to-silicon yield gap. Our offerings combine
proprietary manufacturing process simulation, IC yield and performance modeling
software, comprehensive test chips, proven yield and performance enhancement
methodologies, and professional services. Our technologies and services drive
design and manufacturing changes that enable our customers to improve IC yield
and performance earlier in product life cycles, thereby enabling our customers
to simultaneously generate additional revenue and reduce costs. The result of
implementing our solutions is the creation of value that can be measured based
on improvements to our customers' actual IC yield and performance. We seek to
align our financial interests with our customers' business results. Through an
innovative approach that we call gain share, in addition to a fixed fee we
receive revenue that increases based on increased value we create for our
customers. To date, we have determined this value based on the demonstrated
yield and performance improvements our customers realize on specific products or
processes. As a result, our recurring revenues scale to the extent our customers
continue to realize these improvements.

Our objective is to provide the industry standard in design-to-silicon
yield solutions. To achieve this objective, we intend to leverage our
results-based gain share model to deepen our relationships with our customers
and rapidly generate market-driven improvements to our solutions. In addition,
we intend to focus our solutions on key high-volume, high-growth IC product
segments. We will also seek to extend and enhance our relationships with leading
companies at key stages of the design-to-silicon process, thereby increasing our
insight into future industry needs, and increasing industry awareness of our
solutions. We intend to continue expanding our research and development efforts,
and to selectively acquire complementary businesses and technologies to increase
the scope of our solutions. Further, we plan to expand geographically to gain
access to international engineering talent and to maintain proximity to our
expanding customer base.

We have a limited operating history. As of March 31, 2001, our accumulated
deficit was $12.6 million. For the years ended December 31, 1998, 1999, 2000 and
the three months ended March 31,

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2001, our net losses were approximately $404,000, $145,000, $9.1 million and
$2.7 million respectively. We expect our spending to continue to exceed our
revenue as we expand our business.

We were incorporated in Pennsylvania in November 1992. We reincorporated in
California in November 1995 and reincorporated in Delaware in July 2001. Our
principal executive office is located at 333 West San Carlos Street, Suite 700,
San Jose, CA 95110. Our telephone number at that location is (408) 280-7900. Our
Internet address on the world wide web is http://www.pdf.com. Information on our
web site does not constitute part of this prospectus.

RECENT DEVELOPMENTS

For the quarter ended June 30, 2001, we had revenue of $8.3 million,
compared to revenues of $4.6 million for the quarter ended June 30, 2000.
Revenue from design-to-silicon yield solutions represented 73% and gain share
represented 27% of total revenue for the quarter ended June 30, 2001. Our net
loss for the quarter ended June 30, 2001, was $2.2 million, or $0.25 per share
on a basic and diluted basis (on approximately 8.5 million weighted average
shares), compared to a net loss for the quarter ended June 30, 2000 of $1.3
million or $0.19 per share on a basic and diluted basis (on approximately 7.1
million weighted average shares). For the quarters ended June 30, 2001 and 2000
our net loss included stock-based compensation amortization of $2.1 million and
$1.2 million, respectively.

THE OFFERING

Common stock offered................     4,500,000 shares

Common stock offered in the
concurrent private placement........     500,000 shares (or such lesser amount
of shares having a maximum aggregate
purchase price of $10.0 million)

Common stock to be outstanding after
this offering and the concurrent
private placement.................     22,206,611 shares

Use of proceeds.....................     For general corporate purposes,
including working capital. See "Use of
Proceeds."

Proposed Nasdaq National Market
symbol..............................     PDFS

This table is based on shares outstanding as of March 31, 2001. The number
of shares to be outstanding after this offering and the concurrent private
placement is based on:

- a two-for-three reverse stock split of our common and preferred stock
that was effective July 6, 2001;

- 10,873,293 shares of our common stock outstanding on March 31, 2001;

- automatic conversion of our Series A preferred stock outstanding on March
31, 2001 into 5,833,331 shares of our common stock upon completion of
this offering; and

- automatic conversion of our Series B preferred stock outstanding on March
31, 2001 into 499,987 shares of common stock upon the closing of this
offering, which includes an additional 149,115 shares of our common stock
to be issued upon conversion of our Series B preferred stock, assuming the
initial public offering price is less than $14.25 per share.

The number of shares to be outstanding after this offering and the
concurrent private placement excludes:

- 369,689 shares issuable upon exercise of stock options and stock purchase
rights outstanding on March 31, 2001 at a weighted average exercise price
of $4.45 per share;

- 1,395,117 shares reserved under our 1997 stock plan as of March 31, 2001
and available for grant prior to completion of this offering of which we
currently intend to grant options to purchase at least 650,000 shares to
new and existing employees prior to completion of this offering; and

- 3,300,000 shares reserved under our 2001 stock plans and available for
grant following completion of this offering.

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31,           MARCH 31,
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1998      1999       2000       2000       2001
------    -------    -------    -------    -------

CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Total revenue.............................  $6,227    $11,824    $20,135    $ 3,694    $ 7,534
Total costs and expenses..................   6,417     11,541     29,216      4,102     10,224
Income (loss) from operations.............    (190)       283     (9,081)      (408)    (2,690)
Net loss..................................    (404)      (145)    (9,097)      (498)    (2,743)
Net loss per share -- basic and diluted...  $(0.08)   $ (0.02)   $ (1.24)   $ (0.07)   $ (0.34)
Shares used in computing basic and diluted
net loss per share......................   4,944      6,086      7,356      6,797      8,065
Pro forma net loss per share -- basic and
diluted.................................                       $ (0.68)              $ (0.19)
Shares used in computing pro forma basic
and diluted net loss per share..........                        13,394                14,398

MARCH 31, 2001
-----------------------------------------
PRO FORMA
ACTUAL        PRO FORMA     AS ADJUSTED
-----------    -----------    -----------

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................    $ 6,866        $ 6,866        $61,916
Working capital..........................................      3,377          3,377         58,427
Total assets.............................................     15,034         15,034         70,084
Long-term debt, less current portion.....................         43             43             43
Convertible preferred stock..............................      8,457             --             --
Total shareholders' equity (deficiency)..................     (2,214)         6,243         61,293

See Notes 1 and 8 of Notes to Consolidated Financial Statements for an
explanation of the determination of the amounts used in computing net loss per
share and pro forma net loss per share amounts.

The pro forma balance sheet data above reflects the conversion of all
shares of our preferred stock into 6,333,318 shares of common stock
automatically upon completion of this offering.

The pro forma as adjusted balance sheet data gives effect to the sale of
shares of common stock in this offering and 500,000 shares of common stock (or
such lesser amount of shares having a maximum aggregate purchase price of $10.0
million) to be sold in the concurrent private placement at an assumed initial
public offering price of $12.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses, and the
application of the net proceeds.

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RISK FACTORS

You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock in
this offering.

RISKS RELATING TO OUR BUSINESS

IF SEMICONDUCTOR DESIGNERS AND MANUFACTURERS DO NOT ADOPT OUR DESIGN-TO-SILICON
YIELD SOLUTIONS, WE MAY BE UNABLE TO INCREASE OR MAINTAIN OUR REVENUE.

If semiconductor designers and manufacturers do not adopt our
design-to-silicon yield solutions, our revenue could decline. To date, we have
worked with a limited number of semiconductor companies on a limited number of
integrated circuit, or IC, products and processes. To be successful, we will
need to enter into agreements covering a larger number of IC products and
processes with existing customers and new customers. Our existing customers are
large integrated device manufacturers, or IDMs. We will need to target as new
customers additional IDMs, as well as semiconductor companies in different
segments of the semiconductor market, such as fabless semiconductor companies,
foundries and system manufacturers. Factors that may limit adoption of our
design-to-silicon yield solutions by semiconductor companies include:

- our customers' failure to achieve satisfactory yield improvements using
our design-to-silicon yield solutions;

- a decrease in demand for semiconductors generally or the demand for deep
submicron semiconductors failing to grow as rapidly as expected;

- the industry may develop alternative methods to enhance the integration
between the semiconductor design and manufacturing processes due to a
rapidly evolving market and the likely emergence of new technologies;

- our existing and potential customers' reluctance to understand and accept
our innovative gain share fee component, which is a variable fee based on
improvements in our customers' yields; and

- our customers' concern about our ability to keep highly competitive
information confidential.

OUR EARNINGS PER SHARE AND OTHER KEY OPERATING RESULTS MAY BE UNUSUALLY HIGH IN
A GIVEN QUARTER, THEREBY RAISING INVESTORS' EXPECTATIONS, AND THEN UNUSUALLY LOW
IN THE NEXT QUARTER, THEREBY DISAPPOINTING INVESTORS, WHICH COULD CAUSE OUR
STOCK PRICE TO DROP.

Historically, our quarterly operating results have fluctuated. Our future
quarterly operating results will likely fluctuate from time to time and may not
meet the expectations of securities analysts and investors in some future
period. The price of our common stock could decline due to such fluctuations.
The following factors may cause significant fluctuations in our future quarterly
operating results:

- the size and timing of sales volumes achieved by our customers' products;

- the loss of any of our large customers;

- the size of improvements in our customers' yield and the timing of
agreement as to those improvements;

- our long and variable sales cycle;

- changes in the mix of our revenue;

- changes in the level of our operating expenses needed to support our
projected growth; and

- delays in completing solution implementations for our customers.

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OUR RECENT ADOPTION OF A NOVEL AND UNPROVEN BUSINESS MODEL MAKES IT DIFFICULT TO
EVALUATE OUR FUTURE PROSPECTS.

Since we recently adopted our current business model, we do not have a long
history of operating results on which you can base your evaluation of our
business. In 1998, we began selling software, services and other technologies
together as a design-to-silicon yield solution for the first time. Because we
have not demonstrated our ability to generate significant revenue, our business
model is unproven, especially with respect to gain share fees, which we expect
will constitute a significant portion of our revenue for the foreseeable future.
In the past, we generally earned fixed fees for the separate sale of our
software, services and other technologies. Under our new business model, we are
selling these items together as a package and charging both a fixed fee and a
variable fee based on demonstrated improvements in our customers' yields, which
we call gain share. Our existing and potential customers may resist this
approach and may seek to limit or restrict our gain share fees. As a result, it
will be difficult for financial markets analysts and investors to evaluate our
future prospects.

OUR GAIN SHARE REVENUE IS LARGELY DEPENDENT ON THE VOLUME OF ICS OUR CUSTOMERS
ARE ABLE TO SELL TO THEIR CUSTOMERS, WHICH IS OUTSIDE OUR CONTROL.

Our gain share revenue for a particular product is largely determined by
the volume of that product our customer is able to sell to its customers, which
is outside of our control. We have limited ability to predict the success or
failure of our customers' IC products. We may commit a significant amount of
time and resources to a customer who is ultimately unable to sell as many units
as we had anticipated when contracting with them. Since we currently work on a
small number of large projects, any product that does not achieve commercial
viability could significantly reduce our revenue and results of operations below
expectations. In addition, if we work with two directly competitive products,
volume in one may offset volume, and any of our related gain share, in the other
product.

GAIN SHARE MEASUREMENT REQUIRES DATA COLLECTION AND IS SUBJECT TO CUSTOMER
AGREEMENT, WHICH CAN RESULT IN UNCERTAINTY AND CAUSE QUARTERLY RESULTS TO
FLUCTUATE.

We can only recognize gain share revenue once we have reached agreement
with our customers on their level of yield performance improvements. Because
measuring the amount of yield improvement is inherently complicated and
dependent on our customers' internal information systems, there may be
uncertainty as to some components of measurement. This could result in our
recognition of less revenue than expected. In addition, any delay in measuring
gain share could cause all of the associated revenue to be delayed until the
next quarter. Since we currently have only a few large customers and we are
relying on gain share as a significant component of our total revenue, any delay
could significantly harm our quarterly results.

CHANGES IN THE STRUCTURE OF OUR CUSTOMER CONTRACTS, PARTICULARLY THE MIX BETWEEN
FIXED AND VARIABLE REVENUE, CAN ADVERSELY AFFECT THE SIZE AND TIMING OF OUR
TOTAL REVENUE.

Our success is largely dependent upon our ability to structure our future
customer contracts to include a larger gain share component relative to the
fixed fee component. If we are successful in increasing the gain share component
of our customer contracts, we will experience an adverse impact on our operating
results in the short term as we reduce the fixed fee component, which we
typically recognize earlier than gain share fees. In addition, by increasing the
gain share component, we increase the variability of our revenue, and therefore
increase the risk that our total future revenue will be lower than expected and
fluctuate significantly from period to period.

WE GENERATE VIRTUALLY ALL OF OUR TOTAL REVENUE FROM A LIMITED NUMBER OF
CUSTOMERS, SO THE LOSS OF ANY ONE OF THESE CUSTOMERS COULD SIGNIFICANTLY REDUCE
OUR REVENUE AND RESULTS OF OPERATIONS BELOW EXPECTATIONS.

Historically, we have had a small number of large customers and we expect
this to continue in the near term. In the three months ended March 31, 2001,
four customers accounted for 83% of our total net

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revenue, with Toshiba representing 31%, Matsushita Electric Industrial Co., Ltd.
representing 20%, Conexant representing 17% and Sony representing 15%. The loss
of any one customer could significantly reduce our total revenue below
expectations. In particular, such a loss could cause significant fluctuations in
results of operations due to our expenses being fixed in the short term, the
fact that it takes us a long time to replace customers and because any
offsetting gain share revenue from new customers would not begin to be
recognized until much later.

IT TYPICALLY TAKES US A LONG TIME TO SELL OUR NOVEL SOLUTIONS TO NEW CUSTOMERS,
WHICH CAN RESULT IN UNCERTAINTY AND DELAYS IN GENERATING ADDITIONAL REVENUE.

Because our gain share business model is novel and our design-to-silicon
yield solutions are unfamiliar, our sales cycle is lengthy and requires a
significant amount of our senior management's time and effort. Furthermore, we
need to target those individuals within a customer's organization who have
overall responsibility for the profitability of an IC. These individuals tend to
be senior management or executive officers. We may face difficulty identifying
and establishing contact with such individuals. We typically send one or more of
our senior executives and several engineers to meet with a prospective customer.
Even after initial acceptance, due to the complexity of structuring the gain
share component, the negotiation and documentation processes can be lengthy. It
can take six months or more to reach a signed contract with a customer.
Unexpected delays in our sales cycle could cause our revenue to fall short of
expectations.

WE HAVE A HISTORY OF LOSSES, WE EXPECT TO INCUR LOSSES IN THE FUTURE AND WE MAY
BE UNABLE TO ACHIEVE OR SUBSEQUENTLY MAINTAIN PROFITABILITY.

We may not achieve or subsequently maintain profitability if our revenue
increases more slowly than we expect or not at all. In addition, virtually all
of our operating expenses are fixed in the short term, so any shortfall in
anticipated revenue in a given period could significantly reduce our operating
results below expectations. Our accumulated deficit was $12.6 million as of
March 31, 2001. We expect to continue to incur significant expenses in
connection with:

- increased funding for research and development;

- expansion of our solution implementation teams;

- expansion of our sales and marketing efforts; and

- additional non-cash charges relating to amortization of intangibles and
deferred stock compensation.

As a result, we will need to significantly increase revenue to achieve
profitability. If we do achieve profitability, we may be unable to sustain or
increase profitability on a quarterly or annual basis. Any of these factors
could cause our stock price to decline.

WE MUST CONTINUALLY ATTRACT AND RETAIN HIGHLY TALENTED EXECUTIVES, ENGINEERS AND
RESEARCH AND DEVELOPMENT PERSONNEL OR WE WILL BE UNABLE TO EXPAND OUR BUSINESS
AS PLANNED.

We will need to continue to hire highly talented executives, engineers and
research and development personnel to support our planned growth. We have
experienced, and we expect to continue to experience, delays and limitations in
hiring and retaining highly skilled individuals with appropriate qualifications.
We intend to continue to hire foreign nationals, particularly as we expand our
operations internationally. We have had, and expect to continue to have,
difficulty in obtaining visas permitting entry into the United States, for
several of our key personnel, which disrupts our ability to strategically locate
our personnel. In addition, we have a number of openings for key executive
positions, including a Vice President of Marketing and additional Vice
Presidents of Client Services, that we will need to fill in order to
successfully execute our business strategy. We may have difficulty recruiting
these executives or integrating them into our existing management team. If we
lose the services of any of our key executives or a significant number of our
engineers, it could disrupt our ability to implement our business strategy.

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Competition for executives and qualified engineers is intense, especially in
Silicon Valley where we are principally based.

IF OUR DESIGN-TO-SILICON YIELD SOLUTIONS FAIL TO KEEP PACE WITH THE RAPID
TECHNOLOGICAL CHANGES IN THE SEMICONDUCTOR INDUSTRY, WE COULD LOSE CUSTOMERS AND
REVENUE.

We must continually devote significant engineering resources to enable us
to keep up with the rapidly evolving technologies and equipment used in the
semiconductor design and manufacturing processes. These innovations are
inherently complex and require long development cycles. Not only do we need the
technical expertise to implement the changes necessary to keep our technologies
current, we also rely heavily on the judgment of our advisors and management to
anticipate future market trends. Our customers expect us to stay ahead of the
technology curve and expect that our design-to-silicon yield solutions will
support any new design or manufacturing processes or materials as soon as they
are deployed. If we are not able to timely predict industry changes, or if we
are unable to modify our design-to-silicon yield solutions on a timely basis,
our existing solutions will be rendered obsolete and we may lose customers. If
we do not keep pace with technology, our existing and potential customers may
choose to develop their own solutions internally as an alternative to ours, and
we could lose market share to competitors, which could adversely affect our
operating results.

WE INTEND TO PURSUE ADDITIONAL STRATEGIC RELATIONSHIPS, WHICH ARE NECESSARY TO
MAXIMIZE OUR GROWTH AND WHICH COULD SUBSTANTIALLY DIVERT MANAGEMENT ATTENTION
AND RESOURCES.

In order to establish strategic relationships with industry leaders at each
stage of the IC design and manufacturing processes, we may need to expend
significant resources and will need to commit a significant amount of
management's time and attention, with no guarantee of success. If we are unable
to enter into strategic relationships with these companies, we will not be as
effective at modeling existing technologies or at keeping ahead of the curve as
new technologies are introduced. In the past, the absence of an established
working relationship with key companies in the industry has meant that we have
had to exclude the effect of their component parts from our modeling analysis,
which reduces the overall effectiveness of our analysis and limits our ability
to improve yield. We may be unable to establish key industry strategic
relationships if any of the following occur:

- potential industry partners become concerned about our ability to protect
their intellectual property;

- potential industry partners develop their own solutions to address the
need for yield improvement;

- our potential competitors establish relationships with industry partners
with which we seek to establish a relationship; or

- potential industry partners attempt to restrict our ability to enter into
relationships with their competitors.

WE FACE OPERATIONAL AND FINANCIAL RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS.

We derive a majority of our revenue from international sales, principally
from customers based in Japan. Revenue generated from customers in Japan
accounted for 82% of total revenue in the year ended December 31, 1998, 90% of
total revenue in the year ended December 31, 1999, 66% of total revenue in the
year ended December 31, 2000 and 66% of total revenue in the three months ended
March 31, 2001. We expect that a significant portion of our total future revenue
will continue to be derived from companies based in Japan. We are subject to
risks inherent in doing business in international markets. These risks include:

- some of our key engineers and other personnel who are foreign nationals
may have difficulty gaining access to the United States and other
countries in which our customers or our offices may be located;

- greater difficulty in collecting account receivables resulting in longer
collection periods;

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- language and other cultural differences may inhibit our sales and
marketing efforts and create internal communication problems among our
U.S. and foreign research and development teams;

- compliance with, and unexpected changes in, a wide variety of foreign
laws and regulatory environments with which we are not familiar;

- currency risk due to the fact that expenses for our international offices
are denominated in the local currency, while virtually all of our revenue
is denominated in U.S. dollars; and

- economic or political instability.

In Japan, in particular, we face the following additional risks:

- Any recurrence of the recent overall downturn in Asian economies could
limit our ability to retain existing customers and attract new ones in
Asia.

- If the U.S. dollar increases in value relative to the Japanese Yen, the
cost of our solutions will be more expensive to existing and potential
Japanese customers and therefore less competitive.

If any of these risks materialize, we may be unable to continue to market our
design-to-silicon yield solutions successfully in international markets.

COMPETITION IN THE MARKET FOR SOLUTIONS THAT ADDRESS YIELD IMPROVEMENT AND
INTEGRATION BETWEEN IC DESIGN AND MANUFACTURING MAY INTENSIFY IN THE FUTURE,
WHICH COULD SLOW OUR ABILITY TO GROW OR EXECUTE OUR STRATEGY.

Competition in our market may intensify in the future, which could slow our
ability to grow or execute our strategy. Our current and potential customers may
choose to develop their own solutions internally, particularly if we are slow in
deploying our solutions. Many of these companies have the financial and
technical capability to develop their own solutions. Currently, we are not aware
of any other provider of comprehensive commercial solutions for Systematic IC
yield and performance enhancement. We face indirect competition from the
internal groups at IC companies that work on process integration, including
groups at current customers, such as Toshiba or Conexant, and at prospective
customers. Some vendors to IC companies may also compete with us indirectly. For
example, Cadence Design Systems, Inc., a prominent electronic design automation
vendor, has offerings that help enhance IC layout in ways that could result in
improved yield. Providers of yield management software aimed at maintaining and
improving yield in mass production, such as KLA-Tencor Corporation, although
they can help us maintain yield gains achieved in integration and ramp, may
increasingly seek to broaden their offering and compete with us. In addition, we
believe that the demand for solutions that address the need for better
integration between the silicon design and manufacturing processes may encourage
direct competitors to enter into our market. For example, large integrated
organizations, such as IDMs, electronic design automation software providers, IC
design service companies or semiconductor equipment vendors, may decide to
spin-off a business unit that competes with us. Other potential competitors
include fabrication facilities that may decide to offer solutions competitive
with ours as part of their value proposition to their customers. If these
potential competitors are able to attract industry partners or customers faster
than we can, we may not be able to grow and execute our strategy as quickly or
at all. In addition, customer preferences may shift away from our
design-to-silicon yield solutions as a result of the increase in competition.

WE MUST EFFECTIVELY MANAGE AND SUPPORT OUR RECENT AND PLANNED GROWTH IN ORDER
FOR OUR BUSINESS STRATEGY TO SUCCEED.

We will need to continue to grow in all areas of operation and successfully
integrate and support our existing and new employees into our operations, or we
may be unable to implement our business strategy in the time frame we
anticipate, if at all. We expect to outgrow our principal office facilities by
May 2003 and at that time will need to secure additional space or relocate to a
larger facility, which could be difficult in the very competitive Silicon Valley
office leasing market. We will also need to switch to a new accounting system in
the near future, which could result in reporting errors and other difficulties
that may

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disrupt our business operations and distract management. In addition, we will
need to expand our intranet to support new data centers to enhance our research
and development efforts. Our intranet is expensive to expand and must be highly
secure due to the sensitive nature of our customers' information that we
transmit. Building and managing the support necessary for our growth places
significant demands on our management and resources. These demands may divert
these resources from the continued growth of our business and implementation of
our business strategy. Further, we must adequately train our new personnel,
especially our technical support personnel, to adequately, and accurately,
respond to and support our customers. If we fail to do this, it could lead to
dissatisfaction among our customers, which could slow our growth.

OUR SOLUTION IMPLEMENTATIONS MAY TAKE LONGER THAN WE ANTICIPATE WHICH COULD
CAUSE US TO LOSE CUSTOMERS AND MAY RESULT IN ADJUSTMENTS TO OUR OPERATING
RESULTS.

Our solution implementations require a team of engineers to collaborate
with our customers to address complex yield loss issues by using our software
and other technologies. We must estimate the amount of time needed to complete
an existing solution implementation in order to estimate when the engineers will
be able to commence a new solution implementation. Given the time pressures
involved in bringing IC products to market, targeted customers may proceed
without us if we are not able to commence their solution implementation on time.
Due to our lengthy sales cycle, we may be unable to replace these targeted
implementations in a timely manner, which could cause fluctuations in our
operating results.

In addition, our accounting for solution implementation contracts, which
generate fixed fees, sometimes require adjustments to profit and loss based on
revised estimates during the performance of the contract. These adjustments may
have a material effect on our results of operations in the period in which they
are made. The estimates giving rise to these risks, which are inherent in
fixed-price contracts, include the forecasting of costs and schedules, and
contract revenues related to contract performance.

OUR CHIEF EXECUTIVE OFFICER AND OUR VICE PRESIDENT OF PRODUCTS AND METHODS ARE
CRITICAL TO OUR BUSINESS AND WE CANNOT GUARANTEE THAT THEY WILL REMAIN WITH US
INDEFINITELY.

Our future success will depend to a significant extent on the continued
services of John Kibarian, our President and Chief Executive Officer, and David
Joseph, our Vice President, Products and Methods. If we lose the services of
either of these key executives, it could slow execution of our business plan,
hinder our product development processes and impair our sales efforts. Searching
for their replacements could divert our other senior management's time and
increase our operating expenses. In addition, our industry partners and
customers could become concerned about our future operations, which could injure
our reputation. We do not have long-term employment agreements with these
executives and we do not maintain any key person life insurance policies on
their lives.

INADVERTENT DISCLOSURE OF OUR CUSTOMERS' CONFIDENTIAL INFORMATION COULD RESULT
IN COSTLY LITIGATION AND CAUSE US TO LOSE EXISTING AND POTENTIAL CUSTOMERS.

Our customers consider their product yield information and other
confidential information, which we must gather in the course of our engagement
with the customer, to be extremely competitively sensitive. If we inadvertently
disclosed or were required to disclose this information, we would likely lose
existing and potential customers, and could be subject to costly litigation. In
addition, to avoid potential disclosure of confidential information to
competitors, some of our customers may, in the future, ask us not to work with
key competitive products.

IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, CUSTOMERS OR POTENTIAL
COMPETITORS MAY BE ABLE TO USE OUR TECHNOLOGIES TO DEVELOP THEIR OWN SOLUTIONS
WHICH COULD WEAKEN OUR COMPETITIVE POSITION, REDUCE OUR REVENUE OR INCREASE OUR
COSTS.

Our success depends largely on the proprietary nature of our technologies.
We currently rely primarily on copyright, trademark and trade secret protection.
Whether or not patents are granted to us, litigation

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may be necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others. As a result of any such
litigation, we could lose our proprietary rights and incur substantial
unexpected operating costs. Litigation could also divert our resources,
including our managerial and engineering resources. In the future, we intend to
rely primarily on a combination of patents, copyrights, trademarks and trade
secrets to protect our proprietary rights and prevent competitors from using our
proprietary technologies in their products. These laws and procedures provide
only limited protection. Our pending patent applications may not result in
issued patents, and even if issued, they may not be sufficiently broad to
protect our proprietary technologies. Also, patent protection in foreign
countries may be limited or unavailable where we need such protection.

OUR TECHNOLOGIES COULD INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
CAUSING COSTLY LITIGATION AND THE LOSS OF SIGNIFICANT RIGHTS.

Significant litigation regarding intellectual property rights exists in the
semiconductor industry. It is possible that a third party may claim that our
technologies infringe their intellectual property rights or misappropriate their
trade secrets. Any claim, even if without merit, could be time consuming to
defend, result in costly litigation or require us to enter into royalty or
licensing agreements, which may not be available to us on acceptable terms, or
at all. For example, in May 2001, we were named as a defendant in a lawsuit
claiming, among other things, that we misappropriated trade secrets. We are
defending ourselves against the claims, which we believe to be without merit. We
do not believe that this litigation, or resolution of this litigation, will have
a material negative impact on our business. In general, however, a successful
claim of infringement against us in connection with the use of our technologies
could adversely affect our business.

DEFECTS IN OUR PROPRIETARY TECHNOLOGIES AND SOFTWARE TOOLS COULD DECREASE OUR
REVENUE AND OUR COMPETITIVE MARKET SHARE.

If the software or proprietary technologies we provide to a customer
contain defects that increase our customer's cost of goods sold and time to
market, these defects could significantly decrease the market acceptance of our
design-to-silicon yield solutions. Any actual or perceived defects with our
software or proprietary technologies may also hinder our ability to attract or
retain industry partners or customers, leading to a decrease in our revenue.
These defects are frequently found during the period following introduction of
new software or proprietary technologies or enhancements to existing software or
proprietary technologies. Our software or proprietary technologies may contain
errors not discovered until after customer implementation of the silicon design
and manufacturing process recommended by us. If our software or proprietary
technologies contain errors or defects, it could require us to expend
significant resources to alleviate these problems, which could result in the
diversion of technical and other resources from our other development efforts.

WE MAY NOT BE ABLE TO RAISE NECESSARY FUNDS TO SUPPORT OUR GROWTH OR EXECUTE OUR
STRATEGY.

We currently anticipate that our available cash resources, combined with
the net proceeds from this offering, will be sufficient to meet our presently
anticipated working capital and capital expenditure requirements for at least
the next 12 months. However, we may need to raise additional funds in order to:

- support more rapid expansion;

- develop or enhance design-to-silicon yield solutions;

- respond to competitive pressures; or

- acquire complementary businesses or technologies.

These factors will impact our future capital requirements and the adequacy of
our available funds. We may need to raise additional funds through public or
private financings, strategic relationships or other arrangements. We cannot
guarantee that we will be able to raise any necessary funds on terms favorable
to us, or at all.

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GENERAL ECONOMIC CONDITIONS MAY REDUCE OUR REVENUES AND HARM OUR BUSINESS.

As our business has grown, we have become increasingly subject to the risks
arising from adverse changes in domestic and global economic conditions. Because
of the recent economic slowdown in the United States, many industries are
delaying or reducing technology purchases. The impact of this slowdown on us is
difficult to predict, but it may result in reductions in purchases of our
technologies and services by our customers, longer sales cycles and increased
price competition. As a result, if the current economic slowdown continues or
worsens, we may fall short of our revenue expectations for any given quarter in
fiscal 2001 or for the entire year. These conditions would negatively affect our
business and results of operations.

WE RELY ON CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND THE CURRENT
ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.

California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for the State of California fall below 1.5%,
California has on some occasions implemented, and may in the future continue to
implement, rolling blackouts throughout the state, with or without advance
notice. If blackouts interrupt our power supply, we may be temporarily unable to
operate. Any such interruption in our ability to continue operations could delay
the development of our products. Future interruptions could damage our
reputation, harm our ability to promote the use of our solutions and could
result in lost revenue, any of which could substantially harm our business and
results of operations. In addition, we do not carry sufficient business
interruption insurance to compensate us for losses that may occur, and any
losses or damages incurred by us could have a material adverse effect on our
business.

Furthermore, the deregulation of the energy industry instituted in 1996 by
the California government and shortages in wholesale electricity supplies have
caused power prices to increase dramatically, and these prices will likely
continue to increase for the foreseeable future. If wholesale prices continue to
increase, our operating expenses will likely increase, as our headquarters and
most of our employees are based in California.

WE MAY NOT BE ABLE TO EXPAND OUR PROPRIETARY TECHNOLOGIES IF WE DO NOT
CONSUMMATE POTENTIAL ACQUISITIONS OR INVESTMENTS OR SUCCESSFULLY INTEGRATE THEM
WITH OUR BUSINESS.

To expand our proprietary technologies, we may acquire or make investments
in complementary businesses, technologies or products if appropriate
opportunities arise. We may be unable to identify suitable acquisition or
investment candidates at reasonable prices or on reasonable terms, or consummate
future acquisitions or investments, each of which could slow our growth
strategy. We may have difficulty integrating the acquired products, personnel or
technologies of our recently acquired German company or of any additional
acquisitions we might make. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses.

RISKS RELATING TO OUR INDUSTRY

THE SEMICONDUCTOR INDUSTRY IS CYCLICAL IN NATURE.

Our revenue is highly dependent upon the overall condition of the
semiconductor industry, especially in light of our gain share revenue component.
The semiconductor industry is highly cyclical and subject to rapid technological
change and has been subject to significant economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average
selling prices and production overcapacity. One such downturn appears to have
commenced during the third quarter of calendar 2000 and is continuing currently.
The semiconductor industry also periodically experiences increased demand and
production capacity constraints. As a result, we may experience significant
fluctuations in operating results due to general semiconductor industry
conditions, and overall economic conditions.

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SEMICONDUCTOR COMPANIES ARE SUBJECT TO RISK OF NATURAL DISASTERS.

Semiconductor companies have in the past experienced major reductions in
foundry capacity due to earthquakes in Taiwan, Japan and California. In light of
our gain share revenue component, our results of operations can be significantly
decreased if one of our customers must shut down IC production due to a natural
disaster such as earthquake, fire, tornado or flood. Moreover, since
semiconductor product life cycles have become relatively short, a significant
delay in the production of a product could result in lost revenue, not merely
delayed revenue.

RISKS RELATING TO THIS OFFERING

MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS FROM THIS
OFFERING AND, AS A RESULT, WE MAY NOT USE THE PROCEEDS TO THE SATISFACTION OF
OUR STOCKHOLDERS.

Our board of directors and management will have broad discretion in
allocating the net proceeds of this offering. They may choose to allocate such
proceeds in ways that do not yield a favorable return or are not supported by
our stockholders. We have designated only limited specific uses for the net
proceeds from this offering. Please see "Use of Proceeds."

THE CONCENTRATION OF OUR CAPITAL STOCK OWNERSHIP WITH INSIDERS UPON THE
COMPLETION OF THIS OFFERING WILL LIKELY LIMIT YOUR ABILITY TO INFLUENCE
CORPORATE MATTERS.

The concentration of ownership of our outstanding capital stock with our
directors and executive officers after this offering may limit your ability to
influence corporate matters. Upon completion of this offering, our directors and
executive officers, and their affiliates, will beneficially own 46.1% of our
outstanding capital stock. As a result, these stockholders, if acting together,
will have the ability to control all matters submitted to our stockholders for
approval, including the election and removal of directors and the approval of
any corporate transactions.

WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR
COMPANY.

Provisions of our certificate of incorporation and bylaws in effect after
completion of this offering and Delaware law could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders. Please see "Description of Capital Stock."

NEGOTIATIONS BETWEEN THE UNDERWRITERS AND US DETERMINED THE INITIAL PUBLIC
OFFERING PRICE, BUT THE MARKET PRICE MAY BE LESS OR MAY BE VOLATILE, AND YOU MAY
NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.

The initial public offering price for the shares has been determined by
negotiations between us and the representatives of the underwriters and may not
be indicative of prices that will prevail in the trading market. An active
public market for our common stock may not develop or be sustained after this
offering. The market price of our common stock may fluctuate significantly in
response to factors, some of which are beyond our control, including:

- actual or anticipated fluctuations in our operating results;

- changes in market valuations of other technology companies;

- conditions or trends in the semiconductor industry;

- announcements by us or our potential competitors of significant technical
innovations, contracts, acquisitions or partnerships;

- additions or departures of key personnel;

- any deviations in revenue or in losses from levels expected by securities
analysts;

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- volume fluctuations, which are particularly common among highly volatile
securities of technology related companies; and

- sales of substantial amounts of our common stock or other securities in
the open market.

General political or economic conditions, such as a recession, or interest
rate or currency rate fluctuations could also cause the market price of our
common stock to decline. Please see "Underwriting."

OUR STOCK PRICE IS LIKELY TO BE EXTREMELY VOLATILE AS THE MARKET FOR TECHNOLOGY
COMPANIES' STOCK HAS RECENTLY EXPERIENCED EXTREME PRICE AND VOLUME FLUCTUATIONS.

Volatility in the market price of our common stock could result in
securities class action litigation. Any litigation would likely result in
substantial costs and a diversion of management's attention and resources.
Despite the strong pattern of operating losses of technology companies, the
market demand, valuation and trading prices of these companies have been high.
At the same time, the share prices of these companies' stocks have been highly
volatile and have recorded lows well below their historical highs. As a result,
investors in these companies often buy the stock at very high prices only to see
the price drop substantially a short time later, resulting in an extreme drop in
value in the stock holdings of these investors. Our stock may not trade at the
same levels as other technology stocks. In addition, technology stocks in
general may not sustain current market prices.

A LARGE NUMBER OF SHARES BECOMING ELIGIBLE FOR SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.

Sales of a substantial number of shares of our common stock after this
offering could cause our stock price to fall. Our current stockholders hold a
substantial number of shares, which they will be able to sell in the public
market in the near future. Beginning on the effective date of this prospectus,
only the shares sold in the offering will be immediately available for sale in
the public market. Beginning 180 days after the effective date, approximately
15,715,207 shares will be eligible for sale pursuant to Rule 701 and pursuant to
Rule 144. An additional 1,991,404 shares will be eligible for sale on various
dates following the 181st day after the effective date of this prospectus,
subject to compliance with the provisions of Rule 144 or Rule 701 or pursuant to
a registration statement on Form S-8, which we expect to file following
completion of the offering. Outstanding options and rights to purchase an
additional 369,689 shares and at least an additional 650,000 shares we
anticipate granting to new and existing employees prior to completion of this
offering will be exercisable and eligible for sale on various dates following
the 181st day after the effective date of this offering. Please see "Shares
Eligible for Future Sale."

YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF THE STOCK
YOU PURCHASE.

The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
This is referred to as dilution. Accordingly, if you purchase common stock in
the offering, you will incur immediate dilution of approximately $9.31, at an
assumed initial public offering price of $12.00 per share, in the tangible book
value per share of our common stock from the price you pay for our common stock.
Please see "Dilution."

IF WE RAISE ADDITIONAL CAPITAL THROUGH THE ISSUANCE OF NEW SECURITIES AT A PRICE
LOWER THAN THE INITIAL PUBLIC OFFERING PRICE, YOU WILL INCUR ADDITIONAL
DILUTION.

If we raise additional capital through the issuance of new securities at a
lower price than the initial public offering price, you will be subject to
additional dilution. If we are unable to access the public markets in the
future, or if our performance or prospects decrease, we may need to consummate a
private placement or public offering of our capital stock at a lower price than
the initial public offering price. In addition, any new securities may have
rights, preferences or privileges senior to those securities held by you.

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EXERCISE OF REGISTRATION RIGHTS AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE.

If holders of registration rights exercise those rights after this offering
and the concurrent private placement, a large number of securities could be
registered and sold in the public market, which could result in a decline in the
price of our common stock. If we were to include in a company-initiated
registration shares held by these holders pursuant to the exercise of their
registration rights, our ability to raise needed capital could suffer. After
this offering, the holders of 12,416,644 shares of our common stock, which will
represent a total of approximately 55.9% of our outstanding stock after
completion of this offering, are entitled to rights with respect to registration
under the Securities Act of 1933.

WE DO NOT INTEND TO PAY DIVIDENDS.

We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy."

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology; for instance, may, will,
should, intend, expect, plan, anticipate, believe, estimate, predict, potential
or continue, the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined in "Risk Factors." 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. Moreover, we are under no duty to update
any of the forward-looking statements after the date of this prospectus to
conform these statements to actual results, unless required by law.

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the 4,500,000
shares of our common stock pursuant to this offering and the sale of the 500,000
shares of our common stock in the concurrent private placement will be $55.1
million, or $62.6 million if the underwriters' over-allotment option is
exercised in full, at an assumed initial public offering price of $12.00 per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses.

We currently intend to use the net proceeds from the offering, in
approximate percentage terms, as follows:

- 20-35% for further development of our products, technologies and
methodologies;

- 15-30% to increase Design-to-Silicon Yield Solutions capacity;

- 10-25% for the expansion of our marketing and sales organizations; and

- 10-55% for working capital and general corporate purposes.

These operating expenses will be partially offset by the degree to which we
continue to garner revenues from our ongoing activities.

The amounts and timing of these expenditures will vary significantly
depending upon a number of factors, including future revenue growth, if any,
competitive and technological developments and the amount of cash we generate
from operations. We may also use a portion of the net proceeds of this offering
to acquire additional businesses, products and technologies, to acquire
additional office space, or to establish joint ventures that we believe will
complement our current or future business. As a result, we will retain broad
discretion in the allocation of the net proceeds of this offering. Pending the
uses described above, we intend to invest the net proceeds from this offering in
short-term, interest-bearing, investment grade securities. We cannot predict
whether the proceeds will be invested to yield a favorable return. We believe
our available cash, together with the net proceeds of this offering, will be
sufficient to meet our capital needs for at least the next 12 months.

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of our business and do not anticipate paying any cash dividends
in the foreseeable future.

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CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2001, on
the following three bases:

- on an actual basis after giving effect to the two-for-three reverse stock
split of our common stock and preferred stock;

- on a pro forma basis to reflect the conversion of all shares of our
preferred stock into 6,333,318 shares of common stock automatically upon
completion of this offering including the effects of dividends to be
recorded of $1,619,000 (based on an assumed initial public offering price
of $12.00 per share) representing the fair value of additional shares to
be issued to the Series B preferred stockholders in excess of the shares
issuable pursuant to the original terms of the Series B preferred stock;
and

- on a pro forma as adjusted basis to reflect the sale of shares of common
stock in this offering and 500,000 shares of common stock to be sold in
the concurrent private placement assuming an initial public offering
price of $12.00 per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses, and the
application of the net proceeds.

This table excludes:

- an aggregate of 369,689 shares subject to outstanding options and
purchase rights as of March 31, 2001 at a weighted average exercise price
of $4.45 per share;

- 1,395,117 shares reserved under our 1997 stock plan as of March 31, 2001
and available for grant prior to completion of this offering, of which we
currently intend to grant options to purchase at least 650,000 shares to
new and existing employees prior to completion of this offering; and

- 3,300,000 shares reserved under our 2001 stock plans and available for
grant following completion of this offering.

You should read this information together with our Consolidated Financial
Statements and Notes thereto appearing elsewhere in this prospectus. See
"Management -- Benefit Plans," "Related-Party Transactions" and Notes 7 and 12
of Notes to Consolidated Financial Statements.

MARCH 31, 2001
------------------------------------
PRO FORMA
ACTUAL     PRO FORMA    AS ADJUSTED
--------    ---------    -----------
(IN THOUSANDS, EXCEPT SHARE DATA)

Current portion of long-term debt...........................  $  1,023    $  1,023      $  1,023
========    ========      ========
Long-term debt, less current portion........................  $     43    $     43      $     43
Series A convertible preferred stock, $0.00015 par value;
shares authorized: 5,833,333 actual and pro forma and none
pro forma as adjusted; issued and outstanding: 5,833,331
actual and none pro forma and pro forma as adjusted.......     3,497          --            --
Series B convertible preferred stock, $0.00015 par value;
366,667 shares authorized; issued and outstanding: 350,872
actual and none pro forma and pro forma as adjusted.......     4,960          --            --
Shareholders' equity (deficit):
Preferred stock, $0.00015 par value; shares authorized:
none actual and pro forma and 5,000,000 pro forma as
adjusted; issued and outstanding: none actual, pro forma
and pro forma as adjusted...............................        --          --            --
Common stock, $0.00015 par value; shares authorized:
33,333,333 actual and pro forma and 75,000,000 pro forma
as adjusted; shares issued and outstanding: 10,873,293
actual, 17,206,611 pro forma and 22,206,611 pro forma as
adjusted................................................         2           3             3
Additional paid-in capital................................    25,088      35,163        90,213
Deferred stock-based compensation.........................    (9,087)     (9,087)       (9,087)
Notes receivable from shareholders........................    (5,578)     (5,578)       (5,578)
Accumulated deficit.......................................   (12,622)    (14,241)      (14,241)
Cumulative other comprehensive income.....................       (17)        (17)          (17)
--------    --------      --------
Total shareholders' equity (deficiency).................    (2,214)      6,243        61,293
--------    --------      --------
Total capitalization....................................  $  6,286    $  6,286      $ 61,336
========    ========      ========

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DILUTION

Our pro forma net tangible book value as of March 31, 2001 was
approximately $4.7 million or $0.27 per share of common stock. Pro forma net
tangible book value per share of common stock represents the amount of pro forma
total assets, reduced by the amount of total liabilities and intangible assets,
divided by the total number of shares of common stock outstanding assuming
conversion of our preferred stock into 6,333,318 shares of common stock. After
giving effect to the adjustments set forth above, and the sale of shares of
common stock in this offering and 500,000 shares of common stock in the
concurrent private placement at an assumed initial public offering price of
$12.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of March 31, 2001 would have been $59.7 million or $2.69 per share of
common stock. This represents an immediate increase in pro forma net tangible
book value of $2.42 per share to existing stockholders and an immediate dilution
of $9.31 per share to new investors. The following table illustrates this per
share dilution:

Assumed initial public offering price per share.............           $12.00
Pro forma net tangible book value per share before this
offering...............................................  $0.27
Increase per share attributable to new public investors...   2.42
-----
Pro forma net tangible book value per share after this
offering..................................................             2.69
------
Dilution per share to new public investors..................           $ 9.31
======

The following table summarizes on a pro forma basis as of March 31, 2001,
the differences between the existing stockholders and new investors with respect
to the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid. The pro forma
basis gives effect to the automatic conversion of all preferred stock into
6,333,318 shares of common stock upon completion of this offering.

SHARES PURCHASED       TOTAL CASH CONSIDERATION
---------------------    ------------------------    AVERAGE PRICE
NUMBER      PERCENT       AMOUNT        PERCENT      PER SHARE
----------    -------    -------------    -------    -------------

Existing stockholders..............  17,206,611      77.5%     $14,518,344       19.5%       $  .84
New investors (including private
placement investor)..............   5,000,000      22.5       60,000,000       80.5        $12.00
----------     -----      -----------      -----
Totals...........................  22,206,611     100.0%     $74,518,344      100.0%
==========     =====      ===========      =====

As of March 31, 2001, options and rights to purchase 369,689 shares were
outstanding with a weighted average exercise price of $4.45 per share. As of
March 31, 2001, 1,395,117 shares were reserved under our 1997 stock plan and
available for grant prior to completion of this offering. Of the shares
reserved, we currently intend to grant options to purchase at least 650,000
shares to new and existing employees prior to completion of this offering. Upon
completion of this offering, we will have 3,300,000 shares reserved under our
2001 stock plans and available for grant upon completion of this offering. The
issuance of common stock under these plans will result in further dilution to
new investors. See "Management -- Benefit Plans," "Related-Party Transactions"
and Notes 7 and 12 of Notes to Consolidated Financial Statements.

19

22

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data is qualified by
reference to, and should be read in conjunction with, Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and Notes thereto and the other information
contained in this prospectus.

The selected consolidated balance sheets data as of December 31, 1999 and
2000 and the selected consolidated statements of operations data for each year
in the three years ended December 31, 2000, have been derived from our audited
Consolidated Financial Statements appearing elsewhere in this prospectus. The
balance sheet data as of March 31, 2001 and for the three months ended March 31,
2000 and 2001 have been derived from our unaudited Consolidated Financial
Statements appearing elsewhere in this prospectus. The selected consolidated
balance sheet data as of December 31, 1998 and the selected consolidated
statement of operations data for the year ended December 31, 1997 have been
derived from our audited consolidated financial statements not included in this
prospectus. The selected consolidated balance sheets data as of December 31,
1996 and 1997, and the selected consolidated statements of operations data for
the year ended December 31, 1996 have been derived from our unaudited
consolidated financial statements not included in this prospectus. The unaudited
consolidated financial statements have been prepared by us on a basis consistent
with the audited consolidated financial statements appearing elsewhere in this
prospectus and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of this data. Historical results are not necessarily indicative of
future results.

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31,                   MARCH 31,
--------------------------------------------   -------------------
1996     1997     1998     1999      2000       2000       2001
------   ------   ------   -------   -------   --------   --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
Design-to-silicon yield solutions.........  $  916   $2,621   $6,227   $10,567   $15,538   $ 2,194    $ 5,753
Gain share................................      --       --       --     1,257     4,597     1,500      1,781
------   ------   ------   -------   -------   -------    -------
Total revenue...........................     916    2,621    6,227    11,824    20,135     3,694      7,534
------   ------   ------   -------   -------   -------    -------
Costs and expenses:
Cost of design-to-silicon yield
solutions...............................     163      596    1,533     4,091     6,915     1,252      2,556
Research and development..................     624    1,005    1,864     3,087     6,418       946      2,657
Selling, general and administrative.......     454    1,404    2,959     4,295     7,333     1,446      2,454
Offering costs............................      --       --       --        --     1,258        --         --
Stock-based compensation amortization*....      --       14       61        68     7,292       458      2,557
------   ------   ------   -------   -------   -------    -------
Total costs and expenses................   1,241    3,019    6,417    11,541    29,216     4,102     10,224
------   ------   ------   -------   -------   -------    -------
Income (loss) from operations...............    (325)    (398)    (190)      283    (9,081)     (408)    (2,690)
Interest income and other...................     175      139      128       105       347        17        132
------   ------   ------   -------   -------   -------    -------
Income (loss) before taxes..................    (150)    (259)     (62)      388    (8,734)     (391)    (2,558)
Tax provision...............................      --        9      342       533       363       107        185
------   ------   ------   -------   -------   -------    -------
Net loss....................................  $ (150)  $ (268)  $ (404)  $  (145)  $(9,097)  $  (498)   $(2,743)
======   ======   ======   =======   =======   =======    =======
Net loss per share -- basic and diluted.....  $(0.04)  $(0.07)  $(0.08)  $ (0.02)  $ (1.24)  $ (0.07)   $ (0.34)
======   ======   ======   =======   =======   =======    =======
Shares used in computing basic and diluted
net loss per share........................   3,372    4,101    4,944     6,086     7,356     6,797      8,065
======   ======   ======   =======   =======   =======    =======
Pro forma net loss per share -- basic and
diluted...................................                                       $ (0.68)             $  (.19)
=======              =======
Shares used in computing pro forma basic and
diluted net loss per share................                                        13,394               14,398
=======              =======
------------------
*STOCK-BASED COMPENSATION AMORTIZATION:
Cost of design-to-silicon yield
solutions............................  $   --   $    4   $   18   $    20   $ 1,715   $    42    $   719
Research and development................      --       10       43        48     4,016       355      1,181
Selling, general and administrative.....      --       --       --        --     1,561        61        657
------   ------   ------   -------   -------   -------    -------
$   --   $   14   $   61   $    68   $ 7,292   $   458    $ 2,557
======   ======   ======   =======   =======   =======    =======

20

23

DECEMBER 31,
-------------------------------------------   MARCH 31,
1996     1997     1998     1999     2000       2001
------   ------   ------   ------   -------   ---------
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents...................  $3,357   $2,208   $2,155   $1,933   $ 7,625    $ 6,866
Working capital.............................   3,277    2,854    2,501    2,153     3,707      3,377
Total assets................................   3,797    5,351    4,837    5,644    15,514     15,034
Long-term debt, less current portion........      --       --       --       72        56         43
Convertible preferred stock.................   3,497    3,497    3,497    3,497     8,457      8,457
Total shareholders' equity (deficiency).....     100     (155)    (480)    (512)   (2,026)    (2,214)

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

Our comprehensive technologies and services enable semiconductor companies
to improve yield and performance of integrated circuits by providing
infrastructure to integrate the design and manufacturing processes. Our
design-to-silicon yield solutions combine proprietary manufacturing process
simulation, yield and performance modeling software, comprehensive test chips,
proven yield and performance enhancement methodologies, and professional
services.

From our incorporation in 1992 through late 1995, we were primarily focused
on research and development of our proprietary manufacturing process simulation
and yield and performance modeling software. From late 1995 through late 1998,
we continued to refine and sell our software, while expanding our offering to
include yield and performance improvement consulting services. In late 1998, we
began to sell our software and consulting services, together with our newly
developed proprietary technologies, as complete design-to-silicon yield
solutions, reflecting our current business model. In April 2000, we expanded our
research and development team and gained additional technology by acquiring
Applied Integrated Systems and Software GmbH, which develops software and
provides development services to the semiconductor industry.

Sources of Revenue

We derive revenue from two sources: design-to-silicon yield solutions and
an innovative arrangement we call gain share.

Design-to-Silicon Yield Solutions. Design-to-silicon yield solutions
revenue is derived from solution implementations, software and technology
licenses and software support and maintenance.

Our integration engineers implement our solutions by delivering, installing
and applying our software and other technologies to provide:

- assessment, which involves extensive diagnosis, analysis and
prioritization of yield loss components; and

- implementation, which involves modifications to the design or
manufacturing process to improve IC yield and optimize performance.

Solution implementations typically take 9 to 15 months to perform and our
customer contracts generally provide for fixed price milestone payments during
the course of the engagement. Revenue from solution implementations is
recognized on the percentage of completion method as we perform the services.
The majority of the software and other technologies that we license are bundled
with solution implementations. Accordingly, these license fees are recognized as
a component of solution implementation contracts. In some cases, we license
selected software and technologies without solution implementation services to
our existing customers. In addition, we may license our software and
technologies without services to potential strategic industry partners to
accelerate the adoption of our design-to-silicon yield solutions. If collection
of the resulting receivable is probable, the fee is fixed or determinable, and
vendor-specific objective evidence exists to allocate a portion of the total
license fee to any undelivered elements of the arrangement, then these license
fees are recognized upon delivery of our software or authorization codes.
Otherwise, these license fees are recognized over the term of the license.
Software support and maintenance fees are generally allocated based on vendor
specific objective evidence and recognized ratably over the term of the
maintenance agreement, typically 12 months.

Gain Share. In addition to the revenue we derive from our design-to-silicon
yield solutions, many of our solution implementation contracts provide that we
will receive revenue that varies based on the value we create for our customers.
To date, we have determined this value based on our customers' actual yield
improvements relative to a negotiated yield target, or baseline, for specified
products or processes. This

22

25

target is typically based on the customer's projected yield without our
solutions. We refer to these value-based fees as gain share. We have
historically determined gain share fees:

- as a percentage of the reduction in our customers' cost of goods sold or
a percentage of incremental revenue achieved by our customers, in each
case, relative to the baseline; or

- as a specified fee based on production milestones achieved by our
customers.

Our customer contracts typically contain limitations on the scope of our gain
share fees. Gain share may vary significantly because a customer's financial
benefits from yield improvements can be affected by forces that are beyond our
control, such as market demand for an end product, as well as a company's
internal manufacturing performance and pricing decisions. Typically, gain share
is measured on a quarterly basis, after mass production begins, and runs for
periods of time exceeding one year. We recognize gain share revenue following
agreement with our customers as to the level of performance achieved.

Stock-Based Awards

During the year ended December 31, 2000, we issued 2,605,486 common stock
options to employees at a weighted average exercise price of $2.73 per share.
The weighted average exercise price was below the weighted average deemed fair
value of $9.89 per share. The cumulative deferred stock-based compensation with
respect to these grants was $18.7 million, and is being amortized to expense on
an accelerated method over the four year vesting periods of the options. During
the year ended December 31, 2000, we amortized $6.6 million to stock-based
compensation expense and reversed $145,000 of deferred stock compensation for
cancelled common stock options. During the three months ended March 31, 2001, we
amortized $2.6 million to stock-based compensation expense and reversed $238,000
of deferred stock compensation related to repurchased common shares. The
deferred stock compensation balance of $9.1 million at March 31, 2001 will be
amortized over the remaining vesting periods through December 2004. Due to the
accelerated method of amortization, most of the deferred stock-based
compensation charge will be incurred over the first one to two years of the
vesting of the options. Through December 31, 1999 the cumulative deferred
stock-based compensation amortization related to non-employee awards was not
material. During the year ended December 31, 2000 and the three months ended
March 31, 2001 we recorded stock-based compensation amortization of
approximately $651,000 and $4,100, respectively, related to non-employee awards.

Customer Concentration

To date, a small number of integrated device manufacturers, or IDMs, have
accounted for virtually all of our total revenue. In the year ended December 31,
1998, two customers accounted for 82% of our total revenue, with Toshiba
representing 66% and Fujitsu representing 16%. In the year ended December 31,
1999, three customers accounted for 87% of our total revenue, with Toshiba
representing 53%, Fujitsu representing 19% and Sony representing 15%. In the
year ended December 31, 2000, four customers accounted for 84% of our total
revenue, with Toshiba representing 32%, Sony representing 27%, Conexant
representing 15% and Philips representing 10%. In the three months ended March
31, 2001, four customers accounted for 83% of our total net revenue, with
Toshiba representing 31%, Matsushita representing 20%, Conexant representing
17%, and Sony representing 15%.

To date, companies based in Japan have accounted for the majority of our
total revenue. Revenue generated from customers in Japan accounted for 82% in
the year ended December 31, 1998, 90% in the year ended December 31, 1999, and
66% in the year ended December 31, 2000 and the three months ended March 31,
2001. We expect that a significant portion of our total future revenue will
continue to be derived from companies based in Japan. Virtually all of our total
revenue generated internationally has been denominated in U.S. dollars.

Recent Acquisition

On April 27, 2000, we acquired all of the outstanding stock of Applied
Integrated Systems and Software GmbH, or AISS, for $1.25 million, consisting of
$995,000 in notes payable due on April 27, 2001 and $255,000 in cash. AISS
develops software and provides development services to the

23

26

semiconductor industry. The acquisition was accounted for using the purchase
method and our Consolidated Financial Statements reflect the results of
operations of AISS from the date of acquisition. The excess of the purchase
price over the fair value of the tangible assets and liabilities assumed was
$2.0 million which was allocated: $662,000 to acquired technology, $540,000 to
employee workforce and $807,000 to goodwill which are being amortized on a
straight line basis over a period of four years.

RESULTS OF OPERATIONS

We have historically experienced fluctuations from period to period. We
expect these fluctuations to continue, therefore historical results are not
indicative of future results.

THREE MONTHS ENDED MARCH 31, 2000 AND 2001

Revenue

Total revenue increased 104% from $3.7 million for the three months ended
March 31, 2000 to $7.5 million for the three months ended March 31, 2001.

Design-to-Silicon Yield Solutions. Design-to-silicon yield solutions
revenue increased 162% from $2.2 million for the three months ended March 31,
2000 to $5.8 million for the three months ended March 31, 2001. The increase was
primarily attributable to a greater number of solution implementations during
the three months ended March 31, 2001.

Gain Share. Gain share revenue increased 19% from $1.5 million for the
three months ended March 31, 2000 to $1.8 million for the three months ended
March 31, 2001. This increase was due to the attainment of gain share from three
customers in the current period versus two customers in the prior year period.

Costs and Expenses

Costs of Design-to-Silicon Yield Solutions. Cost of design-to-silicon yield
solutions consists primarily of compensation, benefits and related personnel
costs of the engineers who perform system implementations and software support
and maintenance as well as allocated facilities costs. Cost of design-to-silicon
yield solutions increased from $1.3 million for the three months ended March 31,
2000 to $2.6 million for the three months ended March 31, 2001. The increase was
due to a greater number and increased average size of solution implementations.
As a percentage of design-to-silicon yield solutions, costs of design-to-
silicon yield solutions decreased from 57% for the three months ended March 31,
2000 to 44% for the three months ended March 31, 2001. This percentage decrease
was primarily the result of an increase in higher margin design-to-silicon yield
solutions contracts. We anticipate that our cost of design-to-silicon yield
solutions will increase in absolute dollars as we support an expanding number of
solution implementations.

Research and Development. Research and development expenses consist
primarily of compensation, benefits and related personnel costs of the engineers
engaged in research and development as well as allocated facilities costs.
Research and development expenses increased from $946,000 for the three months
ended March 31, 2000 to $2.7 million for the three months ended March 31, 2001.
The increase was due to our expanding research and development efforts in
software and technologies. As a percentage of total revenue, research and
development expenses increased from 26% for the three months ended March 31,
2000 to 35% for the three months ended March 31, 2001. A significant portion of
this increase was due to the addition of personnel and the increase in
personnel-related costs for development of existing and new technologies,
including as a result of our acquisition of AISS. We anticipate that we will
continue to commit considerable resources to research and development in the
future and that these expenses will continue to increase significantly in
absolute dollars.

Selling, General & Administrative. Selling, general and administrative
expenses consist primarily of compensation, benefits and related personnel costs
as well as allocated facilities costs, outside sales representative commissions,
recruiting and relocation costs, accounting and administrative expenses,

24

27

training, costs for legal and professional services and general corporate
expenses. Selling, general and administrative expenses increased from $1.4
million for the three months ended March 31, 2000 to $2.5 million for the three
months ended March 31, 2001. The increase was due to increased spending in
personnel and related costs and legal and other professional services in
connection with building the necessary administrative infrastructure to support
the growth of our operations. As a percentage of total revenue, selling, general
and administrative expenses decreased from 39% for the three months ended March
31, 2000 to 33% for the three months ended March 31, 2001. We expect that
selling, general and administrative expenses will increase in absolute dollars
to support increased selling and administrative efforts.

Stock-Based Compensation Amortization. Stock-based compensation
amortization expense increased from $458,000 for the three months ended March
31, 2000 to $2.6 million for the three months ended March 31, 2001. The increase
was attributable primarily to options granted to employees at exercise prices
below the deemed fair value of our common stock.

Interest and Other Income

Interest and other income increased from $17,000 for the three months ended
March 31, 2000 to $132,000 for the three months ended March 31, 2001. This
increase was due to higher average cash and short-term investment balances.

Provision for Taxes

Provision for taxes increased from $107,000 for the three months ended
March 31, 2000 to $185,000 for the three months ended March 31, 2001. These
provisions primarily represented foreign withholding taxes on certain revenue
from Japanese customers with the increase in 2001 resulting from an increase in
taxable income from worldwide operations.

YEARS ENDED DECEMBER 31, 1999 AND 2000

Revenue

Total revenue increased 70% from $11.8 million for the year ended December
31, 1999 to $20.1 million for the year ended December 31, 2000.

Design-to-Silicon Yield Solutions. Design-to-silicon yield solutions
revenue increased 47% from $10.6 million for the year ended December 31, 1999 to
$15.5 million for the year ended December 31, 2000. This increase was primarily
attributable to a greater number of solution implementations during the year
ended December 31, 2000 compared to the prior year.

Gain Share. Gain share revenue increased 266% from $1.3 million for the
year ended December 31, 1999 to $4.6 million for the year ended December 31,
2000. This increase was due to the attainment of gain share yield targets for
two new and one existing customer.

Costs and Expenses

Cost of Design-to-Silicon Yield Solutions. Cost of design-to-silicon yield
solutions increased from $4.1 million for the year ended December 31, 1999 to
$6.9 million for the year ended December 31, 2000. This increase was due to a
greater number and increased average size of solution implementations, as well
as the execution of our business strategy to aggressively increase capacity
ahead of revenue, resulting in the hiring of additional personnel. As a
percentage of design-to-silicon yield solutions revenue, cost of
design-to-silicon yield solutions increased from 39% for the year ended December
31, 1999 to 45% for the year ended December 31, 2000. This percentage increase
was primarily the result of increasing capacity in anticipation of expanding our
customer base and being awarded new design-to-silicon solutions contracts. We
anticipate that our cost of design-to-silicon yield solutions will increase in
absolute dollars as we support an expanding number of solution implementations.
We expect, however, that cost of design-to-silicon yield solutions revenue will
decrease as a percentage of design-to-silicon yield solution revenue in

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28

the long term as capacity to deliver solution implementations is more
efficiently balanced with the number of ongoing solution implementation
contracts.

Research and Development. Research and development expenses increased from
$3.1 million for the year ended December 31, 1999 to $6.4 million for the year
ended December 31, 2000. This increase was due to our expanding research and
development efforts in software and technologies. As a percentage of total
revenue, research and development expenses increased from 26% for the year ended
December 31, 1999 to 32% for the year ended December 31, 2000. A significant
portion of this increase was due to the addition of personnel and the increase
in personnel-related costs for development of existing and new technologies,
including as a result of our acquisition of AISS. We anticipate that we will
continue to commit considerable resources to research and development in the
future and that these expenses will continue to increase significantly in
absolute dollars.

Selling, General and Administrative. Selling, general and administrative
expenses increased from $4.3 million for the year ended December 31, 1999 to
$7.3 million for the year ended December 31, 2000. This increase was due to
increased spending in personnel and related costs and legal and other
professional services in connection with building the necessary infrastructure
to support the growth of our operations. As a percentage of total revenue,
selling, general and administrative expenses remained consistent at 36% for the
year ended December 31, 1999 and 2000. We expect that selling, general and
administrative expenses will increase in absolute dollars to support increased
selling and administrative efforts.

Offering Costs. Costs of approximately $1.3 million related to this
offering were expensed during the quarter ended December 31, 2000 due to
protracted delays in this offering.

Stock-Based Compensation Amortization. Stock-based compensation
amortization expense increased from approximately $68,000 during the year ended
December 31, 1999 to $7.3 million during the year ended December 31, 2000. The
increase was attributable primarily to options granted to employees at exercise
prices below the deemed fair value of our common stock.

Interest and Other Income

Interest and other income increased from approximately $105,000 for the
year ended December 31, 1999 to approximately $347,000 for the year ended
December 31, 2000. This increase was due to higher average cash and short-term
investment balances.

Provision for Taxes

Provision for taxes decreased from approximately $533,000 for the year
ended December 31, 1999 to approximately $363,000 for the year ended December
31, 2000. This decrease in provision for taxes primarily resulted from a
decrease in foreign withholding taxes partially offset by an increase in taxable
income from U.S. operations.

YEARS ENDED DECEMBER 31, 1998 AND 1999

Revenue

Total revenue increased 90% from $6.2 million for the year ended December
31, 1998, to $11.8 million for the year ended December 31, 1999.

Design-to-Silicon Yield Solutions. Design-to-silicon yield solutions
revenue increased 70% from $6.2 million for the year ended December 31, 1998, to
$10.6 million for the year ended December 31, 1999. These increases were
primarily the result of a greater number and size of solution implementations.

Gain Share. Gain share revenue increased from zero for the year ended
December 31, 1998, to $1.3 million for the year ended December 31, 1999. This
increase was due to the introduction of our gain share business model in late
1998 and the achievement of yield improvements over negotiated contract
baselines.

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29

Costs and Expenses

Cost of Design-to-Silicon Yield Solutions. Cost of design-to-silicon yield
solutions increased from approximately $1.5 million for the year ended December
31, 1998, to $4.1 million for the year ended December 31, 1999. As a percentage
of design-to-silicon yield solutions revenue, cost of design-to-silicon yield
solutions increased from 25% for the year ended December 31, 1998, to 39% for
the year ended December 31, 1999. This increase in absolute dollars and as a
percentage of design-to-silicon yield solutions revenue was due to the hiring of
additional engineers as we built our solution implementation teams in
anticipation of increased demand for our solutions.

Research and Development. Research and development expenses increased from
$1.9 million for the year ended December 31, 1998, to $3.1 million for the year
ended December 31, 1999. This increase was due to an increase in personnel and
related costs. As a percentage of total revenue, research and development
expenses decreased from 30% for the year ended December 31, 1998, to 26% for the
year ended December 31, 1999.

Selling, General and Administrative. Selling, general and administrative
expenses increased from $3.0 million for the year ended December 31, 1998, to
$4.3 million for the year ended December 31, 1999. This increase was due to
additional personnel and related costs, outside sales representative
commissions, recruiting and relocation costs, accounting and administrative
expenses, training and costs for legal and professional services. As a
percentage of total revenue, selling, general and administrative expenses
decreased from 48% for the year ended December 31, 1998, to 36% for the year
ended December 31, 1999.

Stock-Based Compensation Amortization. Stock-based compensation
amortization expense increased from approximately $61,000 for the year ended
December 31, 1998, to approximately $68,000 for the year ended December 31,
1999. This increase was primarily attributable to timing of the vesting of
options and warrants granted to non-employees and the resulting revaluation of
compensation expense related to such vested options and warrants.

Interest and Other Income

Interest and other income decreased from approximately $128,000 for the
year ended December 31, 1998, to approximately $105,000 for the year ended
December 31, 1999. This decrease was due to lower average balances of cash and
cash equivalents.

Tax Provision

The tax provision increased from approximately $341,000 for the year ended
December 31, 1998, to approximately $533,000 for the year ended December 31,
1999. These provisions primarily represented foreign withholding taxes on some
revenue from Japanese customers. This increase was attributable to the increased
number of contracts and the revenue subject to these withholding requirements.

NINE QUARTERS ENDED MARCH 31, 2001

The following tables set forth our consolidated statement of operations
data for each quarter in the nine quarters ended March 31, 2001. This unaudited
quarterly information has been prepared on the same basis as our audited
Consolidated Financial Statements and, in the opinion of management, includes
all adjustments, consisting only of normal recurring adjustments, necessary for
the fair presentation of such data. We believe that quarterly revenues,
particularly the mix of the revenue components, and operating

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30

results are likely to vary significantly in the future and that period-to-period
comparisons of our results of operations should not be relied upon as
indications of future performance.

QUARTER ENDED
-------------------------------------------------------------------------------------------
MAR 31,   JUNE 30,   SEPT 30,   DEC 31,   MAR 31,   JUNE 30,   SEPT 30,   DEC 31,   MAR 31,
1999       1999       1999      1999      2000       2000       2000      2000      2001
-------   --------   --------   -------   -------   --------   --------   -------   -------
(IN THOUSANDS)

CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue:
Design-to-silicon yield
solutions.....................  $2,451     $2,883     $2,575    $2,658    $2,194    $ 3,774    $ 4,490    $ 5,080   $ 5,753
Gain share......................      --         --        500       757     1,500        808        848      1,441     1,781
------     ------     ------    ------    ------    -------    -------    -------   -------
Total revenue.................   2,451      2,883      3,075     3,415     3,694      4,582      5,338      6,521     7,534
------     ------     ------    ------    ------    -------    -------    -------   -------
Costs and expenses:
Cost of design-to-silicon yield
solutions.....................     722      1,100      1,133     1,136     1,252      1,653      1,887      2,123     2,556
Research and development........     650        594        816     1,027       946      1,296      1,817      2,359     2,657
Selling, general and
administrative................   1,142      1,060      1,084     1,009     1,446      1,579      2,239      2,069     2,454
Offering costs..................      --         --         --        --        --         --         --      1,258        --
Stock-based compensation
amortization..................     (13)        13         27        41       458      1,235      2,896      2,703     2,557
------     ------     ------    ------    ------    -------    -------    -------   -------
Total costs and expenses......   2,501      2,767      3,060     3,213     4,102      5,763      8,839     10,512    10,224
------     ------     ------    ------    ------    -------    -------    -------   -------
Income (loss) from operations.....     (50)       116         15       202      (408)    (1,181)    (3,501)    (3,991)   (2,690)
Interest income and other.........      27         25         26        27        17         24        114        192       132
------     ------     ------    ------    ------    -------    -------    -------   -------
Income (loss) before taxes........     (23)       141         41       229      (391)    (1,157)    (3,387)    (3,799)   (2,558)
Tax provision.....................     201        100        102       130       107        166        239       (149)      185
------     ------     ------    ------    ------    -------    -------    -------   -------
Net income (loss).................  $ (224)    $   41     $  (61)   $   99    $ (498)   $(1,323)   $(3,626)   $(3,650)  $(2,743)
======     ======     ======    ======    ======    =======    =======    =======   =======

The trends discussed in the annual comparisons of operating results from
1998 through 2000, generally apply to the comparisons of results for our nine
most recent quarters ended March 31, 2001.

A significant portion of our revenue has been, and will continue to be,
derived from a small number of substantial contracts with large corporations,
which involve extended contract negotiations. We attempt to maximize utilization
of our implementation teams by minimizing the time between completion of one
solution implementation and commencement of the next. Accordingly, the timing
and performance of these contracts may cause material fluctuations in our
operating results, particularly on a quarterly basis, although in the past this
has been offset by gain share revenue resulting from previous engagements. For
example, design-to-silicon yield solutions revenue decreased from the second
quarter of 1999 to the third quarter of 1999 and from the fourth quarter of 1999
to the first quarter of 2000 as a result of a delay between completion of
existing solution implementations and commencement of the next.

Some of our gain share arrangements provide for non-recurring incentive
payments upon the achievement of negotiated yield targets within a specified
time. Gain share revenue may increase significantly in the quarter in which
these targets are met. For example, in the first quarter of 2000, we recognized
revenue in connection with the achievement of one of these targets. In addition,
our quarterly operating results, particularly as they pertain to gain share,
have in the past and will in the future vary significantly depending upon
factors such as our customers' production cycles, our customers' ability to
measure, on a timely basis, the performance of their production facilities,
changes in market demand for our customers' products, and our ability to deliver
results above negotiated gain share baselines. These factors, among others, have
made and will continue to make gain share revenues difficult to forecast.

Historically, research and development expenses have fluctuated depending
on the rate of hiring engineers and on whether we use engineering resources for
development projects or solution implementations. For example, in the fourth
quarter of 1999, our research and development expenses increased due to these
factors.

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Selling, general and administrative expense levels have remained in a
narrow range over most of the past eight quarters. Recently, expenses have
increased in the sales, marketing, finance and administration functions as we
have built the infrastructure necessary to support the growth of the business.
In addition, expenses such as sales commissions and relocation of employees may
vary from quarter to quarter as was the case in the third and fourth quarters of
2000.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have funded our operations primarily with the net
proceeds from the sale of common and preferred stock, which has amounted to a
total of $8.8 million and, to a lesser extent, from cash flow from operations,
bank borrowings and capital equipment leases.

On December 4, 1995, we issued 5,833,331 shares of Series A preferred stock
at $.60 per share resulting in net proceeds of $3.5 million. On August 4, 2000,
we issued 350,872 shares of Series B preferred stock at $14.25 per share
resulting in net proceeds of $5.0 million.

Net cash provided by operating activities was approximately $212,000 for
the year ended December 31, 1998, approximately $272,000 for the year ended
December 31, 1999, and approximately $1.9 million for the year ended December
31, 2000. Net cash provided by operating activities in 1998 was the result of
decreases in accounts receivable and increases in accounts payable and other
accrued liabilities partially offset by a loss and a decrease in deferred
revenues. Net cash provided by operating activities in 1999 resulted from
increases in accrued compensation and related benefits and net income, after
adjustment for depreciation and amortization, partially offset by increases in
accounts receivable. Net cash provided by operating activities in 2000 was the
result of increases in accounts payable and accrued expenses of approximately
$1.6 million, billings in excess of recognized revenue of approximately $1.1
million and deferred revenues of approximately $1.5 million, partially offset by
a net loss of approximately $968,000 and increases in accounts receivable of
approximately $815,000 and prepaid expenses and other assets of approximately
$540,000. The net loss for the period of approximately $968,000, was adjusted
for depreciation and amortization, including amortization of deferred stock
compensation costs of $7.3 million. Net cash used in operating activities was
approximately $339,000 for the three months ended March 31, 2001. This resulted
primarily from decreases in accrued expenses of approximately $884,000 and
increases in accounts receivable and prepaid expenses and other assets of
approximately $178,000, partially offset by net income of approximately $123,000
after adjustment for depreciation and amortization, including amortization of
deferred stock compensation cost of $2.6 million, and increases in deferred
revenues of approximately $353,000, billings in excess of recognized revenue of
approximately $141,000 and accounts payable of approximately $104,000. The
increase in deferred revenues for the year ended December 31, 2000 and the three
months ended March 31, 2001 was due primarily to advance payments from customers
under license and maintenance agreements. The increase in accounts receivable
for the year ended December 31, 2000 and the three months ended March 31, 2001
was attributable to performance under an increased number of contracts.

Net cash used in investing activities was approximately $281,000 for the
year ended December 31, 1998, approximately $537,000 for the year ended December
31, 1999, approximately $1.4 million for the year ended December 31, 2000 and
approximately $412,000 for the three months ended March 31, 2001. Net cash used
in investing activities in 1998 and 1999 and in the three months ended March 31,
2001 was primarily the result of purchases of property and equipment consisting
primarily of computer hardware and software and office furniture. Net cash used
in investing activities in 2000 was primarily due to the purchase of property
and equipment of approximately $1.2 million and the acquisition of AISS for
$995,000 in promissory notes and $255,000 in cash.

Net cash provided by financing activities was approximately $16,000 for the
year ended December 31, 1998 and approximately $42,000 for the year ended
December 31, 1999. Net cash provided by financing activities was approximately
$5.2 million for the year ended December 31, 2000, primarily due to the issuance
of Series B convertible preferred stock. Net cash provided by financing
activities of $1,800 for the

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three months ended March 31, 2001 was the result of collection of notes
receivable from shareholders, partially offset by principal payments on
long-term debt.

In connection with our acquisition of AISS, we issued $995,000 in
promissory notes on April 27, 2000. The principal amount, plus interest at 7%
per annum, was paid on April 27, 2001.

We expect to experience significant growth in our operating expenses,
particularly for research and development and additions to our workforce in
order to execute our business plan. As a result, we anticipate that our
operating expenses, as well as planned capital expenditures, will constitute a
material use of our cash resources. In addition, we may utilize cash resources
to fund potential acquisitions of complementary products, technologies or
businesses. We believe that the net proceeds from this offering and the
concurrent private placement together with our existing cash resources,
available bank financing and anticipated funds from operations, will satisfy our
cash requirements for at least the next twelve months. In the event additional
financing is required, we may not be able to raise it on acceptable terms or at
all.

EURO-CURRENCY

The Single European Currency, or Euro, was introduced on January 1, 1999,
with complete transition to this new currency required by January 2002. In
connection with our acquisition of AISS, we are currently assessing the issues
raised by the introduction of the Euro, but we do not expect that required
changes, if any, will have a material effect on our business.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
will require us to record derivatives on our balance sheet as assets or
liabilities measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The Company
adopted SFAS No. 133, as amended, on January 1, 2001. The adoption of this
statement did not have an effect on the Company's financial position, results of
operations or cash flows as the Company had no stand-alone or embedded
derivatives at December 31, 2000 and had not historically entered into any
derivative transactions to hedge currency or other exposures.

In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No.
140 replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. We adopted the applicable
disclosure requirements of SFAS No. 140 in our consolidated financial statements
as of December 31, 2000. We are currently evaluating the impact of adopting the
remaining provisions of SFAS No. 140 which will be effective for transactions
entered into after March 31, 2001.

MARKET RISK

The following discusses our exposure to market risk related to changes in
interest rates and foreign currency exchange rates. We do not currently own any
equity investments, nor do we expect to own any in the foreseeable future. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors.

Interest Rate Risk. As of March 31, 2001 we had cash and equivalents of
$6.9 million, consisting of cash and highly liquid money market instruments with
maturities of less than 90 days. Because of the short maturities of these
instruments, a sudden change in market interest rates would not have a material
impact on the fair value of the portfolio. We would not expect our operating
results or cash flows to be affected to any significant degree by the effect of
a sudden change in market interest on our portfolio. As of March 31, 2001, we
had outstanding notes payable of $995,000 which bear interest at a fixed rate of

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7%. The fair value of these notes approximated the recorded value at March 31,
2001. Changes in market interest rates will affect the fair market value of
these notes. A hypothetical increase in market interest rates of 10% from the
market rates in effect at March 31, 2001 would cause the fair value of these
investments and notes payable to decrease and increase, respectively, by an
immaterial amount and would not have significantly impacted our financial
position or results of operations. Declines in interest rates over time will
result in lower interest income and increased interest expense.

Foreign Currency and Exchange Risk. Virtually all of our revenue is
denominated in U.S. dollars, although such revenue is derived substantially from
foreign customers. Foreign sales to date, generated by AISS since the date of
its acquisition, have been invoiced in local currencies, creating receivables
denominated in currencies other than the U.S. dollar. The risk due to foreign
currency fluctuations associated with these receivables is partially reduced by
local payables denominated in the same currencies, and presently we do not
consider it necessary to hedge these exposures. We intend to monitor our foreign
currency exposure, and may use financial instruments to limit this exposure.
There can be no assurance that exchange rate fluctuations will not have a
materially negative impact on our business.

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BUSINESS

OVERVIEW

Our comprehensive technologies and services enable semiconductor companies
to improve yield and performance of integrated circuits by providing
infrastructure to integrate the design and manufacturing processes. We believe
that our solutions significantly improve a semiconductor company's time to
market, the rate at which yield improves and product profitability. Our
design-to-silicon yield solutions combine proprietary manufacturing process
simulation, yield and performance modeling software, comprehensive test chips,
proven yield and performance enhancement methodologies, and professional
services. The result of implementing our solutions is the creation of value that
can be measured based on improvements to our customers' actual yield. We receive
recurring revenue based on this value by aligning our financial interests with
the demonstrated yield and performance improvement realized by our customers. To
date, we have sold our technologies and services to, and we have established
ongoing relationships with, key integrated device manufacturers such as Toshiba
Corporation, Conexant Systems, Inc., Sony Corporation, Philips Semiconductor,
and Texas Instruments Incorporated.

INDUSTRY BACKGROUND

Integrated circuits, or ICs, are critical components used in an
increasingly wide variety of applications, such as computer systems; Internet
and communications infrastructure equipment, including wireless and network
devices; and consumer products including cellular phones, pagers, personal
digital assistants, game consoles and network appliances. As IC performance has
increased and size and cost have decreased, the use of ICs in these applications
has grown significantly. According to a November 2000 report by the
Semiconductor Industry Association, the worldwide semiconductor market is
expected to grow from $149 billion in 1999 to $319 billion in 2003. A large part
of this growth is expected to occur in deep submicron ICs having circuit
component feature sizes, or geometries, that measure less than 0.20 microns, or
millionths of a meter. ICs are manufactured onto silicon disks, commonly
referred to as wafers. According to an April 2001 report by VLSI Research, the
demand for deep submicron silicon wafers, which are wafers with a linewidth of
less than 0.2 micron, is estimated to grow at a compound annual rate in excess
of 48.6% from 1999 to 2005. Rapid technological innovation has shortened product
life cycles, which fuels the economic growth of the semiconductor industry.

Customers for electronic products continue to demand new applications with
more power, reduced cost and smaller size. As a result, IC companies are
adopting new designs, process technologies and materials at an unparalleled
rate. For example, silicon germanium processes will be integrated with standard
logic processes to provide better performance for radio-frequency components in
communication ICs.

In addition, the IC industry faces compression in product lifecycles.
Previously, companies could afford to take months, or years in some cases, to
integrate their new design and manufacturing processes. With traditional product
life cycles, IC companies ramped production slowly, produced at high volume once
the product hit its prime, and slowly reduced production volume when the price
and the demand started to decrease near the end of its life cycle. More
recently, demand -- largely driven by consumers in search of the next, more
powerful, smaller device -- has dramatically reduced the time that semiconductor
companies have to successfully bring a product to market in high volumes.
Companies now need to sell the most volume when a product is first introduced
and has a performance and pricing advantage over its competition, or they will
lose the market opportunity and the related high revenue.

Increased IC complexity and compressed product lifecycles create
significant challenges to achieving competitive yields and optimizing
performance. Yield is the percentage of ICs produced that meet customers'
specifications. For example, it is not uncommon for an initial manufacturing run
to yield only 20%, meaning 80% of those wafers were wasted. Yield improvement
and performance optimization are critical drivers of IC companies' financial
results because they typically lead to cost reduction and revenue generation
concurrently, causing a leveraged effect on profitability. Historically, yield
loss resulted primarily

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from contamination in the IC manufacturing process. The dominant factor of yield
loss with deep submicron ICs has shifted from contamination to:

- systematic yield loss, or non-functioning ICs resulting from the lack of
compatibility between the design and manufacturing processes; and

- performance yield loss, or functioning ICs that do not meet customer
speed requirements.

Manufacturers have historically addressed systematic and performance yield
loss reactively and almost exclusively by inefficient and time consuming
trial-and-error adjustments to the manufacturing process.

Disaggregation of the semiconductor industry has further complicated IC
companies' ability to maximize yield. Historically, leading semiconductor
companies designed, manufactured and tested their ICs internally, thus retaining
design-manufacturing integration know-how. Today, the industry is comprised of
organizations as well as separate companies that specialize in a particular
phase of designing and manufacturing ICs. This has resulted in a fragmentation
of the knowledge related to the integration of IC design and manufacturing.

The combination of increasingly complex ICs and design and manufacturing
processes, reduced time to produce new products in high volumes and the loss of
information due to disaggregation has left a gap between the design of an IC and
its manufacture. We call this gap the design-to-silicon yield gap. This gap
creates a number of significant problems for semiconductor companies, including:

- Slow Yield Ramp. Increased process and design complexity extends the time
needed to arrive at acceptable yields and increases the time it takes for
a semiconductor company to begin producing at high volumes, directly and
negatively impacting a company's potential market share and potential
revenue.

- Longer Time to Market and Increased Up-front Costs. Yield problems in the
initial manufacturing phase result in numerous design and process
iterations that delay product introductions and appreciably increase
up-front costs, such as non-recurring engineering, mask-set redesigns and
excessive sample wafers.

- High Cost of Goods Sold. Processed wafer costs are typically the largest
component of an IC company's cost of goods sold and, therefore, yield
loss significantly increases costs.

- Difficulties Producing High-Performance ICs. High-performance ICs are
particularly sensitive to the lack of compatibility between design and
manufacturing. In addition, semiconductor companies typically experience
a trade-off between yield and IC performance because it is generally more
difficult to produce ICs with more stringent specifications.
Semiconductor companies may target high-performance ICs because they
typically have higher margins.

Delivering complex ICs quickly and in high volumes requires unique silicon
infrastructure solutions to tightly integrate the IC design and manufacturing
processes -- thus bridging this design-to-silicon yield gap.

THE PDF SOLUTION

We provide comprehensive silicon infrastructure technologies and services
to address and bridge the design-to-silicon yield gap. Our solution combines
proprietary manufacturing process simulation software, yield and performance
modeling software, comprehensive test chips, proven yield and performance
enhancement methodologies and professional services to increase yield,
accelerate yield ramp and improve IC performance. We create a prioritized
analysis of yield loss mechanisms to identify, quantify and correct the issues
that cause yield loss, often before an IC design is complete. This drives IC
design and manufacturing improvements that enable our customers to achieve and
exceed targeted IC yield and performance earlier in product life cycles. Our
solution is designed to increase the initial yield when a design first enters a
manufacturing line, increase the rate at which that yield improves, and allow
subsequent product designs to be added to manufacturing lines more quickly and
easily. Because our

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design-to-silicon yield solutions dramatically and quickly improve a
semiconductor company's time to market and yield ramp -- and ultimately product
profitability -- we tie our revenue to these improvements through a unique
approach that we call gain share. Gain share is the percentage we receive of our
customers' incremental cost savings or incremental revenue associated with
improved yields and accelerated ramp or may be a specified fee based on
production milestones achieved by our customers.

The following graphically depicts the integration of IC design with
manufacturing processes using our design-to-silicon yield solutions.

[The diagram depicts the connection between IC design and manufacturing.]

The key benefits of our solution to our customers are:

Faster Time to Market. Our design-to-silicon yield solutions are designed
to significantly accelerate our customers' time to market and increase product
profitability. Our solutions, which predict and improve product yield even
before IC product design is complete, change the traditional design-to-silicon
sequence to primarily a concurrent process, and decrease our customers' time to
market. Systematically incorporating knowledge of the integration of the design
and manufacturing processes into software modules, enables faster introduction
of additional products with consistently high initial yields. Our design-
to-silicon yield solutions decrease design and process iterations, reduce our
customers' up-front costs and speed time to market, thus providing our customers
with early-mover advantages such as increased market share and higher selling
prices.

Faster Time to Volume. After achieving higher initial yields and faster
time to market, our design-to-silicon yield solutions are designed to enable our
customers to isolate and eliminate remaining systematic yield issues to achieve
cost efficient manufacturing volume. Once a manufacturing process has been
modeled using our solutions, our customers are able to diagnose problems and
simulate potential corrections more quickly than using traditional methods. In
addition, if process changes are required, improvements can be verified more
quickly using our technology than using traditional methods. Our
design-to-silicon yield solutions enable our customers to quickly reach cost
efficient volume, so that they are able to increase revenue, improve their
competitive position, and capture higher market share.

Increased Manufacturing Efficiencies. After using our design-to-silicon
yield solutions for product introduction and yield ramp, our solutions are
designed to allow our customers to achieve a higher final yield and therefore a
lower cost of goods sold. In addition, our design-to-silicon yield solutions are
designed to provide our customers with the ability to proactively monitor
process health to avoid potential yield problems. By paying us gain share as our
customers recognize cost savings from these manufacturing efficiencies, they
also benefit from better matching their costs to their revenue.

Increased Semiconductor Performance. Our design-to-silicon yield solutions
are designed to enable our customers to achieve over-all higher level
semiconductor performance by modeling the factors that affect speed and
simulating possible improvements. Typically, the changes necessary to achieve
higher performance result in an overall reduction in yield. Because our
design-to-silicon yield solutions also model

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the factors that affect yield at the same time, our customers can often achieve
both higher IC performance and higher yield, thereby generating higher margin
revenues.

OUR STRATEGY

Our objective is to provide the industry standard in design-to-silicon
yield solutions. Key elements of our strategy include:

Leverage Our Innovative Gain Share Business Model. We intend to expand the
gain share component of our customer contracts. We believe this innovative
approach helps us to form highly collaborative and longer-term relationships.
Working closely with our customers on their core technologies with a common
focus on their business results provides direct and real-time feedback, which we
will continue to use to rapidly generate market-driven improvements that add
value to our solutions. We also believe that gain share allows us to increase
penetration of our customer accounts because adding new semiconductor products
to existing lines is increasingly easy and economical for our customers once our
design-to-silicon yield solutions are implemented. As our gain share customers
succeed in improving their yield and performance while reducing costs, we
believe that we will generate new customer accounts based on these successes.

Focus on Key IC Product Segments. We intend to focus our solution on key IC
product segments such as system-on-a-chip, communications networking, graphics
and high-performance central processing units. These are high-volume,
high-growth segments and are fueled by the growth of Internet and wireless
infrastructure and consumer applications. As a result, we will expand our
solution for key technology drivers such as low-k dielectrics, copper, embedded
DRAM and silicon germanium, which are all new and relatively complex
manufacturing process technologies. We believe that these product segments are
particularly attractive because they include complex IC design and manufacturing
processes where processed silicon is costly and yield is critical.

Expand Strategic Relationships with Industry Leaders. We intend to extend
and enhance our relationships with leading companies at key stages of the
design-to-silicon process, such as manufacturing equipment vendors, silicon
intellectual property vendors, semiconductor foundries, and test and assembly
equipment providers. We believe that strategic relationships with industry
leaders will increase our insight into future industry needs, thus allowing us
to further accelerate our learning and enhance the value of our solutions. We
expect these relationships to also serve as sales channels for our
design-to-silicon yield solutions and to increase industry awareness of our
solutions.

Extend Our Technology Leadership Position. We intend to continue expanding
our research and development efforts by leveraging our experienced engineering
staff and codifying the knowledge that we continually acquire in our solution
implementations. In addition, we intend to selectively acquire complementary
businesses and technologies to increase the scope of our solutions. We will
continue to make significant investments in the development of proprietary
manufacturing process simulation software, yield and performance modeling
software, other technologies, and yield and performance enhancement
methodologies to accommodate our customers' increasingly complex semiconductor
needs.

Expand Worldwide Presence. We intend to establish engineering design and
product development centers in key international locations around the world. To
date, we have focused on regions specific to our design efforts -- the United
States, Japan and Europe. We intend to expand geographically to gain access to
international engineering talent and to maintain proximity to our expanding
customer base. In addition, we believe that these efforts will have collateral
sales and marketing benefits as a result of local presence.

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TECHNOLOGY

Our design-to-silicon yield solutions combine proprietary manufacturing
process simulation, yield and performance modeling software, comprehensive test
chips and proven yield and performance enhancement methodologies. To calculate
the likely yield of an IC design, we have designed a proprietary process that
uses each of these technologies to:

- identify yield-relevant layout pattern elements by using the knowledge
base embedded in our technologies;

- categorize IC layout components into these elements;

- quantify the yield of each of the elements; and

- model the frequency of yield-relevant elements and their yield-loss
probabilities.

We continually enhance our technologies through the codification of
knowledge that we gain in our solution implementations.

Our software incorporates the following elements:

- efficient modeling algorithms of the interaction between design layout
and manufacturing processes, which creates layout pattern-dependent
systematic yield models that encompass process technologies such as
lithography, etch, interlayer dielectric chemical-mechanical polishing
(ILD CMP), copper CMP and shallow trench isolation CMP (STI CMP);

- pattern recognition algorithms, which allow us to categorize the
yield-relevant elements of a design as a function of their layout,
including the effects of their proximity to other elements;

- a hierarchical representation of the layout, which encompasses layout
manufacturing process proximity effects and minimizes the time necessary
for computation of systematic yield prediction;

- algorithms that compute an overall yield impact matrix for design as a
function of layout elements and manufacturing yield models;

- statistical simulation of circuit performance as a function of
manufacturing process variations, including their impact on transistor
performance; and

- statistical process and device simulation.

Our software that is used to predict yields of designs is also used to
generate test chips, or characterization vehicles. These characterization
vehicles, or CVs, are used to calibrate the yield models and to provide
manufacturers with early prediction of product yields, often before the IC
design is completed. Early prediction generated by the CVs is the basis of the
yield improvement methodologies for the manufacturing line. Information
generated by the CVs is also used to improve the IC design.

Our methodologies are a series of guidelines that our implementation teams
use to drive our customers' adoption of our software and CVs to quantify the
yield impact of each module of the process and design block, simulate the impact
of changes to the design and manufacturing process, and analyze the outcome of
executing such changes.

PRODUCTS AND SERVICES

Our design-to-silicon yield solutions consist of integration engineering
services, proprietary software and other technologies. Our proprietary software
and other technologies include proprietary manufacturing process simulation
software, yield and performance modeling software, and comprehensive test chips.

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We tailor our solution to our customers' specific business issues by
offering one of the following design-to-silicon yield solutions:

- Integration and Ramp. This solution enables our customers to ramp the
yield of new products when the manufacturing process or fabrication
facility is new. Our solution is used to improve the process capability
and manufacturability of designs targeted for that process.

- Yield and Performance Ramp. This solution enables our customers to ramp
the yield and performance of new products when the manufacturing process
is assumed to be mostly correct and complete. In this case, we focus on
design oriented issues.

Our design-to-silicon yield solutions can incorporate various software and
other technologies, typically including the following:

- Characterization Vehicles and Characterization Vehicle Software. Our
integration engineers develop a design of experiments, or DOE, to
determine how IC design building blocks interact with the manufacturing
process. Our software utilizes the DOE, as well as a library of these
building blocks that we know have potential yield and performance impact,
to generate comprehensive test chips that we call Characterization
Vehicles(TM), or CVs. These CVs are run through the manufacturing process
with intentional modifications to explore the effects of natural
manufacturing process variations. Our CV analysis software is then used
to analyze the electrical test results generated by the test chips to
model the yield and performance effects of process variations on these
design building blocks.

- pdEx(TM) pdEx analyzes an IC design to compute its systematic and
contamination yield loss. pdEx takes as input, a layout that is typically
in industry standard format, yield models generated by running our CVs,
other test chip data and other in-line inspection systems. pdEx is
designed to estimate the yield loss due to optical proximity effects,
etch micro loading, dishing in chemical-mechanical polishing and
contamination, as well as a number of other basic process issues.

- Circuit Surfer(R) Circuit Surfer estimates the performance yield and
manufacturability of small blocks in a design, such as analog subsystems
or critical paths of digital blocks. Using Circuit Surfer, a design
engineer is able to estimate how manufacturing process variations will
impact circuit performance.

- pdFab(R) pdFab provides a framework for statistical manufacturing process
and transistor simulation that enables our integration engineers to
understand the effects of expected or measured manufacturing process
variations on transistor performance. pdFab is used to optimize the
transistor architecture and associated manufacturing process, and is
primarily targeted to provide higher IC performance, although yield
improvements may also be generated.

- Optissimo(R) Optissimo is used to optimize the layout of a design to
minimize the impact of wafer printing variations due to optical proximity
effects. Optissimo can be used for model based optical proximity
correction technologies.

While the primary distribution method for our software and technologies is
through our design-to-silicon yield solutions, we have in the past and may in
the future separately license these and other technologies.

CUSTOMERS AND CASE STUDIES

Customers

Our current customers are primarily large integrated device manufacturers,
or IDMs. We have established ongoing relationships with key IDMs such as Toshiba
Corporation, Sony Corporation, Conexant Systems, Inc., Philips Semiconductor and
Texas Instruments Incorporated. Our customers' targeted product segments vary
significantly, including microprocessors, graphics, memory, and communi-

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cations. We believe that the adoption of our solutions by such diverse and
technologically advanced companies validates the application of our
design-to-silicon yield solutions to the broader market.

Case Studies

TOSHIBA CORPORATION -- one of the world's leading semiconductor
manufacturers with IC and end product revenue over $50 billion.

Challenge:   To meet the anticipated large market demand for a new
consumer product, Toshiba sought to ramp production of a
very large, complex system-on-a-chip, or SoC. A chip of this
size and complexity had not previously been manufactured at
the projected high volumes.

Solution:    Toshiba utilized our design-to-silicon yield solution to
identify and quantify potential yield loss components and
their root causes, and to monitor continuing manufacturing
process health. Our CVs and analyses continuously identified
yield issues and prioritized the causes by yield impact,
which Toshiba used to drive proactive improvements to ensure
that SoC yields would be on target. Toshiba made numerous
design and manufacturing changes, so that the design and
manufacturing process were already co-optimized to yield
well by the time the SoC was inserted into mass production.
In addition, our solution was used to improve the transistor
architecture for significantly better transistor
performance, which resulted in higher IC performance yield.

Impact:      The SoC yield ramp rate greatly exceeded the industry
benchmark ramp rates, increased the capacity of the
fabrication facility and enabled Toshiba to meet the market
demand. We continue to work very closely with Toshiba on the
next generation of this process and SoC.

CONEXANT SYSTEMS, INC. -- one of the world's leading pure-play
communications IC producers with IC revenue in excess of $2 billion.

Challenge:   Conexant sought to achieve consistently high yields of a
specific product across existing internal and external
manufacturing processes. This was exacerbated by the added
complexities of disparate design rules in each of the
facilities.

Solution:    We worked with Conexant to identify, quantify and prioritize
yield loss components and their root causes to drive yield
improvements for an archetypal product. These improvements
were also expected to apply to other Conexant products. Our
proprietary technology allowed our team to uncover the two
major systematic causes of low yield for this product -- the
first was an inconsistency in the design rules that
specified how layers of metals were connected to each other,
or borderless contacts, and the second was a problem in the
transistor to transistor interconnect. We worked with
Conexant to identify layout changes to compensate for
process differences across the manufacturing facilities. Our
team used our software simulation capability to predict the
yield improvement and ensure that proposed changes were
optimal.

Impact:      In three months, we increased yields dramatically for the
archetypal product. In addition, the corrections implemented
for the archetypal product were applied to many products in
the 0.25 micron technology. We continue to work closely with
Conexant on the next generation of its processes and
products.

SALES AND MARKETING

Our sales strategy is to pursue targeted accounts through a combination of
our direct sales force and strategic alliances. To date, we have targeted
leading IDMs to validate our solutions in leading technology and manufacturing
environments and to establish credibility to support future sales and marketing
efforts. We expect to extend these efforts to other IDMs and fabless
semiconductor companies. For sales in the United States, we rely on our direct
sales team, which primarily operates out of our San Jose, California

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headquarters. In Japan we use our direct sales team as well as Innotech
Corporation, a large semiconductor sales and distribution company located in
Japan. Innotech has been instrumental in providing introductions to key
executives with some of our targeted customers, which has allowed us to
establish direct relationships with these key executives. We expect to continue
establishing strategic alliances with vendors in the electronic design
automation software, capital equipment for IC production, silicon intellectual
property and mask-making software segments to create and take advantage of
co-marketing opportunities. We believe that these relationships will also serve
as sales channels for our design-to-silicon yield solutions and to increase
industry awareness of our solutions.

We strive to provide compelling value in our initial engagement to
establish ourselves as a key vendor to our customers and solidify relationships
at the executive level. Early in the solution implementation, our engineers
establish relationships across the organization and gain a solid understanding
of our customers' business issues. Our direct sales and solution implementation
teams combine their efforts to deepen our customer relationships by expanding
our penetration across the customer's products, processes and technologies. This
close working relationship with the customer has the added benefit of helping us
identify new product areas and technologies in which we should next focus our
research and development efforts. We believe that our sales and marketing
efforts will facilitate the adoption of our design-to-silicon yield solutions as
the industry standard.

RESEARCH AND DEVELOPMENT

Our research and development focuses on rapidly developing and introducing
new proprietary technologies, software products and enhancements to our existing
design-to-silicon yield solutions. We use a rapid-prototyping paradigm in the
context of the customer engagement to achieve these goals. In addition, we have
a highly-qualified technical advisory board comprised of professors from Harvard
University's Business School, the Massachusetts Institute of Technology,
Carnegie Mellon University and the University of California, Berkeley to help us
develop and guide our strategic development roadmap.

We have made and expect to continue to make substantial investments in
research and development. The complexity of our design-to-silicon yield
technologies requires expertise in physical IC design and layout, transistor
design and semiconductor physics, semiconductor process integration, numerical
algorithms, statistics, and software development. We believe that the
multidisciplinary expertise of our team of scientists and engineers will
continue to advance our market and technological leadership. We conduct
extensive in-house training for our engineers in the technical areas, as well
focusing on ways to enhance their client service skills. At any given time,
about one quarter of our research and development engineers are operating in the
field, partnered with solution implementation engineers in a deliberate strategy
to provide direct feedback between technology development and client needs. Our
research and development expenses were approximately $1.9 million in 1998, $3.1
million in 1999, $6.4 million in 2000 and $2.7 million in the three months ended
March 31, 2001.

COMPETITION

The semiconductor industry is highly competitive and characterized by
rapidly changing design and process technologies, evolving standards, short
product life cycles and decreasing prices. While the market for silicon
infrastructure is in its infancy, it is rapidly evolving and we expect
competition to develop and continue to increase. We believe a comprehensive
solution to effectively close the design-to-silicon yield gap requires
integration of design and manufacturing processes. Currently, we are the only
provider of comprehensive commercial solutions for systematic IC yield and
performance enhancement. We face indirect competition from the internal groups
at IC companies that work on process integration, including groups at current
customers such as Toshiba or Conexant, and at prospective customers. Some
vendors to IC companies may also compete with us indirectly. For example,
Cadence, a prominent electronic design automation vendor, has offerings that
help enhance IC layout in ways that could result in improved yield. Providers of
yield management software aimed at maintaining and improving yield in mass
production, such as KLA-Tencor, although they can help us maintain yield gains
achieved in integration and ramp, may increasingly seek to broaden their
offering and compete with us. In addition to such indirect

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competition, other potential sources of competition include: yield-management
software vendors who could expand their offerings to include or increase design
and process capabilities; electronic design automation vendors, who could expand
their offerings to include process and manufacturing; and semiconductor process
equipment vendors, who could expand their offerings to include design and other
elements of process and manufacturing beyond their own equipment.

We believe that the principal factors affecting competition in our market
are:

- demonstrated results and reputation;

- strength of core technology;

- ability to implement solutions for new technology and product
generations;

- time to market; and

- strategic relationships.

Although we believe that our solutions compete favorably with respect to
these factors, our market is relatively new and is evolving rapidly. We may not
be able to maintain our competitive position against current and potential
competitors, especially those with significantly greater resources.

INTELLECTUAL PROPERTY

Our future success and competitive position are dependent upon our
continued ability to develop and protect proprietary software and other
technologies. We rely primarily on a combination of contractual provisions,
confidentiality procedures, trade secrets, and patent, copyright and trademark
laws to protect our proprietary technologies and prevent competitors from using
our technologies in their products. We have been issued one German patent and
have seven patent applications currently pending in the United States. We intend
to prepare additional patent applications for submission to the United States
Patent and Trademark Office. In the future, we may seek additional patent
protection when we feel it is necessary.

We license our products and technologies pursuant to non-exclusive license
agreements which impose restrictions on customer use. In addition, we seek to
avoid disclosure of our trade secrets, including, requiring employees, customers
and others with access to our proprietary information to execute confidentiality
agreements with us and restricting access to our source code. We also seek to
protect our software, documentation and other written materials under trade
secret and copyright laws. Despite this protection, unauthorized parties may
copy aspects of our current or future software and other technologies or obtain
and use information that we regard as proprietary.

The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions. There are also numerous
patents in the semiconductor industry and new patents are being issued at a
rapid rate. It is also possible that third parties will claim that we have
infringed their patents and current or future products. Any claims, with or
without merit, could be time-consuming, result in costly litigation, cause
delays, or require us to enter into royalty or licensing agreements, any of
which could harm our business. Patent litigation in particular has complex
technical issues and inherent uncertainties. In the event an infringement claim
against us was successful and we could not obtain a license on acceptable terms
or license a substitute technology or redesign to avoid infringement, our
business would be harmed.

PDF Solutions(R), Circuit Surfer(R) and pdFab(R) are our registered
trademarks and Characterization Vehicle(TM), CV(TM), pdEx(TM) and Optissimo(TM)
are trademarks of PDF. All other brand names or trademarks appearing in this
prospectus are the property of their respective holders.

EMPLOYEES

As of March 31, 2001, we had 159 employees, including 60 in client service
teams, 68 in products and methods, 10 in sales and marketing and 21 in general
and administrative functions. One hundred nine of these employees are located in
San Jose, California, 15 are located in Texas and Virginia, 25 are located

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in Germany, 7 employees are located in Japan and 3 employees are located in
Italy. Of our 159 total employees, 129 are engineers, 113 of which have advanced
degrees including 67 with Ph.Ds.

None of our employees is represented by a labor union or is subject to a
collective bargaining agreement. We believe our relationship with our employees
is good.

LEGAL PROCEEDINGS

We are not currently party to any material legal proceedings. In May 2001,
we were named as a defendant in a lawsuit claiming, among other things, that we
misappropriated trade secrets in connection with hiring an employee. We are
defending ourselves against the claims, which we believe to be without merit. We
do not believe that this litigation, or resolution of this litigation, will have
a material negative impact on our business.

FACILITIES

Our principal executive offices are located in San Jose, California where
we lease approximately 18,000 square feet under a lease that expires in October
2004 and have leased an additional 18,000 square feet under a lease that will
expire in May 2003. We lease 5,418 square feet in Dallas, Texas under a lease
that expires in July 2002. In addition, we lease 4,200 square feet in Munich,
Germany, 1,600 square feet in Tokyo, Japan and 1,665 square feet in DesEnzano,
Italy under leases that expire in June 2002, April 2002 and September 2006. We
believe that our current facilities in San Jose are adequate to meet our needs
through May 2003, at which time we will need to obtain additional space in the
San Jose area, which we expect to be able to obtain when necessary.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The names and ages of our executive officers and directors as of March 31,
2001 are as follows:

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

John K. Kibarian, Ph.D. ..................  37     Chief Executive Officer, President and
Director
Thomas F. Cobourn, Ph.D. .................  40     Vice President, Yield Analysis
David A. Joseph...........................  47     Vice President, Products and Methods
P. Steven Melman..........................  46     Chief Financial Officer and Vice
President, Finance and Administration
Kimon Michaels, Ph.D. ....................  35     Vice President, Integration Practice and
Director
P.K. Mozumder, Ph.D. .....................  38     Vice President, Integration Practice
W. Steven Rowe............................  51     Vice President, Human Resources
David Tarpley.............................  55     Vice President, Worldwide Sales
B.J. Cassin...............................  67     Director
Donald L. Lucas...........................  71     Director
Lucio L. Lanza............................  56     Director

John K. Kibarian, Ph.D., one of our founders, has served as President since
November 1991 and has served as our Chief Executive Officer since July 2000. Mr.
Kibarian has served as a director since December 1992. Mr. Kibarian received a
B.S. in Electrical Engineering, a M.S. E.C.E. and a Ph.D. E.C.E. from Carnegie
Mellon University.

Thomas F. Cobourn, Ph.D., one of our founders, has served in Vice
Presidential capacities since June 1992 including currently as Vice President,
Yield Analysis. Mr. Cobourn received a B.S., Computer Science and Engineering
from the University of Pennsylvania and a M.S. E.C.E. and Ph.D. E.C.E. from
Carnegie Mellon University.

David A. Joseph has served as Vice President, Products and Methods since
July 1999. He served as Vice President, Business Development from November 1998
through June 1999. From February 1978 to October 1998, Mr. Joseph served
KLA/Tencor, a semiconductor manufacturing company, in various positions,
including as Japan Business Manager, VP Customer Satisfaction and GM Yield
Analysis Software. Mr. Joseph received a B.S. in Mathematical Science from
Stanford University.

P. Steven Melman has served as Chief Financial Officer and Vice President,
Finance and Administration since July 1998. From April 1997 to June 1998, Mr.
Melman served as Vice President Finance and Administration with Animation
Science Corporation, an animation company. From April 1995 to April 1997, he
served as Vice President, Finance and Chief Financial Officer with Business
Resource Group, a facilities management and commercial furnishings company. Mr.
Melman received a B.S. in Business Administration from Boston University. Mr.
Melman is a Certified Public Accountant.

Kimon Michaels, Ph.D., one of our founders, has served in Vice Presidential
capacities since March 1993 including currently as Vice President, Integration
Practice, and as a director since November 1995. He also served as Chief
Financial Officer from November 1995 to July 1998. Mr. Michaels received a B.S.
in Electrical Engineering, a M.S. E.C.E. and a Ph.D. E.C.E. from Carnegie Mellon
University.

P.K. Mozumder, Ph.D. has served as Vice President, Integration Practice
since May 1998. From June 1994 to May 1998, Mr. Mozumder served as a Branch
Manager with Texas Instruments, Inc., a consumer electronics and semiconductor
company. Mr. Mozumder received a B. Tech in Electrical Engineering from the
Indian Institute of Technology in Bombay, India, and a M.S. E.C.E. and a Ph.D.
E.C.E. from Carnegie Mellon University.

W. Steven Rowe has served as Vice President, Human Resources since February
2000. From June 1995 to February 2000, Mr. Rowe served as Vice President, Human
Resources at Trident Microsystems, a

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multimedia semiconductor company. From May 1994 to June 1995, he served as Vice
President, Human Resources at OPTi Inc., a semiconductor company. Mr. Rowe
received a M.A. in Education Administration from San Jose State University, a
M.A. in Speech Pathology from Chico State University and a J.D. from Lincoln
University.

David Tarpley has served as Vice President, Worldwide Sales since November
1996. From 1995 through September of 1996, Mr. Tarpley served as Vice President,
International Sales for Anagram, Inc., an Electronic Design Automation company.
From 1993 to 1995, Mr. Tarpley served as Vice President, Worldwide Sales with
HLD, Inc., an electronic design automation company. Mr. Tarpley received a B.S.
in Business Administration from The University of California, Berkeley and an
M.B.A. from The California State University Fullerton.

B.J. Cassin has served as a director since November 1995. Mr. Cassin has
been a private venture capital investor since 1979. Previously, he co-founded
Xidex Corporation, a manufacturer of data storage media in 1969. Mr. Cassin is
chairman of the board of directors of Cerus Corporation, a medical device
company and a director of Symphonix Devices, Inc., a medical device company. Mr.
Cassin holds an A.B. in Economics from Holy Cross College.

Donald L. Lucas has served as a director since May 1999. He has been a
venture capitalist since 1960. He also serves as a director of Cadence Design
Systems, Inc., an electronic design automation company, Coulter Pharmaceutical,
Inc., a pharmaceutical company, Macromedia, Inc., a software company, Oracle
Corporation, an information management software company, Preview Systems, Inc.,
a infrastructure software company, Transcend Services, Inc., a medical services
company, and Tricord Systems, Inc., a storage system management software
company. Mr. Lucas holds a B.A. in Economics and an M.B.A. from Stanford
University.

Lucio L. Lanza has served as a director since November 1995. Mr. Lanza has
served as chairman of the board of Artisan Components, Inc., a semiconductor
intellectual property company since November 1997. From 1990 to December 2000,
Mr. Lanza served with U.S. Venture Partners, a venture capital firm, including
as a general partner from 1996 through December 2000.

BOARD COMPOSITION

Our bylaws currently provide for a board of directors consisting of five
members. Commencing upon completion of this offering, the board of directors
will be divided into three classes, each serving staggered three-year terms:

- Class I directors will include Mr. Lucas and Mr. Cassin, and their terms
will expire at the first annual meeting of stockholders following the
date of this prospectus;

- Class II directors will include Mr. Lanza and Mr. Michaels, and their
terms will expire at the second annual meeting of stockholders following
the date of this prospectus; and

- Class III directors will include Mr. Kibarian, whose term will expire at
the third annual meeting of stockholders following the date of this
prospectus.

As a result, only one class of directors will be elected at each annual meeting
of our stockholders, with the other classes continuing for the remainder of
their respective terms.

Each officer is elected by the board of directors and serves at its
discretion. Each of our officers and directors, other than nonemployee
directors, devotes his or her full time to our affairs. Our nonemployee
directors devote the amount of time to our affairs as is necessary to discharge
their duties. There are no family relationships among any of our directors or
officers.

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BOARD COMMITTEES

We have established an audit committee and a compensation committee.

Audit Committee

The audit committee reviews our internal accounting procedures and
considers and reports to the board of directors with respect to other auditing
and accounting matters, including the selection of our independent auditors, the
scope of annual audits, fees to be paid to our independent auditors and the
performance of our independent auditors. The audit committee currently consists
of Mr. Lucas, Mr. Lanza and Mr. Cassin.

Compensation Committee

The compensation committee reviews and recommends to the board of directors
the salaries, benefits and stock option grants of all employees, consultants,
directors and other individuals compensated by us. The compensation committee
also administers our stock option and other employee benefits plans. The
compensation committee currently consists of Mr. Cassin and Mr. Lanza.

DIRECTOR COMPENSATION

Our directors do not currently receive any compensation for serving on the
board of directors, although they are reimbursed for reasonable travel expenses
incurred in connection with attending board of directors and committee meetings.
In March 2000, we issued options to purchase 50,000 shares of common stock to
Mr. Lucas, at an exercise purchase price of $1.50 per share, one-quarter of the
shares vest on the 12 month anniversary of the vesting commencement date and
1/48 of the total number of shares subject to the option vest each month
thereafter, provided that Mr. Lucas remains one of our directors. After the
completion of this offering, any new directors will receive an initial option to
purchase 30,000 shares of common stock and all our directors will receive on an
annual basis options to purchase 7,500 shares of common stock. Please see
"Management -- Benefit Plans -- 2001 Stock Plan."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The compensation committee makes all compensation decisions. Our
compensation committee currently consists of Mr. Cassin and Mr. Lanza, neither
of whom has ever been one of our officers or employees. Prior to the formation
of the compensation committee in 1995, our board of directors made decisions
relating to compensation of our executive officers. None of our executive
officers serves as a member of the board of directors or compensation committee
of any entity that has one or more of its executive officers serving as a member
of our board of directors or compensation committee.

EXECUTIVE COMPENSATION

The following table sets forth information regarding the compensation that
we paid during the fiscal years ended December 31, 1999 and 2000 to our Chief
Executive Officer and our four other most highly compensated officers who earned
more than $100,000 during those fiscal years. All option grants were made under
our 1997 Stock Plan. Amounts listed under "Other Annual Compensation" represent
the dollar value of commissions earned. The amounts listed under "All Other
Compensation" represent the dollar value of term life insurance paid by us on
behalf of the named executive officer during the fiscal

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years ended December 31, 1999 and 2000. There is no cash surrender value under
the life insurance policy.

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION          ------------
---------------------------------    SECURITIES
OTHER ANNUAL    UNDERLYING     ALL OTHER
NAME AND PRINCIPAL POSITION        YEAR    SALARY     BONUS    COMPENSATION     OPTIONS      COMPENSATION
---------------------------        ----   --------   -------   ------------   ------------   ------------

John K. Kibarian.......................  2000   $150,000   $42,000           --       200,000          $371
Chief Executive Officer and President  1999    120,000    15,000           --            --           321
David Tarpley..........................  2000    100,240        --     $160,288        26,666           329
Vice President, Worldwide Sales        1999    100,240        --      104,851        53,333           327
David A. Joseph........................  2000    175,000    40,000           --        53,333           371
Vice President, Products and Methods   1999    160,240     1,450           --        33,333           327
P.K. Mozumder..........................  2000    160,000    37,500           --        40,000           371
Vice President, Integration Practice   1999    150,240     6,200           --            --           327
P. Steven Melman.......................  2000    160,000    30,000           --        33,333           371
Chief Financial Officer and Vice       1999    150,240     4,600           --            --           327
President, Finance and
Administration

Option Grants in 2000

The following table sets forth information with respect to stock options
granted to our Chief Executive Officer and our four most highly compensated
executive officers during the year ended December 31, 2000.

INDIVIDUAL GRANTS
-----------------------------------------------------------   POTENTIAL REALIZABLE VALUE AT
PERCENT OF                                   ASSUMED ANNUAL RATES OF
NUMBER OF      TOTAL OPTIONS                               STOCK PRICE APPRECIATION FOR
SECURITIES        GRANTED TO     EXERCISE OR                         OPTION TERM
UNDERLYING       EMPLOYEES IN    BASE PRICE    EXPIRATION   -----------------------------
NAME           OPTIONS GRANTED    FISCAL YEAR     (PER SHARE)      DATE           5%              10%
----           ---------------   --------------   -----------   ----------   -------------   -------------

John K. Kibarian.....      200,000            7.6%            3.00       6/30/10      $3,309,347      $5,624,982
David Tarpley........       26,666            1.0%            3.00       6/30/10         441,235         749,979
David A. Joseph......       53,333            2.0%            3.00       6/30/10         882,487       1,499,986
P. K. Mozumder.......       40,000            1.5%            3.00       6/30/10         661,869       1,124,996
P. Steven Melman.....       33,333            1.3%            3.00       6/30/10         551,552         937,488

We have never granted any stock appreciation rights. All option grants were
made under our 1997 stock plan. The exercise price per share was equal to the
fair market value of the common stock on the date of grant as determined by the
board of directors. Percentage of total options is based on an aggregate of
2,647,019 shares of common stock granted under the 1997 Stock Plan in the year
ended December 31, 2000.

The potential realizable value represents the hypothetical gain or option
spread that would exist for the options in this table if the assumed initial
public offering price of $12.00 for our common stock appreciates at assumed
annual rates of 5% and 10% for the ten year term of such options. These assumed
rates comply with the rules of the Securities and Exchange Commission and do not
represent our estimate of future stock price. Actual gains, if any, on stock
option exercises will be dependent on the future performance of our common
stock.

Beginning on the vesting commencement date for each grant, the options
shown in this table vest monthly at a rate of 1/24 of the total number of shares
subject to the grant as long as the optionee remains an employee, consultant or
director. The vesting commencement dates for the named executive officers are as
follows: Mr. Kibarian -- June 30, 2000; Mr. Tarpley -- November 2, 2000; Mr.
Joseph -- May 20, 2003; Mr. Mozumder -- May 19, 2002; and Mr. Melman -- July 16,
2002.

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2000 Fiscal Year-End Option Values

The following table provides summary information with respect to our chief
executive officer and our four other most highly compensated executive officers
concerning:

- the shares of common stock acquired in 2000;

- the value realized upon exercise of stock options in 2000; and

- the number and value of unexercised options as of December 31, 2000.

The value realized was calculated by determining the difference between the fair
market value of underlying securities, which we have based on an assumed initial
public offering price of $12.00, and the exercise price.

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
OPTIONS AT              IN-THE-MONEY OPTIONS AT
SHARES                        DECEMBER 31, 2000             DECEMBER 31, 2000
ACQUIRED ON     VALUE      ---------------------------   ---------------------------
NAME               EXERCISE      REALIZED    EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
----              -----------   ----------   -----------   -------------   -----------   -------------

John K. Kibarian............    200,000     $1,800,000       --             --             --             --
David Tarpley...............     26,666        239,994       --             --             --             --
David A. Joseph.............     53,333        479,997       --             --             --             --
P. K. Mozumder..............     40,000        360,000       --             --             --             --
P. Steven Melman............     33,333        299,997       --             --             --             --

Each of these executives early exercised his stock options under our early
exercise program, which was terminated in October 2000, and executed a
restricted stock purchase agreement granting us the right to repurchase any
unvested shares at the exercise price upon the termination of his employment.

BENEFIT PLANS

1996 Stock Option Plan

Our 1996 Stock Option Plan, or the 1996 Plan, provides for the granting of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or the Code, and for the granting to
employees, directors and consultants of nonstatutory stock options. The 1996
Plan was approved by the board of directors in January of 1996 and by our
stockholders in February of 1996. The board of directors approved an amendment
to the 1996 Plan in August 1996 to allow grants to consultants, which amendment
did not require stockholder approval. Unless terminated sooner, the 1996 Plan
will terminate automatically in 2006. As of March 31, 2001, a total of 731,700
shares of common stock were reserved for issuance pursuant to the 1996 Plan of
which options to purchase 15,282 were outstanding and none were available for
grant.

The 1996 Plan may be administered by the board of directors or a committee
of the board of directors, which committee shall, in the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, consist of two or more "outside directors" within
the meaning of Section 162(m) of the Code. The Administrator has the power to
determine the terms of the options granted, including the exercise price, the
number of shares, the exercisability thereof, and the form of consideration
payable upon exercise. In March 2000, the administrator amended the 1996 Plan
exercise practices to allow for the early exercise of unvested shares by all
optionees. In October 2000, the practice of allowing early exercise of unvested
shares was terminated. The board of directors has the authority to amend,
suspend or terminate the 1996 Plan, provided that the action may not adversely
affect any share of common stock previously issued and sold or any option
previously granted under the 1996 Plan.

Options granted under the 1996 Plan are not generally transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by the optionee. Options granted under the 1996 Plan generally must be
exercised within three months of the optionee's separation of service from PDF,
or

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within twelve months of the optionee's termination by death or disability, but
in no event later than the expiration of the option's ten year term. The
exercise price of all incentive stock options granted under the 1996 Plan must
be at least equal to the fair market value of the common stock on the date of
grant. With respect to any participant who owns stock possessing more than 10%
of the voting power of all classes of our outstanding capital stock, the
exercise price of any incentive or nonstatutory stock option granted must equal
at least 110% of the fair market value on the date of grant and the term of any
incentive stock option must not exceed five years. The exercise price of a
nonstatutory option granted to any other individual must equal at least 85% of
the fair market value on the date of grant. The term of all other options
granted under the 1996 Plan may not exceed ten years.

The 1996 Plan provides that in the event of a merger by us with or into
another corporation or a sale of substantially all of our assets, each option
shall be assumed or an equivalent option substituted by the successor
corporation unless the administrator decides that the optionees shall have the
right to exercise some or all of the unvested shares. If each outstanding option
is made exercisable in lieu of substitution or assumption as described in the
preceding sentence, the administrator shall notify the optionees that each
option shall be exercisable for a period of thirty days from the date of such
notice and that the option shall otherwise terminate upon the expiration of such
period.

Following adoption of the 1997 Stock Plan in September 1997 by the board of
directors, the 1996 Plan was effectively terminated and no additional grants
could be issued under the 1996 Plan.

1997 Stock Plan

Our 1997 Stock Plan, or the 1997 Plan, provides for the granting of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and for the granting to employees, directors
and consultants of nonstatutory stock options and stock purchase rights. The
1997 Plan was approved by the board of directors and stockholders in September
1997. The board of directors approved an amendment to the 1997 Plan in December
1999, and the stockholders approved this amendment in January of 2000. The board
of directors approved an amendment to the 1997 Plan in June 2000 and the
stockholders approved the amendment in July 2000. Unless terminated sooner, the
1997 Plan will terminate automatically in 2007. As of March 31, 2001, a total of
5,601,632 shares of common stock were reserved for issuance pursuant to the 1997
Plan of which options to purchase 354,407 shares were outstanding and 1,395,117
were available for grant.

The 1997 Plan may be administered by the board of directors or a committee
of the board of directors. The Administrator has the power to determine the
terms of the options granted, including the exercise price, the number of
shares, the exercisability thereof, and the form of consideration payable upon
exercise. The board of directors has the authority to amend, suspend or
terminate the 1997 Plan, provided that the action may not adversely affect any
share of common stock previously issued and sold or any option previously
granted under the 1997 Plan. On June 30, 2000, the board of directors formed a
Special Option Committee to serve as Administrator under the 1997 Plan for the
purposes of granting options to purchase up to 23,333 shares of common stock to
any new, non-executive employees. The Special Option Committee consists of Mr.
Kibarian and Mr. Melman.

Options and stock purchase rights granted under the 1997 Plan are not
generally transferable by the optionee, and each option and stock purchase right
is exercisable during the lifetime of the optionee only by the optionee. Options
granted under the 1997 Plan must generally be exercised within three months of
the optionee's separation of service from us, or within twelve months of the
optionee's termination by death or disability, but in no event later than the
expiration of the option's ten year term. Options granted under the 1997 Plan
generally may be exercised only when vested; however, certain options have been
or may be exercised immediately after the grant date, and to the extent the
shares subject to the options are not vested as of the date of exercise, we
retain a right to repurchase any shares that remain unvested at the time of the
optionee's termination of employment by paying an amount equal to the exercise
price times the number of unvested shares. Options granted under the 1997 Plan
generally vest at the rate of 1/4 of the total number of shares subject to the
options on the twelve month anniversary of the date of grant

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and 1/48 of the total number of shares subject to the options vest each month
thereafter. In the case of stock purchase rights, unless the administrator
determines otherwise, the Restricted Stock Purchase Agreement shall grant us a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service for any reason, including death or disability. The
purchase price for Shares repurchased pursuant to the Restricted Stock Purchase
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to us. The repurchase option
shall lapse at a rate determined by the administrator, which is generally equal
to 25% per year. The exercise price of all incentive stock options granted under
the 1997 Plan must be at least equal to the fair market value of the common
stock on the date of grant. The exercise price of all incentive stock options
granted under the 1997 Plan must be at least equal to the fair market value of
the common stock on the date of grant, and any nonstatutory option must have an
exercise price at least equal to 85% of the fair market value of the common
stock on the date of grant. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of our outstanding
capital stock, the exercise price of any incentive or nonstatutory stock option
or stock purchase rights granted must equal at least 110% of the fair market
value on the date of grant for options and 100% of the fair market value on the
date of grant in the case of stock purchase rights and the term of any incentive
stock option must not exceed five years. The term of all other options granted
under the 1997 Plan may not exceed ten years.

The 1997 Plan provides that in the event of a merger by us with or into
another corporation or a sale of substantially all of our assets, each option
shall be assumed or an equivalent option substituted by the successor
corporation. If each outstanding option is not assumed or substituted as
described in the preceding sentence, the administrator shall notify the
optionees that each option shall terminate upon the consummation of the merger
or sale of assets.

Effective as of the date of this prospectus, no new grants will be made
from the 1997 Plan.

2001 Stock Plan

Our 2001 Stock Plan, or the 2001 Plan, provides for the granting of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and for the granting to employees, directors
and consultants of nonstatutory stock options and stock purchase rights. The
2001 Plan was approved by the board of directors in June of 2001 and by the
stockholders in July of 2001. A total of 3,000,000 shares of common stock
(subject to equitable adjustment in the event of a recapitalization, merger,
spin-off or other similar event) has been reserved for issuance under the 2001
Plan, none of which have been issued as of the date of this offering. The number
of shares reserved for issuance under the Purchase Plan will be increased on the
first day of each of our fiscal years by the lesser of:

- 3,000,000 shares (subject to equitable adjustment in the event of a
recapitalization, merger, spin-off or other similar event);

- 5% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or

- the number of shares determined by the board of directors.

The 2001 Plan may be administered by the board of directors or a committee
of the board of directors, which committee shall, in the case of options
intended to qualify as the "performance-based compensation" within the meaning
of Section 162(m) of the Code, consist of two or more "outside directors" within
the meaning of Section 162(m) of the Code. The board of directors administers
the 2001 Plan with respect to awards granted to non-employee directors. Except
with respect to the automatic grant of options to our non-employee directors,
the administrator has the power to determine the terms of the options granted,
including the exercise price, the number of shares, the exercisability thereof,
and the form of consideration payable upon exercise. The board of directors has
the authority to amend, suspend or terminate the 2001 Plan, provided that the
action may not adversely affect any share of common stock previously issued and
sold or any option previously granted under the 2001 Plan.

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Options and stock purchase rights granted under the 2001 Plan are not
generally transferable by the optionee, and each option and stock purchase right
is generally exercisable during the lifetime of the optionee only by the
optionee. Options granted under the 2001 Plan must generally be exercised within
three months of the optionee's separation of service, or within twelve months of
the optionee's termination by death or disability, but in no event later than
the expiration of the option's ten year term. Options granted under the 2001
Plan generally may be exercised only when vested, however certain options have
been or may be exercised immediately after the grant date, and to the extent the
shares subject to the options are not vested as of the date of exercise, we
retain a right to repurchase any shares that remain unvested at the time of the
optionee's termination of employment by paying an amount equal to the exercise
price times the number of unvested shares. Options granted under the 2001 Plan
generally vest at the rate of 1/4 of the total number of shares subject to the
options on the twelve month anniversary of the date of grant and 1/48 of the
total number of shares subject to the options vest each month thereafter. In the
case of stock purchase rights, unless the administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant us a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service for any reason, including death or disability. The purchase price for
Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to us. The repurchase option shall lapse at a rate
determined by the administrator which is generally equal to 25% per year. The
exercise price of all incentive stock options granted under the 2001 Plan must
be at least equal to the fair market value of the common stock on the date of
grant. The exercise price of nonstatutory stock options granted under the 2001
Plan is determined by the administrator. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option or
must equal at least 110% of the fair market value on the date of grant for
options and the term of any incentive stock option must not exceed five years.
The term of all other options granted under the 2001 Plan may not exceed ten
years.

The 2001 Plan provides for the automatic grant of nonstatutory stock
options to nonemployee directors. The director option component will not become
effective until completion of this offering. Each nonemployee director who first
becomes a board member after the date of this prospectus will be granted options
for 30,000 shares (subject to equitable adjustment in the event of a
reorganization merger, spin-off or other similar event). In addition, each
nonemployee director will be granted options for 7,500 shares (subject to
equitable adjustment in the event of a reorganization merger, spin-off or other
similar event) annually. These automatic grants shall vest in accordance with
the vesting schedule set forth above, however, in the event of a change in
control, these options shall become 100% vested.

Under the 2001 Plan, no individual shall receive options to purchase more
than 1,000,000 shares in any fiscal year (2,000,000 shares in the first year of
an individual's employment with us). No individual shall receive stock purchase
rights covering more than 500,000 shares in any fiscal year (1,000,000 shares in
the first year of an individual's employment with us). These limits are subject
to equitable adjustment in the event of a recapitalization, merger, spin-off or
other similar event.

The 2001 Plan provides that in the event of a merger by us with or into
another corporation or a sale of substantially all of our assets, each option
shall be assumed or an equivalent option substituted by the successor
corporation, unless the administrator decides in its sole discretion that
optionees have the right to exercise some or all of the stock in lieu of
substitution or assumption. If each outstanding option is not assumed or
substituted as described in the preceding sentence, the administrator shall
notify the optionees that each option shall be immediately exercisable and the
option will terminate upon expiration of such period.

2001 Employee Stock Purchase Plan

The 2001 Employee Stock Purchase Plan, or Purchase Plan, was adopted by the
board of directors in June of 2001 and approved by the stockholders in July
2001. A total of 300,000 shares of common stock (subject to equitable adjustment
in the event of a reorganization merger, spin-off or other similar event) has
been reserved for issuance under the Purchase Plan, none of which have been
issued as of the date of

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this offering. The number of shares reserved for issuance under the Purchase
Plan will be increased on the first day of each of our fiscal years by the least
of:

- 675,000 shares;

- 2% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or

- the number of shares (subject to equitable adjustment in the event of a
reorganization, merger, spin off or other similar event) determined by
the board of directors.

The Purchase Plan becomes effective on the date of this prospectus. Unless
terminated earlier by the board of directors, the Purchase Plan shall terminate
on June 30, 2011.

The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of overlapping offering periods of 24
months' duration, with new offering periods, other than the first offering
period, commencing on January 1 and July 1 of each year. Each offering period
will consist of four consecutive purchase periods of six months' duration, and
at the end of each six month period an automatic purchase will be made for
participants. The initial offering period is expected to commence on the date of
this offering and end on June 30, 2003; the initial purchase period is expected
to begin on the date of this offering. The Purchase Plan will be administered by
the board of directors or by a committee appointed by the board. Our employees
(including officers and employee directors), or of any of our majority-owned
subsidiaries designated by the board, are eligible to participate in the
Purchase Plan if we or our subsidiary employs them for at least 20 hours per
week and at least five months per year. Under the Purchase Plan, eligible
employees may purchase common stock through payroll deductions, which in any
event may not exceed 10% of an employee's compensation, at a price equal to the
lower of 85% of the fair market value of the common stock at the beginning of
each offering period or at the end of each purchase period. Employees may reduce
their participation in the Purchase Plan at any time during an offering period
but can only increase or end their participation at the next offering period and
participation ends automatically on termination of employment.

Under the Purchase Plan no employee shall be granted an option if
immediately after the grant the employee would own stock and/or hold outstanding
options to purchase stock equaling 5% or more of the total voting power or value
of all classes of our stock or its subsidiaries. In addition, no employee shall
be granted an option under the Purchase Plan if the option would permit the
employee to purchase stock under all our employee stock purchase plans and our
subsidiaries in an amount that exceeds $25,000 of fair market value for each
calendar year in which the option is outstanding at any time. If the fair market
value of the common stock on a purchase date is less than the fair market value
at the beginning of the offering period, each participant in the Purchase Plan
shall automatically be withdrawn from the offering period as of the end of the
purchase date and re-enrolled in the new twenty-four month offering period
beginning on the first business day following the purchase date.

The Purchase Plan provides that in the event of our merger or consolidation
with or into another corporation or a sale of all or substantially all of our
assets, each right to purchase stock under the Purchase Plan will be assumed or
an equivalent right will be substituted by the successor corporation unless the
board of directors shortens any ongoing offering period so that employees'
rights to purchase stock under the Purchase Plan are exercised prior to
consummation of the transaction. The board of directors has the power to amend
or terminate the Purchase Plan.

401(k) PLAN

We sponsor a 401(k) plan in which eligible employees may participate. The
401(k) plan is intended to qualify under Sections 401(a) and 401(k) of the Code.
Contributions to the 401(k) plan and income earned on such contributions are not
taxable to employees until withdrawn from the 401(k) plan. Subject to
restrictions imposed by the Code on highly compensated employees, employees
generally may defer up to 15% of their pre-tax earnings up to the statutorily
prescribed annual limit, which is $10,500 for the 2001 calendar year, and to
have the amount of such reduction contributed to the 401(k) plan. The 401(k)
plan permits, but does not require, additional matching contributions from us to
the 401(k) plan. Participants'

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salary reduction contributions are fully vested at all times. Each participant's
interest in their employer discretionary contributions and matching
contributions generally vest in accordance with a four-year graduated vesting
schedule. Participants may receive loans and hardship distributions while in
service and are eligible for a distribution from the 401(k) plan upon separation
from service with us. All contributions are tax deductible by us. The trustee
under the 401(k) plan, at the direction of participants, invests the assets of
the 401(k) plan in any of seven designated investment options. To date, we have
not made any matching contributions to the 401(k) plan. The 401(k) plan may be
amended or terminated by us at any time, and in our sole discretion.

CHANGE OF CONTROL ARRANGEMENTS

On July 9, 1998, we entered into a letter agreement with Mr. Melman to act
as our Vice President, Finance and Administration and Chief Financial Officer.
This letter agreement provides that in the event Mr. Melman is terminated
without cause any time after his one-year anniversary with us and there is no
change of control, Mr. Melman will receive six months accelerated vesting of
shares purchased pursuant to an option or restricted stock purchase agreement.
In the event of a change of control, Mr. Melman will receive 24 months
accelerated vesting, regardless of whether his employment is terminated. Change
of control is defined as an event whereby a party or group of parties, different
from those in control of PDF at the time of Mr. Melman's offer, attains a
majority voting right in PDF. Other than as described above, in general, our
employees are not subject to written employment agreements.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

As permitted by the Delaware general corporation law, we have included a
provision in our certificate of incorporation to eliminate the personal
liability of our officers and directors for monetary damages for breach or
alleged breach of their fiduciary duties as officers or directors, other than in
cases of fraud or other willful misconduct.

In addition, our bylaws provide that we are required to indemnify our
officers and directors even when indemnification would otherwise be
discretionary, and we are required to advance expenses to our officers and
directors as incurred in connection with proceedings against them for which they
may be indemnified. We have entered into indemnification agreements with our
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware general
corporation law. The indemnification agreements require us to indemnify our
officers and directors against liabilities that may arise by reason of their
status or service as officers and directors other than for liabilities arising
from willful misconduct of a culpable nature, to advance their expenses incurred
as a result of any proceeding against them as to which they could be
indemnified, and to obtain our directors' and officers' insurance if available
on reasonable terms. We expect to obtain directors' and officers' liability
insurance effective upon completion of this offering.

At present, we are not aware of any pending or threatened litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification would be required or permitted. We believe that our
charter provisions and indemnification agreements are necessary to attract and
retain qualified persons as directors and officers.

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RELATED-PARTY TRANSACTIONS

SALES OF PREFERRED STOCK SECURITIES

On December 4, 1995, we sold 5,833,331 shares of Series A preferred stock
at a price of $0.60 per share to a group of private investors that included the
directors, officers and 5% stockholders listed below. On August 4, 2000, we sold
350,872 shares of Series B preferred stock at a price of $14.25 per share to a
group of private investors that included the directors, officers and 5%
stockholders listed below. Upon completion of this offering, each outstanding
share of Series A preferred stock will automatically convert into one share of
common stock and each outstanding share of Series B preferred stock will
automatically convert into 1.425 shares of common stock, assuming an initial
public offering price that is less than $14.25 per share. Listed below are the
directors, executive officers, and stockholders who beneficially own 5% or more
of our securities who participated in these financings. The Value of Stock at
Initial Public Offering column includes the effect of additional shares to be
issued to Series B preferred stockholders upon conversion into common stock in
the amount of 37,278 shares to entities associated with U.S. Venture Partners
and 13,420 shares to Donald L. Lucas.

VALUE OF STOCK
AT INITIAL
SERIES A     SERIES B     AGGREGATE CASH       PUBLIC
PREFERRED    PREFERRED    CONSIDERATION    OFFERING PRICE
---------    ---------    --------------   --------------

Entities associated with U.S. Venture
Partners..................................  2,500,000      87,718       $2,750,000      $31,499,952
Telos Venture Partners, L.P.................  2,500,000          --        1,500,000       30,000,000
B.J. Cassin.................................    541,666          --          325,000        6,499,992
Donald L. Lucas.............................    125,000      31,578          524,986        2,039,976

U.S. Venture Partners IV, L.P., U.S.V.P. Entrepreneur Partners II, L.P.,
Second Ventures II, L.P. and 2180 Associates Fund are affiliated entities and
together are considered a greater than 5% stockholder. Lucio L. Lanza, one of
our directors, is a former partner of U.S. Venture Partners. Mr. Lanza disclaims
any beneficial ownership of the securities held by those entities, except to the
extent of his proportional interest in the entities. This table also includes
41,666 shares that are held in the name of Cassin Family Partners, A California
Limited Partnership of which Mr. Cassin is a General Partner and 500,000 shares
held in the name of The Cassin Family Trust U/D/T dtd 1/31/96. Mr. Lucas is the
trustee of the Richard M. Lucas Foundation which holds 125,000 shares of Series
A preferred stock. Mr. Lucas disclaims beneficial ownership of these shares
except for 25,765 shares which the foundation has agreed to assign to him. This
table also includes 21,052 shares of Series B preferred stock held in the name
of Donald L. Lucas Profit Sharing Trust and 10,526 shares held in the name of
Teton Capital Company, which are beneficially owned by Mr. Lucas. Mr. Lucas
disclaims beneficial ownership of all shares held in the name of Teton Capital
Company. The "Value of Stock at Initial Public Offering Price" column data is
calculated based on an assumed initial public offering price of $12.00 per
share.

LOANS TO, AND OTHER ARRANGEMENTS WITH, OFFICERS AND DIRECTORS

We have an early exercise provision under our 1996 Stock Option Plan and
1997 Stock Plan which allows our optionholders and holders of stock purchase
rights to purchase shares of stock underlying unvested options, subject to our
own repurchase right. In addition, we have an employee loan program which allows
employees to borrow the full exercise price of their options or stock purchase
rights from us by signing a full recourse promissory note bearing interest at
the applicable federal rate in the month of purchase. The following officers
have participated in the loan program:

- In connection with his purchase of 1,264,096 shares of common stock on
December 1, 1995, we loaned approximately $15,000 to Thomas Cobourn under
a four year, 5.83% promissory note. The term of this note was extended
for two years in 1999 at a rate of 5.93%. In connection with his purchase
of 26,666 shares of common stock on July 14, 2000, we loaned $80,000 to
Mr. Cobourn under a four year, 6.62% promissory note. These notes are
full recourse notes secured by pledges of

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the shares of common stock purchased. At March 31, 2001 his indebtedness
plus accrued interest totaled approximately $104,000.

- In connection with his purchase of 1,648,516 shares of common stock on
December 1, 1995, we loaned approximately $20,000 to Kimon Michaels under
a four year, 5.83% promissory note. The term of this note was extended
for two years in 1999 at a rate of 5.93%. In connection with his purchase
of 40,000 shares of common stock on July 14, 2000, we loaned $120,000 to
Mr. Michaels under a four year, 6.62% promissory note. These notes are
full recourse notes secured by pledges of the shares of common stock
purchased. At March 31, 2001 his indebtedness plus accrued interest
totaled approximately $153,000.

- In connection with his purchase of 200,000 shares of common stock on
August 25, 1998, we loaned approximately $30,000 to P. Steven Melman
under a four year, 5.47% promissory note. In connection with his purchase
of 33,333 shares of common stock on July 14, 2000, we loaned $100,000 to
Mr. Melman under a four year, 6.62% promissory note. These notes are full
recourse notes secured by pledges of the shares of common stock
purchased. At March 31, 2001 his indebtedness plus accrued interest
totaled approximately $139,000.

- In connection with his purchase of 166,666 shares of common stock on
October 5, 1998, we loaned $25,000 to P.K. Mozumder under a four year,
5.47% promissory note. In connection with his purchase of 40,000 shares
of common stock on July 13, 2000, we loaned $120,000 to Mr. Mozumder
under a four year, 6.62% promissory note. These notes are full recourse
notes secured by pledges of the shares of common stock purchased. At
March 31, 2001 his indebtedness plus accrued interest totaled
approximately $154,000.

- In connection with his purchase of 200,000 shares of common stock on
December 4, 1998 we loaned $75,000 to David A. Joseph under a four year,
4.46% promissory note. In connection with his purchase of 33,333 shares
on September 20, 1999 we loaned $12,500 to David Joseph under a four
year, 4.46% promissory note and in connection with his purchase of 53,333
shares of common stock on July 14, 2000, we loaned $160,000 to Mr. Joseph
under a four year, 6.62% promissory note. These notes are full recourse
notes secured by pledges of the shares of common stock purchased. At
March 31, 2001 his indebtedness plus accrued interest totaled
approximately $264,000.

- In connection with his purchase of 116,666 shares of common stock on
February 24, 2000, we loaned approximately $61,000 to W. Steven Rowe
under a four year, 6.69% promissory note. This note is a full recourse
note secured by a pledge of the shares of common stock purchased. At
March 31, 2001 his indebtedness plus accrued interest totaled
approximately $66,000.

- In connection with his purchase of 26,666 shares of common stock on July
13, 2000, we loaned $80,000 to David Tarpley under a four year, 6.62%
promissory note. This note is a full recourse note secured by a pledge of
the shares of common stock purchased. At March 31, 2001 his indebtedness
plus accrued interest totaled approximately $84,000.

- In connection with his purchase of 200,000 shares of common stock on July
14, 2000, we loaned $600,000 to John K. Kibarian under a four year, 6.62%
promissory note. This note is a full recourse note secured by pledges of
the shares of common stock purchased. At March 31, 2001 his indebtedness
plus accrued interest totaled approximately $629,000.

OTHER TRANSACTIONS

We have granted options to some of our officers and directors. Please see
"Management -- Executive Compensation," "Management -- Director Compensation"
and "Principal Stockholders."

We have entered into indemnification agreements with each of our executive
officers and directors. Please see "Management -- Limitation of Liability and
Indemnification Matters."

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Holders of preferred stock are entitled to registration rights with respect
to common stock issued or issuable upon conversion of the preferred stock.
Please see "Description of Capital Stock -- Registration Rights."

We believe that all related-party transactions described above were made on
terms no less favorable to us than could have been otherwise obtained from
unaffiliated third parties.

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PRINCIPAL STOCKHOLDERS

The following table sets forth information known to us regarding beneficial
ownership of our common stock as of March 31, 2001 by:

- each person known by us to beneficially own more than 5% of the
outstanding common stock;

- each of our executive officers listed on the Summary Compensation Table
under "Management;"

- each of our directors; and

- all of our executive officers and directors as a group.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to securities. All shares of common stock subject to options exercisable
within 60 days following March 31, 2001 are deemed to be outstanding and
beneficially owned by the persons holding those options for the purpose of
computing the number of shares beneficially owned and the percentage of
ownership of that person. They are not, however, deemed to be outstanding and
beneficially owned for the purpose of computing the percentage ownership of any
other person. Except as otherwise indicated the address for each person listed
as a director or officer is c/o PDF Solutions, Inc., 333 West San Carlos Street,
Suite 700, San Jose, CA 95110. Unless otherwise indicated in the footnotes, each
person or entity has sole voting and investment power, or shares such powers
with his or her spouse, with respect to the shares shown as beneficially owned.

Percentage of beneficial ownership prior to this offering is based on
17,206,611 common stock outstanding as of March 31, 2001, after giving effect to
the conversion of the outstanding preferred stock. Percentage of beneficial
ownership after this offering is based on 22,206,611 shares of common stock to
be outstanding after completion of this offering and completion of the
concurrent private placement, assuming no exercise of the underwriters'
over-allotment option.

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PERCENTAGE OF SHARES
OUTSTANDING
NUMBER OF      ---------------------
SHARES       PRIOR TO      AFTER
BENEFICIALLY      THIS        THIS
BENEFICIAL OWNER                           OWNED        OFFERING    OFFERING
----------------                        ------------    --------    ---------

5% STOCKHOLDERS:
Funds affiliated with U.S. Venture Partners(1)..............    2,624,996       15.3%       11.8%
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Telos Venture Partners, L.P.(2).............................    2,500,000       14.5        11.3
835 Page Mill Road
Palo Alto, CA 94303
EXECUTIVE OFFICERS AND DIRECTORS:
John K. Kibarian(3).........................................    2,782,422       16.2        12.5
Lucio L. Lanza(4)...........................................    2,624,996       15.3        11.8
Kimon Michaels(5)...........................................    1,688,516        9.8         7.6
Thomas Cobourn(6)...........................................    1,290,762        7.5         5.8
B.J. Cassin(7)..............................................      541,666        3.1         2.4
3000 Sand Hill Road
Building 3, Suite 210
Menlo Park, CA 94025
David A. Joseph(8)..........................................      286,666        1.7         1.3
David Tarpley(9)............................................      246,664        1.4         1.1
P. Steven Melman(10)........................................      233,333        1.4         1.1
Donald L. Lucas(11).........................................      219,998        1.3           *
3000 Sand Hill Road
Building 3, Suite 210
Menlo Park, CA 94025
P.K. Mozumder(12)...........................................      206,666        1.2           *
W. Steven Rowe(13)..........................................      116,666          *           *
All executive officers and directors as a group (11            10,238,355       59.5        46.1
persons)(14)..............................................

---------------
*  Less than 1%

(1) U.S. Venture Partners IV, L.P., U.S.V.P. Entrepreneur Partners II, L.P.,
Second Ventures II, L.P. and 2180 Associates Fund are affiliated entities
and together are considered a greater than 5% stockholder. The general
partner of each of these entities is Presidio Management Group IV, L.P., or
PMG. The general partners of PMG are William K. Bowes, Jr., Irwin Federman,
Steven M. Krausz and Philip M. Young. Each of these persons may be deemed
to share voting and dispositive control over the shares, but each disclaims
beneficial ownership therein except to the extent of their pecuniary
interest therein as a result of their respective interests in PMG. Lucio L.
Lanza, one of our directors, is a former partner of U.S. Venture Partners.
Mr. Lanza disclaims any beneficial ownership of the securities held by
those entities, except to the extent of his proportional interest in the
entities.

(2) Voting and dispositive power over these shares is held by Telos Management
LLC which is the general partner of Telos Venture Partners, L.P. The
managing members of Telos Management LLC are Bruce Bourbon, Athanasios
Kalekos and Paul Asel. Mr. Bourbon votes the shares after consultation with
the other two managing members.

(3) Includes 3,333 shares each issued in the names of Johanna Aznif
Chilingarian, as custodian for Ani Maritsa Chilingarian under the
Massachusetts Uniform Transfers to Minors Act and Johanna Aznif
Chilingarian, as custodian for Berj Krikor Chilingarian under the
Massachusetts Uniform Transfers to Minors Act, each of whom are family
members of Mr. Kibarian. Mr. Kibarian disclaims

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beneficial ownership of these shares. Includes 162,501 unvested shares
subject to our right to repurchase upon termination of employment.

(4) Includes 2,624,996 shares of stock held by U.S. Venture Partners IV, L.P.,
U.S.V.P. Entrepreneur Partners II, L.P., Second Ventures II, L.P. and 2180
Associates Fund are all affiliates of U.S. Venture Partners, of which Mr.
Lanza is a former partner. Mr. Lanza disclaims any beneficial ownership of
the securities held by those entities, except to the extent of his
proportional interest in the entities.

(5) Includes 3,333 shares each issued in the names of Lee W. Michaels, William
N. Michaels, and Christine S. Michaels, each of whom is an adult family
member of Mr. Michaels. Mr. Michaels disclaims beneficial ownership of
these shares. Includes 25,001 unvested shares subject to our right to
repurchase upon termination of employment.

(6) Includes 66,667 shares held in the name of the Thomas F. Coburn 2001
Grantor Retained Annuity Trust dated June 25, 2001 and 16,667 unvested
shares subject to our right to repurchase upon termination of employment.

(7) Includes 41,666 shares held in the name of Cassin Family Partners, A
California Limited Partnership and 500,000 shares held in the name of The
Cassin Family Trust U/D/T dtd 1/31/96.

(8) Includes 154,724 unvested shares subject to our right to repurchase upon
termination of employment.

(9) Includes 5,333 shares each issued in the names of Scott David Tarpley,
Andrew Neil Tarpley and Jeffrey John Tarpley, each of whom is an adult
child of Mr. Tarpley. Mr. Tarpley disclaims beneficial ownership of these
shares. Includes 22,222 unvested shares subject to our right to repurchase
upon termination of employment.

(10) Includes 100,001 unvested shares subject to our right to repurchase upon
termination of employment.

(11)Includes 125,000 shares held by the Richard M. Lucas Foundation of which Mr.
Lucas is a trustee. Mr. Lucas disclaims beneficial ownership of these shares
except as to 25,765 shares which the foundation has agreed to assign to him.
Also includes 21,052 shares held in the name of the Donald L. Lucas Profit
Sharing Trust and 10,526 shares held in the name of Teton Capital Company.
Also includes 37,500 unvested shares subject to our right to repurchase upon
termination of service. Mr. Lucas disclaims beneficial ownership of all
shares held in the name of Teton Capital Company.

(12) Includes 88,613 unvested shares subject to our right to repurchase upon
termination of employment.

(13) Includes 85,070 unvested shares subject to our right to repurchase upon
termination of employment.

(14) Includes an aggregate of 692,298 unvested shares which are subject to our
right to repurchase upon termination of employment or service.

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DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, we will be authorized to issue
75,000,000 shares of common stock, $0.00015 par value per share, and 5,000,000
shares of undesignated preferred stock, $0.00015 par value per share. All
currently outstanding shares of preferred stock will be converted into common
stock upon the closing of this offering.

COMMON STOCK

As of March 31, 2001, there were 17,206,611 shares of common stock
outstanding, as adjusted to give effect to the automatic conversion of all
outstanding shares of preferred stock upon completion of this offering, held of
record by approximately 155 stockholders. Options and rights to purchase 369,689
shares of common stock were also outstanding. Additionally, we currently intend
to grant options to purchase at least 650,000 shares to new and existing
employees prior to completion of this offering. There will be 22,206,611 shares
of common stock outstanding, assuming no exercise of the underwriter's
overallotment option or exercise of outstanding options under our stock option
plans after March 31, 2001, after giving effect to the sale of the shares in
this offering and completion of the concurrent private placement.

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of our liquidation, dissolution or
winding, the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to the prior distribution rights
of any outstanding preferred stock. The common stock has no preemptive or
conversion rights or other subscription rights. The outstanding shares of common
stock are, and the shares of common stock to be issued upon completion of this
offering will be, fully paid and non-assessable.

PREFERRED STOCK

Upon the closing of the offering, all outstanding shares of preferred stock
will be converted into 6,333,318 shares of common stock and automatically
retired, assuming an initial public offering price of $12.00 per share. Each
share of Series A preferred stock will be converted into one share of common
stock and each share of Series B preferred stock will be converted into 1.425
shares of common stock, assuming an initial public offering price that is less
than $14.25 per share. Thereafter, the board of directors will have the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock, $0.00015 par value, in one or more series. The board
of directors will also have the authority to designate the rights, preferences,
privileges and restrictions of each such series, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series.

The issuance of preferred stock may have the effect of delaying, deferring
or preventing a change in control of us without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may also adversely affect the voting power of the holders of common stock. In
some circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. As of the closing of the
offering, no shares of preferred stock will be outstanding. We currently have no
plans to issue any shares of preferred stock.

WARRANTS

At March 31, 2001, there were no warrants outstanding to purchase our
common or preferred stock.

REGISTRATION RIGHTS

The holders of 12,416,644 shares of common stock (assuming the conversion
of all outstanding preferred stock upon completion of this offering and
completion of the concurrent private placement) or

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their transferees are entitled to rights with respect to the registration of
such shares under the Securities Act. These rights are provided under the terms
of an agreement between us and the holders of these securities. Subject to
limitations in the agreement, the holders of at least 50% of these securities
then outstanding may require, on two occasions beginning six months after the
date of this prospectus, that we use our best efforts to register these
securities for public resale if Form S-3 is not available. If we register any of
our common stock either for our own account or for the account of other security
holders, the holders of registrable securities are entitled to include their
shares of common stock in that registration. A holder's right to include shares
in an underwritten registration is subject to the ability of the underwriters to
limit the number of shares included in this and other offerings, and in the case
of our initial public offering, the underwriters may preclude any participation
by holders of registrable securities. The holders of at least 50% of these
securities then outstanding may also require us, not more than once in any
twelve-month period, to register all or a portion of these securities on Form
S-3 when the use of that form becomes available to us, provided, among other
limitations, that the proposed aggregate selling price, net of any underwriters'
discounts or commissions, would exceed $1.0 million. Under the same agreement,
Applied Materials has one right to require us to register one half of its shares
on Form S-3 when the use of that form becomes available to us, provided that it
may only require us to do so if the proposed aggregate offering price, net of
underwriters' discounts or commissions would exceed $1.0 million. We will be
responsible for paying all registration expenses, and the holders selling their
shares will be responsible for paying all selling expenses.

DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS

Provisions of Delaware law and our charter documents could make our
acquisition and the removal of incumbent officers and directors more difficult.
These provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of us to negotiate with us first. We believe that the benefits
of increased protection of our potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure us outweighs
the disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.

We are subject to the provisions of Section 203 of the Delaware law. In
general, the statute prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless, subject to exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior, did
own, 15% or more of the corporation's voting stock. These provisions may have
the effect of delaying, deferring or preventing a change in control of us
without further action by the stockholders.

Our Amended and Restated Certificate of Incorporation provides that
stockholder action can be taken only at an annual or special meeting of
stockholders and may not be taken by written consent. The Bylaws provide that
special meetings of stockholders can be called only by the board of directors,
the chairman of the board, if any, the president and holders of 50% of the votes
entitled to be cast at a meeting. Moreover, the business permitted to be
conducted at any special meeting of stockholders is limited to the business
brought before the meeting by the board of directors, the chairman of the board,
if any, the president or any such 50% holder. The bylaws set forth an advance
notice procedure with regard to the nomination, other than by or at the
direction of the board of directors, of candidates for election as directors and
with regard to business to be brought before a meeting of stockholders.

CONCURRENT PRIVATE PLACEMENT

On June 28, 2001, we entered into a common stock purchase agreement with
Applied Materials, Inc., or Applied Materials, under which we agreed to sell to
Applied Materials 500,000 shares of our common

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stock (or such lesser amount of shares having a maximum aggregate purchase price
of $10.0 million) in a private placement concurrent with and conditioned upon
the sale of shares in this offering. The price per share in the concurrent
private placement will be equal to the public offering price on the cover page
of the prospectus.

Transfer Restrictions. Applied Materials has agreed not to sell, transfer,
encumber or otherwise dispose of one half of the shares purchased in the
concurrent private placement in a public or private sale for a minimum period of
12 months following the closing of the offering. The remaining shares purchased
by Applied Materials in the concurrent private placement will be subject to
transfer restrictions for a period ranging from two to seven years following the
closing of the offering, depending upon the achievement of performance-based
milestones in connection with anticipated commercial agreements.

Registration Rights. We have granted Applied Materials registration rights
relating to one half of the shares of common stock they will purchase in the
concurrent private placement. See "-- Registration Rights."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is Boston EquiServe.
The transfer agent's address is c/o Shareholder Services, 150 Royale Street,
Canton, MA 02021.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Furthermore, since only a limited
number of shares will be available for sale shortly after this offering because
of certain contractual and legal restrictions on resale, sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and our ability to raise
equity capital in the future.

Upon completion of the offering and the concurrent private placement, we
will have outstanding 22,206,611 shares of common stock, assuming no exercise of
outstanding options after March 31, 2001. Of these shares, the 5,000,000 shares
sold in the offering and the concurrent private placement, plus any shares
issued upon exercise of the underwriters' overallotment option, will be freely
tradable without restriction under the Securities Act, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act, which
generally includes officers, directors or 10% stockholders.

The remaining 17,206,611 shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. These shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act, which are summarized below. Sales of these shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the common stock.

Our stockholders have entered into lock-up agreements generally providing
that they will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction which would have the same effect, or enter into
swap, hedge or other arrangement that transfers, in whole or part, any of the
economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, or to enter into any such
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus. As a result of these contractual
restrictions, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements
will not be salable until such agreements expire or are waived. Taking into
account the lock-up agreements, and assuming Credit Suisse First Boston
Corporation does not release stockholders from these agreements, the following
shares will be eligible for sale in the public market at the following times:

- Beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market.

- Beginning 180 days after the effective date, approximately 15,715,207
shares will be eligible for sale pursuant to Rule 701 and pursuant to
Rule 144.

- An additional 1,491,404 shares will be eligible for sale on various dates
following the 181st day after the effective date of this offering,
subject to compliance with the provisions of Rule 144 or Rule 701 or
pursuant to a registration statement on Form S-8.

- A private placement of 500,000 shares (or such lesser amount of shares
having a maximum aggregate purchase price of $10.0 million) will occur
concurrent with the closing of this offering, one half of which will
become eligible for sale in the public market beginning one year from the
date of this prospectus pursuant to Rule 144. The remaining half of the
shares purchased in the concurrent private placement will become eligible
for sale as early as two years or as late as seven years following the
closing of this offering. See "-- Concurrent Private Placement -- Transfer
Restrictions."

Outstanding options and rights to purchase an additional 369,689 shares
plus at least an additional 650,000 options we currently intend to grant to new
and existing employees prior to completion of this

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offering will be exercisable and eligible for sale on various dates following
the 181st day after the effective date of this offering.

In general, under Rule 144 as currently in effect, and beginning after the
expiration of the lock-up agreements, or 180 days after the date of this
prospectus, of a person who has beneficially owned restricted securities for at
least one year would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of: (1) one percent of the number of
shares of common stock then outstanding, which will equal approximately 222,066
shares immediately after the offering; or (2) the average weekly trading volume
of the common stock during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

The holders of approximately 12,416,644 shares of our common stock or their
transferees are also entitled to rights with respect to registration of their
shares of common stock for offer or sale to the public. If the holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, the sales could have a material
adverse effect on the market price for our common stock.

As a result of the lock-up agreements, all of our employees holding common
stock or stock options may not sell shares acquired upon exercise until 180 days
after the effective date. Beginning 180 days after the effective date, any of
our employees, officers or directors or consultants who purchased shares
pursuant to a written compensatory plan or contract may be entitled to rely on
the resale provisions of Rule 701. Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
such shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.

In addition, we intend to file registration statements under the Securities
Act as promptly as possible after the effective date to register shares to be
issued pursuant to our employee benefit plans. As a result, any options
exercised under any of our benefit plans after the effectiveness of such
registration statement will also be freely tradable in the public market, except
that shares held by affiliates will still be subject to the volume limitation,
manner of sale, notice and public information requirements of Rule 144 unless
otherwise resalable under Rule 701. As of March 31, 2001, there were outstanding
stock purchase rights and options for the purchase of 369,689 shares, of which
43,852 shares were exercisable. No shares have been issued to date under our
2001 Employee Stock Purchase Plan and 2000 Stock Plan. See "Shares Eligible for
Future Sale," "Management -- Benefit Plans" and "Description of Capital Stock --
Registration Rights."

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UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated                     , 2001, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Robertson Stephens, Inc. and Dain Rauscher Incorporated are acting as
representatives, the following respective numbers of shares of common stock:

NUMBER OF
SHARES
UNDERWRITER                           ---------

Credit Suisse First Boston Corporation......................
Robertson Stephens, Inc. ...................................
Dain Rauscher Incorporated..................................

---------
Total.....................................................  4,500,000
=========

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 675,000 additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $     per share. The
underwriters and selling group members may allow a discount of $     per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.

The following table summarizes the compensation and estimated expenses we
will pay.

PER SHARE                           TOTAL
-------------------------------   -------------------------------
WITHOUT            WITH           WITHOUT            WITH
OVER-ALLOTMENT   OVER-ALLOTMENT   OVER-ALLOTMENT   OVER-ALLOTMENT
--------------   --------------   --------------   --------------

Underwriting discounts and commissions
paid
by us...................................     $                $                $                $
Expenses payable by us..................     $                $                $                $

The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

In addition, Credit Suisse First Boston Corporation is acting as the
placement agent for the concurrent private placement with Applied Materials, and
will receive a customary fee for its services. See "Description of Capital
Stock -- Concurrent Private Placement."

We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act of 1933 (the "Securities Act")
relating to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.

Our officers, directors and some of our other stockholders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities convertible
into or exchangeable or exercisable for any shares of our common stock, enter
into a

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transaction that would have the same effect, or enter into swap, hedge or other
arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock, whether any of these transactions
are to be settled by delivery of our common stock or other securities, in cash
or otherwise, or publicly disclose the intention to make any such offer, sale,
pledge or disposition, or to enter into any such transaction, swap, hedge or
other arrangement, without, in each case, the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus.

The underwriters have reserved for sale, at the initial public offering
price up to 225,000 shares of the common stock for employees, directors and some
other persons associated with us, who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in that respect.

We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "PDFS."

Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters and will not necessarily reflect the market
price of the common stock following the offering. The principal factors that
will be considered in determining the public offering price will include:

- the information in this prospectus and otherwise available to the
underwriters;

- market conditions for initial public offerings;

- the history and the prospects for the industry in which we will compete;

- the ability of our management;

- the prospects for our future earnings;

- the present state of our development and our current financial condition;

- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and

- the general condition of the securities markets at the time of this
offering.

We can offer no assurances that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to the offering or that an active trading market for the
common stock will develop and continue after the offering.

In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934 (the "Exchange Act").

- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may

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close out any short position by either exercising their over-allotment
option and/or purchasing shares in the open market.

- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option, a naked short position, the
position can only be closed out by buying 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 shares
in the open market after pricing that could adversely affect investors
who purchase in the offering.

- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of our common
stock or preventing or retarding a decline in the market price of the common
stock. As a result, the price of our common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations. Credit Suisse First Boston Corporation may effect an
on-line distribution through its affiliate, CSFBdirect Inc., an on-line
broker/dealer, as a selling group member.

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NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are made. Any resale of the common stock in Canada must
be made under applicable securities laws, which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the common stock.

REPRESENTATIONS OF PURCHASERS

By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:

- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws,

- where required by law, that the purchaser is purchasing as principal and
not as agent, and

- the purchaser has reviewed the text above under Resale Restrictions.

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. The report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
for Shares acquired on the same date and under the same prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of common stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.

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TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Orrick, Herrington & Sutcliffe LLP, Menlo Park, California. Peter Cohn, a
partner of Orrick, Herrington & Sutcliffe LLP, is our Secretary. The
underwriters are represented by Wilson Sonsini Goodrich & Rosati, Palo Alto,
California. As of the completion of this offering, Orrick, Herrington &
Sutcliffe LLP and partners in that firm beneficially own an aggregate of 14,996
shares of our common stock.

EXPERTS

The Consolidated Financial Statements of PDF Solutions, Inc. as of December
31, 1999 and 2000 and for each of the three years in the period ended December
31, 2000, included in this prospectus and the related financial statement
schedule included elsewhere in the registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and have been so
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.

The financial statements of Applied Integrated Systems and Software
Entwicklungs-, Produktions-und Vertriebs GmbH ("AISS") as of December 31, 1999
and for the year ended December 31, 1999, included in this prospectus have been
audited by Deloitte & Touche GmbH Wirtschaftsprufungsgesellschaft, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

WHERE TO FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus is materially complete, although additional
information is set forth in the Registration Statement and the exhibits and
schedules. For further information with respect to us and the common stock
offered hereby, reference is made to the Registration Statement and to the
exhibits and schedules. With respect to each such document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved. The Registration Statement and the
exhibits and schedules may be inspected without charge at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, NY 10048, and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any part of the Registration Statement may be obtained from the SEC's
offices upon payment of fees prescribed by the SEC. The SEC maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.

67

70

PDF SOLUTIONS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

PDF SOLUTIONS, INC.:
Independent Auditors' Report..............................   F-2
Consolidated Balance Sheets as of December 31, 1999 and
2000 and March 31, 2001 (Unaudited)....................   F-3
Consolidated Statements of Operations for each of the
Three Years in the Period Ended December 31, 2000 and
for the Three Months Ended March 31, 2000 and 2001
(Unaudited)............................................   F-4
Consolidated Statements of Shareholders' Deficiency for
each of the Three Years in the Period Ended December
31, 2000 and for the Three Months Ended March 31, 2001
(Unaudited)............................................   F-5
Consolidated Statements of Cash Flows for the each of the
Three Years in the Period Ended December 31, 2000 and
for the Three Months Ended March 31, 2000 and 2001
(Unaudited)............................................   F-6
Notes to Consolidated Financial Statements................   F-7

APPLIED INTEGRATED SYSTEMS AND SOFTWARE GmbH:
Independent Auditors' Report..............................  F-23
Balance Sheets as of December 31, 1999 and March 31, 2000
(Unaudited)............................................  F-24
Income Statements for the Year Ended December 31, 1999 and
for the Three Months Ended March 31, 1999 and 2000
(Unaudited)............................................  F-25
Statements of Shareholders' Equity (Deficiency) for the
Year Ended December 31, 1999 and for the Three Months
Ended March 31, 2000 (Unaudited).......................  F-26
Statements of Cash Flows for the Year Ended December 31,
1999 and for the Three Months Ended March 31, 1999 and
2000 (Unaudited).......................................  F-27
Notes to Financial Statements.............................  F-28

PRO FORMA:
Unaudited Pro Forma Consolidated Statements of
Operations.............................................  F-34
Unaudited Pro Forma Consolidated Statements of Operations
for the Year Ended December 31, 2000...................  F-35
Notes to Unaudited Pro Forma Consolidated Statements of
Operations.............................................  F-36

F-1

71

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
of PDF Solutions, Inc.

We have audited the accompanying consolidated balance sheets of PDF
Solutions, Inc. and subsidiaries (collectively, the "Company") as of December
31, 1999 and 2000 and the related consolidated statements of operations,
shareholders' deficiency, and cash flows for each of the three years in the
period ended December 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1999 and 2000 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

San Jose, California
January 19, 2001

(July 6, 2001 as to the third

paragraph of Note 12)

F-2

72

PDF SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,                          PRO FORMA
-------------------------    MARCH 31,      MARCH 31,
1999          2000           2001           2001
----------   ------------   ------------   ------------
(UNAUDITED)
(NOTE 1)

ASSETS
Current assets:
Cash and cash equivalents.................................  $1,932,923   $  7,625,404   $  6,866,274
Accounts receivable, net of allowances of $144,000 in
1999, and $192,000 in 2000 and 2001.....................   2,749,174      3,950,146      4,122,579
Prepaid expenses and other current assets.................      58,714        576,250        586,251
----------   ------------   ------------
Total current assets....................................   4,740,811     12,151,800     11,575,104
Property and equipment, net.................................     822,026      1,561,402      1,786,729
Intangible assets, net......................................          --      1,669,935      1,544,689
Other assets................................................      81,498        131,332        127,385
----------   ------------   ------------
Total assets............................................  $5,644,335   $ 15,514,469   $ 15,033,907
==========   ============   ============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable..........................................  $  730,232   $  1,143,080   $  1,247,302
Accrued compensation and related benefits.................   1,152,956      2,362,443      1,691,064
Other accrued liabilities.................................     213,690        984,645        792,825
Taxes payable.............................................     130,000         15,397         27,467
Deferred revenues.........................................     345,992      1,870,027      2,222,589
Billings in excess of recognized revenue..................          --      1,052,513      1,193,700
Notes payable.............................................          --        995,000        995,000
Current portion of long-term debt.........................      15,379         21,491         28,047
----------   ------------   ------------
Total current liabilities...............................   2,588,249      8,444,596      8,197,994
----------   ------------   ------------
Long-term debt..............................................      71,616         55,947         43,249
Deferred tax liability......................................          --        532,263        493,796
Deferred rent...............................................                     50,821         56,690
Series A convertible preferred stock, $0.00015 par value,
5,833,333 shares authorized; shares issued and
outstanding: 5,833,331 in 1999, 2000 and 2001; none pro
forma (liquidation preference of $3,500,000)..............   3,496,558      3,496,558      3,496,558             --
Series B convertible preferred stock, $0.00015 par value,
366,667 shares authorized; issued and outstanding: 350,872
in 2000 and 2001; none pro forma (liquidation preference
of $5,000,000)............................................          --      4,960,000      4,960,000             --
Commitments and contingencies (Notes 4 and 13)
Shareholders' equity (deficiency):
Common stock, $0.00015 par value, 33,333,333 shares
authorized; shares issued and outstanding 7,326,539 in
1999, 10,903,174 in 2000, 10,873,293 in 2001; 17,206,611
pro forma...............................................       1,099          1,635          1,631   $      2,559
Additional paid-in capital................................     537,199     25,386,369     25,088,609     35,163,519
Deferred stock-based compensation.........................     (43,406)   (11,882,070)    (9,087,360)    (9,087,360)
Notes receivable from shareholders........................    (225,261)    (5,645,632)    (5,577,757)    (5,577,757)
Accumulated deficit.......................................    (781,719)    (9,878,447)   (12,622,005)   (14,241,285)
Cumulative other comprehensive loss.......................          --         (7,571)       (17,498)       (17,498)
----------   ------------   ------------   ------------
Total shareholders' equity (deficiency).................    (512,088)    (2,025,716)    (2,214,380)  $  6,242,178
==========   ============   ============   ============
Total liabilities and shareholders' equity
(deficiency)..........................................  $5,644,335   $ 15,514,469   $ 15,033,907
==========   ============   ============

See notes to consolidated financial statements.

F-3

73

PDF SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31,                    MARCH 31,
----------------------------------------    --------------------------
1998          1999           2000           2000           2001
----------    -----------    -----------    -----------    -----------
(UNAUDITED)

Revenue:
Design-to-silicon yield
solutions......................  $6,227,249    $10,566,597    $15,538,325    $ 2,193,674    $ 5,752,838
Gain share.......................          --      1,257,000      4,597,000      1,500,000      1,781,134
----------    -----------    -----------    -----------    -----------
Total revenue..................   6,227,249     11,823,597     20,135,325      3,693,674      7,533,972
----------    -----------    -----------    -----------    -----------
Costs and expenses:
Cost of design-to-silicon yield
solutions......................   1,532,620      4,090,649      6,915,001      1,251,982      2,555,935
Research and development.........   1,863,808      3,086,825      6,418,173        946,206      2,657,071
Selling, general and
administrative.................   2,959,504      4,294,521      7,332,857      1,445,587      2,454,384
Offering costs...................          --             --      1,257,617             --             --
Stock-based compensation
amortization*..................      61,317         68,282      7,292,300        458,358      2,556,866
----------    -----------    -----------    -----------    -----------
Total costs and expenses.......   6,417,249     11,540,277     29,215,948      4,102,133     10,224,256
----------    -----------    -----------    -----------    -----------
Income (loss) from operations......    (190,000)       283,320     (9,080,623)      (408,459)    (2,690,284)
Interest and other income..........     127,598        105,021        346,895         17,367        131,906
----------    -----------    -----------    -----------    -----------
Income (loss) before taxes.........     (62,402)       388,341     (8,733,728)      (391,092)    (2,558,378)
Tax provision......................     341,492        533,087        363,000        107,000        185,180
----------    -----------    -----------    -----------    -----------
Net loss...........................  $ (403,894)   $  (144,746)   $(9,096,728)   $  (498,092)   $(2,743,558)
==========    ===========    ===========    ===========    ===========
Net loss per share -- basic and
diluted (Note 1).................  $    (0.08)   $     (0.02)   $     (1.24)   $     (0.07)   $     (0.34)
==========    ===========    ===========    ===========    ===========
Shares used in computing basic and
diluted net loss per share (Note
1)...............................   4,943,906      6,085,562      7,356,221      6,796,536      8,064,375
==========    ===========    ===========    ===========    ===========
Unaudited pro forma net loss per
share -- basic and diluted (Note
1)...............................                               $     (0.68)                  $     (0.19)
===========                   ===========
Shares used in computing unaudited
pro forma basic and diluted net
loss per share (Note 1)..........                                13,393,649                    14,397,693
===========                   ===========
*Stock-based compensation
amortization:
Cost of design-to-silicon yield
solutions......................  $   18,395    $    20,485    $ 1,714,866    $    42,254    $   718,641
Research and development.........      42,922         47,797      4,015,978        355,453      1,181,109
Selling, general and
administrative.................          --             --      1,561,456         60,651        657,116
----------    -----------    -----------    -----------    -----------
$   61,317    $    68,282    $ 7,292,300    $   458,358    $ 2,556,866
==========    ===========    ===========    ===========    ===========

See notes to consolidated financial statements.

F-4

74

PDF SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY

NOTES
COMMON STOCK       ADDITIONAL      DEFERRED      RECEIVABLE    ACCUMULATED
-------------------     PAID-IN        STOCK           FROM         EARNINGS
SHARES     AMOUNT     CAPITAL     COMPENSATION   SHAREHOLDERS    (DEFICIT)
----------   ------   -----------   ------------   ------------   ------------

Balances, January 1, 1998...........   5,833,331   $ 875    $   153,433   $    (36,617)  $   (39,011)   $   (233,079)
Exercise of options.................   1,267,302     190        215,093                     (198,750)
Compensatory stock arrangements for
non-employees, primarily
remeasurement.....................                             99,674        (99,674)
Amortization of non-employee stock-
based compensation................                                            61,317
Net loss............................                                                                        (403,894)
----------   ------   -----------   ------------   -----------    ------------
Balances, December 31, 1998.........   7,100,633   1,065        468,200        (74,974)     (237,761)       (636,973)
Collection of notes receivable from
shareholders......................                                                           6,772
Repurchase of common stock through
cancellation of note receivable...    (121,520)    (18)       (18,210)                      18,228
Exercise of options.................     347,426      52         50,495                      (12,500)
Compensatory stock arrangements for
non-employees, primarily
remeasurement.....................                             36,714        (36,714)
Amortization of non-employee stock-
based compensation................                                            68,282
Net loss............................                                                                        (144,746)
----------   ------   -----------   ------------   -----------    ------------
Balances, December 31, 1999.........   7,326,539   1,099        537,199        (43,406)     (225,261)       (781,719)
Collection of notes receivable from
shareholders......................                                                           8,999
Exercise of options.................   3,440,070     516      5,757,226                   (5,478,370)
Repurchase of common stock through
cancellation of note receivable...     (30,093)     (5)       (48,995)                      49,000
Compensatory stock arrangements for
non-employees.....................                            376,544       (376,544)
Remeasurement of compensatory stock
arrangements for non-employees....                            538,753       (538,753)
Cancellation of unvested
non-employee options..............                           (301,690)       301,690
Compensatory stock arrangements for
employees.........................                         18,662,357    (18,662,357)
Reversal of employee stock-based
compensation for cancelled
shares............................                           (145,000)       145,000
Issuance of common stock upon
exercise of warrants..............     166,666      25          9,975
Amortization of employee stock-based
compensation......................                                         6,641,620
Amortization of non-employee stock-
based compensation................                                           650,680
Net loss............................                                                                      (9,096,728)
Cumulative translation adjustment...
Comprehensive loss..................
----------   ------   -----------   ------------   -----------    ------------
Balances, December 31, 2000.........  10,903,174   1,635     25,386,369    (11,882,070)   (5,645,632)     (9,878,447)
Collection of notes receivable from
shareholders*.....................                                                           7,875
Repurchase of common stock through
cancellation of notes
receivable*.......................     (31,268)     (4)      (297,840)       237,844        60,000
Exercise of options*................       1,387                     80
Amortization of employee stock-based
compensation*.....................                                         2,552,743
Amortization of non-employee stock-
based compensation*...............                                             4,123
Net loss*...........................                                                                      (2,743,558)
Cumulative translation
adjustment*.......................
Comprehensive loss*.................
----------   ------   -----------   ------------   -----------    ------------
Balances, March 31, 2001*...........  10,873,293   $1,631   $25,088,609   $ (9,087,360)  $(5,577,757)   $(12,622,005)
==========   ======   ===========   ============   ===========    ============

CUMULATIVE
OTHER
COMPREHENSIVE
LOSS           TOTAL
-------------   -----------

Balances, January 1, 1998...........    $     --      $  (154,399)
Exercise of options.................                       16,533
Compensatory stock arrangements for
non-employees, primarily
remeasurement.....................                           --
Amortization of non-employee stock-
based compensation................                       61,317
Net loss............................                     (403,894)
--------      -----------
Balances, December 31, 1998.........          --         (480,443)
Collection of notes receivable from
shareholders......................                        6,772
Repurchase of common stock through
cancellation of note receivable...                           --
Exercise of options.................                       38,047
Compensatory stock arrangements for
non-employees, primarily
remeasurement.....................                           --
Amortization of non-employee stock-
based compensation................                       68,282
Net loss............................                     (144,746)
--------      -----------
Balances, December 31, 1999.........          --         (512,088)
Collection of notes receivable from
shareholders......................                        8,999
Exercise of options.................                      279,372
Repurchase of common stock through
cancellation of note receivable...                           --
Compensatory stock arrangements for
non-employees.....................                           --
Remeasurement of compensatory stock
arrangements for non-employees....                           --
Cancellation of unvested
non-employee options..............                           --
Compensatory stock arrangements for
employees.........................                           --
Reversal of employee stock-based
compensation for cancelled
shares............................                           --
Issuance of common stock upon
exercise of warrants..............                       10,000
Amortization of employee stock-based
compensation......................                    6,641,620
Amortization of non-employee stock-
based compensation................                      650,680
Net loss............................
Cumulative translation adjustment...      (7,571)
Comprehensive loss..................                   (9,104,299)
--------      -----------
Balances, December 31, 2000.........      (7,571)      (2,025,716)
Collection of notes receivable from
shareholders*.....................                        7,875
Repurchase of common stock through
cancellation of notes
receivable*.......................                           --
Exercise of options*................                           80
Amortization of employee stock-based
compensation*.....................                    2,552,743
Amortization of non-employee stock-
based compensation*...............                        4,123
Net loss*...........................
Cumulative translation
adjustment*.......................      (9,927)
Comprehensive loss*.................                   (2,753,485)
--------      -----------
Balances, March 31, 2001*...........    $(17,498)     $(2,214,380)
========      ===========

---------------
* Unaudited

See notes to consolidated financial statements.

F-5

75

PDF SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31,                 MARCH 31,
-------------------------------------   ------------------------
1998         1999         2000          2000         2001
----------   ----------   -----------   ----------   -----------
(UNAUDITED)

Operating activities:
Net loss........................................   $ (403,894)  $ (144,746)  $(9,096,728)  $ (498,092)  $(2,743,558)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................      240,953      303,546       833,499       98,234       309,744
Stock-based compensation amortization.........       61,317       68,282     7,292,300      458,358     2,556,866
Common stock issued for services..............          625           --            --           --            --
Loss (gain) on the sale of property and
equipment...................................       16,902       (1,157)       15,038           --         2,306
Deferred revenues.............................     (987,969)    (132,058)    1,514,154      663,260       352,562
Changes in assets and liabilities, net of
effect of acquisition:
Accounts receivable.........................      578,254     (699,014)     (815,388)    (600,214)     (172,433)
Prepaid expenses and other assets...........      (93,295)      (6,705)     (540,157)    (140,744)       (6,054)
Accounts payable............................      502,020       (9,263)      372,727      222,376       104,222
Accrued compensation and related
benefits.................................       70,121      777,074     1,209,487     (564,495)     (671,379)
Billings in excess of recognized revenue....        2,597       (2,597)    1,052,513           --       141,187
Other accrued liabilities and taxes
payable..................................      224,625      119,065        62,879      (78,909)     (212,348)
----------   ----------   -----------   ----------   -----------
Net cash provided by (used in)
operating activities...................      212,256      272,427     1,900,324     (440,226)     (338,885)
----------   ----------   -----------   ----------   -----------
Investing activities:
Purchases of property and equipment.............     (280,758)    (549,615)   (1,203,330)    (198,746)     (412,131)
Proceeds from sale of equipment.................           --       12,926            --           --            --
Acquisition of AISS, net of cash acquired.......           --           --      (225,330)          --            --
----------   ----------   -----------   ----------   -----------
Net cash used in investing activities....     (280,758)    (536,689)   (1,428,660)    (198,746)     (412,131)
----------   ----------   -----------   ----------   -----------
Financing activities:
Exercise of stock options and warrants..........       15,908       38,047       289,372       30,770            80
Proceeds from the sale of preferred stock.......           --           --     4,960,000           --            --
Collection of notes receivable from
shareholders..................................           --        6,772         8,999           --         7,875
Principal payments on long-term debt............           --       (3,018)      (29,983)     (15,713)       (6,142)
----------   ----------   -----------   ----------   -----------
Net cash provided by financing
activities.............................       15,908       41,801     5,228,388       15,057         1,813
----------   ----------   -----------   ----------   -----------
Effect of exchange rate changes on cash...........           --           --        (7,571)          --        (9,927)
----------   ----------   -----------   ----------   -----------
Net increase (decrease) in cash and cash
equivalents.....................................      (52,594)    (222,461)    5,692,481     (623,915)     (759,130)
Cash and cash equivalents, beginning of period....    2,207,978    2,155,384     1,932,923    1,932,924     7,625,404
----------   ----------   -----------   ----------   -----------
Cash and cash equivalents, end of period..........   $2,155,384   $1,932,923   $ 7,625,404   $1,309,009   $ 6,866,274
==========   ==========   ===========   ==========   ===========
Noncash investing and financing activities:
Common stock issued for notes receivable........   $  198,750   $   12,500   $ 5,478,370   $       --   $        --
==========   ==========   ===========   ==========   ===========
Property acquired under capital lease...........   $       --   $   90,013   $        --   $       --   $        --
==========   ==========   ===========   ==========   ===========
Notes payable issued to acquire AISS............   $       --   $       --   $   995,000   $       --   $        --

==========   ==========   ===========   ==========   ===========
Supplemental disclosure of cash flow
information --
Cash paid during the year for:
Taxes.........................................   $  341,492   $  403,087   $   582,000   $  100,000   $   100,000
==========   ==========   ===========   ==========   ===========
Interest......................................   $       --   $      677   $     5,137   $    1,099   $     1,211
==========   ==========   ===========   ==========   ===========

See notes to consolidated financial statements.

F-6

76

PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

PDF Solutions, Inc. (the "Company"), a California corporation, was
incorporated in November 1992 and provides comprehensive infrastructure
technologies and services to improve yield and optimize performance of
integrated circuits. The Company's approach includes manufacturing simulation
and analysis, combined with yield improvement methodologies to increase product
yield and performance.

Basis of Presentation -- The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries after the elimination
of all significant intercompany balances and transactions.

Significant Estimates -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. A significant
portion of the Company's revenues require estimates in regards to total costs
which may be incurred and revenues earned. Actual results could differ from
these estimates.

Certain Significant Risks and Uncertainties -- The Company operates in the
dynamic semiconductor and software industry, and accordingly, can be affected by
a variety of factors. For example, management of the Company believes that
changes in any of the following areas could have a significant negative effect
on the Company in terms of its future financial position, results of operations
and cash flows: ability to obtain additional financing; regulatory changes;
fundamental changes in the technology underlying software technologies; market
acceptance of the Company's solutions; development of sales channels; litigation
or other claims against the Company; the hiring, training and retention of key
employees; successful and timely completion of development efforts; and new
product introductions by competitors. Due to protracted delays in the Company's
planned initial public offering, the Company expensed offering costs of
$1,257,617 in the quarter ended December 31, 2000.

Concentration of Credit Risk -- Financial instruments that potentially
expose the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and accounts receivable. The Company maintains its cash and
cash equivalents with high credit quality financial institutions. The Company
primarily sells its products to companies in Japan and North America. The
Company does not require collateral or other security to support accounts
receivable. To reduce credit risk, management performs ongoing credit
evaluations of its customers' financial condition. The Company maintains
allowances for potential credit losses.

Cash Equivalents -- The Company considers all highly liquid debt
instruments purchased with a remaining maturity of three months or less to be
cash equivalents.

Accounts Receivable -- Accounts receivable include amounts that are
unbilled at the end of the period. Unbilled accounts receivable are determined
on an individual contract basis and were approximately $0, $365,000 and $194,000
at December 31, 1999 and 2000 and March 31, 2001, respectively.

Property and equipment -- Property and equipment are stated at cost and are
depreciated using the straight-line method over the estimated useful lives of
the related asset. The estimated useful lives are as follows:

Computer and equipment...........................      3 years
Software.........................................      3 years
Furniture and fixtures...........................  5 - 7 years

F-7

77
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

Intangible Assets -- Intangible assets are related to the business
acquisition discussed in Note 2. Amortization is recorded on a straight-line
basis over a period of four years.

Impairment of Long-Lived Assets -- In accordance with Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
evaluates its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. When the sum of the undiscounted future net cash flows expected to
result from the use of the asset and its eventual disposition is less than its
carrying amount, an impairment loss would be measured based on the discounted
cash flows compared to the carrying amount. No impairment charge has been
recorded in any of the periods presented.

Notes Receivable from Shareholders -- The notes receivable from
shareholders are full recourse notes issued in exchange for common stock. Notes
outstanding at December 31, 2000 and March 31, 2001, bear interest at 4.46% to
6.69% per annum. The notes are generally payable over periods of two to four
years.

Revenue Recognition -- The Company derives revenue from two sources:
design-to-silicon yield solutions and gain share. The Company recognizes
revenues in accordance with the provisions of American Institute of Certified
Public Accountants Statement of Position ("SOP") 97-2, Software Revenue
Recognition, as amended, and SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.

Design-to-Silicon Yield Solutions -- Design-to-silicon yield solutions
revenue is derived from solution implementations, software licenses and
software support and maintenance. Revenue recognition for each element of
design-to-silicon yield solutions is summarized as follows:

Solution Implementations -- Revenue under contracts for solution
implementation services is recognized as the services are performed
using the cost-to-cost percentage of completion method of contract
accounting. Losses on solution implementation contracts are recognized
when determined. Revisions in profit estimates are reflected in the
period in which the conditions that require the revision become known
and are estimable.

Software Licenses -- The Company has entered into a few multi-year
time based licenses, generally three years. Revenue under arrangements
which require the Company to provide support and maintenance over a
period of time, where vendor-specific objective evidence of fair value
does not exist to allocate a portion of the total fee to the undelivered
elements, are recognized ratably over the term of the agreement. No
revenue under arrangements with extended payment terms has been
recognized in excess of amounts due.

Other license fees are recognized on the residual value method: (i)
when an agreement has been signed, the software has been delivered, the
license fee is fixed or determinable and collection of the fee is
probable or (ii) as a component of a related solution implementation
contract.

Software Support and Maintenance -- Amounts allocated to
undelivered support and maintenance are based on vendor specific
objective evidence, generally negotiated renewal rates. Revenue from
allocated support and maintenance and renewals is recognized ratably
over the term of the support and maintenance contract, generally one
year.

Gain Share -- Gain share revenue represents profit sharing and
performance incentives earned based upon its customer reaching certain
defined operational levels. Upon achieving such operational levels, the
Company receives either a fixed fee and/or royalties based on the units
sold by the
F-8

78
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

customer. Due to the uncertainties surrounding attainment of such
operational levels, the Company recognizes gain share revenue (to the
extent of completion of the related solution implementation contract) upon
receipt of performance reports or other related information from the
customer supporting the determination of amounts and probability of
collection.

Software Development Costs -- Costs for the development of new software
products and substantial enhancements to existing software products are expensed
as incurred until technological feasibility has been established, at which time
any additional costs would be capitalized in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, Computer Software to be Sold,
Leased or Otherwise Marketed. Because the Company believes its current process
for developing software is essentially completed concurrently with the
establishment of technological feasibility, no costs have been capitalized to
date.

Research and Development -- Research and development expenses are charged
to operations as incurred.

Stock-Based Compensation -- The Company accounts for stock-based
compensation in accordance with the provisions of Accounting Principles Board
Opinion No. 25 ("APB No. 25"), Accounting for Stock Issued to Employees, and
complies with the disclosure provisions of Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"). Deferred compensation recognized under APB
No. 25 is amortized to expense using the graded vesting method. The Company
accounts for stock options and warrants issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18
under the fair value based method.

Net Loss per Share -- Basic net loss per share excludes dilution and is
computed by dividing net loss by the weighted average number of common shares
outstanding for the period (excluding shares subject to repurchase). Diluted net
loss per share was the same as basic net loss per share for all periods
presented since the effect of any potentially dilutive securities is excluded as
they are anti-dilutive because of the Company's net losses.

Unaudited Pro Forma Net Loss per Share -- Pro forma basic and diluted net
loss per share is computed by dividing net loss by the weighted average number
of common shares outstanding for the period (excluding shares subject to
repurchase) and the weighted average number of common shares resulting from the
assumed conversion, from their respective issuance dates, of outstanding shares
of Series A and Series B convertible preferred stock which will occur upon the
closing of the planned initial public offering. The computation does not include
the effect of a one-time dividend charge expected to be recorded upon conversion
of the Series B convertible preferred stock (see Note 12).

Unaudited Pro Forma Information -- Upon the closing of the planned initial
public offering, the outstanding shares of Series A and Series B convertible
preferred stock will convert into an aggregate of 6,333,318 shares of common
stock. The pro forma balance sheet presents the Company's balance sheet as if
this had occurred at March 31, 2001 (see Note 12).

Unaudited Interim Financial Information -- The interim financial
information as of March 31, 2001 and for the three months ended March 31, 2000
and 2001 is unaudited and has been prepared on the same basis as the audited
financial statements. In the opinion of management, such unaudited financial
information includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the interim information.
Operating results for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2001.

F-9

79
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

Foreign Currency Translation -- The functional currency of the Company's
foreign subsidiaries is the local currency for the respective subsidiary. The
assets and liabilities are translated at the period-end exchange rate, and
statements of operations are translated at the average exchange rate during the
year. Gains and losses resulting from foreign currency translations are included
as a component of other comprehensive income.

Comprehensive Income -- Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income, requires that an enterprise report, by
major components and as a single total, the change in its net assets during the
period from nonowner sources. For 1998 and 1999, comprehensive loss was equal to
net loss. Comprehensive loss for the year ended December 31, 2000 and the three
months ended March 31, 2001 is presented within the statement of shareholders'
deficiency and is comprised entirely of cumulative translation adjustment.

Recently Issued Accounting Standards -- In June 1998, the Financial
Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires companies to record
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The Company adopted SFAS No. 133, as amended, on
January 1, 2001. The adoption of this statement did not have an effect on the
Company's financial position, results of operations or cash flows as the Company
had no stand-alone or embedded derivatives at December 31, 2000 and had not
historically entered into any derivative transactions to hedge currency or other
exposures.

As a matter of policy, the Company does not currently enter into
transactions involving derivative financial instruments. In the event the
Company does enter into such transactions in the future, such items will be
accounted for in accordance with SFAS No. 133, in which case the Company will
formally document all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for undertaking
such hedge transactions.

In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No.
140 replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. The Company has adopted the
applicable disclosure requirements of SFAS No. 140 in its consolidated financial
statements as of December 31, 2000. The Company is currently evaluating the
impact of adopting the remaining provisions of SFAS No. 140 which will be
effective for transactions entered into after March 31, 2001.

2. BUSINESS COMBINATION

On April 27, 2000, the Company acquired all of the outstanding common stock
of AISS, a German company, for $1.25 million, consisting of $995,000 in notes
payable and $255,000 in cash. AISS develops software and provides yield
management services to the semiconductor industry. The note bears interest at 7%
per annum payable quarterly with principal due on April 27, 2001.

The acquisition was accounted for using the purchase method and the
operating results of AISS have been included in the consolidated statements of
operations since the date of acquisition. The excess purchase price (including
costs of acquisition) over the fair value of the tangible assets and liabilities

F-10

80
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

assumed, totaled $2,007,994 and represents acquired technology, employee
workforce and goodwill which is being amortized on a straight line basis over a
period of four years. Amortization expense totaled $338,059 and $125,246 for the
year ended December 31, 2000 and the three months ended March 31, 2001,
respectively.

The fair value of the assets acquired and liabilities assumed were as
follows (in thousands):

Cash................................................  $   30
Accounts receivable.................................     386
Other assets........................................      27
Property and equipment..............................      46
Acquired technology.................................     662
Employee workforce..................................     540
Goodwill............................................     807
Accrued acquisition cost............................    (113)
Less liabilities assumed............................    (509)
Deferred tax liability..............................    (626)
------
$1,250
======

Had the acquisition taken place at the beginning of fiscal 1999 and 2000
respectively, the unaudited pro forma results of operations would have been as
follows for the years ended December 31, 1999 and 2000 (in thousands, except per
share data):

1999         2000
-------    -----------
(UNAUDITED)

Net revenues...........................  $12,836      $20,457
Net loss...............................     (386)      (9,131)
Net loss per share -- basic and
diluted..............................    (0.06)       (1.24)

The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles and goodwill, interest charges
on the note issued in connection with the acquisition, and the elimination of
sales between the Company and AISS.

The pro forma amounts are based on certain assumptions and estimates and do
not necessarily represent results which would have occurred if the acquisition
had taken place on the basis assumed above, nor are they indicative of results
of future combined operations.

F-11

81
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

3. PROPERTY AND EQUIPMENT

Property and equipment consist of:

DECEMBER 31,
---------------------------     MARCH 31,
1999           2000           2001
------------    -----------    -----------
(UNAUDITED)

Computer equipment........................     $  884,276     $ 1,810,385    $ 2,039,465
Software..................................        355,687         506,838        737,192
Furniture, fixtures, and equipment........        351,803         428,381        460,718
Construction in progress..................             --          80,968             --
----------     -----------    -----------
1,591,766       2,826,572      3,237,375
Accumulated depreciation..................       (769,740)     (1,265,170)    (1,450,646)
----------     -----------    -----------
$  822,026     $ 1,561,402    $ 1,786,729
==========     ===========    ===========

4. LEASE COMMITMENTS

Equipment with a net book value of $87,747 and $71,469, respectively, at
December 31, 1999 and 2000 (net of accumulated amortization of $2,266 and
$21,067) has been leased under capital leases which expire in 2004. The Company
leases administrative and sales offices and other equipment under noncancelable
operating leases which contain various renewal options and require payment of
common area costs, taxes and utilities, when applicable. These operating leases
expire from 2001 to 2006.

Future minimum lease payments under capital and noncancelable operating
leases at December 31, 2000 are as follows:

YEAR ENDING                           CAPITAL     OPERATING
DECEMBER 31,                           LEASES       LEASES
------------                          --------    ----------

2001..................................................  $ 18,706    $  905,939
2002..................................................    18,706       817,885
2003..................................................    18,706       779,120
2004..................................................    15,262       667,698
2005..................................................        --        12,838
Thereafter............................................        --        12,838
--------    ----------
Total future minimum lease payments.........................    71,380    $3,196,318
==========
Less amount representing interest (ranging from 7.32% to
9.25%)....................................................   (10,090)
--------
Present value of future minimum lease payments..............    61,290
Less current portion........................................   (14,290)
--------
Long-term portion...........................................  $ 47,000
========

Rent expense was approximately $220,226, $379,364 and $906,015 in 1998,
1999 and 2000, respectively.

F-12

82
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

5. BORROWING ARRANGEMENTS

Line of Credit

The Company's German subsidiary has a secured line of credit with a bank of
approximately $65,000. Borrowings under the line of credit are for working
capital requirements and other general corporate purposes and bear interest at
9.5%. At December 31, 2000 and March 31, 2001, no amounts were outstanding under
the agreement.

Long-term Debt

Long-term debt consists of:

DECEMBER 31,
------------------------     MARCH 31,
1999          2000         2001
------------    --------    -----------
(UNAUDITED)

Term debt (interest at 6.4%)....................    $     --      $ 16,148     $ 13,467
Capital leases (see Note 4).....................      86,995        61,290       57,829
--------      --------     --------
Total......................................      86,995        77,438       71,296
Current portion.................................     (15,379)      (21,491)     (28,047)
--------      --------     --------
Long-term portion...............................    $ 71,616      $ 55,947     $ 43,249
========      ========     ========

Future payment requirements of term debt at December 31, 2000 are as
follows:

YEAR ENDING
DECEMBER 31,
------------

2001......................................................  $ 7,201
2002......................................................    7,201
2003......................................................    1,746
-------
$16,148
=======

6. CONVERTIBLE PREFERRED STOCK

Convertible Preferred Stock

The Company had 5,833,331 shares of Series A convertible preferred stock
outstanding at December 31, 1999 and 2000 and March 31, 2001. In August 2000,
the Company issued 350,872 shares of Series B convertible preferred stock which
were outstanding at December 31, 2000 and March 31, 2001. The significant terms
of the Series A and Series B convertible preferred stock are as follows:

- Each share is convertible into one share of common stock (subject to
adjustment for events of dilution). See Note 12.

- Each share will automatically convert in the event of a public offering
in which the Company receives proceeds equal to or greater than
$7,500,000 and a price per share equal to or greater than $14.25. See
Note 12.

- Each share has voting rights equivalent to the number of shares of common
stock into which it is convertible.

F-13

83
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

- In the event of liquidation or winding up of the Company, the holders of
Series A and Series B convertible preferred stock shall receive $0.60 per
share and $14.25 per share, respectively, plus all accrued but unpaid
dividends. A sale of substantially all of the Company's assets or a
change in control is treated as a deemed liquidation.

- In the event the Board of Directors declares dividends payable on the
then outstanding common stock, the holders of Series A and Series B
preferred stock shall receive $0.03 per share and $1.14 per share,
respectively. The right to such dividends are not cumulative.

- The Series A convertible preferred stock shareholders, voting separately
as a class, shall elect two members of the Board of Directors.
Additionally, the holders of common stock and Series A preferred stock
voting collectively as a class shall elect one member of the Board of
Directors.

7. SHAREHOLDERS' EQUITY

Common Stock -- Common stock issued to the founders and certain other
employees are subject to repurchase agreements whereby the Company has the
option to repurchase the unvested shares upon termination of employment at the
original issue price. The Company's repurchase right generally lapses over four
years. At December 31, 2000, 2,944,947 shares of common stock were subject to
repurchase by the Company.

During 1998, the Company issued 4,166 shares of common stock to consultants
for services rendered. The fair value of the common stock of $625, based on the
then fair market value of common stock of $0.15 per share, was recognized as
general and administrative expense at the date of issuance.

The Company has reserved shares of common stock for issuance as follows at
December 31, 2000:

Conversion of preferred stock.............................  6,184,203
Issuance and exercise of options..........................  1,766,193
---------
7,950,396
=========

Stock Plans -- Under the Company's 1996 and 1997 Stock Plans ("the Plans"),
the Company may grant options to purchase up to 6,333,332 shares of common stock
(731,700 from the 1996 Plan and 5,601,632 from the 1997 Plan) to employees,
directors and consultants at prices not less than the fair market value at the
date of grant for incentive stock options and not less than 85% of fair market
value for nonstatutory stock options. These options generally expire ten years
from the date of grant and become vested and exercisable ratably over a
four-year period. Certain option grants provide for the immediate exercise by
the optionee with the resulting shares issued subject to a right of repurchase
by the Company which lapses based on the original vesting provisions. At
December 31, 2000 and March 31, 2001 1,395,117 shares were available for future
grant under the Plans.

At December 31, 1998, 1999 and 2000 and March 31, 2001 the Company's
outstanding options include 67,660, 67,660, 0, and 0 shares, respectively, which
had been granted outside of the Plans.

F-14

84
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

Additional information with respect to options under the Plans, including
options granted outside the Plans, is as follows:

WEIGHTED
AVERAGE
NUMBER OF     OPTION PRICE
OPTIONS       PER SHARE
----------    ------------

Outstanding, January 1, 1998................................   1,025,314        0.06
Granted (weighted average fair value of $0.05 per share)....   1,665,617        0.20
Exercised...................................................  (1,267,302)       0.17
Canceled....................................................     (65,194)       0.06
----------
Outstanding, December 31, 1998 (417,123 shares vested and
exercisable at a weighted average exercise price of $0.06
per share)................................................   1,358,435        0.12
Granted (weighted average fair value of $0.11 per share)....     497,656        0.38
Exercised...................................................    (347,426)       0.15
Canceled....................................................    (107,986)       0.15
----------
Outstanding, December 31, 1999 (558,272 shares vested and
exercisable at a weighted average exercise price of $0.13
per share)................................................   1,400,679        0.20
Granted (weighted average fair value of $7.16 per share)....   2,647,019        2.73
Exercised...................................................  (3,440,070)       1.68
Canceled....................................................    (236,552)       0.39
----------
Outstanding, December 31, 2000 (24,971 shares vested and
exercisable at a weighted average exercise price of $0.22
per share)................................................     371,076        4.43
Exercised*..................................................      (1,387)       0.06
----------
Outstanding, March 31, 2001 (43,852 shares vested and
exercisable at a weighted average exercise price of $0.60
per share)*...............................................     369,689       $4.45
==========

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

* Unaudited

Additional information regarding options outstanding as of December 31,
2000 is as follows:

OPTIONS OUTSTANDING               OPTIONS EXERCISABLE
--------------------------------------   -----------------------
WEIGHTED     WEIGHTED                  WEIGHTED
AVERAGE       AVERAGE      NUMBER       AVERAGE
REMAINING     EXERCISE      VESTED      EXERCISE
EXERCISE         NUMBER      CONTRACTUAL      PRICE         AND         PRICE
PRICES        OUTSTANDING   LIFE (YEARS)   PER SHARE   EXERCISABLE   PER SHARE
--------       -----------   ------------   ---------   -----------   ---------

$ 0.06 - $ 0.15      30,681          7.0        $ 0.10       15,055        $0.11

0.38 -   0.95      28,737          8.4          0.38        9,916         0.39

1.50 -   3.75     127,329          9.4          1.84           --           --

4.50 -  11.25     146,330          9.6          6.40           --           --

12.00 -  15.00      37,999          9.7         12.08           --           --

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

$ 0.06 - $15.00     371,076          9.2        $ 4.43       24,971        $0.22

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

Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
Accounting for Stock-Based Compensation, requires the disclosure of pro forma
net loss as if the Company had adopted the fair value method. Under SFAS 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate the
fair value of freely

F-15

85
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including expected time to exercise, which
affect the calculated values.

The weighted average fair value of the Company's stock-based awards to
employees was estimated using the minimum value method and assuming no dividends
will be declared and the following additional assumptions:

DECEMBER 31,
--------------------
1998    1999    2000
----    ----    ----

Estimated life (in years)...................................  5.5     5.5     5.5
Risk-free interest rate.....................................  5.6%    6.0%    6.7%

For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized using the accelerated method over
the options' vesting period. The Company's pro forma results are as follows (in
thousands):

DECEMBER 31,
---------------------------
1998      1999      2000
------    ------    -------

Net loss:
As reported...........................................  $ (404)   $ (145)   $(9,097)
Pro forma.............................................    (448)     (198)    (9,839)
Basic and diluted net loss per share:
As reported...........................................  $(0.08)   $(0.02)   $ (1.24)
Pro forma.............................................   (0.09)    (0.03)     (1.34)

Stock-Based Compensation

Through December 31, 1999, non-employee options and warrants were valued or
revalued, respectively, using the Black-Scholes pricing model with the following
weighted average assumptions; contractual life of 10 years; risk free interest
rates ranging from 4.6% to 6%; volatility of 40% or 50%; and no dividends during
the expected term. Non-employee options and warrants during the year ended
December 31, 2000 were valued or revalued, respectively, using the Black-Scholes
pricing model with the following weighted average assumptions: contractual life
of 10 years; risk free interest rates of 6.7%; volatility of 70%; and no
dividends during the expected term. The value of deferred stock-based
compensation related to unvested awards at December 31, 2000 is subject to
adjustment based upon the future value of the Company's common stock.

COMMON STOCK OPTIONS

During the years ended December 31, 1998, 1999 and 2000 the Company granted
nonstatutory options to consultants and advisory board members ("non-employees")
to purchase 27,466, 5,000 and 41,533 shares, respectively. These options had
weighted average exercise prices of $0.15 per share, $0.39 per share and $1.50
per share, respectively, and vesting periods, which approximated the period of
service, of immediate to five years. These options were originally valued at
$2,554, $1,537 and $376,544, respectively. The values attributable to these
options have been amortized over the service period on a graded vesting method
and the vested portion of these options were remeasured at each vesting date. No
options related to non-employees were cancelled for the periods ended December
31, 1998 and 1999. For the year ended December 31, 2000, 117,293 non-employee
options were cancelled.

F-16

86
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

During 1998, the Company sold 266,666 shares of common stock to a
consultant at $0.15 per share. The Company retained the right to repurchase the
shares at the original issue price in the event of termination of service. Such
repurchase right lapsed over a period of four years. The Company recorded
additional stock-based compensation expense over the service period for the
difference between the purchase price and the fair value of the Company's common
stock on the date the repurchase right lapsed. During 1999, the Company
terminated its remaining repurchase rights and recorded non-employee stock-
based compensation of $57,500 with respect to such shares.

During the year ended December 31, 2000, the Company issued 2,605,486
common stock options to employees at a weighted average exercise price of $2.73
per share. The weighted average exercise price was below the weighted average
deemed fair value of $9.89 per share. The cumulative deferred stock-based
compensation with respect to these grants totaled $18,662,357 and is being
amortized to expense on a graded vesting method over the four year vesting
period of the options through September 2004. During the year ended December 31,
2000, the cancellation of 17,333 of these common stock options resulted in the
reversal of $145,000 of employee stock-based compensation.

During the three months ended March 31, 2001, the Company did not issue any
common stock options. The Company repurchased 31,268 shares of common stock
through the cancellation of notes receivable which resulted in the reversal of
$237,844 of employee stock-based compensation.

COMMON STOCK WARRANTS

During 1996, the Company issued warrants to purchase 200,000 shares of the
Company's common stock at $0.06 per share to acquire software from AISS. The
warrants were originally valued at $8,286. The value attributable to these
warrants has been amortized over the vesting period of four years, which
approximated the useful life of the software, and the vested portion of this
warrant was remeasured at each vesting date. In connection with the acquisition
of AISS on April 27, 2000, warrants to purchase 33,334 shares were cancelled. No
warrants were outstanding at December 31, 2000.

Amortization of employee and non-employee stock-based compensation totaled
$61,317, $68,282, $7,292,300 and 2,556,866 in 1998, 1999, 2000 and the three
months ended March 31, 2001, respectively.

Unvested non-employee options and warrants are as follows as of:

UNVESTED OPTIONS AND WARRANTS
-----------------------------
WEIGHTED AVERAGE
EXERCISE PRICE
NUMBER         PER SHARE
--------    -----------------

December 31, 1998..........................................  257,695           $0.06
December 31, 1999..........................................  169,382           $0.06
December 31, 2000..........................................    4,861           $0.06
March 31, 2001 (Unaudited).................................    2,778           $0.06

F-17

87
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

8. NET LOSS PER SHARE

The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share (in thousands):

THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31,           MARCH 31,
-----------------------------    ------------------
1998       1999       2000       2000       2001
-------    -------    -------    -------    -------
(UNAUDITED)

Net loss (numerator), basic and
diluted................................  $  (404)   $  (145)   $(9,097)   $  (498)   $(2,743)
=======    =======    =======    =======    =======
Shares (denominator):
Weighted average common shares
outstanding.........................    6,222      7,229      9,445      7,483     10,884
Weighted average common shares
outstanding subject to repurchase...   (1,278)    (1,143)    (2,089)      (686)    (2,819)
-------    -------    -------    -------    -------
Shares used in computation, basic and
diluted................................    4,944      6,086      7,356      6,797      8,065
=======    =======    =======    =======    =======
Net loss per share -- basic and
diluted................................  $ (0.08)   $ (0.02)   $ (1.24)   $ (0.07)   $ (0.34)
=======    =======    =======    =======    =======
Shares used in computation -- basic and
diluted................................                          7,356                 8,065
Weighted average Series A convertible
preferred stock outstanding............                          5,833                 5,833
Weighted average Series B convertible
preferred stock outstanding............                            205                   500
-------               -------
Shares used in computing pro forma per
share amounts on an as converted
basis -- basic and diluted.............                         13,394                14,398
=======               =======
Pro forma net loss per share on an as
converted basis -- basic and diluted...                        $ (0.68)              $ (0.19)
=======               =======

Pro forma net loss per share assumes that the conversion of all shares of
Series A and Series B convertible preferred stock into common stock, which
occurs upon the consummation of an initial public offering. This computation
does not include the effect of a one-time dividend charge expected to be
recorded upon conversion of the Series B convertible preferred stock (see Note
12).

F-18

88
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

For the above mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the periods
presented, as their effect would have been anti-dilutive. Such outstanding
securities consist of the following (in thousands):

THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31,        MARCH 31
--------------------------    --------------
1998      1999      2000     2000     2001
------    ------    ------    -----    -----
(UNAUDITED)

Convertible preferred stock........................  5,833     5,833     5,977     5,833    6,184
Shares of common stock subject to repurchase.......  1,278     1,143     2,089       686    2,819
Outstanding options................................    957     1,433       457     1,061      370
Warrants...........................................    200       200        64       200       --

9. TAX PROVISION

The tax provision in 1998 and 1999 was $341,492 and $533,087, respectively,
and primarily represents withholding tax on revenues from foreign customers. The
tax provision for the year ended December 31, 2000 of $363,000 includes
withholding tax on revenues from foreign customers of $100,000 and foreign and
U.S. income tax of $(50,000) and $313,000, respectively. The tax provision for
the three months ended March 31, 2001 of $185,000 includes withholding tax on
revenues from foreign customers of $100,000 and foreign and U.S. income tax of
$15,000 and $70,000, respectively.

During fiscal 1998 and 1999 all income (loss) before taxes was derived from
U.S. operations. During the year ended December 31, 2000 and the three months
ended March 31, 2001, respectively, income (loss) before taxes was $(8.8
million) and $(2.6 million) from U.S. operations and $38,000 and $91,000 from
foreign operations.

Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as net operating
loss and tax credit carryforwards.

The components of the net deferred tax liability is comprised of (in
thousands):

DECEMBER 31,
-------------------------     MARCH 31,
1998     1999      2000         2001
-----    -----    -------    -----------
(UNAUDITED)

Net operating loss carryforward......................  $ 172    $  38    $    --      $    --
Research and development credit carryforward.........     35       --         63          177
Foreign tax credit carryforward......................    365      765        544          644
Accruals deductible in different periods.............   (152)    (129)     1,078        1,105
Stock-based compensation.............................     --       --        324          324
Valuation allowances.................................   (420)    (674)    (2,009)      (2,250)
Intangible assets....................................     --       --       (532)        (494)
-----    -----    -------      -------
$  --    $  --    $  (532)     $  (494)
=====    =====    =======      =======

The Company has established a valuation allowance against certain deferred
tax assets due to the uncertainty surrounding the realization of such assets.
Annually, management evaluates the recoverability of the deferred tax assets and
the level of the valuation allowance. At such time as it is determined that it
is more likely than not that deferred tax assets are realizable the valuation
allowance will be reduced.

F-19

89
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

The amount of income tax recorded differs from the amount using the
statutory federal income tax rate (35%) for the following reasons (in
thousands):

THREE MONTHS
DECEMBER 31,             ENDED
-----------------------     MARCH 31,
1998    1999     2000          2001
----    ----    -------    ------------
(UNAUDITED)

Federal statutory tax benefit......................  $(22)   $136    $(3,057)      $(895)
State tax expense..................................     1       3          1           1
Stock compensation expense.........................    --      --      2,316         895
Offering costs.....................................    --      --        440          --
Meals and entertainment............................     8       2          4           1
Tax credits........................................   (35)     --       (751)       (214)
Foreign tax, net...................................    --     130         83         115
Valuation allowances...............................   363     254      1,335         241
Other..............................................    26       8         (8)         41
----    ----    -------       -----
Total..............................................  $341    $533    $   363       $ 185
====    ====    =======       =====

At December 31, 2000, the Company had foreign tax credit carryforwards of
approximately $544,000 available to offset future federal income taxes which
begin to expire in 2001. The extent to which the credit carryforwards can be
used to offset future taxable income and tax liabilities, respectively, may be
limited, depending on the extent of ownership changes within any three-year
period as provided in the Tax Reform Act of 1986 and the California Conformity
Act of 1987.

10. CUSTOMER AND GEOGRAPHIC INFORMATION

The Company operates in one segment. The Company had net revenues from
individual customers in excess of 10% of net revenues as follows:

THREE MONTHS
YEARS ENDED            ENDED
DECEMBER 31,         MARCH 31,
--------------------    ------------
CUSTOMER                        1998    1999    2000    2000    2001
--------                        ----    ----    ----    ----    ----
(UNAUDITED)

A...............................................     66%     53%     32%     35%     31%
B...............................................     16%     19%     --      --      --
C...............................................     --      15%     27%     39%     15%
D...............................................     --      --      15%     14%     17%
E...............................................     --      --      10%     11%      4%
G...............................................     --      --       6%     --      20%

F-20

90
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

The Company had accounts receivable from individual customers in excess of
10% of gross accounts receivable as follows:

DECEMBER 31,          MARCH 31,
---------------------    -----------
CUSTOMER                        1998    1999    2000        2001
--------                        ----    ----    -----    -----------
(UNAUDITED)

A..................................................   63%     47%     25%         54%
C..................................................   --      15%     13%          6%
D..................................................   --      23%     24%         17%
E..................................................   --      --      13%          1%
F..................................................   --      11%     --          --

Revenues from customers by geographic area are as follows (in thousands):

YEARS ENDED             THREE MONTHS
DECEMBER 31,           ENDED MARCH 31,
-------------------------    ----------------
1998      1999      2000      2000      2001
-----    ------    ------    ------    ------
(UNAUDITED)

Japan..................................    5,125    10,684    13,209    2,733     4,974
United States..........................    1,102     1,140     6,235      952     2,208
Europe.................................       --        --       691        9       352

The Company's long-lived assets were located primarily in North America as
of December 31, 1999. As of December 31, 2000 and March 31, 2001, long-lived
assets related to AISS, located in Germany, totaled $1.8 million and $1.7
million, respectively, of which $1.7 million and $1.5 million relates to
acquired intangibles (see Note 2). The majority of the Company's remaining
long-lived assets are in the United States.

11. EMPLOYEE BENEFIT PLAN

During 1999, the Company established a 401(k) tax-deferred savings plan,
whereby eligible employees may contribute up to 15% of their eligible
compensation with a maximum amount subject to IRS guidelines in any calendar
year. Company contributions are discretionary; no such Company contributions
have been made since inception of this plan.

12. SUBSEQUENT EVENTS

In May 2001, the Company was named as a defendant in a lawsuit claiming,
among other things, that it misappropriated trade secrets in connection with
hiring an employee. The Company is defending itself against the claims, which it
believes to be without merit. The Company does not believe that this litigation,
or resolution of this litigation, will have a material negative impact on its
consolidated financial position or results of operations.

On June 28, 2001, the Company entered into a common stock purchase
agreement with Applied Materials, Inc., or Applied Materials, under which the
Company agreed to sell Applied Materials 500,000 shares of common stock (or such
lesser amount of shares having a maximum aggregate purchase price of $10.0
million) in a private placement concurrent with and conditioned upon the sale of
shares in the planned initial public offering. The price per share in the
concurrent private placement will be equal to the offering price in the planned
initial public offering.

On July 6, 2001, the Company amended and restated its articles of
incorporation to effect a two-for-three reverse stock split of the Company's
common and preferred stock. All share and per share amounts

F-21

91
PDF SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 AND THREE MONTHS ENDED MARCH 31,
2000 AND 2001
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)

reflected in the consolidated financial statements have been restated to give
effect to the two-for-three reverse stock split.

On July 6, 2001, the Company also amended and restated its articles of
incorporation to provide for the automatic conversion of all outstanding Series
A and Series B convertible preferred stock upon consummation of a public
offering in which the Company receives proceeds equal to or greater than
$7,500,000; provided that in the event the public offering price is less than
$14.25 per share, the Series B preferred stock will be converted into an
aggregate of 499,987 shares of common stock. Based on an assumed initial public
offering price of $12.00 per share, the Company expects to record a one time
dividend charge of $1,619,000 upon consummation of the planned initial public
offering, representing the fair value of additional shares expected to be issued
to the Series B convertible preferred stockholders in excess of the shares
issuable pursuant to the original terms of the Series B convertible preferred
stock. The effects of such additional shares have been reflected in the
accompanying unaudited pro forma balance sheet.

On June 12, 2001, the Board of Directors approved, and on July 6, 2001, the
shareholders approved, the following actions to occur prior to or concurrent
with the effectiveness of the Company's planned initial public offering:

- Reincorporation of the Company in the State of Delaware;

- Increase in the authorized shares of common stock to 75,000,000 shares,
par value $0.00015 per share, and creation of a new series of preferred
stock with 5,000,000 shares authorized;

- Termination of the 1996 and 1997 Stock Option Plans as to future option
grants;

- Adoption of the 2001 Stock Plan -- 3,000,000 shares of common stock will
be reserved for issuance under the 2001 Stock Plan. On January 1 of each year,
starting with the year 2002, the number of shares in the reserve will
automatically increase by 5% of the total number of shares of common stock that
are outstanding at that time; and

- Adoption of the 2001 Employee Stock Purchase Plan -- Under the purchase
plan, eligible employees are allowed to have salary withholdings of up to 10% of
their compensation to purchase shares of common stock at a price equal to 85% of
the lower of the market value of the stock on the first date immediately before
the first day of the applicable offering period or the fair market value on the
purchase date. The initial offering period commences upon the effective date for
the initial public offering of the Company's common stock. For the first
offering period, shares of common stock may be purchased at a price equal to 85%
of the lower of the price per share in the initial public offering or the market
value on the purchase date. The Company has initially reserved 300,000 shares of
common stock under this plan, plus an annual increase to be added each January
beginning with the year 2002 equal to the lesser of (i) 675,000 shares, or (ii)
2% of the shares of common stock outstanding at that time.

*  *  *  *  *

F-22

92

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Applied Integrated Systems & Software Entwicklungs-, Produktions- und Vertriebs
GmbH:

We have audited the accompanying balance sheet of Applied Integrated
Systems & Software Entwicklungs-, Produktions- und Vertriebs GmbH as of December
31, 1999, and the related statements of income, shareholders' equity, and cash
flows for the year ended December 31, 1999. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit provides a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Applied Integrated Systems & Software
Entwicklungs-, Produktions- und Vertriebs GmbH as of December 31, 1999, and the
results of its operations and its cash flows for the year ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States of America.

/s/ DELOITTE & TOUCHE GMBH
/s/ Wirtschaftsprufungsgesellschaft

Munich, Germany
July 26, 2000

F-23

93

APPLIED INTEGRATED SYSTEMS AND SOFTWARE GMBH
ENTWICKLUNGS-, PRODUKTIONS- UND VERTRIEBS GMBH

BALANCE SHEETS

DECEMBER 31,     MARCH 31,
1999           2000
------------    -----------
(UNAUDITED)

ASSETS
Current assets:
Cash......................................................  DM  377,539     DM   11,858
Accounts receivable.......................................      331,700         763,830
Prepaid expenses..........................................        1,421              --
Other assets..............................................       21,065          18,801
Current deferred taxes....................................       72,129          74,729
-----------     -----------
Total current assets...................................      803,854         869,218
Equipment, furniture, and fixtures, net.....................      102,389         106,280
Intangible assets, net......................................       14,053          12,391
Other assets................................................       18,144              --
-----------     -----------
Total assets...........................................  DM  938,440     DM  987,889
===========     ===========

LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
Short term portion of long term borrowings................  DM   14,069     DM   14,294
Bank overdraft............................................           --         415,741
Accounts payable..........................................      118,654         111,726
Accrued taxes.............................................        8,154          92,350
Deferred revenue..........................................       10,000          12,000
Accrued expenses and other liabilities....................      433,455         423,740
-----------     -----------
Total current liabilities..............................      584,332       1,069,851
Long term borrowings........................................       33,620          29,961
Deferred tax liability......................................       31,154          21,432
Shareholders' equity (deficiency):
Registered capital........................................       51,000          51,000
Less: subscribed capital..................................      (25,500)        (25,500)
-----------     -----------
Registered capital -- paid in.............................       25,500          25,500
Retained earnings (distributions to shareholders in excess
of earnings to date)...................................      263,834        (158,855)
-----------     -----------
Total shareholders' equity (deficiency)................      289,334        (133,355)
-----------     -----------
Total liabilities and shareholders' equity
(deficiency).........................................  DM  938,440     DM  987,889
===========     ===========

See notes to financial statements.

F-24

94

APPLIED INTEGRATED SYSTEMS AND SOFTWARE GMBH
ENTWICKLUNGS-, PRODUKTIONS- UND VERTRIEBS GMBH

INCOME STATEMENTS

THREE MONTHS ENDED
YEAR ENDED            MARCH 31,
DECEMBER 31,    -----------------------
1999           1999         2000
------------    ----------    ---------
(UNAUDITED)

Revenues:
Services.......................................  DM1,914,145     DM 378,322    DM461,922
License........................................      837,962        440,424      125,815
-----------     ----------    ---------
2,752,107        818,746      587,737
-----------     ----------    ---------
Costs and expenses:
Cost of services...............................    1,056,259        249,408      283,616
Research and development expenses..............      510,768         66,659       35,155
Sales and marketing expenses...................      325,487         78,458       45,087
General and administrative expenses............      576,654        126,692      131,575
-----------     ----------    ---------
Total costs and expenses....................    2,469,168        521,217      495,433
-----------     ----------    ---------
Operating income.................................      282,939        297,529       92,304
Other income.....................................          775             --        1,096
Interest income..................................        4,430            474        1,725
Interest expenses................................       (8,087)          (562)      (6,839)
-----------     ----------    ---------
Income before income taxes.......................      280,057        297,441       88,286
Provision for income taxes.......................      (97,877)      (161,902)     (42,395)
-----------     ----------    ---------
Net income.......................................  DM  182,180     DM 135,539    DM 45,891
===========     ==========    =========

See notes to financial statements.

F-25

95

APPLIED INTEGRATED SYSTEMS AND SOFTWARE GMBH
ENTWICKLUNGS-, PRODUKTIONS- UND VERTRIEBS GMBH

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)

RETAINED            TOTAL
REGISTERED CAPITAL -     ADDITIONAL        EARNINGS        SHAREHOLDERS
PAID IN          PAID IN CAPITAL   (DEFICIENCY)   EQUITY (DEFICIENCY)
--------------------   ---------------   ------------   -------------------

Balance, January 1, 1999...........        DM25,500            DM     --       DM 201,654        DM 227,154
Net income and total comprehensive
income...........................                                               182,180           182,180
Distributions......................                                              (120,000)         (120,000)
--------            ---------       ----------        ----------
Balance, December 31, 1999.........          25,500                   --          263,834           289,334
Net income and total comprehensive
income*..........................                                                45,891            45,891
Additional paid in capital
resulting from sale of PDF shares
to shareholders*.................                               70,753                             70,753
Distributions*.....................                              (70,753)        (468,580)         (539,333)
--------            ---------       ----------        ----------
Balance, March 31, 2000*...........        DM25,500            DM     --       DM(158,855)       DM(133,355)
========            =========       ==========        ==========

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

* Unaudited

See notes to financial statements.

F-26

96

APPLIED INTEGRATED SYSTEMS AND SOFTWARE GMBH
ENTWICKLUNGS-, PRODUKTIONS- UND VERTRIEBS GMBH

STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED
YEAR ENDED            MARCH 31,
DECEMBER 31,    ------------------------
1999           1999          2000
------------    ----------    ----------
(UNAUDITED)

Operating activities:
Net income.....................................   DM 182,180     DM 135,539    DM  45,891
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization...............      140,206         20,237        23,645
Deferred income taxes.......................      (47,839)       (13,137)       (2,600)
Changes in operating assets and liabilities:
Accounts receivable.......................     (211,151)      (399,522)     (432,130)
Prepaid expenses and other assets.........       25,798       (111,210)        3,685
Accounts payable..........................       31,793         11,024        (6,929)
Other accrued liabilities and income taxes
payable................................      (48,606)        24,309        (2,504)
Deferred revenues.........................        3,800          1,000         2,000
----------     ----------    ----------
Net cash provided by (used in) operating
activities.....................................       76,181       (331,760)     (368,942)
----------     ----------    ----------
Investing activities:
Equipment additions............................     (178,473)      (115,598)      (25,874)
Payment to exercise warrants...................                                   (20,320)
----------     ----------    ----------
Net cash used in investing activities............     (178,473)      (115,598)      (46,194)
----------     ----------    ----------
Financing activities:
Shareholder distributions......................     (120,000)                    (539,333)
Proceeds from borrowings.......................       59,900         59,900
Repayments of borrowings.......................      (12,211)        (2,233)       (3,434)
Proceeds from sale of PDF stock to
shareholders................................                                   176,481
Bank overdraft.................................                        (270)      415,741
----------     ----------    ----------
Net cash provided by (used in) financing
activities.....................................      (72,311)        57,397        49,455
----------     ----------    ----------
Net decrease in cash.............................     (174,603)      (389,961)     (365,681)
Cash at beginning of period......................      552,142        552,142       377,539
----------     ----------    ----------
Cash at end of period............................   DM 377,539     DM 162,181    DM  11,858
==========     ==========    ==========
Supplemental cash flow information:
Cash payments for interest.....................   DM   8,086     DM     562    DM   6,839
Cash payments for income taxes.................      148,954         27,590        37,238

See notes to financial statements.

F-27

97

APPLIED INTEGRATED SYSTEMS AND SOFTWARE GMBH
ENTWICKLUNGS-, PRODUKTIONS- UND VERTRIEBS GMBH

NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND THREE MONTHS ENDED MARCH 31, 2000
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Applied Integrated Systems and Software Entwicklungs-, Produktions- und
Vertriebs GmbH (the "Company" or "AISS") was founded on February 24, 1989 and
develops software tools for the semiconductor industry.

UNAUDITED INTERIM FINANCIAL INFORMATION

The interim financial information as of March 31, 2000 and for the three
months ended March 31, 1999 and 2000 is unaudited and has been prepared on the
same basis as the audited financial statements. In the opinion of management,
such unaudited financial information includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
interim information. The operating results for the three months ended March 31,
2000 are not necessarily indicative of the results that may be expected for the
full fiscal year.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("US GAAP")
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Despite
management's best effort to establish good faith estimates and assumptions,
actual results could differ from those estimates.

REVENUE RECOGNITION

Revenue from services, primarily consulting and research and development
arrangements, is recognized as the related services are performed. Software
license and maintenance revenue is recognized in accordance with the provisions
of Statement of Position No. 97-2 "Software Revenue Recognition." License fees
are recognized when an agreement has been signed, the software has been
delivered, the license fee is fixed or determinable and collection of the fee is
probable and vendor-specific objective evidence of fair value exists to allocate
a portion of the total fee to any undelivered elements of the arrangement, or
over the license term. Maintenance obligations generally call for the Company to
provide technical support and software updates to customers. Maintenance to be
provided within one year included in an initial license fee is recognized
together with the license fee and the estimated cost of providing such service
is accrued. Revenue under other maintenance contracts is deferred and recognized
ratably over the term of the maintenance contract, which is generally one year.

COST OF SERVICES

Cost of professional services and maintenance consists primarily of
salaries and benefits, including cost of services provided by third party
consultants engaged by the Company.

CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES

The Company operates in the software industry and can be affected by a
variety of factors. For example, management of the Company believes that changes
in any of the following areas could have a significant negative effect on the
Company in terms of its future financial position, results of operations

F-28

98
APPLIED INTEGRATED SYSTEMS AND SOFTWARE GMBH
ENTWICKLUNGS-, PRODUKTIONS- UND VERTRIEBS GMBH

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND THREE MONTHS ENDED MARCH 31, 2000
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)

and cash flows: ability to obtain additional financing; regulatory changes;
fundamental changes in the technology underlying software products; market
acceptance of the Company's products under development; development of sales
channels; litigation or other claims against the Company; the hiring, training
and retention of key employees; successful and timely completion of product
development efforts; and new product introductions by competitors.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of account receivables. The
Company performs ongoing credit evaluations of its customers.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash, accounts receivable, accounts payable and
borrowings approximates fair value due to the short-term nature of these
instruments. The fair value of the warrants as of December 31, 1999 was
approximately DM170,000.

EQUIPMENT, FURNITURE AND FIXTURES

Equipment, furniture and fixtures are recorded at cost less accumulated
depreciation. Depreciation is provided on the straight-line method over the
estimated useful lives (three to ten years) of the related assets.

OTHER ASSETS

Long-term assets include warrants for the purchase of 300,000 shares of PDF
Solutions, Inc. ("PDF") common stock at DM 0.06 per share. These warrants were
obtained from PDF in an agreement dated September 17, 1996 related to the use of
one of the Company's software products. The warrants vested 25% after one year
and at a rate of one forty-eighth per month thereafter. The value of the
warrants was recorded as license revenue of DM 18,144 which approximated the
estimated fair value of the warrants at the date of issuance under the
Black-Scholes pricing model with the following assumptions: contractual life of
10 years; risk-free interest rate of 6.0%; volatility of 50% and no dividends
during the expected term. The vested warrants at December 31, 1999 totaled
243,750 shares which increased to 249,999 in January 2000. In January 2000, the
Company exercised the vested warrants (see Note 5). In connection with the
acquisition of the Company by PDF on April 27, 2000 (see Note 9), the Company
agreed to the cancellation of the remaining 50,001 warrants, of which 18,750 had
vested through the date of acquisition.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred. The cost of
developing new software products and enhancements are expensed as research and
development costs as incurred because the Company believes that establishment of
technological feasibility occurs concurrently with the date of general release
of related products.

F-29

99
APPLIED INTEGRATED SYSTEMS AND SOFTWARE GMBH
ENTWICKLUNGS-, PRODUKTIONS- UND VERTRIEBS GMBH

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND THREE MONTHS ENDED MARCH 31, 2000
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)

INTANGIBLE ASSETS

Intangible assets represent internal use software and are recorded at cost
and are amortized over periods ranging from three to five years. Accumulated
amortization was approximately DM19,186 at December 31, 1999.

INCOME TAXES

The Company provides for deferred income taxes resulting from temporary
differences between the valuation of assets and liabilities in the financial
statements and the carrying amounts for tax purposes. Such differences are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

EARNINGS PER SHARE

The Company is organized as a GmbH and has no tradable shares. Earnings per
share has not been calculated.

COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income," requires that an enterprise
report, by major components and as a single total, the change in its net assets
during the period from nonowner sources. Comprehensive income was equal to net
income for all periods presented.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Company evaluates its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. No impairment charge has
been recorded in any of the periods presented.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS 133 is effective for fiscal years beginning after June
15, 2000 and must be applied to instruments issued, acquired or substantively
modified after December 31, 1997. The Company does not expect the adoption of
the accounting pronouncement to have a material effect on its financial
position, results of operations or cash flows.

F-30

100
APPLIED INTEGRATED SYSTEMS AND SOFTWARE GMBH
ENTWICKLUNGS-, PRODUKTIONS- UND VERTRIEBS GMBH

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND THREE MONTHS ENDED MARCH 31, 2000
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)

NOTE 2: EQUIPMENT, FURNITURE AND FIXTURES

Equipment, furniture and fixtures at December 31 consist of:

Equipment, furniture and fixtures......................  DM 309,065
Accumulated depreciation...............................    (206,676)
----------
DM 102,389
==========

NOTE 3: BORROWINGS

The Company has a DM 150,000, secured line of credit with a bank.
Borrowings under the line of credit are for working capital requirements and
other general corporate purposes and bear an interest rate of 9.5 percent. The
credit agreement is secured by the shareholders of the Company. At December 31,
1999, the Company did not have any amounts outstanding under the agreement.

The Company borrowed DM 59,900 at approximately 6.4 percent in January 1999
to finance the acquisition of an automobile. The term of the financing was for a
term of approximately four years. The required reductions in principle in the
next three years are as follows:

2000.............................................  DM14,069
2001.............................................    14,994
2002.............................................    18,626
--------
DM47,689
========

NOTE 4: ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities at December 31, 1999 consisted of
the following:

Accrued compensation and related benefits...............  DM362,428
Warranty................................................     50,400
Other...................................................     20,627
---------
DM433,455
=========

NOTE 5: SHAREHOLDERS' EQUITY (DEFICIENCY)

The registered capital of the Company amounted to DM 51,000 as of December
31, 1999, of which DM 25,500 has been paid in by the company's shareholders.

On January 4, 2000, the Company exercised the warrants for shares in PDF
Solutions Inc. that were issued on September 17, 1996. At the date the warrants
were exercised, the Company paid DM 20,320 for the 249,999 shares. The
shareholders of the Company then purchased these warrants from the Company for
DM 176,408. The after tax gain related to this related party transaction was
recorded as a contribution to additional paid in capital. The additional paid in
capital was repaid to the shareholders in March 2000.

F-31

101
APPLIED INTEGRATED SYSTEMS AND SOFTWARE GMBH
ENTWICKLUNGS-, PRODUKTIONS- UND VERTRIEBS GMBH

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND THREE MONTHS ENDED MARCH 31, 2000
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)

NOTE 6: INCOME TAXES

Federal corporation income tax is levied at 40 percent and a solidarity
surcharge is levied on the federal corporate tax rate. The solidarity tax rate
was 5.50 percent in 1999. Upon distribution of retained earnings to
shareholders, the corporation tax rate on the distributed earnings is reduced to
30 percent.

German trade income tax is levied at a rate of approximately 19.7 percent.
This tax can be deducted from the corporation tax.

The significant components of the net deferred tax asset at December 31,
1999 which reflect the tax effects of the Company's temporary differences are as
follows:

NET DEFERRED TAX ASSETS -- CURRENT:
Vacation accrual............................................  DM38,102
Warranty accrual............................................    27,004
Deferred revenue............................................     5,358
Other.......................................................     1,665
--------
72,129
--------
NET DEFERRED TAX LIABILITY -- NON-CURRENT:
Capital expenditures reserve................................    21,432
Warrants....................................................     9,722
--------
31,154
--------
Net deferred tax asset......................................  DM40,975
========

The provision for income taxes consists of the following:

Current.........................................  DM145,716
Deferred........................................    (47,839)
---------
DM 97,877
=========

The provision for income taxes differs from the amounts computed by
applying the Federal corporation income tax rate to income before income taxes,
as follows:

Amounts computed by applying Federal statutory rate......  DM112,023    40.0%
Trade tax, net of Federal income taxes...................     31,870    11.4%
Solidarity tax...........................................      3,733     1.3%
Credit for dividend distribution.........................    (49,792)  (17.8)%
Other....................................................         43      --
---------   -----
DM 97,877    34.9%
=========   =====

F-32

102
APPLIED INTEGRATED SYSTEMS AND SOFTWARE GMBH
ENTWICKLUNGS-, PRODUKTIONS- UND VERTRIEBS GMBH

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND THREE MONTHS ENDED MARCH 31, 2000
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)

NOTE 7: OPERATING LEASES

The Company leases certain facilities and equipment under noncancelable
operating lease arrangements. Rent expense is reflected on a straight-line basis
over the term of the lease. Future minimum rental payments at December 31, 1999
under these leases, which expire in the first quarter of 2002, are as follows:

2000............................................  DM112,000
2001............................................    112,000
2002............................................     10,000
---------
Total.................................  DM234,000
=========

Total rent expense under all operating leases was approximately DM 91,560
for the year ended December 31, 1999.

NOTE 8: BUSINESS SEGMENT

The Company operates in one industry segment consisting of developing,
distribution, and maintenance for software, computer hardware and technical
supply. The company's operations are primarily in Germany.

The following customers, a German electronics company and PDF Solutions,
Inc., accounted for 53% and 33% of the net revenues of the Company in 1999,
respectively.

NOTE 9: SUBSEQUENT EVENT

On April 27, 2000, the Company was acquired by PDF Solutions Inc., a U.S.
company, for approximately DM 2,647,375 (US$1,250,000). PDF Solutions provides
comprehensive infrastructure technologies and services to improve yield and
optimize performance of integrated circuits.

F-33

103

PDF SOLUTIONS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

On April 27, 2000, the Company acquired all of the outstanding common stock
of Applied Integrated Systems and Software GmbH ("AISS"), a German company, for
$1.25 million, consisting of $995,000 in notes payable and $255,000 in cash.
AISS develops software and provides yield management services to the
semiconductor industry. The acquisition is accounted for using the purchase
method and the Company's consolidated financial statements reflect the results
of operations of AISS from the date of acquisition. The aggregate purchase price
was allocated to the assets and liabilities acquired based on their fair value
at date of acquisition. The total consideration (including costs of acquisition)
exceeds the fair value of the net tangible assets and liabilities assumed by
$2.0 million, which was allocated: $662,000 to acquired technology, $540,000 to
employee workforce and $807,000 to goodwill which are being amortized over a
period of four years.

The accompanying unaudited pro forma consolidated financial statements are
presented in accordance with Article 11 of Regulation S-X.

The accompanying unaudited pro forma consolidated statements of operations
give effect to the acquisition of AISS as if it had occurred on January 1, 2000,
by consolidating the results of operations of AISS with PDF for the year ended
December 31, 2000.

The unaudited pro forma consolidated information is presented for
illustrative purposes only, and is not necessarily indicative of the operating
results or financial position that would have occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or the financial position of the combined companies.

The unaudited pro forma consolidated financial statements should be read in
conjunction with the historical financial statements of the Company and AISS.

F-34

104

PDF SOLUTIONS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000

AISS(1)
JANUARY 1, 2000     PRO FORMA
PDF           TO APRIL 27, 2000   ADJUSTMENTS   NOTES    PRO FORMA
------------------   -----------------   -----------   -----   -----------

Revenue:
Design-to-silicon yield
solutions.....................     $15,538,325           $481,508        $ (159,465)    (2)    $15,860,368
Gain share.......................       4,597,000                 --                --              4,597,000
-----------           --------        ----------            -----------
Total revenue.................      20,135,325            481,508          (159,465)            20,457,368
-----------           --------        ----------            -----------
Costs and expenses:
Cost of design-to-silicon yield
solutions.....................       6,915,001            205,930           (76,543)    (2)      7,044,388
Research and development.........       6,418,173             44,457           (82,922)    (2)      6,379,708
Selling, general and
administrative................       7,332,857            128,288           163,686     (3)      7,624,831
Offering costs...................       1,257,617                 --                --              1,257,617
Stock-based compensation
amortization..................       7,292,300                 --                --              7,292,300
-----------           --------        ----------            -----------
Total costs and expenses......      29,215,948            378,675             4,221             29,598,844
-----------           --------        ----------            -----------
Income (loss) from operations......      (9,080,623)           102,833          (163,686)            (9,141,476)
Interest income and other..........         346,895               (331)          (23,216)    (4)        323,348
-----------           --------        ----------            -----------
Income (loss) before taxes.........      (8,733,728)           102,502          (186,902)            (8,818,128)
Tax provision (benefit)............         363,000             29,969           (80,549)    (5)        312,420
-----------           --------        ----------            -----------
Net income (loss)..................     $(9,096,728)          $ 72,533        $ (106,353)           $(9,130,548)
===========           ========        ==========            ===========
Pro forma net loss per
share -- basic and diluted(6)....     $     (1.24)                                                $     (1.24)
===========                                                 ===========
Shares used in computing pro forma
basic and diluted net loss per
share(6).........................       7,356,221                                                   7,356,221
===========                                                 ===========

See notes to unaudited pro forma consolidated statements of operations.

F-35

105

PDF SOLUTIONS, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

The following pro forma adjustments have been made to the unaudited pro
forma consolidated statements of operations:

1. Amount translated from DM to US dollars using average annual exchange
rate of DM1.998/$ for the period January 1, 2000 to April 27, 2000,
respectively.

2. Reflects the elimination of sales representing research and development
services performed by AISS for the Company.

3. Reflects the amortization of intangible assets totaling $2.0 million
resulting from the acquisition on a straight line basis over four years.

4. Reflects interest charges on the notes payable issued in connection with
the acquisition at the stated interest rate of 7%.

5. Reflects the net tax benefit of the pro forma adjustments at the
statutory tax rate for the respective tax jurisdictions.

6.On July 6, 2001, the Company amended and restated its articles of
incorporation to effect a two-for-three reverse stock split of the
Company's common and preferred stock. The pro forma net loss per
share -- basic and diluted and shares used in computing pro forma basic
and diluted net loss per share have been restated to give effect to the
two-for-three reverse stock split.

*  *  *  *

F-36

106

[PDF Solutions, Inc. Logo]

107

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee and the Nasdaq National Market listing
fee.

AMOUNT
TO BE PAID
----------

SEC registration fee........................................  $   19,800
NASD filing fee and expenses................................      10,000
Nasdaq National Market listing fee..........................      95,000
Printing and engraving expenses.............................     200,000
Legal fees and expenses.....................................     300,000
Accounting fees and expenses................................     350,000
Blue Sky qualification fees and expenses....................      10,000
Transfer Agent and Registrar fees...........................      10,000
Miscellaneous fees and expenses.............................      55,200
----------
Total.....................................................   1,050,000
==========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article IV of our Certificate of
Incorporation (Exhibit 3.2 hereto) and Article VI of our Bylaws (Exhibit 3.3
hereto) provide for indemnification of our directors, officers, employees and
other agents to the maximum extent permitted by Delaware Law. In addition, we
have entered into Indemnification Agreements (Exhibit 10.1 hereto) with our
officers and directors. The Underwriting Agreement (Exhibit 1.1) also provides
for cross-indemnification among us and the Underwriters with respect to certain
matters, including matters arising under the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since November, 1995 we have sold and issued the following securities:

1. On December 4, 1995, we issued 5,833,331 shares of Series A preferred
stock to investors for an aggregate cash consideration of $0.60 per share or
$3,500,000.

2. On August 4, 2000, we issued 350,872 shares of Series B preferred stock
to investors for an aggregate cash consideration of $14.25 per share or
$5,000,000.

3. From inception through March 31, 2001, we have issued warrants to
purchase 166,666 shares of common stock at a price of $0.06 per share. These
warrants have been exercised and no warrants remain outstanding.

4. From our inception through March 31, 2001, we have issued 6,035,606
options and rights to purchase common stock of PDF with a weighted average
exercise price of $1.29 per share to a number of our employees, and directors
and consultants.

5. On June 28, 2001, we entered into an agreement with Applied Materials,
or Applied Materials, to sell 500,000 shares of our common stock (or such lesser
amount of shares having a maximum aggregate purchase price of $10.0 million) to
Applied Materials concurrent with and conditioned upon the sale of the shares in
the initial public offering at a price per share equal to the initial public
offering price.

II-1

108

The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) or Regulation
D, or other applicable exemption of such Securities Act as transactions by an
issuer not involving any public offering. In addition, certain issuances
described in Item 2 were deemed exempt from registration under the Securities
Act in reliance upon Rule 701 promulgated under the Securities Act. 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 and appropriate legends were affixed
to the share certificates and warrants issued in such transactions. All
recipients had adequate access, through their relationships with us, to
information about us.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

See exhibits listed on the Exhibit Index following the signature page of
this Form S-1, which is incorporated herein by reference.

(b) Financial Statement Schedules

Independent Auditors' Report................................  Page S-1
Schedule II -- Valuation and Qualifying Accounts............  Page S-2

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant 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, the registrant 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 it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, 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.

(2) For the purpose of determining any liability under the Securities Act
of 1933, 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.

II-2

109

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Jose, State of
California on July 9, 2001

PDF SOLUTIONS, INC.

By: /s/ P. STEVEN MELMAN
------------------------------------
P. Steven Melman
Chief Financial Officer and Vice
President, Finance and
Administration

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on July 9, 2001
in the capacities indicated:

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

/s/ JOHN K. KIBARIAN*                 Director, President and Chief
---------------------------------------------     Executive Officer (Principal
John K. Kibarian                         Executive Officer)

/s/ P. STEVEN MELMAN                Chief Financial Officer and Vice
---------------------------------------------        President, Finance and
P. Steven Melman                 Administration (Principal Financial
and Accounting Officer)

/s/ B.J. CASSIN*                              Director
---------------------------------------------
B.J. Cassin

/s/ LUCIO L. LANZA*                            Director
---------------------------------------------
Lucio L. Lanza

/s/ DONALD L. LUCAS*                            Director
---------------------------------------------
Donald L. Lucas

/s/ KIMON MICHAELS*                            Director
---------------------------------------------
Kimon Michaels

*By: /s/ P. STEVEN MELMAN
---------------------------------------
P. Steven Melman
Attorney-In-Fact

II-3

110

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
PDF Solutions, Inc.

We have audited the consolidated financial statements of PDF Solutions,
Inc. and its subsidiaries (collectively, the "Company") as of December 31, 1999
and 2000 and for each of the three years in the period ended December 31, 2000
and have issued our report thereon dated January 19, 2001 (July 6, 2001 as to
the third paragraph of Note 12); such consolidated financial statements and
report are included elsewhere in the Company's Registration Statement on Form
S-1. Our audits also included the consolidated financial statement schedule of
PDF Solutions, Inc, listed in Item 16(b). This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

/s/ DELOITTE & TOUCHE LLP

San Jose, California
January 19, 2001

S-1

111

SCHEDULE II
PDF SOLUTIONS, INC.

VALUATION AND QUALIFYING ACCOUNTS

BALANCE AT     CHARGED TO     DEDUCTIONS/     BALANCE AT
BEGINNING OF    COSTS AND     WRITE-OFFS OF      END OF
DATE:                         PERIOD        EXPENSES       ACCOUNTS         PERIOD
-----                      ------------    ----------    -------------    ----------

Allowance for doubtful accounts
March 31, 2001*............................    $192,000       $    --           $--          $192,000
December 31, 2000..........................    $144,000       $48,000           $--          $192,000
December 31, 1999..........................    $ 93,000       $51,000           $--          $144,000
December 31, 1998..........................    $ 53,000       $40,000           $--          $ 93,000

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

* Unaudited

S-2

112

EXHIBIT INDEX

EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------

1.1      Form of Underwriting Agreement (subject to negotiation).

3.1      Amended and Restated Certificate of Incorporation of PDF
Solutions, Inc.*

3.2      Third Amended and Restated Certificate of Incorporation of
PDF Solutions, Inc. (proposed).

3.3      Amended and Restated Bylaws of PDF Solutions, Inc.*

3.4      Amended and Restated Bylaws of PDF Solutions, Inc.
(proposed).*

4.1      Specimen Stock Certificate.

4.2      Second Amended and Restated Rights Agreement dated July 6,
2001.

5.1      Opinion of Orrick, Herrington & Sutcliffe LLP regarding the
legality of the common stock being registered.

10.1      [Intentionally Deleted]

10.2      [Intentionally Deleted]

10.3      [Intentionally Deleted]

10.4      [Intentionally Deleted]

10.5      [Intentionally Deleted]

10.6      Technology Cooperation Agreement between PDF Solutions, Inc.
and Toshiba Corporation.+

10.7      Form of Indemnification Agreement between PDF Solutions,
Inc. and each of its Officers and Directors.*

10.8      1996 Stock Option Plan and related agreements.*

10.9      1997 Stock Plan and related agreements.*

10.10     2001 Stock Plan and related agreements.

10.11     2001 Employee Stock Purchase Plan.

10.12     Lease Agreement between PDF Solutions, Inc. and Metropolitan
Life Insurance Company dated April 1, 1996.*

10.13     Credit Agreements between PDF Solutions, Inc. and Imperial
Bank dated July 6, 1999 and August 12, 1999.*

10.14     Offer letter to P. Steven Melman dated July 9, 1998.*

10.15     Integration Technology Agreement between PDF Solutions, Inc.
and Matsushita Electronics Corporation.+

10.16     Software OEM License Agreement between PDF Solutions, Inc.
and Cadence Design Systems, Inc.+

10.17     Yield Improvement Agreement between PDF Solutions, Inc. and
Toshiba Corporation.+

10.18     Software Site License between PDF Solutions, Inc. and
Toshiba Corporation.+

21.1      List of Subsidiaries.*

23.1      Consent of Deloitte & Touche LLP.

23.2      Consent of Deloitte & Touche GmbH.

23.3      Consent of Orrick, Herrington & Sutcliffe LLP (part of
Exhibit 5.1).

24.1      Power of Attorney (see page II-3).*

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

*  Previously filed with Registrant's Registration Statement on Form S-1 (File
No. 333-43192) on August 7, 2000.

** Previously filed with Amendment No. 2 to Registrant's Registration Statement
on Form S-1 (File No. 333-43192) on September 30, 2000.

+  Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.

1

EXHIBIT 1.1

4,500,000 SHARES

PDF SOLUTIONS, INC.

COMMON STOCK PAR VALUE $0.00015 PER SHARE

UNDERWRITING AGREEMENT

July __, 2001

CREDIT SUISSE FIRST BOSTON CORPORATION,
ROBERTSON STEPHENS, INC.
DAIN RAUSCHER INCORPORATED
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629

Dear Sirs:

1. Introductory. PDF Solutions, Inc., a Delaware corporation
("COMPANY"), proposes to issue and sell 4,500,000 shares ("FIRM SECURITIES") of
its Common Stock, par value $0.00015 per share ("SECURITIES") and also proposes
to issue and sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than 675,000 additional shares ("OPTIONAL SECURITIES") of
its Securities as set forth below. The Firm Securities and the Optional
Securities are herein collectively called the "OFFERED SECURITIES." As part of
the offering contemplated by this Agreement, ______________________________ (the
"DESIGNATED UNDERWRITER") has agreed to reserve out of the Firm Securities
purchased by it under this Agreement, up to 225,000 shares, for sale to the
Company's directors, officers, employees and other parties associated with the
Company (collectively, "PARTICIPANTS"), as set forth in the Prospectus (as
defined herein) under the heading "Underwriting" (the "DIRECTED SHARE PROGRAM").
The Firm Securities to be sold by the Designated Underwriter pursuant to the
Directed Share Program (the "DIRECTED SHARES") will be sold by the Designated
Underwriter pursuant to this Agreement at the public offering price. Any
Directed Shares not subscribed for by the end of the business day on which this
Agreement is executed will be offered to the public by the Underwriters as set
forth in the Prospectus. The Company hereby agrees with the several Underwriters
named in Schedule A hereto ("UNDERWRITERS") as follows:

2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:

(a) A registration statement (No. 333-43192) relating to the Offered
Securities ("UNDERLYING SHARES"), including a form of prospectus, has been filed
with the Securities and Exchange Commission ("COMMISSION") and either (i) has
been declared effective under the Securities Act of 1933 ("ACT") and is not
proposed to be amended or (ii) is proposed to be amended by amendment or
post-effective amendment. If such registration statement ("INITIAL REGISTRATION
STATEMENT") has been declared effective, either (i) an additional registration
statement ("ADDITIONAL REGISTRATION STATEMENT") relating to the Offered
Securities may have been filed with the Commission pursuant to Rule 462(b)
("RULE 462(b)") under the Act and, if so filed, has become effective upon filing
pursuant to such Rule and the Offered Securities all have been duly registered
under the Act pursuant to the initial registration statement and, if applicable,
the additional

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registration statement or (ii) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will become
effective upon filing pursuant to such Rule and upon such filing the Offered
Securities will all have been duly registered under the Act pursuant to the
initial registration statement and such additional registration statement. If
the Company does not propose to amend the initial registration statement or if
an additional registration statement has been filed and the Company does not
propose to amend it, and if any post-effective amendment to either such
registration statement has been filed with the Commission prior to the execution
and delivery of this Agreement, the most recent amendment (if any) to each such
registration statement has been declared effective by the Commission or has
become effective upon filing pursuant to Rule 462(c) ("RULE 462(c)") under the
Act or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "EFFECTIVE TIME" with respect to the initial
registration statement or, if filed prior to the execution and delivery of this
Agreement, the additional registration statement means (i) if the Company has
advised the Representatives that it does not propose to amend such registration
statement, the date and time as of which such registration statement, or the
most recent post-effective amendment thereto (if any) filed prior to the
execution and delivery of this Agreement, was declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c), or (ii)
if the Company has advised the Representatives that it proposes to file an
amendment or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as amended by such amendment
or post-effective amendment, as the case may be, is declared effective by the
Commission. If an additional registration statement has not been filed prior to
the execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "EFFECTIVE TIME" with respect to
such additional registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule 462(b).
"EFFECTIVE DATE" with respect to the initial registration statement or the
additional registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective Time,
including all information contained in the additional registration statement (if
any) and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("RULE 430A(b)") under the Act, is
hereinafter referred to as the "INITIAL REGISTRATION STATEMENT". The additional
registration statement, as amended at its Effective Time, including the contents
of the initial registration statement incorporated by reference therein and
including all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b), is
hereinafter referred to as the "ADDITIONAL REGISTRATION STATEMENT". The Initial
Registration Statement and the Additional Registration Statement are herein
referred to collectively as the "REGISTRATION STATEMENTS" and individually as a
"REGISTRATION STATEMENT". The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("RULE 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter referred to as
the "PROSPECTUS". No document has been or will be prepared or distributed in
reliance on Rule 434 under the Act.

(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the Effective Date
of the Initial Registration Statement, the Initial Registration Statement
conformed in all respects to the requirements of the Act and the rules and
regulations of the Commission ("RULES AND REGULATIONS") and did not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
(ii) on the Effective Date of the Additional Registration Statement (if any),
each Registration Statement conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations and did not include, or
will not include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) on the date of
this Agreement, the Initial Registration Statement and, if the Effective Time of
the Additional Registration Statement is prior to the execution and delivery of
this Agreement, the Additional Registration Statement each conforms, and at the
time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing
is required) at the Effective Date of the Additional Registration Statement in
which the Prospectus is included, each Registration Statement and the

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Prospectus will conform, in all respects to the requirements of the Act and the
Rules and Regulations, and neither of such documents includes, or will include,
any untrue statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. If the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this Agreement: on the
Effective Date of the Initial Registration Statement, the Initial Registration
Statement and the Prospectus will conform in all respects to the requirements of
the Act and the Rules and Regulations, neither of such documents will include
any untrue statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and no Additional Registration Statement has been or will be filed.
The two preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only such
information is that described as such in Section 7(b) hereof.

(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus; and the Company is duly qualified to do
business as a foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its business requires
such qualification.

(d) Each subsidiary of the Company has been duly incorporated and is
an existing corporation in good standing under the laws of the jurisdiction of
its incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus; and each
subsidiary of the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its ownership
or lease of property or the conduct of its business requires such qualification;
all of the issued and outstanding capital stock of each subsidiary of the
Company has been duly authorized and validly issued and is fully paid and
nonassessable; and the capital stock of each subsidiary owned by the Company,
directly or through subsidiaries, is owned free from liens, encumbrances and
defects.

(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding shares
of capital stock of the Company are, and, when the Offered Securities have been
delivered and paid for in accordance with this Agreement on each Closing Date
(as defined below), such Offered Securities will have been, validly issued,
fully paid and nonassessable and will conform to the description thereof
contained in the Prospectus; and the stockholders of the Company have no
preemptive rights with respect to the Securities.

(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would give
rise to a valid claim against the Company or any Underwriter for a brokerage
commission, finder's fee or other like payment in connection with this offering.

(g) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to a Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.

(h) The Offered Securities have been approved for listing on The
Nasdaq Stock Market's National Market, subject to notice of issuance.

(i) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement

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in connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such as
may be required under state securities laws.

(j) The execution, delivery and performance of this Agreement, and
the issuance and sale of the Offered Securities will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any statute, any rule, regulation or order of any governmental agency or body or
any court, domestic or foreign, having jurisdiction over the Company or any
subsidiary of the Company or any of their properties, or any agreement or
instrument to which the Company or any such subsidiary is a party or by which
the Company or any such subsidiary is bound or to which any of the properties of
the Company or any such subsidiary is subject, or the charter or by-laws of the
Company or any such subsidiary, and the Company has full power and authority to
authorize, issue and sell the Offered Securities as contemplated by this
Agreement.

(k) This Agreement has been duly authorized, executed and delivered
by the Company.

(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all other
properties and assets owned by them, in each case free from liens, encumbrances
and defects that would materially affect the value thereof or materially
interfere with the use made or to be made thereof by them; and except as
disclosed in the Prospectus, the Company and its subsidiaries hold any leased
real or personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or to be made thereof by them.

(m) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by them and have not received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a material
adverse effect on the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a whole
("MATERIAL ADVERSE EFFECT").

(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that might
have a Material Adverse Effect.

(o) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary
to conduct the business now operated by them, or presently employed by them, and
have not received any notice of infringement of or conflict with asserted rights
of others with respect to any intellectual property rights that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect. The intellectual property rights
of the Company referred to in the prospectus do not, to the Company's knowledge,
infringe or conflict with any intellectual property right of any third party.

(p) Except as disclosed in the Prospectus, neither the Company nor
any of its subsidiaries is in violation of any statute, any rule, regulation,
decision or order of any governmental agency or body or any court, domestic or
foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, "ENVIRONMENTAL
LAWS"), owns or operates any real property contaminated with any substance that
is subject to any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any claim
relating to any environmental laws, which violation, contamination, liability or
claim would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation which might lead to such a
claim.

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(q) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined adversely
to the Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect, or would materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context of the sale of the
Offered Securities; and no such actions, suits or proceedings are threatened or,
to the Company's knowledge, contemplated.

(r) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of the Company and its
consolidated subsidiaries as of the dates shown and their results of operations
and cash flows for the periods shown, and such financial statements have been
prepared in conformity with the generally accepted accounting principles in the
United States applied on a consistent basis and the schedules included in each
Registration Statement present fairly the information required to be stated
therein; and the assumptions used in preparing the pro forma financial
statements included in each Registration Statement and the Prospectus provide a
reasonable basis for presenting the significant effects directly attributable to
the transactions or events described therein, the related pro forma adjustments
give appropriate effect to those assumptions, and the pro forma columns therein
reflect the proper application of those adjustments to the corresponding
historical financial statement amounts.

(s) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has been no
material adverse change, nor any development or event involving a prospective
material adverse change, in the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries taken as
a whole, and, except as disclosed in or contemplated by the Prospectus, there
has been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.

(t) The execution and delivery of the Agreement and Plan of Merger
dated as of __________ ___, 2001 (the "Merger Agreement") between PDF Solutions,
Inc., a California corporation (the "California Corporation"), and the Company,
effecting the reincorporation of the California Corporation under the laws of
the State of Delaware, was duly authorized by all necessary corporate action on
the part of each of the California Corporation and the Company. Each of the
California Corporation and the Company had all corporate power and authority to
execute and deliver the Merger Agreement, to file the Merger Agreement with the
Secretary of State of California and the Secretary of State of Delaware and to
consummate the reincorporation contemplated by the Merger Agreement, and the
Merger Agreement at the time of execution and filing constituted a valid and
binding obligation of each of the California Corporation and the Company.

(u) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as defined in
the Investment Company Act of 1940.

(v) The Company (i) has notified each holder of a currently
outstanding option issued under the Company's 1996 Stock Option Plan and 1997
Stock Plan (the "Plans"), and each person who has acquired Securities pursuant
to the exercise of any option granted under the Plans that pursuant to the terms
of the Plans, none of such options or shares may be sold or otherwise
transferred or disposed of for a period of 180 days after the date of the
initial public offering of the Offered Securities and (ii) has imposed a
stop-transfer instruction with the Company's transfer agent in order to enforce
the foregoing lock-up provision imposed pursuant to the Plans.

(w) Except as disclosed in the Prospectus, all outstanding
Securities, and all securities convertible into or exercisable or exchangeable
for Securities, are subject to valid and binding agreements (collectively,
"LOCK-UP AGREEMENTS") that restrict the holders thereof from selling, making any
short sale of, granting any option for the purchase of, or otherwise
transferring or disposing of, any of such Securities,

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or any such securities convertible into or exercisable or exchangeable for
Securities, for a period of 180 days after the date of the initial public
offering of the Offered Securities without the prior written consent of Credit
Suisse First Boston Corporation.

(x) The Company (i) has notified each stockholder who is party to
the First Amended and Restated Rights Agreement dated August 4, 2000 (the
"RIGHTS AGREEMENT"), that pursuant to the terms of the Rights Agreement, none of
the shares of the Company's capital stock held by such stockholder may be sold
or otherwise transferred or disposed of for a period of 180 days after the date
of the initial public offering of the Offered Securities and (ii) has imposed a
stop-transfer instruction with the Company's transfer agent in order to enforce
the foregoing lock-up provision imposed pursuant to the Rights Agreement.

(y) Furthermore, the Company represents and warrants to the
Underwriters that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or supplements thereto
will comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
law and regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.

(z) The Company has not offered, or caused the Underwriters to
offer, any offered Securities to any person pursuant to the Directed Share
Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or type of
business with the Company or (ii) a trade journalist or publication to write or
publish favorable information about the Company or its products.

3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the respective numbers of
shares of Firm Securities set forth opposite the names of the Underwriters in
Schedule A hereto.

The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, against payment of the purchase price in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC")
drawn to the order of the Company at the office of Orrick, Herrington &
Sutcliffe LLP ("ORRICK HERRINGTON & SUTCLIFFE"), 1020 Marsh Road, Menlo Park,
California 94025, at 10:00 A.M., New York time, on          , 2001, or at such
other time not later than seven full business days thereafter as CSFBC and the
Company determine, such time being herein referred to as the "FIRST CLOSING
DATE". For purposes of Rule 15c6-1 under the Securities Exchange Act of 1934,
the First Closing Date (if later than the otherwise applicable settlement date)
shall be the settlement date for payment of funds and delivery of securities for
all the Offered Securities sold pursuant to the offering. The certificates for
the Firm Securities so to be delivered will be in definitive form, in such
denominations and registered in such names as CSFBC requests and will be made
available for checking and packaging at the above office of CSFBC at least 24
hours prior to the First Closing Date.

In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of

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Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and may
be purchased by the Underwriters only for the purpose of covering
over-allotments made in connection with the sale of the Firm Securities. No
Optional Securities shall be sold or delivered unless the Firm Securities
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Optional Securities or any portion thereof may be exercised from
time to time and to the extent not previously exercised may be surrendered and
terminated at any time upon notice by CSFBC to the Company.

Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "OPTIONAL CLOSING DATE", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "CLOSING DATE"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters against payment of
the purchase price therefor in Federal (same day) funds by official bank check
or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to
the order of the Company, at the above office of Orrick, Herrington & Sutcliffe.
The certificates for the Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the above
office of CSFBC at a reasonable time in advance of such Optional Closing Date.

4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.

5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:

(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission pursuant to and in accordance with subparagraph
(1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule
424(b) not later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifteenth business day after
the Effective Date of the Initial Registration Statement.

The Company will advise CSFBC promptly of any such filing pursuant
to Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as of
such execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by
CSFBC.

(b) The Company will advise CSFBC promptly of any proposal to amend
or supplement the initial or any additional registration statement as filed or
the related prospectus or the Initial Registration Statement, the Additional
Registration Statement (if any) or the Prospectus and will not effect such
amendment or supplementation without CSFBC's consent; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration Statement (if
its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration Statement
or the Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best efforts
to prevent the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.

(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a result

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of which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will promptly notify CSFBC of
such event and will promptly prepare and file with the Commission, at its own
expense, an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance. Neither CSFBC's
consent to, nor the Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section 6.

(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12 months
beginning after the Effective Date of the Initial Registration Statement (or, if
later, the Effective Date of the Additional Registration Statement) which will
satisfy the provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "AVAILABILITY DATE" means the 45th day after the end of the
fourth fiscal quarter following the fiscal quarter that includes such Effective
Date, except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "AVAILABILITY DATE" means the 90th day after the end of
such fourth fiscal quarter.

(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such quantities as
CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M.,
New York time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial Registration
Statement. All other documents shall be so furnished as soon as available. The
Company will pay the expenses of printing and distributing to the Underwriters
all such documents.

(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates and
will continue such qualifications in effect so long as required for the
distribution.

(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to stockholders for such year; and the Company will furnish
to the Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Securities Exchange Act of 1934 or mailed to stockholders, and (ii) from time to
time, such other information concerning the Company as CSFBC may reasonably
request.

(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, for any filing fees and other expenses
(including fees and disbursements of counsel) incurred in connection with
qualification of the Offered Securities for sale under the laws of such
jurisdictions as CSFBC designates and the printing of memoranda relating
thereto, for the filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the National Association of Securities Dealers, Inc. (the "NASD") of the Offered
Securities, for any travel expenses of the Company's officers and employees and
any other expenses of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered Securities and for expenses
incurred in distributing preliminary prospectuses and the Prospectus (including
any amendments and supplements thereto) to the Underwriters.

(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell, contract
to sell, pledge or otherwise dispose of, directly or indirectly, or file with
the Commission a registration statement under the Act relating to, any
additional

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shares of its Securities or securities convertible into or exchangeable or
exercisable for any shares of its Securities, or publicly disclose the intention
to make any such offer, sale, pledge, disposition or filing, without the prior
written consent of CSFBC, except issuances of Securities pursuant to the
conversion or exchange of convertible or exchangeable securities or the exercise
of warrants or options, in each case outstanding on the date hereof, grants of
employee stock options pursuant to the terms of a plan in effect on the date
hereof or issuances of Securities pursuant to the exercise of such options.

(j) The Company agrees to use its best efforts to cause (i) each of
its directors, officers and stockholders and (ii) each person who acquires
Securities of the Company pursuant to the exercise of any option or right
granted under the Option Plan to sign an agreement that restricts such person
from selling, making any short sale of, granting any option for the purchase of,
or otherwise transferring or disposing of, any of such Securities, or any such
securities convertible into or exercisable or exchangeable for Securities, for a
period of 180 days after the date of the initial public offering of the Offered
Securities without the prior written consent of CSFBC; and the Company will (i)
enforce the terms of each such agreement and (ii) issue and impose a
stop-transfer instruction with the Company's transfer agent in order to enforce
the foregoing lock-up agreements.

(k) The Company will (i) enforce the terms of each Lock-up
Agreement, and (ii) issue stop-transfer instructions to the transfer agent for
the Securities with respect to any transaction or contemplated transaction that
would constitute a breach of or default under the applicable Lock-up Agreement.
In addition, except with the prior written consent of CSFBC, the Company agrees
(i) not to amend or terminate, or waive any right under, any Lock-up Agreement,
or take any other action that would directly or indirectly have the same effect
as an amendment or termination, or waiver of any right under any Lock-up
Agreement, that would permit any holder of Securities, or any securities
convertible into, or exercisable or exchangeable for, Securities, to make any
short sale of, grant any option for the purchase of, or otherwise transfer or
dispose of, any such Securities or other securities, prior to the expiration of
the 180 days after the date of the initial public offering of the Offered
Securities and (ii) not to consent to any sale, short sale, grant of an option
for the purchase of, or other disposition or transfer of shares of Securities,
or securities convertible into or exercisable or exchangeable for Securities,
subject to a Lock-up Agreement

(l) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required by the
NASD or the NASD rules from sale, transfer, assignment, pledge or hypothecation
for a period of three months following the date of the effectiveness of the
Registration Statement. The Designated Underwriter will notify the Company as to
which Participants will need to be so restricted. The Company will direct the
transfer agent to place stop transfer restrictions upon such securities for such
period of time.

(m) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Shares Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by the
underwriters in connection with the Directed Share Program.

Furthermore, the Company covenants with the Underwriters that the
company will comply with all applicable securities and other applicable laws,
rules and regulations in each foreign jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.

6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:

(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this

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Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of the
amendment or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Deloitte & Touche LLP confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to the effect
that:

(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as to form
in all material respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations;

(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards No. 71,
Interim Financial Information, on the unaudited financial statements included in
the Registration Statement;

(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have responsibility for
financial and accounting matters and other specified procedures, nothing came to
their attention that caused them to believe that:

(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the related published
Rules and Regulations or any material modifications should be made to such
unaudited financial statements for them to be in conformity with generally
accepted accounting principles;

(B) the unaudited consolidated net sales, net operating
income, net income and net income per share amounts for the three-month period
ended June 30, 2001 included in the Prospectus do not agree with the amounts
set forth in the unaudited consolidated financial statements for those same
periods or were not determined on a basis substantially consistent with that of
the corresponding amounts in the audited statements of income;

(C) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more than three
business days prior to the date of this Agreement, there was any change in the
capital stock or any increase in short-term indebtedness or long-term debt of
the Company and its consolidated subsidiaries or, at the date of the latest
available balance sheet read by such accountants, there was any decrease in
consolidated net current assets or net assets, as compared with amounts shown on
the latest balance sheet included in the Prospectus; or

(D) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date of the latest
available income statement read by such accountants there were any decreases, as
compared with the corresponding period of the previous year and with the period
of corresponding length ended the date of the latest income statement included
in the Prospectus, in consolidated net revenues, net operating income or in the
total or per share amounts of consolidated net income;

except in all cases set forth in clauses (C) and (D) above for changes,
increases or decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and

(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information contained in
the Registration Statements (in each case to the extent that such dollar
amounts, percentages and other financial information are derived from the
general accounting records of the Company and its subsidiaries subject to the
internal controls of the Company's accounting system or are derived directly
from such records by analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and other procedures
specified in

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such letter and have found such dollar amounts, percentages and other financial
information to be in agreement with such results, except as otherwise specified
in such letter.

For purposes of this subsection, (i) if the Effective Time of
the Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "REGISTRATION STATEMENTS" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"PROSPECTUS" shall mean the prospectus included in the Registration Statements.

(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or such later date as shall have been consented to by CSFBC. If
the Effective Time of the Additional Registration Statement (if any) is not
prior to the execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or, if earlier, the time the Prospectus is printed and distributed to
any Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission.

(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries taken as
one enterprise which, in the judgment of a majority in interest of the
Underwriters including the Representatives, is material and adverse and makes it
impractical or inadvisable to proceed with completion of the public offering or
the sale of and payment for the Offered Securities; (ii) any downgrading in the
rating of any debt securities or preferred stock of the Company by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt securities
or preferred stock of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any material suspension or material
limitation of trading in securities generally on the New York Stock Exchange, or
any setting of minimum prices for trading on such exchange, or any suspension of
trading of any securities of the Company on any exchange or in the
over-the-counter market; (iv) any banking moratorium declared by U.S. Federal or
New York authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress or any
other substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the Offered
Securities.

(d) The Representatives shall have received an opinion, dated such
Closing Date, of Orrick, Herrington & Sutcliffe, counsel for the Company, to the
effect that:

(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct its business as
described in the Prospectus; and the Company is duly qualified to do business as

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a foreign corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires such
qualification;

(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable and conform to
the description thereof contained in the Prospectus; and the stockholders of the
Company have no preemptive rights with respect to the Securities;

(iii) There are no contracts, agreements or understandings known
to such counsel between the Company and any person granting such person the
right to require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the Act;

(iv) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940.

(v) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in connection
with the issuance or sale of the Offered Securities by the Company, except such
as have been obtained and made under the Act and such as may be required under
state securities laws;

(vi) The execution, delivery and performance of this Agreement
and the issuance and sale of the Offered Securities will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental agency or
body or any court having jurisdiction over the Company or any subsidiary of the
Company or any of their properties, or any agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the Company or any such
subsidiary is subject, or the charter or by-laws of the Company or any such
subsidiary, and the Company has full power and authority to authorize, issue and
sell the Offered Securities as contemplated by this Agreement;

(vii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the Additional
Registration Statement (if any) was filed and became effective under the Act as
of the date and time (if determinable) specified in such opinion, the Prospectus
either was filed with the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration Statement (as the
case may be), and, to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of a Registration Statement or any part thereof has
been issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their respective
effective or issue dates, complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations; such counsel have no
reason to believe that any part of a Registration Statement or any amendment
thereto, as of its effective date or as of such Closing Date, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement thereto, as of
its issue date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; the descriptions in the Registration Statements and
Prospectus of statutes, legal and governmental proceedings and contracts and
other documents are accurate and fairly present the information required to be
shown; and such counsel do not know of any legal or governmental proceedings
required to be described in a Registration Statement or the

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Prospectus which are not described as required or of any contracts or documents
of a character required to be described in a Registration Statement or the
Prospectus or to be filed as exhibits to a Registration Statement which are not
described and filed as required; it being understood that such counsel need
express no opinion as to the financial statements or other financial data
contained in the Registration Statements or the Prospectus; and

(viii) This Agreement has been duly authorized, executed and
delivered by the Company.

(ix) The execution and delivery of the Merger Agreement,
effecting the reincorporation of the California Corporation under the laws of
the State of Delaware, was duly authorized by all necessary corporate action on
the part of each of the California Corporation and the Company.

(e) The Representatives shall have received from Wilson Sonsini
Goodrich & Rosati, counsel for the Underwriters, such opinion or opinions, dated
such Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to pass
upon such matters.

(f) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to the
best of their knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are true and
correct; the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
such Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of subparagraphs (1)
and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of
the applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time the Prospectus was printed and distributed to any Underwriter;
and, subsequent to the date of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.

(g) The Representatives shall have received a letter, dated such
Closing Date, of Deloitte & Touche LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to in
such subsection will be a date not more than three days prior to such Closing
Date for the purposes of this subsection.

(h) On or prior to the date of this Agreement, the Representatives
shall have received lockup letters from each of the executive officers,
directors and holders of capital stock and securities exercisable for or
convertible into capital stock of the Company.

The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.

7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue

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statement or alleged untrue statement of any material fact contained in any
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or any related preliminary prospectus, or arise out of or are based upon the
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 each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below.

The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act (the "DESIGNATED ENTITIES"), from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program or caused by 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; (ii) caused by the
failure of any Participant to pay for and accept delivery of Directed Shares
that the Participant agreed to purchase; or (iii) related to, arising out of, or
in connection with the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
the Designated Entities.

(b) Each Underwriter will severally and not jointly indemnify and
hold harmless the Company, its directors and officers and each person, if any
who controls the Company within the meaning of Section 15 of the Act, against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the fourth
paragraph under the caption "Underwriting."

(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) above. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified

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party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Notwithstanding anything contained herein to
the contrary, if indemnity may be sought pursuant to the last paragraph in
Section 7(a) hereof in respect of such action or proceeding, then in addition
to such separate firm for the indemnified parties, the indemnifying party shall
be liable for the reasonable fees and expenses of not more than one separate
firm (in addition to any local counsel) for the Designated Underwriter for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control the Designated
Underwriter within the meaning of either Section 15 of the Act or Section 20 of
the Exchange Act. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified party unless
such settlement (i) includes an unconditional release of such indemnified party
from all liability on any claims that are the subject matter of such action and
(ii) does not include a statement as to, or an admission of, fault, culpability
or a failure to act by or on behalf of an indemnified party.

(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Underwriters on the other from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.

(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.

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8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.

9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.

10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives, c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Transactions Advisory
Group, or, if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to it at 333 West San Carlos Street, Suite 700, San Jose, California
95110, Attention: John K. Kibarian; provided, however, that any notice to an
Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and
confirmed to such Underwriter.

11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.

12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.

16

17

13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.

14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.

The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.

17

18

If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.

Very truly yours,

PDF SOLUTIONS, INC.

John K. Kibarian,
President and Chief Executive Officer

By _________________________________________

The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the date
first above written.

CREDIT SUISSE FIRST BOSTON CORPORATION,
ROBERTSON STEPHENS, INC.
DAIN RAUSCHER INCORPORATED

Acting on behalf of themselves and as the Representatives of
the several Underwriters

BY CREDIT SUISSE FIRST BOSTON CORPORATION

By __________________________________________
Managing Director

18

19

SCHEDULE A

UNDERWRITER                                       NUMBER OF
FIRM SECURITIES

Credit Suisse First Boston Corporation....................
Robertson Stephens, Inc...................................
Dain Rauscher Incorporated................................

---------
Total...............................       4,500,000
=========

19

1

EXHIBIT 3.2

THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PDF SOLUTIONS, INC.

The undersigned, John Kibarian and Peter Cohn, hereby certify that:

1. They are the duly elected and acting President and Secretary,
respectively, of PDF Solutions, Inc., a Delaware corporation.

2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on July 19, 2000 under the name of
PDF Solutions, Inc., the First Amended and Restated Certificate of
Incorporation of this corporation was filed with the Secretary of State of
Delaware on August 4, 2000 and the Second Amended and Restated Certificate of 
Incorporation was filed with the Secretary of State of Delaware on July 9, 2001.

3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:

"ARTICLE I

The name of this corporation is PDF Solutions, Inc. (the "Corporation").

ARTICLE II

The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle. The name
of its registered agent at such address is Corporation Service Company.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.

ARTICLE IV

(A) The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is 75,000,000 shares,
each with a par value of $0.00015 per share. 70,000,000 shares shall be Common
Stock and 5,000,000 shares shall be Preferred Stock.

(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate
pursuant to the applicable law of the state of Delaware and within the
limitations and restrictions stated in this Certificate of Incorporation, to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and the number
of shares constituting any such series and the designation thereof, or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares

2

of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.

ARTICLE V

The number of directors of the Corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors.

ARTICLE VI

On or prior to the date on which the Corporation first provides notice
of an annual meeting of the stockholders, the Board of Directors of the
Corporation shall divide the directors into three classes, as nearly equal in
number as reasonably possible, designated Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders or any special meeting in lieu thereof, the terms of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders or any special
meeting in lieu thereof, the terms of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders or any special meeting in lieu thereof, the terms
of the Class III directors shall expire and Class III directors shall be elected
for a full term of three years. At each succeeding annual meeting of
stockholders or special meeting in lieu thereof, directors elected to succeed
the directors of the class whose terms expire at such meeting shall be elected
for a full term of three years.

Notwithstanding the foregoing provisions of this Article VI, each
director shall serve until his or her successor is duly elected and qualified or
until his or her death, resignation, or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.

Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes shall be filled by
either (i) the affirmative vote of the holders of a majority of the voting power
of the then-outstanding shares of voting stock of the Corporation entitled to
vote generally in the election of directors (the "Voting Stock") voting together
as a single class; or (ii) by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Subject to the rights of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
number of directors shall, unless the Board of Directors determines by
resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors, or by a sole
remaining director. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified. Any
director, or the entire Board of Directors, may be removed from office, with or
without cause, by the holders of a majority of the Voting Stock.

2

3

ARTICLE VII

In the election of directors, each holder of shares of any class or
series of capital stock of the Corporation shall be entitled to one vote for
each share held. No stockholder will be permitted to cumulate votes at any
election of directors.

ARTICLE VIII

No action shall be taken by the stockholders of the Corporation other
than at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Bylaws of the Corporation (the "Bylaws"),
and no action shall be taken by the stockholders by written consent.

ARTICLE IX

The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.

ARTICLE X

(A) Except as otherwise provided in the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least 66
2/3% of the voting power of all of the then-outstanding shares of the voting
stock of the Corporation entitled to vote. The Board of Directors of the
Corporation is expressly authorized to adopt, amend or repeal Bylaws.

(B) The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.

(C) Advance notice of stockholder nominations for the election of
directors or of business to be brought by the stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws.

ARTICLE XI

Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the Corporation.

ARTICLE XII

The Corporation shall have perpetual existence.

ARTICLE XIII

(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally

3

4

liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. If the General Corporation Law of Delaware is
hereafter amended to authorize, with the approval of a corporation's
stockholders, further reductions in the liability of a corporation's directors
for breach of fiduciary duty, then a director of the Corporation shall not be
liable for any such breach to the fullest extent permitted by the General
Corporation Law of Delaware, as so amended.

(B) Any repeal or modification of the foregoing provisions of this
Article XIII shall not adversely affect any right or protection of a director of
the Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.

ARTICLE XIV

(A) To the fullest extent permitted by applicable law, the Corporation
is also authorized to provide indemnification of (and advancement of expenses
to) such agents (and any other persons to which Delaware law permits the
Corporation to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the General Corporation Law of Delaware,
subject only to limits created by applicable Delaware law (statutory or
non-statutory), with respect to actions for breach of duty to a corporation, its
stockholders, and others.

(B) Any repeal or modification of any of the foregoing provisions of
this Article XIV shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification." 

* * *

4

5

The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.

Executed at Menlo Park, on the ____ day of July, 2001.

------------------------------------
John Kibarian, President

------------------------------------
Peter Cohn, Secretary

5

1
EXHIBIT 4.1 

COMMON STOCK                                         COMMON STOCK

[PDF/SOLUTIONS LOGO]

THIS CERTIFICATE IS TRANSFERABLE IN CANTON, MA OR NEW YORK, NY

INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA

SEE REVERSE FOR STATEMENTS RELATING
TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY

CUSIP 693282 10 5

THIS CERTIFIES THAT

is the record holder of

FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE, OF

PDF SOLUTIONS, INC.

transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.

Dated:

[SEAL]

/s/  PETER COHN                                      /s/ JOHN KACHIG KIBARIAN
---------------------------                          --------------------------
SECRETARY                                          PRESIDENT AND CHIEF
EXECUTIVE OFFICER

COUNTERSIGNED AND REGISTERED:
EQUISERVE TRUST COMPANY, N.A.
TRANSFER AGENT AND REGISTRAR

By: /s/ [SIGNATURE ILLEGIBLE]
------------------------------------
AUTHORIZED SIGNATURE

2
COMMON STOCK                                       COMMON STOCK

[PDF SOLUTIONS, LOGO]

THIS CERTIFICATE IS TRANSFERABLE IN CANTON, MA OR NEW YORK, NY

INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA

SEE REVERSE FOR STATEMENTS RELATING TO
RIGHTS, PREFERENCES, PRIVILEGES
AND RESTRICTIONS, IF ANY

CUSIP 693282 10 5

THIS CERTIFIES THAT

IS THE OWNER OF

FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
NO PAR VALUE, OF

PDF SOLUTIONS, INC.

transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.  This Certificate is not valid unless countersigned and registered by 
the Transfer Agent and Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.

Dated:

[SEAL]

/s/  PETER COHN                                        /s/  JOHN KACHIG KIBARIAN
----------------------                             ------------------------
SECRETARY                                          PRESIDENT AND CHIEF
EXECUTIVE OFFICER

COUNTERSIGNED AND REGISTERED:
EQUISERVE TRUST COMPANY, N.A.
TRANSFER AGENT AND REGISTRAR

By: /s/ [SIGNATURE ILLEGIBLE]
------------------------------------
AUTHORIZED SIGNATURE

3
A statement of the rights, preferences, privileges and restrictions 
granted to or imposed upon the respective classes or series of shares and upon 
the holders thereof as established, from time to time, by the Articles of 
Incorporation of the Corporation and by any certificate of determination, and 
the number of shares constituting each class and series and the designations 
thereof, may be obtained by the holder hereof upon written request and without 
charge from the Secretary of the Corporation at its corporate headquarters.

The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM   --  as tenants in common              UNIF GIFT MIN ACT -- ...................Custodian...............
TEN ENT   --  as tenants by the entireties                                 (Cust)                    (Minor) 
JT TEN    --  as joint tenants with right of                         under Uniform Gifts to Minors
survivorship and not as tenants                        Act........................................
in common                                                                 (State)
UNIF TRF MIN ACT  -- .............Custodian (until age.........)
(Cust)
....................under Uniform Transfers
(Minor)
to Minors Act..............................
(State)

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED,___________________________hereby sell, assign and
transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------

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

_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

_______________________________________________________________________________

_______________________________________________________________________________

________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.

Dated________________________

X_______________________________________________

X_______________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST 
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
NOTICE:   FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.

Signature(s) Guaranteed

By___________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.

1
EXHIBIT 4.2

SECOND AMENDED AND RESTATED RIGHTS AGREEMENT

THIS SECOND AMENDED AND RESTATED RIGHTS AGREEMENT (the "Agreement") is
entered into as of July 6, 2001, by and among PDF Solutions, Inc., a California
corporation (the "Company"), the holders of shares of Series A Preferred Stock
(the "Series A Purchasers"), the holders of Series B Preferred Stock (the
"Series B Purchasers") (the Series A Purchasers and Series B Purchasers are
referred to herein collectively as the "Preferred Purchasers,"), certain other
shareholders listed on Exhibit B hereto (the "Founders") and Applied Materials,
Inc., a Delaware corporation ("Applied"), (Applied, the Founders, the Series A
Purchasers and the Series B Purchasers are referred to herein collectively as
the "Purchasers" or the "Investors").

RECITALS

WHEREAS, the Company, the Series A Purchasers, the Series B Purchasers
and the Founders have entered into a First Amended and Restated Registration
Rights Agreement dated as of August 4, 2000 (the "Rights Agreement"). The
Company, the Founders, and a majority of the holders of Series A Preferred Stock
and Series B Preferred Stock desire to amend and restate in its entirety the
Rights Agreement in accordance with Section 3.7 thereof.

WHEREAS, the Company and Applied have entered into a Stock Purchase
Agreement dated as of June 28, 2001 (the "Purchase Agreement"), pursuant to
which the Company shall sell, and Applied shall acquire, shares of the Company's
common stock, $0.0001 par value per share (the "Common Stock").

WHEREAS, a condition to Applied's obligations under the Purchase
Agreement is that the Company and Applied shall enter into this Agreement in
order to provide Applied with (i) certain rights to register certain shares of
the Company's Common Stock held by Applied. The Company desires to induce
Applied to purchase shares of Common Stock pursuant to the Purchase Agreement by
agreeing to the terms and conditions set forth herein.

NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES AND COVENANTS
HEREINAFTER SET FORTH, THE PARTIES AGREE that effective and contingent upon
execution of this Agreement by the Company and the holders of a majority of the
Registrable Securities, as that term is defined in the Rights Agreement, not
including any shares held by the Founders, and upon closing of the IPO (as that
term is defined in the Purchase Agreement), the Rights Agreement is hereby
amended and restated in its entirety to read as set forth in this Agreement, and
the Company and the Investors hereby agree to be bound by the provisions hereof
as the sole agreement of the Company and the Investors with respect to
registration rights of the Company's securities and certain other rights, as set
forth herein;

2

AND FURTHER AGREE AS FOLLOWS:

SECTION 1

Restrictions on Transferability;
Registration Rights

1.1  Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:

"Applied Shares" shall mean the 250,000 shares of Common Stock
referred to in Section 6(a)(i) of the Purchase Agreement issued to Applied as of
the date hereof.

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

"Common Shares" shall mean all shares of Common Stock issued to
the Founders as of the date hereof.

"Conversion Shares" shall means the Common Stock issued or
issuable upon conversion of the Preferred Shares as defined herein.

"Holder" shall mean any Investor holding Registrable Securities
and any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 1.14 hereof.

"Initiating Holders" shall mean Holders in the aggregate of not
less than fifty percent (50%) of the Registrable Securities as defined for
purposes of that particular section.

"Major Purchaser" shall mean any Investor (together with its
affiliates) holding more than 100,000 shares of Registrable Securities, as
adjusted to reflect any stock split, stock dividend, recapitalization, or
similar event, or any Common Stock otherwise issued or issuable with respect to
the Common Shares, Conversion Shares or Preferred Shares.

"Preferred Shares" shall mean shares of the Series A Preferred
and Series B Preferred Stock outstanding as of the date hereof.

The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 1.5, 1.6 and 1.7 of this Agreement,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense of any special audits

-2-

3

incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).

"Registrable Securities" means (i) the Common Shares except that
all such Common Shares shall not be included in the definition of Registrable
Securities for the purposes of Sections 1.5, 1.7 and 3.7; (ii) the Applied
Shares except that all such Applied Shares shall not be included in the
definition of Registrable Securities for the purposes of Section 2.1; (iii) the
Conversion Shares; and (iv) any Common Stock of the Company issued or issuable
in respect of the Common Shares, Preferred Shares or Conversion Shares or other
securities issued or issuable with respect to the Preferred Shares, Conversion
Shares or Common Shares upon any stock split, stock dividend, recapitalization,
or similar event, or any Common Stock otherwise issued or issuable with respect
to the Common Shares, Conversion Shares or Preferred Shares; provided, however,
that shares of Common Stock or other securities shall only be treated as
Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale.

"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 1.3 of this Agreement.

"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for the Holders (except as
provided by Section 1.9).

1.2  Restrictions. The Preferred Shares, the Conversion Shares and the
Common Shares shall not be sold, assigned, transferred or pledged except upon
the conditions specified in this Agreement, which conditions are intended to
ensure compliance with the provisions of the Securities Act. The Investors will
cause any proposed purchaser, assignee, transferee or pledgee of the Preferred
Shares, the Conversion Shares or the Common Shares to agree to take and hold
such securities subject to the provisions and upon the conditions specified in
this Agreement.

1.3  Restrictive Legend. Each certificate representing (i) the
Preferred Shares, (ii) the Conversion Shares, (iii) the Common Shares and (iv)
any other securities issued in respect of the securities referenced in clauses
(i), (ii) and (iii) upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by the
provisions of Section 1.4 below) be stamped or otherwise imprinted with legends
in the following form (in addition to any legend required under applicable state
securities laws):

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECU-

-3-

4

RITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR
PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY)
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT."

Each Investor and Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 1.

1.4  Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) an unqualified written
opinion of legal counsel who shall, and whose legal opinion shall be, reasonably
satisfactory to the Company, addressed to the Company, to the effect that the
proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. The Company will not require such a legal opinion or "no action" letter
(a) in any transaction in compliance with Rule 144, (b) in any transaction in
which an Investor which is a corporation distributes Restricted Securities after
six (6) months after the purchase thereof solely to its majority-owned
subsidiaries or affiliates for no consideration, or (c) in any transaction in
which an Investor which is a partnership distributes Restricted Securities after
six (6) months after the purchase thereof solely to partners thereof for no
consideration, provided that each transferee agrees in writing to be subject to
the terms of this Section 1.4. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 1.3 above, except that such certificate shall not bear such restrictive
legend if, in the opinion of counsel for such holder and the Company, such
legend is not required in order to establish compliance with any provisions of
the Securities Act.

1.5 Requested Registration.

(a) Request for Registration. In case the Company shall receive
from Initiating Holders a written request that the Company effect any
qualification, compliance or registration the reasonably anticipated aggregate
price to the public of which net of underwriting discounts and commissions,
would exceed $7,500,000, the Company shall:

-4-

5

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

(ii) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion 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 twenty (20) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
any action to effect any such registration, qualification or compliance pursuant
to this Section 1.5:

(1) 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;

(2) Prior to the earlier of (i) six (6) months following
the Company's initial public offering or (ii) July 31, 2003;

(3) During the period ending on the date three (3) months
immediately following the effective date of any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan);

(4) After the Company has effected two (2) such
registrations pursuant to this subparagraph 1.5(a), such registrations have been
declared or ordered effective and the securities offered pursuant to such
registrations have been sold; or

(5) If the Company shall furnish to such Holders a
certificate, signed by the President of the Company, stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 1.5 shall be deferred for a single period
not to exceed one hundred-twenty (120) days from the date of receipt of written
request from the Initiating Holders.

Subject to the foregoing clauses (1) through (5), 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.

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6
(b) Underwriting. In the event that a registration pursuant to
Section 1.5 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.5(a)(i). The right of any Holder to registration pursuant to Section
1.5 shall be conditioned upon such Holder's participation in the underwriting
arrangements required by this Section 1.5 and the inclusion of such Holder's
Registrable Securities in the underwriting, to the extent requested, to the
extent provided in this Agreement.

The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders (which managing underwriter
shall be reasonably acceptable to the Company). Notwithstanding any other
provision of this Section 1.5, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.

If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. The Registrable Securities and/or
other securities so withdrawn shall also be withdrawn from registration, and
such Registrable Securities shall not be transferred in a public distribution
prior to one hundred eighty (180) days after the effective date of such
registration.

1.6  Company Registration.

(a) Notice of Registration. If at any time or from time to time,
the Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:

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

(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved in such registration, all the Registrable Securities specified in a
written request or requests received within twenty (20) days after receipt of
such written notice from the Company by any Holder, but only to the extent that
such inclusion will not diminish the number of securities included by the
Company or by holders of the Company's securities who have demanded such
registration.

(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

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as a part of the written notice given pursuant to Section 1.6(a)(i). In such
event, the right of any Holder to registration pursuant to Section 1.6 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company (or by the holders who have demanded such registration).
Notwithstanding any other provision of this Section 1.6, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit the Registrable
Securities to be included in such registration to a minimum of 30% of the total
shares to be included in such underwriting or, in the case of the Company's
initial public offering, exclude them entirely. The Company shall so advise all
Holders and the other holders distributing their securities through such
underwriting pursuant to piggyback registration rights similar to this Section
1.6, and the number of shares of Registrable Securities and other securities
that may be included in the registration and underwriting shall be first
allocated among all Preferred Purchasers and Applied in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Preferred Purchasers and Applied at the time of filing the registration
statement, and after satisfaction of the requirements of the Preferred
Purchasers and Applied, the remaining shares that may be included in the
registration and underwriting shall be allocated among the Founders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Founders at the time of filing of the registration
statement. To facilitate the allocation of shares in accordance with the above
provisions, the Company or the underwriters may round the number of shares
allocated to any Holder or other holder to the nearest 100 shares. If any Holder
or other holder disapproves of the terms of any such underwriting, he or she may
elect to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities withdrawn from such underwriting shall be withdrawn
from such registration, and shall not be transferred in a public distribution
prior to one hundred eighty (180) days after the effective date of the
registration statement relating thereto (the "Lock-Up Period"); provided,
however, that if such registration is not the Company's initial public offering
such Lock-Up Period shall be one hundred twenty (120) days unless the managing
underwriter determines that marketing factors require a longer period in which
case the Lock-Up period shall be specified by the managing underwriter but shall
not exceed one hundred eighty (180) days.

(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.6 prior to the effectiveness of such registration, whether or not any
Holder has elected to include securities in such registration.

1.7 Registration on Form S-3.

(a) If Initiating Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $1,000,000, and the Company is a

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registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form; provided,
however, that the Company shall not be required to effect more than one
registration pursuant to this Section 1.7(a) in any twelve (12) month period.
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, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion 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 twenty (20) days after receipt of such written notice from the Company.
The substantive provisions of Section 1.5(b) shall be applicable to each
registration initiated under this Section 1.7(a).

(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.7: (i) 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, (ii) during the period
ending on a date three (3) months following the effective date of a registration
statement (other than with respect to a registration statement relating to a
Rule 145 transaction, an offering solely to employees or any other registration
which is not appropriate for the registration of Registrable Securities), or
(iii) if the Company shall furnish to such Holder a certificate signed by the
President of the Company stating that, in the good faith judgment of the Board
of Directors, it would be seriously detrimental to the Company or its
shareholders for registration statements to be filed in the near future, then
the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a single period not to exceed one hundred twenty
(120) days from the receipt of the request to file such registration by such
Holder or Holders.

(c) Notwithstanding Section 1.7(a) above and subject to Section
1.7(b)(i) above, if during the period between (i) the first anniversary of the
closing of the Company's (d) initial public offering and (ii) the second
anniversary of the closing of the Company's initial public offering, Applied
requests that the Company file a registration statement on Form S-3 (or any
successor form to Form S-3) for a public offering of shares of the Registrable
Securities, the reasonably anticipated aggregate price to the public of which,
net of underwriting discounts and commissions, would exceed $1,000,000, and the
Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, the Company shall use its best efforts to cause
such Registrable Securities to be registered for the offering on such form;
provided, however, that the Company shall not be required to effect more than
one registration pursuant to this Section 1.7(c); and further, provided that, if
the Company makes a good faith determination that any such offering would be
detrimental to any other filed or pending offering, the requirement to register
Applied Shares pursuant to this Section 1.7(c) shall be waived to the extent,
and only to the extent, as to those Applied Shares as are permitted to be
included in such other 

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9

offering. The Company will, as soon as practicable, use its best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request within twenty (20) days
after receipt of such written notice. In the event that a registration pursuant
to this Section 1.7(c) is for a registered public offering involving an
underwriting, the Company and Applied shall enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company and reasonably acceptable to Applied.

1.8 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless such holder derives its rights as
an additional Holder hereunder, or such shares or securities are entitled to be
included in registrations only to the extent that the inclusion of such
securities will not diminish the amount of Holder's Registrable Securities that
are included.

1.9 Expenses of Registration. All Registration Expenses incurred in
connection with any registration pursuant to Sections 1.5, 1.6 or 1.7 and the
reasonable cost of one special legal counsel to represent all of the Holders
together in any such registration shall be borne by the Company, provided that
the Company shall not be required to pay the Registration Expenses of any
registration proceeding begun pursuant to Section 1.5, the request of which has
been subsequently withdrawn by the Initiating Holders. In such case, the Holders
of Registrable Securities to have been registered shall bear all such
Registration Expenses pro rata on the basis of the number of shares to have been
registered unless the Holders of a majority of the Registrable Securities agree
to forfeit their right to one demand registration pursuant to Section 1.5.
Notwithstanding the foregoing, however, if at the time of the withdrawal, the
Holders have learned of a material adverse change in the condition, business or
prospects of the Company from that known to the Holders at the time of their
request, of which the Company had knowledge at the time of the request, then the
Holders shall not be required to pay any of said Registration Expenses or to
forfeit the right to one demand registration.

1.10 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:

(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (120) days or until the distribution described in the registration
statement has been completed. The Company shall not be required to file, cause
to become effective or maintain the effectiveness of any registration statement
that contemplates 

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10

a distribution of securities on a delayed or continuous basis pursuant to Rule
415 under the Securities Act; and

(b) Furnish to the Holders participating in such registration and
to the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.

1.11 Indemnification.

(a) The Company will indemnify each Holder, each of its officers
and directors and partners, 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 or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, 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, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers and
directors, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided 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 or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein.

(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, 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, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, 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 any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein 

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11

not misleading, and will reimburse the Company, such Holders, such directors,
officers, 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 an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the liability of a Holder for indemnification under this
Section 1.11(b) shall not exceed the net proceeds from the offering received by
such Holder.

(c) Each party entitled to indemnification under this Section
1.11 (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 that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be 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 unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which 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.

1.12 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.

1.13 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:

(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act");

(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); and

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(c) So long as an Investor owns any Restricted Securities, to
furnish to the Investor forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after ninety (90) days after 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 of the Company and other information in the possession of or
reasonably obtainable by the Company as an Investor may reasonably request in
availing itself of any rule or regulation of the Commission allowing an Investor
to sell any such securities without registration.

1.14 Transfer of Registration Rights. The rights to cause the Company
to register securities granted Investors under Sections 1.5, 1.6 and 1.7 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by an Investor (together with any
affiliate); provided, that (a) such transfer may otherwise be effected in
accordance with applicable securities laws, (b) notice of such assignment is
given to the Company, and (c) such transferee or assignee (i) is an affiliate of
such Investor or a constituent partner (including limited partners) of such
Investor, or (ii) acquires from such Investor the lesser of (a) 100,000 or more
shares of Restricted Securities (as appropriately adjusted for stock splits and
the like) or (b) all of the Restricted Securities then owned by such Investor.

1.15 Standoff Agreement. Each Holder agrees in connection with the
initial public offering of the Company's securities that, upon request of the
Company or the underwriters managing any underwritten initial public offering of
the Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed one hundred eighty (180) days from the effective date of
such registration) as may be requested by the Company or such managing
underwriters; provided, however, that the officers and directors of the Company
who own stock of the Company also agree to such restrictions.

1.16 Termination of Rights. No Holder shall be entitled to exercise
any right provided for in this Section 1:

(a) after five (5) years following the consummation of the
sale of securities pursuant to a registration statement filed by the Company
under the Act in connection with the initial firm commitment underwritten
offering of its securities to the general public, or

(b) on or after the closing of a public offering of the
Common Stock of the Company when all shares of the Holder's Registrable
Securities may be sold under Rule 144 during any 90-day period; provided,
however, that the provisions of this subsection (b) shall not apply where the
Holder owns more than two percent (2%) of the Company's outstanding stock until
such time as such Holder owns less than two percent (2%) of the outstanding
stock; provided, however, that the rights of Applied set forth in Section 1.7(c)
shall terminate only after two (2) years following the consummation of the sale
of securities pursuant to a registration 

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statement filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public.

SECTION 2

Right of Participation

2.1 Purchasers' Right of Participation.

(a) Right of Participation. Subject to the terms and conditions
contained in this Section 2.1, the Company hereby grants to each Major Purchaser
the right of participation to purchase its Pro Rata Portion of any New
Securities (as defined in subsection 2.1(b)) which the Company may, from time to
time, propose to sell and issue. A Major Purchaser's "Pro Rata Portion" for
purposes of this Section 2.1 is the ratio that (x) the sum of the number of
shares of the Company's Common Stock then held by such Major Purchaser and the
number of shares of the Company's Common Stock issuable upon conversion of the
Preferred Stock then held by such Major Purchaser, bears to (y) the sum of the
total number of shares of the Company's Common Stock then outstanding, the
number of shares of the Company's Common Stock issuable upon the exercise of any
issued and outstanding rights, options or warrants, and the number of shares of
the Company's Common Stock issuable upon conversion of the then outstanding
Preferred Stock.

(b) Definition of New Securities. Except as set forth below, "New
Securities" shall mean any shares of capital stock of the Company, including
Common Stock and Preferred Stock, whether authorized or not, and rights, options
or warrants to purchase said shares of Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible into said
shares of Common Stock or Preferred Stock. Notwithstanding the foregoing, "New
Securities" does not include (i) the Common Shares, the Preferred Shares or the
Conversion Shares, (ii) securities offered to the public generally pursuant to a
registration statement under the Securities Act, (iii) securities issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of substantially all of the assets or shares or other reorganization
whereby the Company or its shareholders own not less than a majority of the
voting power of the surviving or successor corporation, (iv) shares of the
Company's Common Stock or related options or warrants convertible into or
exercisable for such Common Stock issued to employees, officers and directors
of, and consultants to, the Company, pursuant to any arrangement approved by the
Board of Directors of the Company, (v) shares of the Company's Common Stock or
related options or warrants convertible into or exercisable for such Common
Stock issued to customers and vendors of the Company pursuant to any arrangement
unanimously approved by the Board of Directors of the Company; (vi) shares of
the Company's Common Stock or related options convertible into or exercisable
for such Common Stock issued to banks, commercial lenders, lessors and other
financial institutions in connection with the borrowing of money or the leasing
of equipment by the Company, (vii) stock issued pursuant to any rights or
agreements, including, without limitation, convertible securities, options and
warrants, provided that the Company shall have complied with the rights of
participation established by this Section 2.1 with respect to the initial sale
or grant by the Company of such 

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14

rights or agreements, or (viii) shares of capital stock issued in connection
with any stock split, stock dividend or recapitalization by the Company.

(c) Notice of Right. In the event the Company proposes to
undertake an issuance of New Securities, it shall give each Purchaser written
notice of its intention, describing the type of New Securities and the price and
terms upon which the Company proposes to issue the same. Each Purchaser shall
have twenty (20) days from the date of receipt of any such notice to agree to
purchase shares of such New Securities (up to the amount referred to in
subsection 2.1(a)), 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.

(d) Exercise of Right. If any Purchaser exercises its right of
participation under this Agreement, the closing of the purchase of the New
Securities with respect to which such right has been exercised shall take place
within ninety (90) calendar days after the Purchaser gives notice of such
exercise, which period of time shall be extended in order to comply with
applicable laws and regulations. Upon exercise of such right of participation,
the Company and the Purchaser shall be legally obligated to consummate the
purchase contemplated thereby and shall use their best efforts to secure any
approvals required in connection therewith.

(e) Lapse and Reinstatement of Right. In the event a Purchaser
fails to exercise the right of participation provided in this Section 2.1 within
said twenty (20) day period, the Company shall have ninety (90) 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 sixty (60) days from the date
of said agreement) to sell the New Securities not elected to be purchased by
such Purchaser at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Company's notice. In the
event the Company has not sold the New Securities or entered into an agreement
to sell the New Securities within said ninety (90) day period (or sold and
issued New Securities in accordance with the foregoing within sixty (60) days
from the date of said agreement), the Company shall not thereafter issue or sell
any New Securities without first offering such securities to the Purchasers in
the manner provided above.

(f) Assignment. The right of the Purchasers to purchase any part
of the New Securities may be assigned in whole or in part to any partner,
subsidiary, affiliate or shareholder of a Purchaser, or other persons or
organizations who acquire the lesser of (i) 100,000 or more shares of Restricted
Securities (as adjusted for stock splits and the like) or (ii) all of the
Restricted Securities then owned by such Purchaser.

2.2 Termination of Participation Right. The rights of participation
granted under Section 2.1 of this Agreement shall terminate on and be of no
further force or effect upon the earlier of (i) the consummation of the
Company's sale of its Common Stock in an underwritten public offering pursuant
to an effective registration statement filed under the Securities Act
immediately subsequent to which the Company shall be obligated to file annual
and quarterly reports with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act or (ii) the registration by the Company of a class of its equity
securities under Section 12(b) or 12(g) of the Exchange Act.

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SECTION 3

Miscellaneous

3.1 Assignment. Except as otherwise provided in this Agreement, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties to this
Agreement.

3.2 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties to this Agreement, and
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

3.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California in the United States of America
without giving effect to the conflicts of laws principles thereof.

3.4 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

3.5 Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be sent by prepaid registered or certified mail, return
receipt requested, or otherwise delivered by hand or by messenger addressed to
the other party at the address shown below or at such other address for which
such party gives notice under this Agreement. Such notice shall be deemed to
have been given when delivered if delivered personally, or, if sent by mail, at
the earlier of its receipt or three (3) days after deposit in the mail.

3.6 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.

3.7 Amendment and Waiver. Any provision of this Agreement may be
amended or waived with the written consent of the Company and the Holders of at
least a majority of the outstanding shares of the Registrable Securities, so
long as the effect is to treat all Holders equally. Any amendment or waiver that
adversely affects any rights specific to Applied hereunder shall require the
written consent of the Company and Applied. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Company. In addition, the Company may waive performance of
any obligation owing to it, as to some or all of the Holders of Registrable
Securities, or agree to accept alternatives to such performance, without
obtaining the consent of any Holder of Registrable Securities. In the event that
an underwriting agreement is entered into between the Company and any Holder,
and such underwriting agreement contains terms differing from this Agreement, as
to any such Holder the terms of such underwriting agreement shall govern.

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16

3.8 Effect of Amendment or Waiver. The Investors and their successors
and assigns acknowledge that by the operation of Section 3.7 of this Agreement
the holders of a majority of the outstanding Registrable Securities, acting in
conjunction with the Company, will have the right and power to diminish or
eliminate any or all rights or increase any or all obligations pursuant to this
Agreement; provided that the rights and obligations of Applied may not be
adversely affected without its consent in accordance with Section 3.7 above.

3.9 Rights of Holders. Each holder of Registrable Securities shall
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.

3.10 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default 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 party of any breach or default under this
Agreement, or any waiver on the part of any party 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.

3.11 Aggregation of Stock. All Registrable Securities held or acquired
by affiliated entities or persons shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.

[SIGNATURE PAGE FOLLOWS]

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17

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

COMPANY:

PDF SOLUTIONS, INC.,
a California corporation

By:
-------------------------------------------------------
John K. Kibarian, President and Chief Executive Officer

FOUNDERS: 

------------------------------------
JOHN K. KIBARIAN

------------------------------------
KIMON MICHAELS

------------------------------------
THOMAS COBOURN

------------------------------------
HOWARD READ

SECOND AMENDED AND RESTATED RIGHTS AGREEMENT

18

SERIES A AND SERIES B HOLDERS:

U.S. VENTURE PARTNERS IV, L.P.

By: Presidio Management Group IV, L.P.
Its General Partner

By:
------------------------------------
Name:
Title:

2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025

SECOND VENTURES II, L.P.

By: Presidio Management Group IV, L.P.
Its General Partner

By:
------------------------------------
Name:
Title:

2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025

U.S.V.P. ENTREPRENEUR PARTNERS II, L.P.
A Delaware Limited Partnership

By: Presidio Management Group IV, L.P.
Its General Partner

By:
------------------------------------
Name:
Title:

2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025

SECOND AMENDED AND RESTATED RIGHTS AGREEMENT

19

2180 ASSOCIATES FUND

By:
------------------------------------
Name:
Title:

2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025

TELOS VENTURE PARTNERS, L.P.

By:
------------------------------------
Name:
Title:

2350 Mission College Blvd., Suite 1070
Santa Clara, CA 95054

THE CASSIN FAMILY TRUST U/D/T/
DTD 1/31/96, BRENDAN J. AND ISABEL
B. CASSIN, TRUSTEES

By:
------------------------------------
Name:
Title:

3000 Sand Hill Road, Building 3, Suite 210
Menlo Park, CA 94025

CASSIN FAMILY PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP

By:
------------------------------------
Name:
Title:

3000 Sand Hill Road, Building 3, Suite 210
Menlo Park, CA 94025

SECOND AMENDED AND RESTATED RIGHTS AGREEMENT

20

VLG INVESTMENTS 1995

By:
------------------------------------
Name:
Title:

c/o Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025

CRAIG W. JOHNSON

--------------------------------
Craig W. Johnson

c/o Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025

PETER COHN

---------------------------------
Peter Cohn

c/o 1020 Marsh Road
Menlo Park, CA 94025

PETER COHN, AS TRUSTEE OR THE
SUCCESSOR TRUSTEE OR TRUSTEES
U/A/D JUNE 29, 1995, AS AMENDED,
CREATING THE PETER COHN REVOCABLE TRUST

By:
------------------------------
Peter Cohn
Trustee

1020 Marsh Road
Menlo Park, CA 94025

SECOND AMENDED AND RESTATED RIGHTS AGREEMENT

21

ORRICK, HERRINGTON & SUTCLIFFE LLP

By:
------------------------------
Peter Cohn
Partner

1020 Marsh Road
Menlo Park, CA 94025

RICHARD M. LUCAS FOUNDATION

By:
------------------------------
Name:
Title:

3000 Sand Hill Road, Suite 3-210
Menlo Park, CA 94025

ST. MARY'S COLLEGE OF CALIFORNIA

By:
------------------------------
Name:
Title:

1928 St Mary's Road
Moraga, CA 94556

ST. FRANCIS GROWTH FUND

By:
------------------------------
Name:
Title:

San Francis High School
1885 Miramonte Avenue
Mountain View, CA 94049

SECOND AMENDED AND RESTATED RIGHTS AGREEMENT

22

LARRY YOSHIDA

---------------------------------
Larry Yoshida

Address:
--------------------------

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

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

DONALD L. LUCAS PROFIT SHARING TRUST

By:
------------------------------
Name:
Title:

Attn:  Donald L. Lucas
3000 Sand Hill Road, #3-210
Menlo Park, CA 94025
(650) 854-4223

RWI GROUP IV, L.P.
By:  RWI GROUP LLC
Its General Partner

By:
------------------------------
Name:
Title:

Attn:  Donald A. Lucas
720 University Ave., # 103
Palo Alto, CA 94301
(650) 833-4980

SECOND AMENDED AND RESTATED RIGHTS AGREEMENT

23

BRIAN BURR

------------------------------------
Brian Burr

c/o 1020 Marsh Road
Menlo Park, CA 94025

TETON CAPITAL COMPANY,
A CALIFORNIA LIMITED PARTNERSHIP

By:
------------------------------
Name:
Title:

Attn:  Donald L. Lucas
3000 Sand Hill Road, #3-210
Menlo Park, CA 94025
(650) 854-4223

THE RYDE REVOCABLE TRUST

DATED 12/15/94

By:
------------------------------
Magnus Ryde
Trustee

39 Windchester Drive
Atherton, CA 94027
(650) 329-9638

APPLIED:

APPLIED MATERIALS, INC.,
a Delaware corporation

By:______________________________________________

_____(name)_____, ___________(title)________

SECOND AMENDED AND RESTATED RIGHTS AGREEMENT

1
EXHIBIT 5.1

July 9, 2001

PDF Solutions, Inc.
333 West San Carlos Street
Suite 700
San Jose, CA 95110

Re: PDF Solutions, Inc.
Registration Statement on Form S-1

Ladies and Gentlemen:

At your request, we are rendering this opinion in connection with a
proposed sale by PDF Solutions, Inc., a Delaware corporation (the "Company") of
up to 5,175,000 shares of common stock, $0.00015 par value (the "Common Stock").

We have examined instruments, documents, and records which we deemed
relevant and necessary for the basis of our opinion hereinafter expressed. In
such examination, we have assumed the following: (a) the authenticity of
original documents and the genuineness of all signatures; (b) the conformity to
the originals of all documents submitted to us as copies; and (c) the truth,
accuracy, and completeness of the information, representations, and warranties
contained in the records, documents, instruments, and certificates we have
reviewed.

Based on such examination, we are of the opinion that the 5,175,000
shares of Common Stock to be issued and sold by the Company (of which up to
675,000 shares are to be issued to cover over-allotments, if any), are duly
authorized and will be, when issued against payment of the purchase price
therefor, legally issued, fully paid and nonassessable.

We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended or supplemented. In
giving such consent, we do not consider that we are "experts" within the meaning
of such term as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission issued thereunder, with
respect to any part of the Registration Statement, including this opinion as an
exhibit or otherwise.

Very truly yours,

/s/ ORRICK, HERRINGTON & SUTCLIFFE LLP

1
CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

EXHIBIT 10.6

CONFIDENTIAL TREATMENT
PDF SOLUTIONS, INC. HAS REQUESTED
THAT THE MARKED PORTIONS OF THIS
DOCUMENT BE ACCORDED CONFIDENTIAL
TREATMENT PURSUANT TO RULE 406 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.

PROJECT: TOSHIBA -
*********************
*********************

TECHNOLOGY COOPERATION AGREEMENT

This Technology Cooperation Agreement dated as of *****************
(this "AGREEMENT") is entered into by and between Toshiba Corporation, a
corporation organized under the laws of Japan ("TOSHIBA") having its principal
place of business at 1-1 Shibaura 1-chome, Minato-ku, Tokyo 105-8001, Japan, and
PDF Solutions, Inc., a corporation organized under the laws of California
("PDF") having its principal place of business at 333 West San Carlos Street,
Suite 1200, San Jose, California, U.S.A..

1.      YIELD IMPROVEMENT SERVICES.

1.1 PROVISION OF SERVICES. During the term of this Agreement, PDF will
provide to Toshiba development work and services with respect to integrated
circuit yield management issues. The services and the Deliverables to be
delivered as a result thereof (the "PROJECT") are described in detail on a
statement of work (the "STATEMENT OF WORK") attached hereto as Exhibit A. The
Statement of Work shall be governed by the terms of this Agreement, and
specifies:

(a)     Deliverables. The specific deliverables (the "DELIVERABLES") to
be delivered under the Project and relevant milestones for
delivering the Deliverables;

(b)     Team Structure. The team members from PDF and Toshiba who are to
work on the Project and the expected time contributions for each
such member;

(c)     Tools. The required data, tools, hardware, software, materials,
access to personnel and facilities, and other materials required
for

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

effectively completing the Project;

(d)     Location. The geographic location where each component of the
Project will be completed;

(e)     Fees and Expenses. The amount and structure of PDF's Fees (as
defined below) payable upon delivery of the Deliverables and
Expenses (as defined below).

1.2 TOSHIBA INTELLECTUAL PROPERTY. Toshiba will provide PDF on a timely
basis with such Intellectual Property (as defined in Section 3.1) and such other
data and materials as PDF shall reasonably require in order to perform the
Project and/or prepare the Deliverables as defined in the Statement of Work.

1.3 DELIVERABLES. In performing the Project, PDF shall develop and/or
make for Toshiba the Deliverables in accordance with any schedules set forth in
the Statement of Work. The Deliverables shall meet in all material respects the
description of the Deliverable (the "DELIVERABLE DESCRIPTION") set forth in the
Statement of Work.

1.4 ACCEPTANCE. Upon delivery of any Deliverable by PDF to Toshiba,
Toshiba shall examine the Deliverable to determine whether it reasonably
conforms to the Deliverable Description. If the Deliverable does not reasonably
conform to such Deliverable Description, Toshiba shall have fifteen (15) days
from the date of delivery thereof to reject such Deliverable and specify in
writing why it does not reasonably conform to such Deliverable Description. Upon
such rejection the parties shall work together to determine what needs to be
done to bring such Deliverable up to such Deliverable Description. If the
Deliverable does not meet the Deliverable Description, PDF shall exercise
reasonable efforts to correct promptly such nonconformity of the Deliverable
with the Deliverable Description and redeliver the Deliverable to Toshiba upon
completion of such correction within one month following the parties' agreement
referenced in the preceding sentence but only if there are no limitations
outside of PDF's control. If there are limitations outside PDF's control, PDF
and Toshiba will negotiate in good faith a time for delivery of the Deliverable.
If a rejection of the Deliverable is not received by PDF within fifteen (15)
days after any delivery or redelivery of a Deliverable under this Section 1.4,
the Deliverable shall be deemed accepted. "ACCEPTANCE" (including with
correlative meaning the term "ACCEPT") shall mean any acceptance under this
Section 1.4. Toshiba agrees to deliver a notice of Acceptance (the "NOTICE OF
ACCEPTANCE") upon its decision to Accept any Deliverable hereunder within such
fifteen (15) days following such delivery or redelivery.

2.      FEES AND EXPENSES.

2.1 SERVICES FEES AND EXPENSES. Upon delivery of each of the respective
Deliverables provided by PDF hereunder, Toshiba shall pay to PDF the fees
specified to the extent and in the manner set forth in the Statement of Work
("FEES"), and shall reimburse PDF for its out-of-pocket expenses incurred in
carrying out its obligations under this Agreement including, but not limited to,
travel, hotel, meal, document

-2-

3

production, equipment and other expenses directly related to the services
performed hereunder further subject to the terms and conditions set forth in the
Statement of Work ("EXPENSES"). In no event shall the Expenses for which Toshiba
shall be liable hereunder exceed any limitation on Expenses specified in the
Statement of Work without written agreement from Toshiba. PDF shall use
reasonable and diligent efforts to deliver the Deliverables hereunder within the
estimated expenses and time schedule specified in the Statement of Work.

2.2 PAYMENTS. All payments by Toshiba hereunder shall be made by wire
transfer to the bank account to be designated by PDF. If required by applicable
law, Toshiba shall withhold and pay any taxes and assessments levied or imposed
by any Japanese tax or other governmental body resulting from the services or
the Deliverables to be provided by PDF to Toshiba and the payment to be made by
Toshiba to PDF hereunder, including without limitation all personal property
taxes on any of the foregoing and any taxes or amounts in lieu of any of the
foregoing paid or payable by PDF, other than taxes based on PDF's net income.
Toshiba shall promptly and timely effect the payment of any such taxes so
withheld to the appropriate tax or other governmental authorities. Upon payment
of such taxes so withheld, Toshiba shall, as promptly as possible, send to PDF
an official tax receipt, tax payment certificate or other evidence issued by the
applicable tax or governmental authorities. The parties acknowledge that PDF
shall be obligated to pay any such tax at the reduced withholding income tax
rate rather than the ordinary rate by filing "Application Form for Income Tax
Convention between the United States and Japan" with the Japanese tax
authorities. If applicable, Toshiba shall send PDF the application form
immediately after the execution of this Agreement for PDF's signature and PDF
shall promptly sign it and return it to Toshiba so that Toshiba may file it with
the applicable Japanese tax authorities on behalf of PDF.

3.      OWNERSHIP.

3.1 SOLELY DEVELOPED INTELLECTUAL PROPERTY. Each party shall solely own
any Intellectual Property solely developed by such party or the employee(s) of
such party, whether before, during or after the term of this Agreement. For the
purposes of this Agreement, "INTELLECTUAL PROPERTY" shall mean the Confidential
Information (as defined in Section 6), patent and patent applications,
copyrights, trade secrets, know how, rights of authorship, and any other
intellectual property rights recognized by the law of any country or
jurisdiction of the world.

3.2 JOINTLY DEVELOPED INTELLECTUAL PROPERTY. Any Intellectual Property
jointly developed by the employees of both parties in connection with or as a
result of the services provided by PDF hereunder shall be jointly-owned by PDF
and Toshiba; provided, however, that any such Intellectual Property so jointly
developed by PDF and Toshiba which consists of, effects or results in any
improvement, enhancement or derivative work of PDF's software and methodologies
including problem solving processes and practices shall be solely owned by PDF
but subject to the license provided in Section 3.4; provided, further, that any
such Intellectual Property so jointly developed by PDF and Toshiba in the manner
embodied in Toshiba's product designs, products,

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

fabrication facilities or fabrication processes shall be owned solely by
Toshiba. Each party shall have the right to use, exercise, disclose and license
to third parties such jointly developed Intellectual Property that is not solely
owned by the other party without accounting to or the consent of the other
party.

3.3 TOSHIBA LICENSE. Toshiba hereby grants to PDF a non-exclusive,
royalty-free license to use and practice the Intellectual Property provided by
Toshiba hereunder, in order for PDF to perform the Project and develop or
prepare the Deliverables solely during the term of this Agreement.

3.4 PDF LICENSE. PDF shall grant to Toshiba and its Subsidiaries a
non-exclusive, irrevocable, worldwide and fully-paid license (with the right of
Toshiba to sublicense to any Subsidiary) to use, have used for Toshiba and/or
its Subsidiaries ("HAVE-USED RIGHTS"), copy for internal use, modify and/or
enhance the Deliverables as set forth in the Statement of Work and any PDF-owned
methodologies or practices that Toshiba shall observe in the ordinary course of
the provision of services by PDF under this Agreement (collectively, the
"LICENSED PROPERTY") which license, sublicense, have-used rights or other rights
shall only be for any purpose in connection with sales, development,
manufacture, fabrication, and/or use of products of Toshiba and/or its
Subsidiaries, but only to the extent PDF has the right to grant such license;
provided that such have-used rights with respect to any Specified Deliverable
(as defined in Paragraph (a) of the Statement of Work) shall only be permitted
(a) if the have-used rights are solely for the purpose of establishing Toshiba's
Products on the applicable process at the fabrication facility of the partner of
Toshiba which is granted such have-used rights and for no other purpose or use,
and (b) once the Product on the applicable process is established at such
partner's fabrication facility, such partner must return or destroy all copies
of the Deliverables and have an appropriate officer of such partner certify that
all copies of such Specified Deliverable have been returned or destroyed;
provided, further, that such license shall not extend to any software or tools
used by PDF in connection with or during the course of such services or to any
software manuals or documents relating to such software or tools; provided,
further, that Toshiba shall be bound by and shall cause its Subsidiaries,
sublicensees or have-used or other partners to be bound by the confidentiality
obligations contained in Section 6; provided, further, that Toshiba shall not
disclose, license, sublicense or make available on a have-used basis any such
Licensed Property to any third party other than as a part of the third party's
sale, development, manufacturing, fabrication and/or use of semiconductor
products in connection with Toshiba technology or Toshiba products. Toshiba
understands that PDF will not disclose to Toshiba certain proprietary methods or
trade secrets in connection with the services to be rendered by PDF hereunder.
To this end, PDF retains the right to take industry standard measures to keep
such proprietary methods or trade secrets from Toshiba.

3.5 NO OTHER OWNERSHIP. Except as otherwise set forth in this Section 3,
neither this Agreement nor performance of the Project shall give either PDF or
Toshiba any ownership, interest in or rights to the Intellectual Property owned
or provided by the other party.

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

3.6 DEFINITION OF SUBSIDIARY. For the purpose of this Agreement and the
Statement of Work, the term "SUBSIDIARY" of any party shall mean any corporation
or other entity more than fifty percent (50%) of the Voting Stock of which is
beneficially owned or controlled, directly or indirectly, by such party;
provided that such corporation, company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists. "VOTING STOCK" of
any entity shall mean any stock or other equity interest entitled to vote for
the election of directors or any equivalent governing body of such entity.
Notwithstanding the above, ******************** ****************************
shall be deemed a Subsidiary of Toshiba under this Agreement for so long as
Toshiba continues to hold **************** of the voting stock of
*******************.

4.      TERM AND TERMINATION.

4.1 COMMENCEMENT. This Agreement shall commence as of the date first set
forth above and shall continue in force until completion of the Project, unless
sooner terminated as provided in this Section 4.

4.2 TERMINATION.

(a) If either party defaults in the performance of any material
obligation hereunder the non-defaulting party may give the defaulting party
written notice of such default within twenty (20) days following the
non-defaulting party's discovery of such default. If the defaulting party fails
to cure such default within forty-five (45) days (or such other time period as
the parties shall mutually agree) after the defaulting party's receipt of such
notice of default, then the non-defaulting party, at its option, may, terminate
this Agreement by giving the defaulting party written notice of termination of
this Agreement within ten days following the end of such 45 day period. If such
notice of default or notice of termination is not given within such period, then
the default shall no longer constitute cause for termination of this Agreement.

(b) Either party may terminate this Agreement effective upon written
notice to the other party in the event the other party becomes the subject of a
voluntary or involuntary petition in bankruptcy or any proceeding relating to
insolvency, or assignment for the benefit creditors, if that petition or
proceeding is not dismissed within sixty (60) days after filing. Such written
notice of termination must be delivered no later than ten (10) days following
the expiration of such 60-day period. If such notice of termination is not given
within such 10-day period, then the default shall no longer constitute cause for
termination of this Agreement.

(c) Either party may terminate this Agreement effective upon written
notice to the other party in the event that the other party is merged with or
into, or all or substantially all or the other party's assets are sold to, a
third party corporation or other entity, unless such acquiring corporation or
entity expressly agrees to assume the other party's obligations under this
Agreement. Such written notice of termination must be delivered no later than
ten (10) days following the consummation of such transaction. If

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

such notice of termination is not given within such 10-day period, then the
default shall no longer constitute cause for termination of this Agreement.

(d) Toshiba shall be entitled to terminate this Agreement upon
forty-five (45) days prior written notice if (i) Toshiba reasonably rejects the
Deliverables due to their material nonconformity with the Deliverable
Description set forth in the Statement of Work (and clearly and properly
specifies the reason for such nonconformity), the Acceptance procedure set forth
in Section 1.4 shall have been exhausted without an Acceptance, and PDF does not
reasonably cure such material nonconformity within forty-five (45) days
following the final written rejection of such Deliverable, or (ii) Toshiba
reasonably and in good faith judges that the expected progress for the services
to be performed by PDF necessary to deliver the Deliverables hereunder cannot be
achieved within the mutually agreed time frame, and within ten (10) days
following such notice PDF cannot reasonably establish that such progress can be
achieved. This Agreement may then be terminated by a written notice of
termination delivered within ten (10) days following the applicable foregoing
forty-five (45) day period. If such written notice of termination is not given
within such 10-day period, then the default under this Section 4.2(d) shall no
longer constitute cause for termination of this Agreement.

4.3 TERMINATION OF RIGHTS. Upon expiration or termination of this
Agreement, all rights and licenses granted and all obligations undertaken
hereunder shall forthwith terminate except the following:

(a) Any and all licenses granted by PDF to Toshiba and its
Subsidiaries under this Agreement as to previously delivered, Accepted and paid
for Deliverables shall survive the expiration or termination of this Agreement
unless this Agreement is terminated by PDF in accordance with the provisions of
Section 4.2(a), (b) or (c) in which case none of such licenses shall survive and
all copies of such Deliverables shall be returned to PDF.

(b) If Toshiba terminates this Agreement for the reason as stated in
Section 4.2, Toshiba shall pay to PDF, within thirty (30) days after the date of
termination, (i) the actual amount of unreimbursed Expenses incurred by PDF
through the date of termination by Toshiba, (ii) the amount of the Deliverables
Fees with respect to Deliverables delivered or otherwise accrued, and unpaid
through the date of termination, (iii) the Incentive Fee if the Incentive Fee
remains unpaid; provided that payment of such Fees and Expenses shall be subject
to the provisions of Section 2.

(c) If Toshiba terminates this Agreement for the reason specified in
Section 4.2, Toshiba shall pay to PDF:

(i) the amount of any unpaid Product Fees accrued prior to the
date of termination; and

(ii) the amount of any future Product Fees in accordance with
Paragraph (e)(iii) of the Statement of Work with respect to any Product that
incorporates

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OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

any Deliverable delivered by PDF to Toshiba which Product Fees shall be payable
through the term of payment specified in such Paragraph (e)(iii); provided that
Product Fees to be accrued and paid following a date of termination shall
terminate only if the basis for termination of this Agreement shall be (A) an
involuntary bankruptcy under Section 4.2(b) or (B) the material default under
PDF's confidentiality obligations under Section 6 of this Agreement;

provided that payment of such Product Fees under this Section 4.3(c) shall be
subject to the provisions of Section 2.

(d) The provisions of Sections 2 (including by reference
Toshiba's obligations to pay Fees and Expenses set forth in the Statement of
Work but subject to Section 4.3(b) and (c)), 3.1, 3.2, 3.4 (with respect to
Deliverables delivered by PDF to Toshiba and Accepted and paid for by Toshiba),
4, 6, 7, 8.4, 8.7 and 8.8 shall survive any expiration or termination of this
Agreement.

5.      INDEPENDENT CONTRACTORS. The relationship of PDF and Toshiba established
by this Agreement is that of independent contractors, and nothing contained in
this Agreement shall be construed to (i) give either party the power to direct
or control the day-to-day activities of the other, (ii) constitute the parties
as agents, partners, joint venturers, co-owners or otherwise as participants in
a joint or common undertaking, or (iii) allow either party to create or assume
any obligation on behalf of the other for any purpose whatsoever.

6.      CONFIDENTIALITY. Except as otherwise provided herein, each party agrees,
at all times during the term of this Agreement and for 5 years after receipt of
Confidential Information, to hold in strictest confidence (and to cause its
Subsidiaries to hold in strictest confidence), and not to use, except for the
purposes contemplated herein, or to disclose to any person, firm or corporation
without written authorization of the other party, any Confidential Information
of the disclosing party. As used in this Agreement, "CONFIDENTIAL INFORMATION"
means any proprietary information, technical data, trade secrets or know-how,
including, but not limited to, research, software, developments, inventions,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, yield data or other information disclosed by one
party to the other, which is marked as "Confidential," and/or orally or in other
tangible form identified as confidential at the time of disclosure and confirmed
as Confidential Information in writing within thirty (30) days of its initial
disclosure, provided that any methodologies, practices or procedures used by PDF
and observed by Toshiba shall constitute "Confidential Information" within the
meaning of this Agreement without any such notification. Confidential
Information does not include any of the foregoing items which have become
publicly known and made generally available through no wrongful act of the
receiving party, or which is already known by the receiving party as evidenced
by the receiving party's files immediately prior to such disclosure, or which
the receiving party proves was independently developed, prior to the receiving
party's receipt of such Confidential Information, by employees or other
representatives of such receiving party who have not had access to such
information or the ideas or theories underlying such Confidential Information.
Except as otherwise agreed by both parties, PDF shall return to

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

Toshiba all Confidential Information of Toshiba owned by Toshiba and not
licensed to PDF or jointly owned by PDF and Toshiba and copies thereof, within
thirty (30) days after completion of the Project or after expiration or
termination of this Agreement. Except as otherwise agreed by both parties,
Toshiba shall return to PDF all Confidential Information of PDF owned by PDF and
not licensed to Toshiba or jointly owned by PDF and Toshiba and copies thereof,
within thirty (30) days after completion of the Project or after expiration or
termination of this Agreement.

7.      WARRANTY. PDF warrants to Toshiba that PDF's Intellectual Property
utilized by PDF in performing the Project does not infringe any patent,
copyright, trade secret, and any other proprietary rights of any third party.
EXCEPT FOR THE FOREGOING, NOTHING UNDER THIS AGREEMENT, OR THE STATEMENT OF WORK
OR PROJECT SHALL BE DEEMED TO BE A WARRANTY OR REPRESENTATION AS TO THE OUTCOME
OF ANY PROJECT OR THE EFFICACY OF ANY RECOMMENDATIONS MADE BY PDF. NOTHING UNDER
THIS AGREEMENT OR THE STATEMENT OF WORK SHALL BE DEEMED TO CREATE ANY LIABILITY
ON THE PART OF PDF WITH RESPECT TO THE OUTCOME OF A PROJECT OR ANY ACTIONS TAKEN
BY TOSHIBA AS A CONSEQUENCE OF PDF'S RECOMMENDATIONS.

8.      MISCELLANEOUS.

8.1 AMENDMENTS AND WAIVERS. Any term of this Agreement or any Statement
of Work may be amended or waived only with the written consent by the
representatives of the parties.

8.2 SOLE AGREEMENT. This Agreement and the Statement of Work constitute
the sole agreement of the parties and supersede all oral negotiations and prior
writings with respect to the subject matter hereof.

8.3 NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by an internationally-recognized delivery service (such as Federal
Express or DHL), or after being deposited in the U.S. mail as certified or
registered mail with postage prepaid, if such notice is addressed to the party
to be notified at such party's address as set forth above or as subsequently
modified by written notice.

8.4 CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.

8.5 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of this
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of this Agreement shall be enforceable in

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9

accordance with its other terms.

8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.

8.7 ARBITRATION. The parties shall attempt in good faith to resolve any
dispute arising under this Agreement. If the parties are unable to resolve
dispute within a reasonable period then the dispute shall be finally settled by
binding arbitration (a) if brought by Toshiba, in San Jose, California, in
accordance with the Commercial Rules of the American Arbitration Association
and, (b) if brought by PDF, in Tokyo, Japan in accordance with the rules of the
International Chamber of Commerce. In either case such arbitration shall be
conducted by one arbitrator appointed in accordance with said rules. The
arbitrator shall apply California law, without reference to rules of conflicts
of law or rules of statutory arbitration, to the resolution of any dispute.
Judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision.

8.8 EXPORT CONTROL. Neither party shall, directly or indirectly export
or re-export any technical data or information or data received from the other
party hereunder or the direct products thereof to any destination prohibited or
restricted by export control regulations of Japan and the United States,
including U.S. Export Administration Regulations, without proper authorization
from the appropriate governmental authorities. In addition, the parties agree
that no technology furnished to the other will be used for any purpose to
develop and/or manufacture nuclear, chemical or biological weapons and/or
missiles.

8.9 NON-SOLICITATION. Toshiba shall not solicit or influence or attempt
to influence any person employed by PDF to terminate or otherwise cease his or
her employment with PDF or become an employee of Toshiba or any competitor of
PDF. A company's status as a competitor of PDF shall be determined by PDF in its
sole discretion.

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10

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

PDF SOLUTIONS, INC.                            TOSHIBA CORPORATION

By: /s/ P. Steven Melman                       By: /s/ Koichi Suzuki
-------------------------------                 ----------------------------
P. Steven Melman                               Koichi Suzuki, VP

Title: Chief Financial Officer                 Title:  Group Executive
---------------------------                     ------------------------
Semiconductor Group

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
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ASTERISKS DENOTE SUCH OMISSIONS.

STATEMENT OF WORK

*******************
***
************************************************

This Statement of Work is made between PDF Solutions, Inc. ("PDF") and
Toshiba Corporation ("TOSHIBA") pursuant to and attached as an exhibit to that
certain Technology Cooperation Agreement dated as of **************** (the
"AGREEMENT") between PDF and Toshiba. All terms and conditions contained in this
Statement of Work are subject to the terms and conditions set forth in the
Agreement. The date of commencement of services under this Agreement was
**************** (the "ENGAGEMENT COMMENCEMENT DATE").

(a)     DELIVERABLES

PDF will provide Toshiba with development work and other consulting
services to assist Toshiba in (a) **************************** of Toshiba's
************* processes referred to as **************** (and derivatives
thereof) for use with the specific ************* ("***********") or any other
device that Toshiba selects to use to verify the **************** and
**************** Processes (a "****************"), (b) effecting the transfer of
the ************** and ************ **************** from Toshiba's *****
facility to its **************** facility, and (c) improving the *************
***** of ****** manufactured utilizing the **************** (the
"****************"), ****** manufactured utilizing the **************** (the
"****************"), and any other devices manufactured utilizing the
**************** or the **************** such as **************** manufactured
utilizing the **************** (the "****************"), ****************
manufactured utilizing the **************** (the "****************"),
**************** manufactured utilizing the **************** (the
"****************"), ****************manufactured utilizing the ****************
(the "****************"). The ****************, the ****************, the
****************, the ****************, the ****************, the
****************, and each other Toshiba product manufactured utilizing the
**************** and the **************** are each individually referred to as a
"PRODUCT" and are collectively referred to as the "PRODUCTS". The parties
acknowledge and agree that a device (such as ****************) manufactured on
**************** is a different product than such device (****************,
respectively) manufactured on the ****************. During the engagement
Toshiba engineers will be invited to be part of the team and work at the
direction of the PDF engineers in conducting the data gathering and analyses
necessary to carry out PDF's holistic yield improvement methodology.

In order to ensure that the work of the team will result in actions and
subsequent measurable improvements in *******************, the team will report
its recommendations directly to a management steering committee consisting of
the set of Toshiba managers who are necessary to make all decisions regarding
the Product (the "TOSHIBA MANAGEMENT GROUP").

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OMITTED AND FILED SEPARATELY WITH
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ASTERISKS DENOTE SUCH OMISSIONS.

In providing the Services to Toshiba, PDF, working with Toshiba
engineers, will recommend specific actions to be taken to improve *************
***** of each Product. Where determined by PDF to be necessary, PDF will present
a business case stating the expected size of the potential yield improvements,
the likely cost of making the improvements and the relative likelihood of
success.

The objective of the Project and the result of the activities above will
be to deliver the following Deliverables: 

DELIVERABLES

Anticipated
No.      Description                                                       Payment             Delivery Date
---      -----------                                                       -------             -------------

1.      Detailed Project Plan and Schedule.                              $********           ****************

2.      *************************************************                $********           ****************
********.                                                                         

3.      *************************************************                $********           ****************
*************************************************                                                 

4.      ***************************************.                         $********           ****************

5.      *************************************************               $********           ****************
*****************************                                                     

6.      ****************************************.                        $********           ****************

7.      ******************************************************           $********           ****************
********************************.                                                 

8.      ********************************************************         $********           ****************
*********************************** 

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ASTERISKS DENOTE SUCH OMISSIONS.

************************************************************ in      
**********************************************************           
********************                                                 

9.      ********************************************************             $********           ****************
********************************************************                              
****************************************************                                  
************************************************                                  
********************                                                              

For the purpose of this Agreement, "SPECIFIED DELIVERABLES" (for
example, as used in Section 3.4 of the Agreement) shall mean Deliverable Numbers
2, 3, 4, 5, 6 and 7.

The parties acknowledge that the Analysis Software comprising a part of
the Deliverables requires the use of pdFab, pdEx and/or other PDF software
products that PDF separately sells or licenses (the "UNDERLYING SOFTWARE"). This
Analysis Software consists solely of the specifically and custom designed
Analysis Software applicable to Toshiba, and specifically excludes any of the
Underlying Software. Any licensee , sublicensee or other user of the Analysis
Software must have appropriate licenses to use such Underlying Software. No
license, sublicense or other right to use or other right in any Underlying
Software is granted under this Agreement and Statement of Work.

PDF will present the findings to the Toshiba Management Group
during pre-arranged review meetings. The purpose of these review meetings will
be for the Toshiba Management Group to review recommendations, seek
clarifications where necessary and decide which yield improvement actions to
take.

Within ******** following the delivery of any Deliverable listed above,
Toshiba will deliver to PDF such test data and other data and materials as shall
be reasonably necessary to enable PDF to prepare and deliver the next
Deliverable (the "TOSHIBA DELIVERABLES").

(b)     TEAM STRUCTURE

The team is structured to divide the decision-making, project leadership
and analysis management between three bodies in the form of "TEAM STRUCTURE" in
the form attached to this Statement of Work as Exhibit C.

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ASTERISKS DENOTE SUCH OMISSIONS.

Toshiba will establish a Steering Committee (the "STEERING COMMITTEE")
which will consist of (a) *************** and any other Toshiba manager who is
necessary in order for yield improvement decisions to be made, and (b)
***************** or another senior executive of PDF. Toshiba and PDF will make
all such personnel available for performance under the Agreement and this
Statement of Work. The Steering Committee will be limited to four
representatives of Toshiba and one representative of PDF in order to allow
decisions to be reached in a timely fashion but will have sufficient authority
to make the relevant decisions. The Steering Committee is responsible for giving
the team its charter, deciding which yield improvement actions to take and who
in the Toshiba organization will be responsible for carrying out the
improvement.

Project leadership responsibility will be shared by ******** (the
"TOSHIBA PROJECT LEADER"), on behalf of Toshiba, and ************* (the "PDF
PROJECT LEADER"), on behalf of PDF. The Toshiba Project Leader and the PDF
Project Manager will consult with ************ of PDF as they together shall
deem necessary and appropriate. Their primary responsibility will be to ensure
that the team is making good progress toward delivery of the work chartered by
the Steering Committee. In order to maximize the likelihood that the team is
making good progress, the Toshiba Project Leader and the PDF Project Leader will
monitor the team's work on a weekly basis and help reduce any organizational
obstacles which may impede the team's progress.

The day-to-day analyses will be conducted by a ********************Team
******** of engineers from Toshiba and PDF. A PDF Engagement Manager will manage
the activities of the ****. The PDF Engagement Manager will be responsible for
directing all team members in their analyses as well as aggregating and
synthesizing the results of all the analyses conducted by the entire team. The
PDF Engagement Manager will be available for all communications at reasonable
times with the project leaders. In addition, the PDF Engagement Manager will be
the principal point of contact for any questions that Toshiba personnel not on
the **** may have during the course of the engagement.

In addition to the PDF Engagement Manager, PDF will make a total of
************** available to this engagement. PDF may staff additional engineers
during critical points during the term of this Agreement.

Also, ************** Toshiba engineers will be asked to participate
actively with the ****. Toshiba team members should be assigned to one of the
Subgroups and be skilled at one of the principal analytical streams of the PDF
yield improvement methodology. They will be placed on the Team and Subgroups
after approval by PDF for the purpose of gathering data and conducting analyses
to improve yield on the Product. The Toshiba team members will work at the
direction of a PDF engineer responsible for one of the Subgroups and principal
analytical streams of the engagement.

(c)     TOOLS

Toshiba will provide PDF with office space and other typical business
resources reasonably requested from time to time by PDF. In particular, Toshiba
will provide PDF with secure office space large enough to accommodate up to **
PDF personnel in addition to Toshiba engineers assigned to work on the ****.
Toshiba will provide PDF with office equipment reasonably requested by PDF from
time to time including **** international access Facsimile machine and line and
a photo copier. Toshiba will provide PDF with 24-hour access to the team office
so work can continue at night and on weekends.

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ASTERISKS DENOTE SUCH OMISSIONS.

*************************************************************************

Toshiba will provide PDF with computing resources that PDF reasonably
deems necessary to *************************************. The details of such
request will be sent in a separate document to the Toshiba Project Leader but in
general, Toshiba will provide **** engineering workstations connected to both
the Toshiba network and the Internet. Toshiba will also provide such other
accessories as PDF shall reasonably request including a removable data storage
device, such as a tape drive, and a printer.

(d)     LOCATION

The Project will be conducted by Toshiba's and PDF's personnel at
Toshiba's ****** ******** in *************** and Toshiba's *******************
in ************, and by PDF's personnel at PDF's facilities. In certain cases,
PDF may require Toshiba engineers to work at the PDF facility in San Jose,
California. PDF engineers may also work in ******** and ******** factory when
the engagement manager believes this is necessary to achieve progress. If
Toshiba shall provide PDF employees with an English version of the employee
rules and regulations in force at the Toshiba facilities, then PDF employees
shall comply with such rules and regulations in all material respects in an
equivalent manner as other Toshiba employees generally. Any failure to comply
with such rules and regulations shall not constitute a default of a material
obligation constituting a basis for termination of this Agreement unless (A)
Toshiba has repeatedly given notices of such failure to PDF and PDF has
repeatedly failed to remedy such noncompliance as specified in such notices, (B)
Toshiba shall notify PDF in writing that failure to cure such repeated non
compliance within ******** shall constitute a basis for termination of the
Agreement and PDF shall fail to remedy such non compliance, and (C) Toshiba
gives final notice of termination within ************** following such ********
period. PDF shall take all reasonable steps necessary to ensure that all
employees resident at or visiting a Toshiba facility shall treat as confidential
in accordance with Section 6 all material information of a proprietary nature
observed by or disclosed to such employee, and shall comply in all material
respects with the all export control obligations contained in Section 8.8.

(e)     FEES AND EXPENSES.

Toshiba will pay PDF Fees consisting of three components: (1) the
Deliverables Fees, (2) the Incentive Fee and (3) the Product Fees, each as
defined below:

(i) DELIVERABLES FEES. Toshiba will pay PDF a fixed fee upon
delivery of each of the Deliverables equal to the "Payment" with respect to each
such Deliverable specified under (a) above (the "DELIVERABLES FEES"). Toshiba
acknowledges that PDF delivered Deliverable No. 1 to Toshiba on *************
and hereby Accepts Deliverable No. 1. Upon Acceptance by Toshiba of each other
Deliverable, PDF will submit to Toshiba an invoice specifying the

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OMITTED AND FILED SEPARATELY WITH
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ASTERISKS DENOTE SUCH OMISSIONS.

Deliverable delivered and the Deliverable Fee due. Toshiba shall pay the
Deliverable Fees within ***** days following the date of the invoice. Payment
shall be made in accordance with the provisions of Section 2.2 of the Agreement.
If Toshiba shall fail to deliver a Toshiba Deliverable with respect to a PDF
Deliverable within the time period specified in the last paragraph of Paragraph
(a) of this Statement of Work and as a result, the delivery of the Deliverable
by PDF is delayed by more than six weeks after the "Anticipated Delivery Date"
referenced in the table in Paragraph (a) of this Statement of Work above, then
the parties hereby agree that such Deliverable shall be deemed to have been
delivered by PDF upon PDF's delivery of such Deliverable to the extent developed
through such date, Toshiba shall be obligated to deliver the respective
Deliverable Fee, and upon payment of such Deliverable Fee and delivery of the
applicable Toshiba Deliverable, PDF shall complete delivery of the Deliverable;
provided that if Toshiba shall wish to modify or alter the Toshiba Deliverable,
then the parties shall work together in good faith to mutually agree upon a
substitute Toshiba Deliverable in which case, if appropriate, the Deliverable
specifications, the Deliverable Fees, time for delivery of Deliverables and due
date for completion of Deliverables necessary to satisfy the requirements to
receive the Incentive Fee, and the Product Fees applicable to such altered
Deliverables shall be appropriately adjusted as well.

(ii) INCENTIVE FEE. PDF shall deliver to Toshiba an analysis
report and shall work with Toshiba with the objective of enabling Toshiba to
achieve an average yield of ***** shippable die per wafer (based on a die size
of ***** square millimeters or smaller), over all lots (excluding lots deemed
adversely affected by material operational errors such as equipment
malfunctions, misprocessing (such as operating the recipe not in accordance with
the specifications) and other similar reasons) of the ************** meeting the
Functional Tests and Specifications (as defined below) for which production is
completed during any two-week period of Mass Production commencing on or prior
to ************* (the last date that two weeks of Mass Production can be
completed to achieve the Incentive Fee is referred to as the "INCENTIVE FEE
DATE"). Such average number of shippable die per wafer referenced in the
preceding sentence, as adjusted pursuant to the last sentence of this Paragraph
(e)(ii), shall be referred to as the (the "INCENTIVE TARGET YIELD"). Upon
Toshiba achieving the Incentive Target Yield on or prior to the Incentive Fee
Date as described above, Toshiba shall be obligated to pay PDF an incentive fee
equal to ******** (the "INCENTIVE FEE"); provided, however, that the Incentive
Target Yield shall not be considered achieved and Toshiba shall have no
obligation to pay the Incentive Fee unless Toshiba shall have achieved (in the
manner provided above) the Incentive Target Yield on or prior to the Incentive
Fee Date. In the event the Functional Tests and Specifications for the
*************** change then the Incentive Target Yield will be appropriately
adjusted to account for the change in specifications.

Upon commencement of Mass Production of the **************** Toshiba
will provide PDF with regular, ongoing data as to the yield on the wafers for
such Product to enable PDF to assess the average yield on the wafers for such
Product for any two-week period commencing on or prior to ***************** and
will provide PDF with such average yield every two-weeks. Upon achievement of
the Incentive Target Yield, Toshiba will notify PDF and PDF will submit to
Toshiba an invoice for the Incentive Fee. Toshiba shall pay the Incentive Fee
within thirty (30) days following the date of the invoice. Payment shall be made
in accordance with the provisions of Section 2.2 of the Agreement.

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ASTERISKS DENOTE SUCH OMISSIONS.

PDF's failure to deliver the materials necessary to enable Toshiba to
achieve the Incentive Target Yield referenced above on or prior to the Incentive
Fee Date shall not constitute a basis for termination of the Agreement under
Section 4 of the Agreement.

(iii) PRODUCT FEES. Toshiba will pay PDF a separate Quarterly
fee with respect to each separate Product (as defined in the first paragraph in
Paragraph (a) of this Statement of Work above) manufactured ** **** ******* ***
**** ***** ************ ******** ** ***** **** ******* is manufactured (the
"PRODUCT FEES"). If Toshiba determines to ******** * ******* ** *******
*********** ******** ******** ***** ** ******* ** ****, upon Toshiba's request
PDF shall assist in assessing such facility's yield ramp methodologies and
process transfer data if such facility is to receive ***** of the scheduled
production of such Product. If PDF's services in designing new procedures
(including without limitation development of test structures, TEGs, analysis
models, or other similar services) are necessary to help achieve the targeted
yield ** **** ***** *********** ******** ********* ******** shall not be covered
by this Agreement but shall be provided pursuant to a separate agreement to be
agreed upon between PDF and either Toshiba or the owner of such other facility.
The Product Fees shall be calculated separately *** **** *********** ******** **
***** **** Product is produced, provided that all *********** ********** with
respect to which PDF provides services or advice under an agreement with PDF
(including this Agreement) shall ************ ** ********** *** ******** ****
******** ********** for purposes of such calculation so long as PDF agrees to
include such ******** as a part of such ****************. No Product Fees shall
be payable with respect to any ******** ***** ** ** ************ ***** *****
***** ******** ******** *** **** **** ***** ** *** ***** ****** ** ***** ** ****
Product produced. In making such calculations and paying such amounts, the
foregoing terms (and certain other terms) are defined as follows:

"AVERAGE UNIT SALES PRICE" for any Product during any Quarter
shall mean the Net Sales of such Product during such Quarter
divided by the total number of units of such Product sold
during such Quarter which comprise such Net Sales.

"BASE NUMBER OF SHIPPABLE DIE PER WAFER" for any Product
during any Quarter shall mean a number of die per wafer to be
determined by agreement between PDF and Toshiba. With respect
to the **************, Base Number of Shippable Die Per Wafer
shall initially be **** shippable die per wafer (based on a
die size of ***** square millimeters or smaller), subject to
adjustment pursuant to a ramp schedule to be mutually agreed
upon in writing between Toshiba and PDF before *************.
Such ramp schedule shall adjust the Base Number of Shippable
Die per Wafer no more frequently than quarterly. For each
other Product, within 30 days following the first tape out of
such Product, PDF and Toshiba shall meet and agree upon what
shall constitute such Base Number of Shippable Die per Wafer
for such Product. The adjustments to the Base Number of
Shippable Die per Wafer established in the ramp schedule for
the ******** Product and with respect to any other Product
shall be mutually agreed upon and shall be based upon analysis
of the following factors: (a) the defect limited yield used
from Toshiba's targets; (b) an estimation of the parametric
yield based on static timing analysis and other design
factors; (c) an estimation of the typical

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ASTERISKS DENOTE SUCH OMISSIONS.

systematic yield based on Toshiba and industry typical yield
improvement rates for systematic yield; and (d) the
profitability of the Product. The Base Number of Shippable Die
Per Wafer for any Product shall be the same for all
fabrication facilities.

"FIRST QUALIFYING MONTH" for any Product shall mean the
calendar month beginning on the later of (a) the first day of
the calendar month immediately following the calendar month in
which Mass Production units of such Product are first sold to
Customers (unless such first sale occurs on the first day of a
calendar month in which case the First Qualifying Month shall
commence on the date of such first sale) or (b)
**************.

"FUNCTIONAL TESTS AND PERFORMANCE SPECIFICATIONS" for any
Product shall mean the functional tests and performance
specifications at wafer probe test and at die sort test, as
the case may be, as are specified for qualification by the
client of Toshiba with respect to such Product, or such other
less stringent functional tests and performance specifications
that such client shall accept, or such other functional tests
and performance specifications as are otherwise mutually
agreed upon by Toshiba and PDF.

"NET SALES" for any Product during any Quarter shall mean the
actual gross sales of such Product (a) by Toshiba to any
customer, distributor or other third party; and (b) by any
such customer, distributor or other third party which is
controlling, controlled by or under common control
("AFFILIATED") with Toshiba to any other person; during such
Quarter, less returns of such Product during such Quarter. Any
sales by an affiliated customer, distributor or other third
party shall be reduced by the amount paid for such product to
Toshiba by such affiliated customer, distributor or other
third party under clause (a) above so as to avoid double
counting of sales by such parties. Such amounts shall be
determined in accordance with generally accepted accounting
principles consistently applied. All persons to whom sales of
Products are made under clauses (a) and (b) above or otherwise
are collectively referred to as "CUSTOMERS."

"MASS PRODUCTION" units shall mean units of a Product that are
sold to Customers in mass commercial quantities for use in
commercial systems (and not merely for evaluation) or
otherwise than for commercial use.

"NUMBER OF QUALIFYING UNITS" for any Product during any
Quarter shall mean the amount, if any, by which (a) the total
number of units of such Product which are produced during such
Quarter which meet the Functional Tests and Performance
Specifications for such Product upon completion of the die
sort test (hereinafter referred to as "PRODUCED"), exceeds (b)
the Base Number of Shippable Die Per Wafer for such Product
during such Quarter multiplied by the total number of wafers
from which die for such Product are produced during such
Quarter. (This explicitly excludes zero-yielding wafers since
zero-yielding wafers are indicative of operational problems
like equipment malfunctions or

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misprocessing; not process or design related problems which
PDF has the ability to affect.)

"QUARTER" with respect to any Product shall mean each
successive three month period commencing on the later of
*************** or the First Qualifying Month for such
Product.

Amount of Product Fee. The Product Fee for each Product shall be
calculated with respect to each Quarter and shall equal the product of:

(a)     the product fee multiplier of ******, multiplied
by,

(b)     the Average Unit Sales Price for such product in
such Quarter, multiplied by,

(c)     the Number of Qualifying Units in such Quarter.

The Product Fee for all Products at all fabrication facilities shall
collectively not exceed *********** in the aggregate.

Calculation of Product Fee. The Product Fee for each Product (as defined
in the first paragraph in Paragraph (a) of this Statement of Work above) will be
calculated with respect to each such Product for each Quarter commencing with
the First Qualifying Month for such Product, and for each additional Quarter
thereafter for an aggregate of *** consecutive Quarters (or *** months) (each,
the "PRODUCT PAYMENT PERIOD"). The First Qualifying Month and the Product
Payment Period shall be calculated separately for each separate Product (as
defined above). In the event of a suspension in the production of such Product
or the reduction of quantities of production of such Product to less than Mass
Production quantities for any reason, the Product Payment Period for which the
Product Fee is being calculated and the calculation of the Base Number of Die
Per Wafer shall be extended for a period of time equal to the period during
which production is suspended or such commercial quantities are not being
produced. Notwithstanding the foregoing, no Product Payment Period shall extend
beyond, and no Product Fee shall be calculated or payable with respect to any
period after, ****************.

Payment of Product Fee. The Product Fee will be paid for each Product
with respect to each successive Quarter commencing with the Quarter beginning
with the First Qualifying Month and continuing through the end of the Product
Payment Period. Toshiba will make such payment to PDF within forty-five (45)
days following the last day of each such Quarter with respect to which the
Product Fee is determined. Payment will be delivered in accordance with the
provisions of Section 2.3 of the Agreement.

Verification. Within thirty (30) days following the end of each Quarter,
Toshiba will provide PDF with a report containing the following information with
respect to each Product during such Quarter:

(a)     the "Net Sales";

SOW-9

20

CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

(b)     the total number of units sold which comprise
such Net Sales;

(c)     the "Average Sales Price;"

(d)     the total number of units which are produced
during such Quarter which meet the applicable Functional Tests
and Performance Specifications upon completion of the wafer
probe test;

(e)     the "Base Number of Shippable Die Per Wafer;"

(f)     the total number of wafers from which Mass
Production Units are produced during such Quarter; and

(g)     the "Number of Qualifying Units."

Upon the reasonable request of PDF but no more often than once in any
year, PDF may have its independent auditors inspect the accuracy of Toshiba's
reports. If there are inconsistencies found in PDF's favor, Toshiba agrees to
pay the difference within thirty (30) days of the finding. Any information
contained in the report and the results of the inspection shall be considered
Confidential Information under Section 6 of the Agreement.

(iv)    EXPENSES.

Toshiba will reimburse PDF for all Expenses incurred by PDF in
performing the services, delivering the Deliverables and fulfilling its
obligations under the Project. The Expenses will be billed to Toshiba at PDF's
cost and will not exceed an average of ******** per calendar quarter without the
written consent of Toshiba. PDF will submit to Toshiba invoices specifying the
Expenses and Toshiba will pay the Deliverable Fees within thirty (30) days
following the date of the invoice. Invoices will be submitted to Toshiba no more
frequently than a monthly basis. Payments of invoices for PDF's expenses will be
made in accordance with the provisions of Section 2.2 of the Agreement.
Notwithstanding the foregoing if PDF is entitled to receive reimbursement of the
same travel, lodging and other similar expenses from both Toshiba and other
customers, then PDF will allocate any expenses that are for the benefit of both
Toshiba and such other customers, among Toshiba and such other customers on a
basis that PDF shall determine is fair, just and equitable to Toshiba and such
other customers taking into account all relevant factors.

(v)     VERIFICATION.

Toshiba will provide PDF access to all other relevant information and
documentation (or will provide PDF with copies of all relevant documentation)
necessary to confirm and verify the Deliverables Fees, the Incentive Fee and
Product Fees payable to PDF hereunder.

SOW-10

21

CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

PROJECT: TOSHIBA -
**********************
**********************

AMENDMENT NO. 1
TO
TECHNOLOGY COOPERATION AGREEMENT

This Amendment No. 1 to the Technology Cooperation Agreement (the
"AMENDMENT") is made as of the ************************ by and between Toshiba
Corporation, a corporation organized under the laws of Japan ("TOSHIBA") having
its principal place of business at 1-1 Shibaura 1-chome, Minato-ku, Tokyo
105-8001, Japan, and PDF Solutions, Inc., a corporation organized under the laws
of California ("PDF") having its principal place of business at 333 West San
Carlos Street, Suite 1200, San Jose, California, U.S.A.

RECITALS

WHEREAS, on ****************, Toshiba and PDF entered into a Technology
Cooperation Agreement (the "AGREEMENT") relating to the provision of services by
PDF to Toshiba.

WHEREAS, the Agreement contained a Statement of Work which detailed the
specific obligations of PDF and Toshiba with respect to the Project; and

WHEREAS, the schedule for the mass production of the products covered by
the Agreement has been delayed by certain circumstances, and the parties desire
to amend the Statement of Work to change the terms and conditions relating to
the Incentive Fee and the Product Fee sections in the Statement of Work to more
accurately reflect the parties' intentions.

NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, the adequacy of which is hereby acknowledged, the
parties hereto mutually agree as follows:

1. Definitions. All capitalized terms unless defined elsewhere in this
Amendment shall have the meanings ascribed to them in the Agreement

2. Statement of Work. Paragraphs (e)(ii) and e(iii) of the Statement of
Work are hereby amended and restated their entirety as follows:

"(ii) INCENTIVE FEE. PDF shall deliver to Toshiba analysis reports and
shall work with Toshiba with the objective of enabling Toshiba to achieve the
First, Second and Third Incentive Target Yield (each as defined below)
(collectively, the "INCENTIVE TARGET YIELDS"). Upon Toshiba achieving any of the
First, Second or Third Incentive Target Yields, Toshiba shall pay PDF the First,
Second or Third Incentive Fee (each as defined below), respectively, which Fees
shall total ******** (collectively, the "INCENTIVE FEES"). The Incentive Fees
and Incentive Target Yields shall be determined as follows:

* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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22

CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

(a)     FIRST INCENTIVE FEE. Toshiba shall pay PDF ******** (the "FIRST
INCENTIVE FEE") upon achieving a yield of *** shippable die
(based on a die size of **** square millimeters or smaller) on
any single wafer of the *********** Product produced and meeting
the Functional Tests and Specifications (as defined below)
measured at wafer probe test at any time on or prior to
************ (the "FIRST INCENTIVE TARGET YIELD");

(b)     SECOND INCENTIVE FEE. Toshiba shall pay PDF ******** (the
"SECOND INCENTIVE FEE") upon achieving an average yield of
****** shippable die per wafer (based on a die size of ****
square millimeters or smaller), on any single lot of wafers of
the ******** Product meeting the Functional Tests and
Specifications measured at wafer probe test or prior to
************* (the "SECOND INCENTIVE TARGET YIELD"); and

(c)     THIRD INCENTIVE FEE. Toshiba shall pay PDF ******** (the "THIRD
INCENTIVE FEE") upon achieving an average yield of ****
shippable die per wafer (based on a die size of **** square
millimeters or smaller), over all lots (excluding lots deemed
adversely affected by material operational errors such as
equipment malfunctions, misprocessing (such as operating the
recipe not in accordance with the specifications) and other
similar reasons) of the ************* Product meeting the
Functional Tests and Specifications measured at final test for
which production is completed during any two-week period of Mass
Production commencing on or prior to ************* (the last
date that two weeks of Mass Production can be completed to
achieve the Third Incentive Fee is referred to as the "INCENTIVE
FEE DATE") (the "THIRD INCENTIVE TARGET YIELD");

provided, however, that no Incentive Target Yield shall be considered
achieved and Toshiba shall have no obligation to pay the Incentive Fee
corresponding to achievement of such Incentive Target Yield unless Toshiba shall
have achieved (in the manner provided above) such Incentive Target Yield on or
prior to the Incentive Fee Date. In the event the Functional Tests and
Specifications for the ************* Product change then the respective
Incentive Target Yields will be appropriately adjusted to account for the change
in specifications.

Upon commencement of Mass Production of the ************* Product
Toshiba will provide PDF with regular, ongoing data as to the yield on the
wafers for such Product on a periodic basis to enable PDF to assess each
Incentive Target Yield. Upon achievement of each Incentive Target Yield, Toshiba
will notify PDF and PDF will submit to Toshiba an invoice for the respective
Incentive Fee. Toshiba shall pay each Incentive Fee within thirty (30) days
following the date of the invoice. Payment shall be made in accordance with the
provisions of Section 2.2 of the Agreement.

PDF's failure to deliver the materials necessary to enable Toshiba to
achieve the Incentive Target Yields referenced above on or prior to the
respective Incentive Fee Dates shall not constitute a basis for termination of
the Agreement under Section 4 of the Agreement.

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23

CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

(iii) PRODUCT FEES. Toshiba will pay PDF a separate Quarterly fee with
respect to each separate Product (as defined in the first paragraph in Paragraph
(a) of this Statement of Work above) manufactured at each Toshiba and each other
fabricator's facility at which such Product is manufactured (the "PRODUCT
FEES"). If Toshiba determines to *****************************************
****************************************************************************
****************************************************************************
****************************************************************************
************. If PDF's services in designing new procedures (including without
limitation development of test structures, TEGs, analysis models, or other
similar services) are necessary to help achieve the targeted yield *************
******************** then such services shall not be covered by this Agreement
but shall be provided pursuant to a separate agreement to be agreed upon between
PDF and **************************************************. The Product Fees
shall be calculated separately for ************************* at which such
Product is produced, provided that all fabrication facilities with respect to
which PDF provides services or advice under an agreement with PDF (including
this Agreement) shall collectively be considered one facility (the "PRIMARY
FACILITY") for purposes of such calculation so long as PDF agrees to include
such facility as a part of such Primary Facility. No Product Fees shall be
payable with respect to any facility owned by an unaffiliated third party which
facility accounts for less than 25% of the total number of units of such Product
produced. In making such calculations and paying such amounts, the foregoing
terms (and certain other terms) are defined as follows:

"AVERAGE NUMBER OF SHIPPABLE DIE PER WAFER" for any Product
during any Quarter shall mean the average number of shippable die per
wafer (based on a die size of **** square millimeters or smaller), over
all lots (excluding engineering lots and lots deemed adversely affected
by material operational errors such as equipment malfunctions,
misprocessing (such as operating the recipe not in accordance with the
specifications) and other similar reasons) of such Product during such
Quarter meeting the Functional Tests and Specifications measured at
final test for which production is completed during such Quarter.

"BASE NUMBER OF SHIPPABLE DIE PER WAFER" for any Product during
any Quarter shall mean a number of die per wafer to be determined by
agreement between PDF and Toshiba.

(a)     With respect to the ******** Product, Base Number of Shippable
Die Per Wafer shall initially be **** shippable die per wafer in
the Quarter commencing ******** through **************, ***
shippable die per wafer in the Quarter commencing
*************** through ****************** and *** shippable die
per wafer in the Quarter commencing ************* through
************** and thereafter (based on a die size of ****
square millimeters or smaller).

(b)     With respect to the Base Number of Shippable Die Per Wafer for
the ******* Product, the Base Number of Shippable Die per Wafer
shall be

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24

CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

mutually agreed upon by the parties within *** days of the date
of execution of the Amendment.

(c)     For each other Product, within *** days following the first tape
out of such Product, PDF and Toshiba shall meet and agree upon
what shall constitute such Base Number of Shippable Die per
Wafer for such Product. The adjustments to the Base Number of
Shippable Die per Wafer established in the ramp schedule for the
************ Product and with respect to any other Product shall
be mutually agreed upon and shall be based upon analysis of the
following factors: **************************************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************

"CURRENT WAFER PRICE" shall mean the following:

(a)     With respect to ************* Products, the "Current Wafer
Price" in the Quarter commencing ************ though
************** shall be ********. Such price shall be reduced by
******** percent in the Quarter commencing ************* through
***********. On a quarterly basis thereafter determined one week
prior to the commencement of such Quarter, the price will be
adjusted to reflect then current market prices for such wafers
and other relevant market conditions, provided that such
reductions shall not exceed ************ percent in any
consecutive 12-month period. If market prices for such wafers
vary more than plus or minus ************ in any consecutive
12-month period, the parties agree to re-examine the prices and
to make alterations accordingly, as mutually agreed upon.

(b)     With respect to ******** Products, the "Current Wafer Price" in
the Quarter commencing ******** though ******** shall be
********. Such price shall be reduced by ******** percent in the
Quarter commencing ************ through **************. On a
quarterly basis thereafter determined one week prior to the
commencement of such Quarter, the price will be adjusted to
reflect then current market prices for such wafers and other
relevant market conditions, provided that such reductions shall
not exceed ************ percent in any consecutive 12-month
period. If market prices for such wafers vary more than
plus or minus ************ in any consecutive 12-month period,
the parties agree to re-examine the prices and to make
alterations accordingly, as mutually agreed upon.

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25
CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

"FIRST QUALIFYING MONTH" for any Product shall mean the
calendar month beginning on the later of (a) the first day of
the calendar month immediately following the calendar month in
which Mass Production units of such Product are first sold to
Customers (unless such first sale occurs on the first day of a
calendar month, the First Qualifying Month shall commence on the
date of such first sale) or (b) ************.

"FUNCTIONAL TESTS AND PERFORMANCE SPECIFICATIONS" for
any Product shall mean the functional tests and performance
specifications at wafer probe test, at die sort test and at
final test, as the case may be, as are specified for
qualification by the client of Toshiba with respect to such
Product, or such other less stringent functional tests and
performance specifications that such client shall accept, or
such other functional tests and performance specifications as
are otherwise mutually agreed upon by Toshiba and PDF.

"MASS PRODUCTION" units shall mean units of a Product
that are sold to Customers in mass commercial quantities for use
in commercial systems (and not merely for evaluation) or
otherwise than for commercial use, and/or when the final mark
set has been approved for mass production.

"QUARTER" with respect to any Product shall mean each
successive three month period commencing on the later of
************* or the First Qualifying Month for such Product.

Amount of Product Fee. The Product Fee for each Product shall be
calculated with respect to each Quarter and shall equal the product of:

(a)     the Current Wafer Price for such Product during
such Quarter multiplied by *****;

(b)     multiplied by *****;

(c)     multiplied by the difference determined by (x)
the quotient of the Average Number of Shippable
Die per Wafer divided by the Base Number of
Shippable Die per Wafer for such Product during
such Quarter minus (y) one (1);

(d)     multiplied by the number of Mass Production
wafers for such Product during such Quarter.

The Product Fee for all Products at all fabrication facilities shall
collectively not exceed ******** in the aggregate.

Calculation of Product Fee. The Product Fee for each Product (as defined
in the first paragraph in Paragraph (a) of this Statement of Work above) will be
calculated with respect to each such Product for each Quarter commencing with
the First Qualifying Month for such

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26
CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

Product, and for each additional Quarter thereafter for an aggregate of 8
consecutive Quarters (or 24 months) (each, the "PRODUCT PAYMENT PERIOD"). The
First Qualifying Month and the Product Payment Period shall be calculated
separately for each separate Product (as defined above). In the event of a
suspension in the production of such Product or the reduction of quantities of
production of such Product to less than Mass Production quantities for any
reason, the Product Payment Period for which the Product Fee is being calculated
and the calculation of the Base Number of Die Per Wafer shall be extended for a
period of time equal to the period during which production is suspended or such
commercial quantities are not being produced. Notwithstanding the foregoing, no
Product Payment Period shall extend beyond, and no Product Fee shall be
calculated or payable with respect to any period after, ************.

Payment of Product Fee. The Product Fee will be paid for each Product
with respect to each successive Quarter commencing with the Quarter beginning
with the First Qualifying Month and continuing through the end of the Product
Payment Period. Toshiba will make such payment to PDF within *** days following
the last day of each such Quarter with respect to which the Product Fee is
determined. Payment will be delivered in accordance with the provisions of
Section 2.3 of the Agreement.

Verification. Within thirty (30) days following the end of each Quarter,
Toshiba will provide PDF with a report containing the following information with
respect to each Product during such Quarter:

(a) the Average Number of Shippable Die per Wafer (including
method of calculating such number);

(b) the total number of units which are produced which meet the
applicable Functional Tests and Performance Specifications upon
completion of the wafer probe test; and

(c) the total number of Mass Production wafers produced.

Upon the reasonable request of PDF but no more often than once in any
year, PDF may have its independent auditors inspect the accuracy of Toshiba's
reports and the underlying data. If there are inconsistencies found in PDF's
favor, Toshiba agrees to pay the difference within thirty (30) days of the
finding. Any information contained in the report and the results of the
inspection shall be considered Confidential Information under Section 6 of the
Agreement.

3. Counterparts. This Amendment may be executed in any number of
counterparts, all of which together shall constitute one instrument. 

[SIGNATURE PAGE FOLLOWS]

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27

The parties hereto have executed this Amendment as of the date first set
forth above.

PDF SOLUTIONS, INC.                          TOSHIBHA

By: /s/ John K. Kibarian                     By:    /s/ Shigen Komats
-----------------------------                   ---------------------------
Title:  President & CEO                  Title: Vice President
Micro & Custom LSI Division
Semiconductor Company

-7-

1

EXHIBIT 10.10

PDF SOLUTIONS, INC.

2001 STOCK PLAN

EFFECTIVE AS OF [DATE OF INITIAL PUBLIC OFFERING], 2001

2

PDF SOLUTIONS, INC.

2001 STOCK PLAN

EFFECTIVE AS OF [DATE OF INITIAL PUBLIC OFFERING], 2001

SECTION 1. INTRODUCTION.

The Company's Board of Directors adopted the PDF Solutions, Inc. 2001
Stock Plan on June 12, 2001 (the "Adoption Date"), and the Company's
stockholders approved the Plan on [APPROVAL DATE]. The Plan is effective
on the date of our initial public offering.

The purpose of the Plan is to promote the long-term success of the
Company and the creation of shareholder value by offering Key Employees
an opportunity to acquire a proprietary interest in the success of the
Company, or to increase such interest, and to encourage such selected
persons to continue to provide services to the Company and to attract
new individuals with outstanding qualifications.

The Plan seeks to achieve this purpose by providing for Awards in the
form of Stock Purchase Rights granting Restricted Stock and Options
which may be Incentive Stock Options or Nonstatutory Stock Options.

The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except its choice-of-law provisions).
Capitalized terms shall have the meaning provided in Section 2 unless
otherwise provided in this Plan or the applicable Stock Option Agreement
or Restricted Stock Agreement.

SECTION 2. DEFINITIONS.

(a) "AFFILIATE" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity.
For purposes of determining an individual's "Service," this definition
shall include any entity other than a Subsidiary, if the Company, a
Parent and/or one or more Subsidiaries own not less than 50% of such
entity.

(b) "AWARD" means any award of an Option or Stock Purchase Right under
the Plan.

(c) "BOARD" means the Board of Directors of the Company, as constituted
from time to time.

(d) "CHANGE IN CONTROL" except as may otherwise be provided in a Stock
Option Agreement or Restricted Stock Agreement, means the occurrence of
any of the following:

3

(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of
the continuing or surviving entity's securities outstanding
immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders of
the Company immediately prior to such merger, consolidation or
other reorganization;

(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets;

(iii) A change in the composition of the Board, as a
result of which fewer that one-half of the incumbent directors
are directors who either (i) had been directors of the Company
on the date 24 months prior to the date of the event that may
constitute a Change in Control (the "original directors") or
(ii) were elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the aggregate of
the original directors who were still in office at the time of
the election or nomination and the directors whose election or
nomination was previously so approved;

(iv) Any transaction as a result of which any person
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company representing at least 20% of the total voting power
represented by the Company's then outstanding voting securities.
For purposes of this Paragraph (iii), the term "person" shall
have the same meaning as when used in sections 13(d) and 14(d)
of the Exchange Act but shall exclude:

(A) A trustee or other fiduciary holding
securities under an employee benefit plan of the Company
or a subsidiary of the Company;

(B) A corporation owned directly or indirectly
by the stockholders of the Company in substantially the
same proportions as their ownership of the common stock
of the Company; and

(C) The Company; or

(v) A complete liquidation or dissolution of the
Company.

(e) "CODE" means the Internal Revenue Code of 1986, as amended.

(f) "COMMITTEE" means a committee consisting of one or more members of
the Board that is appointed by the Board (as described in Section 3) to
administer the Plan.

(g) "COMMON STOCK" means the Company's common stock.

(h) "COMPANY" means PDF Solutions, Inc.

2

4

(i) "CONSULTANT" means an individual who performs bona fide services to
the Company, a Parent, a Subsidiary or an Affiliate other than as an
Employee or Director or Non-Employee Director.

(j) "DIRECTOR" means a member of the Board who is also an Employee.

(k) "DISABILITY" means that the Key Employee is unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which has lasted or can be expected to last for a continuous period
of not less than 12 months.

(l) "EMPLOYEE" means any individual who is a common-law employee of the
Company, a Parent, a Subsidiary or an Affiliate.

(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

(n) "EXERCISE PRICE" means, in the case of an Option, the amount for
which a Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement.

(o) "FAIR MARKET VALUE" means the market price of Shares, determined by
the Committee as follows:

(i) If the Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the last trading
price reported by the applicable composite transactions report for such
date;

(ii) If the Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair
Market Value shall be equal to the last trading price quoted by the
NASDAQ system for such date;

(iii) If the Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the
Fair Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the NASDAQ system for such
date; and

(iv) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.

Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in the Wall Street
Journal. Such determination shall be conclusive and binding on all
persons.

(p) "GRANT" means any grant of an Award under the Plan.

(q) "INCENTIVE STOCK OPTION" or "ISO" means an incentive stock option
described in Code section 422(b).

3

5

(r) "KEY EMPLOYEE" means an Employee, Director, Non-Employee Director or
Consultant who has been selected by the Committee to receive an Award
under the Plan.

(s) "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
Employee.

(t) "NONSTATUTORY STOCK OPTION" or "NSO" means a stock option that is
not an ISO.

(u) "OPTION" means an ISO or NSO granted under the Plan entitling the
Optionee to purchase Shares.

(v) "OPTIONEE" means an individual, estate or other entity that holds an
Option.

(w) "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain. A corporation that
attains the status of a Parent on a date after the adoption of the Plan
shall be considered a Parent commencing as of such date.

(x) "PARTICIPANT" means an individual or estate or other entity that
holds an Award.

(y) "PLAN" means this PDF Solutions, Inc. 2001 Stock Incentive Plan as
it may be amended from time to time.

(z) "RESTRICTED STOCK" means a Share awarded under the Plan pursuant to
a Stock Purchase Right.

(aa) "RESTRICTED STOCK AGREEMENT" means the agreement described in
Section 8 evidencing Restricted Stock that may be purchased following
the Award of a Stock Purchase Right.

(bb) "SECURITIES ACT" means the Securities Act of 1933, as amended.

(cc) "SERVICE" means service as an Employee, Director, Non-Employee
Director or Consultant.

(dd) "SHARE" means one share of Common Stock.

(ee) "STOCK OPTION AGREEMENT" means the agreement described in Section 6
evidencing each Grant of an Option.

(ff) "STOCK PURCHASE RIGHT" means the right to acquire Restricted Stock
pursuant to Section 8.

(gg) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of
the corporations other than the last corporation in the unbroken chain
owns stock possessing fifty percent (50%) or

4

6

more of the total combined voting power of all classes of stock in one
of the other corporations in such chain. A corporation that attains the
status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.

(hh) "10-PERCENT SHAREHOLDER" means an individual who owns more than ten
percent (10%) of the total combined voting power of all classes of
outstanding stock of the Company, its Parent or any of its subsidiaries.
In determining stock ownership, the attribution rules of section 424(d)
of the Code shall be applied.

SECTION 3. ADMINISTRATION.

(a) COMMITTEE COMPOSITION. A Committee appointed by the Board shall
administer the Plan. The Board shall designate one of the members of the
Committee as chairperson. If no Committee has been approved, the entire
Board shall constitute the Committee. Members of the Committee shall
serve for such period of time as the Board may determine and shall be
subject to removal by the Board at any time. The Board may also at any
time terminate the functions of the Committee and reassume all powers
and authority previously delegated to the Committee.

With respect to officers or directors subject to Section 16 of the
Exchange Act, the Committee shall consist of those individuals who shall
satisfy the requirements of Rule 16b-3 (or its successor) under the
Exchange Act with respect to Awards granted to persons who are officers
or directors of the Company under Section 16 of the Exchange Act.
Notwithstanding the previous sentence, failure of the Committee to
satisfy the requirements of Rule 16b-3 shall not invalidate any Awards
granted by such Committee.

The Board may also appoint one or more separate committees of the Board,
each composed of one or more directors of the Company who need not
qualify under Rule 16b-3, who may administer the Plan with respect to
Key Employees who are not considered officers or directors of the
Company under Section 16 of the Exchange Act, may grant Awards under the
Plan to such Key Employees and may determine all terms of such Awards.

Notwithstanding the foregoing, the Board shall constitute the Committee
and shall administer the Plan with respect to all Awards granted to
Non-Employee Directors.

(b) AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have full authority and discretion to take any
actions it deems necessary or advisable for the administration of the
Plan. Such actions shall include:

(i) selecting Key Employees who are to receive Awards under the
Plan;

(ii) determining the type, number, vesting requirements and
other features and conditions of such Awards;

(iii) interpreting the Plan; and

(iv) making all other decisions relating to the operation of the
Plan.

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7

The Committee may adopt such rules or guidelines, as it deems
appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.

(c) INDEMNIFICATION. Each member of the Committee, or of the Board,
shall be indemnified and held harmless by the Company against and from
(i) any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from
any claim, action, suit, or proceeding to which he or she may be a party
or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Stock Option Agreement or
Restricted Stock Agreement, and (ii) from any and all amounts paid by
him or her in settlement thereof, with the Company's approval, or paid
by him or her in satisfaction of any judgment in any such claim, action,
suit, or proceeding against him or her, provided he or she shall give
the Company an opportunity, at its own expense, to handle and defend the
same before he or she undertakes to handle and defend it on his or her
own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons
may be entitled under the Company's Certificate of Incorporation or
Bylaws, by contract, as a matter of law, or otherwise, or under any
power that the Company may have to indemnify them or hold them harmless.

SECTION 4. ELIGIBILITY.

(a) GENERAL RULES. Only Employees, Directors, Non-Employee Directors and
Consultants shall be eligible for designation as Key Employees by the
Committee.

(b) INCENTIVE STOCK OPTIONS. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for
the grant of ISOs. In addition, a Key Employee who is a 10-Percent
Shareholder shall not be eligible for the grant of an ISO unless the
requirements set forth in section 422(c)(5) of the Code are satisfied.

(c) NON-EMPLOYEE DIRECTOR OPTIONS. Non-Employee Directors shall also be
eligible to receive Options as described in this Section 4(c) from and
after the date the Board has determined to implement this provision.

(i) Each eligible Non-Employee Director elected or appointed
after the effective date of the Company's initial public offering shall
automatically be granted an NSO to purchase 30,000 Shares (after giving
effect to the June 2001 stock split) (subject to adjustment under
Section 9) as a result of his or her initial election or appointment as
a Non-Employee Director. Upon the conclusion of each regular annual
meeting of the Company's stockholders following his or her initial
appointment, each eligible Non-Employee Director who will continue
serving as a member of the Board and who received an initial grant
thereafter shall receive an NSO to purchase 7,500 Shares (after giving
effect to the June 2001 stock split) (subject to adjustment under
Section 9). All NSOs granted pursuant to this Section 4 shall vest and
become exercisable provided the individual is serving as a director of
the Company as of the vesting date as follows: 25% one year

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from the date of grant, then in 36 equal monthly installments commencing
on the date one month and one year after the date of grant.

(ii) All NSOs granted to Non-Employee Directors under this
Section 4(c) shall become exercisable in full in the event of Change in
Control with respect to the Company.

(iii) The Exercise Price under all NSOs granted to a
Non-Employee Director under this Section 4(c) shall be equal to one
hundred percent (100%) of the Fair Market Value of a Share of Common
Stock on the date of grant, payable in one of the forms described in
Section 7.

(iv) All NSOs granted to a Non-Employee Director under this
Section 4(c) shall terminate on the earlier of:

(1) The 10th anniversary of the date of grant; or

(2) The date ninety (90) days after the termination of
such Non-Employee Director's Service for any reason.

SECTION 5. SHARES SUBJECT TO PLAN.

(a) BASIC LIMITATION. The stock issuable under the Plan shall be
authorized but unissued Shares or treasury Shares. The aggregate number
of Shares reserved for Awards under the Plan shall not exceed 3,000,000
Shares (after giving effect to the June 2001 stock split).

(b) ANNUAL ADDITION. Beginning with the first fiscal year of the Company
beginning after the Effective Date, on the first day of each fiscal
year, Shares will be added to the Plan equal to the lesser of (i)
3,000,000 Shares (after giving effect to the June 2001 stock split),
(ii) five percent (5%) of the outstanding shares in the last day of the
prior fiscal year, or (iii) such lesser number of Shares as may be
determined by the Board in its sole discretion.

(c) ADDITIONAL SHARES. If Awards are forfeited or terminate for any
other reason before being exercised, then the Shares underlying such
Awards shall again become available for Awards under the Plan.

(d) LIMITS ON OPTIONS. No Key Employee shall receive Options to purchase
Shares during any fiscal year covering in excess of 1,000,000 Shares
(after giving effect to the June 2001 stock split), or 2,000,000 Shares
(after giving effect to the June 2001 stock split) in the first fiscal
year of a Key Employee's employment with Company.

(e) LIMITS ON STOCK PURCHASE RIGHTS. No Key Employee shall receive an
Award of Stock Purchase Rights during any fiscal year covering in excess
of 500,000 Shares (after giving effect to the June 2001 stock split), or

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1,000,000 Shares (after giving effect to the June 2001 stock split) in
the first fiscal year of a Key Employee's employment with Company.

SECTION 6. TERMS AND CONDITIONS OF OPTIONS.

(a) STOCK OPTION AGREEMENT. Each Grant under the Plan shall be evidenced
by a Stock Option Agreement between the Optionee and the Company. Such
Option shall be subject to all applicable terms and conditions of the
Plan and may be subject to any other terms and conditions that are not
inconsistent with the Plan and that the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various
Stock Option Agreements entered into under the Plan need not be
identical. A Stock Option Agreement may provide that new Options will be
granted automatically to the Optionee when he or she exercises the prior
Options. The Stock Option Agreement shall also specify whether the
Option is an ISO or an NSO.

(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for
the adjustment of such number in accordance with Section 9.

(c) EXERCISE PRICE. An Option's Exercise Price shall be established by
the Committee and set forth in a Stock Option Agreement. The Exercise
Price of an ISO shall not be less than 100% of the Fair Market Value
(110% for 10-Percent Shareholders) of a Share on the date of Grant. In
the case of an NSO, a Stock Option Agreement may specify an Exercise
Price that varies in accordance with a predetermined formula while the
NSO is outstanding.

(d) EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of
the Option; provided that the term of an ISO shall in no event exceed
ten (10) years from the date of Grant. An ISO that is granted to a
10-Percent Shareholder shall have a maximum term of five (5) years. No
Option can be exercised after the expiration date provided in the
applicable Stock Option Agreement. A Stock Option Agreement may provide
for accelerated exercisability in the event of the Optionee's death,
disability or retirement or other events and may provide for expiration
prior to the end of its term in the event of the termination of the
Optionee's service. A Stock Option Agreement may permit an Optionee to
exercise an Option before it is vested, subject to the Company's right
of repurchase over any Shares acquired under the unvested portion of the
Option (an "early exercise"), which right of repurchase shall lapse at
the same rate the Option would have vested had there been no early
exercise. In no event shall the Company be required to issue fractional
Shares upon the exercise of an Option.

(e) MODIFICATIONS OR ASSUMPTION OF OPTIONS. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options
or may accept the cancellation of outstanding options (whether granted
by the Company or by another issuer) in return for the grant of new
Options for the same or a different number of Shares

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and at the same or a different Exercise Price. The foregoing
notwithstanding, no modification of an Option shall, without the consent
of the Optionee, alter or impair his or her rights or obligations under
such Option.

(f) TRANSFERABILITY OF OPTIONS. Except as otherwise provided in the
applicable Stock Option Agreement and then only to the extent permitted
by applicable law, no Option shall be transferable by the Optionee other
than by will or by the laws of descent and distribution. Except as
otherwise provided in the applicable Stock Option Agreement, an Option
may be exercised during the lifetime of the Optionee only or by the
guardian or legal representative of the Optionee. No Option or interest
therein may be assigned, pledged or hypothecated by the Optionee during
his lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.

(g) NO RIGHTS AS STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any
Common Stock covered by an Option until such person becomes entitled to
receive such Common Stock by filing a notice of exercise and paying the
Exercise Price pursuant to the terms of such Option.

(h) RESTRICTIONS ON TRANSFER. Any Shares issued upon exercise of an
Option shall be subject to such rights of repurchase, rights of first
refusal and other transfer restrictions as the Committee may determine.
Such restrictions shall apply in addition to any restrictions that may
apply to holders of Shares generally and shall also comply to the extent
necessary with applicable law.

SECTION 7. PAYMENT FOR OPTION SHARES.

(a) GENERAL RULE. The entire Exercise Price of Shares issued upon
exercise of Options shall be payable in cash at the time when such
Shares are purchased, except as follows:

(i) In the case of an ISO granted under the Plan, payment shall
be made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment
may be made in any form(s) described in this Section 7.

(ii) In the case of an NSO granted under the Plan, the Committee
may in its discretion, at any time accept payment in any form(s)
described in this Section 7.

(b) SURRENDER OF STOCK. To the extent that this Section 7(b) is
applicable, payment for all or any part of the Exercise Price may be
made with Shares which have already been owned by the Optionee for such
duration as shall be specified by the Committee. Such Shares shall be
valued at their Fair Market Value on the date when the new Shares are
purchased under the Plan.

(c) PROMISSORY NOTE. To the extent that this Section 7(c) is applicable,
payment for all or any part of the Exercise Price may be made with a
full-recourse promissory note.

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11

(d) OTHER FORMS OF PAYMENT. To the extent that this Section 7(d) is
applicable, payment may be made in any other form that is consistent
with applicable laws, regulations and rules.

SECTION 8. TERMS AND CONDITIONS FOR AWARDS OF STOCK PURCHASE RIGHTS.

(a) TIME, AMOUNT AND FORM OF AWARDS. Awards under this Section 8 may be
granted in the form of Stock Purchase Rights pursuant to which
Restricted Stock will be awarded to a Key Employee. Such Rights may also
be awarded in combination with NSOs, and such an Award may provide that
the Restricted Stock will be forfeited in the event that the related
NSOs is exercised.

(b) AGREEMENTS. Each Award of a Stock Purchase Right under the Plan
shall be evidenced by a Restricted Stock Agreement between the
Participant and the Company. Such Awards shall be subject to all
applicable terms and conditions of the Plan and may be subject to any
other terms and conditions that are not inconsistent with the Plan and
that the Committee deems appropriate for inclusion in the applicable
Agreement. The provisions of the various Agreements entered into under
the Plan need not be identical.

(c) PAYMENT FOR RESTRICTED STOCK. Restricted Stock may be issued
pursuant to the Award of a Stock Purchase Right with or without cash
consideration under the Plan.

(d) VESTING CONDITIONS. Each Award of Restricted Stock shall become
vested, in full or in installments, upon satisfaction of the conditions
specified in the applicable Agreement. An Agreement may provide for
accelerated vesting in the event of the Participant's death, Disability
or retirement or other events.

(e) ASSIGNMENT OR TRANSFER OF RESTRICTED STOCK. Except as provided in
Section 13, or in a Restricted Stock Agreement, or as required by
applicable law, an Award granted under this Section 8 shall not be
anticipated, assigned, attached, garnished, optioned, transferred or
made subject to any creditor's process, whether voluntarily,
involuntarily or by operation of law. Any act in violation of this
Section 8(e) shall be void. However, this Section 8(e) shall not
preclude a Participant from designating a beneficiary who will receive
any outstanding Restricted Stock in the event of the Participant's
death, nor shall it preclude a transfer of Restricted Stock by will or
by the laws of descent and distribution.

(f) TRUSTS. Neither this Section 8 nor any other provision of the Plan
shall preclude a Participant from transferring or assigning Restricted
Stock to (a) the trustee of a trust that is revocable by such
Participant alone, both at the time of the transfer or assignment and at
all times thereafter prior to such Participant's death, or (b) the
trustee of any other trust to the extent approved in advance by the
Committee in writing. A transfer or assignment of Restricted Stock from
such trustee to any person other than such Participant shall be
permitted only to the extent approved in advance by the Committee in
writing, and Restricted Stock held by such trustee shall be subject to
all of the conditions and

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restrictions set forth in the Plan and in the applicable Restricted
Stock Agreement, as if such trustee were a party to such Agreement.

(g) VOTING AND DIVIDEND RIGHTS. The holders of Restricted Stock acquired
pursuant to a Stock Purchase Right awarded under the Plan shall have the
same voting, dividend and other rights as the Company's other
stockholders. A Restricted Stock Agreement, however, may require that
the holders of Restricted Stock invest any cash dividends received in
additional Restricted Stock. Such additional Restricted Stock shall be
subject to the same conditions and restrictions as the Award with
respect to which the dividends were paid. Such additional Restricted
Stock shall not reduce the number of Shares available under Section 5.

SECTION 9. PROTECTION AGAINST DILUTION.

(a) ADJUSTMENTS. In the event of a subdivision of the outstanding
Shares, a declaration of a dividend payable in Shares, a declaration of
a dividend payable in a form other than Shares in an amount that has a
material effect on the price of Shares, a combination or consolidation
of the outstanding Shares (by reclassification or otherwise) into a
lesser number of Shares, a recapitalization, reorganization, merger,
liquidation, spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its reasonable discretion, deems appropriate
in order to prevent the dilution or enlargement of rights hereunder in
one or more of:

(i) the number of Shares available for future Awards and the per
person Share limits under Section 5;

(ii) the number of Shares covered by each outstanding Award; or

(iii) the Exercise Price under each outstanding Option.

(b) PARTICIPANT RIGHTS. Except as provided in this Section 9, a
Participant shall have no rights by reason of any issue by the Company
of stock of any class or securities convertible into stock of any class,
any subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class.

SECTION 10. EFFECT OF A CHANGE IN CONTROL.

(a) MERGER OR REORGANIZATION. In the event that the Company is a party
to a merger or other reorganization, outstanding Awards shall be subject
to the agreement of merger or reorganization. Such agreement may
provide, without limitation, for the assumption of outstanding Awards by
the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated
vesting or for their cancellation with or without consideration.

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(b) ACCELERATION. Except as otherwise provided in the applicable Stock
Option Agreement or Restricted Stock Agreement, in the event that a
Change in Control occurs with respect to the Company and the applicable
agreement of merger or reorganization provides for assumption or
continuation of Awards pursuant to Section 10(a), no acceleration of
vesting shall occur. In the event that a Change in Control occurs with
respect to the Company and there is no assumption or continuation of
Awards pursuant to Section 10(a), all Awards shall vest and become
immediately exercisable.

SECTION 11. LIMITATIONS ON RIGHTS.

(a) RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an
employee, consultant or director of the Company, a Parent, a Subsidiary
or an Affiliate. The Company and its Parents and Subsidiaries and
Affiliates reserve the right to terminate the Service of any person at
any time, and for any reason, subject to applicable laws, the Company's
Certificate of Incorporation and Bylaws and a written employment
agreement (if any).

(b) STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any
Shares covered by his or her Award prior to the issuance of a stock
certificate for such Shares. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date
when such certificate is issued, except as expressly provided in Section
9.

(c) REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Shares under the
Plan shall be subject to all applicable laws, rules and regulations and
such approval by any regulatory body as may be required. The Company
reserves the right to restrict, in whole or in part, the delivery of
Shares pursuant to any Award prior to the satisfaction of all legal
requirements relating to the issuance of such Shares, to their
registration, qualification or listing or to an exemption from
registration, qualification or listing.

SECTION 12. WITHHOLDING TAXES.

(a) GENERAL. A Participant shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that
arise in connection with his or her Award. The Company shall not be
required to issue any Shares or make any cash payment under the Plan
until such obligations are satisfied.

(b) SHARE WITHHOLDING. If a public market for the Company's Shares
exists, the Committee may permit a Participant to satisfy all or part of
his or her withholding or income tax obligations by having the Company
withhold all or a portion of any Shares that otherwise would be issued
to him or her or by surrendering all or a portion of any Shares that he
or she previously acquired. Such Shares shall be valued at their Fair
Market Value on the date when taxes otherwise would be withheld in cash.
In no event may the Company allow Shares to be withheld in an amount
that exceeds the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes. Any payment of taxes by
assigning Shares to the Company may be subject to restrictions,
including, but

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not limited to, any restrictions required by rules of the Securities and
Exchange Commission.

SECTION 13. DURATION AND AMENDMENTS.

(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board, subject to the
approval of the Company's stockholders. No Options shall be exercisable
until such stockholder approval is obtained. In the event that the
stockholders fail to approve the Plan within twelve (12) months after
its adoption by the Board, any Awards made shall be null and void and no
additional Awards shall be made. The Plan shall terminate on the date
that is ten (10) years after its adoption by the Board and may be
terminated on any earlier date pursuant to Section 13(b).

(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board may amend or
terminate the Plan at any time and for any reason. The termination of
the Plan, or any amendment thereof, shall not affect any Award
previously granted under the Plan. No Awards shall be granted under the
Plan after the Plan's termination. An amendment of the Plan shall be
subject to the approval of the Company's stockholders only to the extent
required by applicable laws, regulations or rules.

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GRANT NO. ________

PDF SOLUTIONS, INC.

2001 STOCK PLAN

INCENTIVE STOCK OPTION AGREEMENT

PDF Solutions, Inc. (the "Company"), hereby grants an Option to purchase
shares of its common stock (the "Shares") to the Optionee named below. The terms
and conditions of the Option are set forth in this cover sheet, in the
attachment and in the Company's 2001 Stock Plan (the "Plan").

Date of Option Grant:  __________________, 2001

Name of Optionee:  _________________________________________________

Optionee's Social Security Number:  _____-____-_____

Number of Shares Covered by Option:  ______________

Exercise Price per Share:  $_____.___

Vesting Start Date:  _____________, 2001

Vesting Schedule:

Subject to all the terms of the attached Agreement, your right to
purchase Shares under this Option vests as to ONE-FOURTH (1/4) of the total
number of Shares covered by this Option, as shown above, on the one-year
anniversary of the Vesting Start Date. Thereafter, the number of Shares which
you may purchase under this Option shall vest at the rate of ONE-FORTY-EIGHTH
(1/48) per month on the 1st day of each of the THIRTY-SIX (36) MONTHS following
the month of the one-year anniversary of the Vesting Start Date. The resulting
aggregate number of vested Shares will be rounded to the nearest whole number.
No additional Shares will vest after your Service has terminated for any reason.

BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED IN THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY OF WHICH
IS ALSO ENCLOSED.

Optionee:_______________________________________________________
(Signature)

Company:________________________________________________________
(Signature)

Title:__________________________________________________

Attachment

16
PDF SOLUTIONS, INC.

2001 STOCK PLAN

STOCK OPTION AGREEMENT

THE PLAN AND                      The text of the Plan is incorporated in this 
OTHER AGREEMENTS                  Agreement by reference. Certain capitalized
terms used in this Agreement are defined in
the Plan.

This Agreement and the Plan constitute the
entire understanding between you and the
Company regarding this Option. Any prior
agreements, commitments or negotiations
concerning this Option are superseded.

INCENTIVE STOCK OPTION            This Option is intended to be an Incentive
Stock Option under section 422 of the Internal
Revenue Code and will be interpreted
accordingly. If you cease to be an employee of
the Company, a Subsidiary or of a Parent but
continue to provide Service, this Option will
be deemed a Nonstatutory Stock Option on the
90th day after you cease to be an employee. In
addition, to the extent that all or part of
this Option exceeds the $100,000 rule of
section 422(d) of the Code, this Option or the
lesser excess part will be treated as a
Nonstatutory Stock Option. 

VESTING                           This Option is only exercisable before it
expires and then only with respect to the
vested portion of the Option. This Option will
vest according to the Vesting Schedule on the
attached cover sheet. 

TERM                              Your Option will expire in any event at the
close of business at Company headquarters on
the day before the 10th anniversary of the
Date of Option Grant, as shown on the cover
sheet. Your Option will expire earlier if your
Service terminates, as described below.

REGULAR TERMINATION               If your Service terminates for any reason,
other than death, Disability or Cause, as
defined below, then your Option will expire at
the close of business at Company headquarters
on the 90th day after your termination date.

TERMINATION FOR                   If your Service is terminated for Cause,
CAUSE                             as determined by the Board in its sole
discretion, then you shall immediately forfeit
all rights to your Option and the Option shall
immediately expire. For purposes of this
Agreement, "Cause" shall mean the termination
of your Service due to your commission of any
act of fraud, embezzlement or dishonesty; any
unauthorized use

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or disclosure of confidential information or
trade secrets of the Company (or any Parent,
Subsidiary or Affiliate); or any other
intentional misconduct adversely affecting the
business or affairs of the Company (or any
Parent, Subsidiary or Affiliate) in a material
manner. This definition shall not restrict in
any way the Company's or any Parent's,
Subsidiary's or Affiliate's right to discharge
you for any other reason, nor shall this
definition be deemed to be inclusive of all
the acts or omissions which constitute "cause"
for purposes other than this Agreement.

DEATH                             If your Service terminates because of your
death, then your Option will expire at the
close of business at Company headquarters on
the date twelve (12) months after the date of
death. During that twelve (12) month period,
your estate or heirs may exercise the vested
portion of your Option.

DISABILITY                        If your Service terminates because of your
Disability, then your Option will expire at
the close of business at Company headquarters
on the date twelve (12) months after your
termination date.

LEAVES OF ABSENCE                 For purposes of this Option, your Service does
not terminate when you go on a bona fide leave
of absence that was approved by the Company in
writing, if the terms of the leave provide for
continued Service crediting, or when continued
Service crediting is required by applicable
law. However, your Service will be treated as
terminating ninety (90) days after you went on
leave, unless your right to return to active
work is guaranteed by law or by a contract.
Your Service terminates in any event when the
approved leave ends unless you immediately
return to active work.

The Company determines which leaves count for
this purpose, and when your Service terminates
for all purposes under the Plan.

NOTICE OF EXERCISE                When you wish to exercise this Option, you
must notify the Company by filing the proper
"Notice of Exercise" form at the address given
on the form. Your notice must specify how many
Shares you wish to purchase. Your notice must
also specify how your Shares should be
registered (in your name only or in your and
your spouse's names as community property or
as joint tenants with right of survivorship).
The notice will be effective when it is
received by the Company.

If someone else wants to exercise this Option
after your death, 

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that person must prove to the Company's
satisfaction that he or she is entitled to do
so.

Form of Payment                   When you submit your notice of exercise, you
must include payment of the Exercise Price for
the Shares you are purchasing. Payment may be
made in one (or a combination) of the
following forms:

-   Cash, your personal check, a cashier's
check or a money order.

-   Shares which have already been owned by
you for more than six months and which are
surrendered to the Company. The value of
the Shares, determined as of the effective
date of the Option exercise, will be
applied to the Exercise Price.

-   To the extent a public market for the
Shares exists as determined by the
Company, by delivery (on a form prescribed
by the Company) of an irrevocable
direction to a securities broker to sell
Shares and to deliver all or part of the
sale proceeds to the Company in payment of
the aggregate Exercise Price.

Withholding Taxes                 You will not be allowed to exercise this
Option unless you make acceptable arrangements
to pay any withholding or other taxes that may
be due as a result of the Option exercise or
sale of Shares acquired under this Option.

Restrictions on Exercise and      By signing this Agreement, you agree not to
Resale                            exercise this Option or sell any Shares
acquired under this Option at a time when
applicable laws, regulations or Company or
underwriter trading policies prohibit
exercise, sale or issuance of Shares. The
Company will not permit you to exercise this
Option if the issuance of Shares at that time
would violate any law or regulation. The
Company shall have the right to designate one
or more periods of time, each of which shall
not exceed one hundred eighty (180) days in
length, during which this Option shall not be
exercisable if the Company determines (in its
sole discretion) that such limitation on
exercise could in any way facilitate a
lessening of any restriction on transfer
pursuant to the Securities Act or any state
securities laws with respect to any issuance
of securities by the Company, facilitate the
registration or qualification of any
securities by the Company under the Securities
Act or any state securities laws, or
facilitate the perfection of any exemption
from the registration or qualification
requirements of the Securities Act or any
applicable state securities laws for the
issuance or transfer of 

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any securities. Such limitation on exercise
shall not alter the vesting schedule set forth
in this Agreement other than to limit the
periods during which this Option shall be
exercisable.

If the sale of Shares under the Plan is not
registered under the Securities Act, but an
exemption is available which requires an
investment or other representation, you shall
represent and agree at the time of exercise
that the Shares being acquired upon exercise
of this Option are being acquired for
investment, and not with a view to the sale or
distribution thereof, and shall make such
other representations as are deemed necessary
or appropriate by the Company and its counsel.

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Transfer of Option                Prior to your death, only you may exercise
this Option. You cannot transfer or assign
this Option. For instance, you may not sell
this Option or use it as security for a loan.
If you attempt to do any of these things, this
Option will immediately become invalid. You
may, however, dispose of this Option in your
will.

Regardless of any marital property settlement
agreement, the Company is not obligated to
honor a notice of exercise from your spouse,
nor is the Company obligated to recognize your
spouse's interest in your Option in any other
way.

Retention Rights                  Your Option or this Agreement does not
give you the right to be retained by the
Company (or any Parent or any Subsidiaries or
Affiliates) in any capacity. The Company (or
any Parent and 

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any Subsidiaries or Affiliates) reserves the
right to terminate your Service at any time
and for any reason.

Stockholder Rights                You, or your estate or heirs, have no rights
as a stockholder of the Company until a
certificate for your Option's Shares has been
issued. No adjustments are made for dividends
or other rights if the applicable record date
occurs before your stock certificate is
issued, except as described in the Plan.

Adjustments                       In the event of a stock split, a stock
dividend or a similar change in the Company
stock, the number of Shares covered by this
Option and the exercise price per Share may be
adjusted (and rounded down to the nearest
whole number) pursuant to the Plan. Your
Option shall be subject to the terms of the
agreement of merger, liquidation or
reorganization in the event the Company is
subject to such corporate activity.

Legends                           All certificates representing the Shares
issued upon exercise of this Option shall,
where applicable, have endorsed thereon the
following legends:

"THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AND OPTIONS TO PURCHASE SUCH
SHARES SET FORTH IN AN AGREEMENT BETWEEN
THE COMPANY AND THE REGISTERED HOLDER, OR
HIS OR HER PREDECESSOR IN INTEREST. A COPY
OF SUCH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY AND WILL BE
FURNISHED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE COMPANY BY THE HOLDER OF
RECORD OF THE SHARES REPRESENTED BY THIS
CERTIFICATE." 

"THE SHARES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD,
PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."

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Applicable Law                    This Agreement will be interpreted and
enforced under the laws of the State of
California.

By signing the cover sheet of this Agreement, you agree to all of the
terms and conditions described above and in the Plan.

8

23
GRANT NO. ________

PDF SOLUTIONS, INC.

2001 STOCK PLAN

NONSTATUTORY STOCK OPTION AGREEMENT

PDF Solutions, Inc. (the "Company"), hereby grants an Option to purchase
shares of its common stock (the "Shares") to the Optionee named below. The terms
and conditions of the Option are set forth in this cover sheet, in the
attachment and in the Company's 2001 Stock Plan (the "Plan").

Date of Option Grant:  __________________, 2001

Name of Optionee:  _________________________________________________

Optionee's Social Security Number:  _____-____-_____

Number of Shares Covered by Option:  ______________

Exercise Price per Share:  $_____.___

Vesting Start Date:  _____________, 2001

Vesting Schedule:

Subject to all the terms of the attached Agreement, your right to
purchase Shares under this Option vests as to one-fourth (1/4) of the total
number of Shares covered by this Option, as shown above, on the one-year
anniversary of the Vesting Start Date. Thereafter, the number of Shares which
you may purchase under this Option shall vest at the rate of one-forty-eighth
(1/48) per month on the 1st day of each of the thirty-six (36) months following
the month of the one-year anniversary of the Vesting Start Date. The resulting
aggregate number of vested Shares will be rounded to the nearest whole number.
No additional Shares will vest after your Service has terminated for any reason.

BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED IN THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY OF WHICH
IS ALSO ENCLOSED.

Optionee:_______________________________________________________
(Signature)

Company:________________________________________________________
(Signature)

Title:__________________________________________________

24
PDF SOLUTIONS, INC.

2001 STOCK PLAN

NONSTATUTORY STOCK OPTION AGREEMENT

THE PLAN AND                      The text of the Plan is incorporated in this
OTHER AGREEMENTS                  Agreement by reference. Certain capitalized
terms used in this Agreement are defined in
the Plan.

This Agreement and the Plan constitute the
entire understanding between you and the
Company regarding this Option. Any prior
agreements, commitments or negotiations
concerning this Option are superseded.

NONSTATUTORY STOCK OPTION         This Option is not intended to be an Incentive
Stock Option under section 422 of the Internal
Revenue Code and will be interpreted
accordingly.

VESTING                           This Option is only exercisable before it
expires and then only with respect to the
vested portion of the Option. This Option will
vest according to the Vesting Schedule on the
attached cover sheet.

TERM                              Your Option will expire in any event at the
close of business at Company headquarters on
the day before the 10th anniversary of the
Date of Option Grant, as shown on the cover
sheet. Your Option will expire earlier if your
Service terminates, as described below.

REGULAR TERMINATION               If your Service terminates for any reason,
other than death, Disability or Cause, as
defined below, then your Option will expire at
the close of business at Company headquarters
on the 90th day after your termination date.

TERMINATION FOR                   If your Service is terminated for Cause, as
CAUSE                             determined by the Board in its sole
discretion, then you shall immediately forfeit
all rights to your Option and the Option shall
immediately expire. For purposes of this
Agreement, "Cause" shall mean the termination
of your Service due to your commission of any
act of fraud, embezzlement or dishonesty; any
unauthorized use or disclosure of confidential
information or trade secrets of the Company
(or any Parent, Subsidiary or Affiliate); or
any other intentional misconduct adversely
affecting the business or affairs of the
Company (or any Parent, Subsidiary or
Affiliate) in a material manner. This
definition shall not restrict in any way the
Company's or any Parent's, Subsidiary's or
Affiliate's 

2

25

right to discharge you for any other reason,
nor shall this definition be deemed to be
inclusive of all the acts or omissions which
constitute "cause" for purposes other than
this Agreement.

DEATH                             If your Service terminates because of your
death, then your Option will expire at the
close of business at Company headquarters on
the date twelve (12) months after the date of
death. During that twelve (12) month period,
your estate or heirs may exercise the vested
portion of your Option.

DISABILITY                        If your Service terminates because of your
Disability, then your Option will expire at
the close of business at Company headquarters
on the date twelve (12) months after your
termination date.

LEAVES OF ABSENCE                 For purposes of this Option, your Service does
not terminate when you go on a bona fide leave
of absence that was approved by the Company in
writing, if the terms of the leave provide for
continued Service crediting, or when continued
Service crediting is required by applicable
law. Your Service terminates in any event when
the approved leave ends unless you immediately
return to active work.

The Company determines which leaves count for
this purpose, and when your Service terminates
for all purposes under the Plan.

NOTICE OF EXERCISE                When you wish to exercise this Option, you
must notify the Company by filing the proper
"Notice of Exercise" form at the address given
on the form. Your notice must specify how many
Shares you wish to purchase. Your notice must
also specify how your Shares should be
registered (in your name only or in your and
your spouse's names as community property or
as joint tenants with right of survivorship).
The notice will be effective when it is
received by the Company.

If someone else wants to exercise this Option
after your death, that person must prove to
the Company's satisfaction that he or she is
entitled to do so.

FORM OF PAYMENT                   When you submit your notice of exercise, you
must include payment of the Exercise Price for
the Shares you are purchasing. Payment may be
made in one (or a combination) of the
following forms:

-   Cash, your personal check, a cashier's
check or a money

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26
order.

-   Shares which have already been owned by
you for more than six months and which are
surrendered to the Company. The value of
the Shares, determined as of the effective
date of the Option exercise, will be
applied to the Exercise Price.

-   To the extent a public market for the
Shares exists as determined by the
Company, by delivery (on a form prescribed
by the Company) of an irrevocable
direction to a securities broker to sell
Shares and to deliver all or part of the
sale proceeds to the Company in payment of
the aggregate exercise price.

WITHHOLDING TAXES                 You will not be allowed to exercise this
Option unless you make acceptable arrangements
to pay any withholding or other taxes that may
be due as a result of the Option exercise or
sale of Shares acquired under this Option.

RESTRICTIONS ON EXERCISE AND      By signing this Agreement, you agree not to
RESALE                            exercise this Option or sell any Shares
acquired under this Option at a time when
applicable laws, regulations or Company or
underwriter trading policies prohibit
exercise, sale or issuance of Shares. The
Company will not permit you to exercise this
Option if the issuance of Shares at that time
would violate any law or regulation. The
Company shall have the right to designate one
or more periods of time, each of which shall
not exceed one hundred eighty (180) days in
length, during which this Option shall not be
exercisable if the Company determines (in its
sole discretion) that such limitation on
exercise could in any way facilitate a
lessening of any restriction on transfer
pursuant to the Securities Act or any state
securities laws with respect to any issuance
of securities by the Company, facilitate the
registration or qualification of any
securities by the Company under the Securities
Act or any state securities laws, or
facilitate the perfection of any exemption
from the registration or qualification
requirements of the Securities Act or any
applicable state securities laws for the
issuance or transfer of any securities. Such
limitation on exercise shall not alter the
vesting schedule set forth in this Agreement
other than to limit the periods during which
this Option shall be exercisable.

If the sale of Shares under the Plan is not
registered under the Securities Act, but an
exemption is available which requires an
investment or other representation, you shall
represent and agree at the time of exercise
that the Shares being acquired upon exercise
of this Option are being acquired for
investment, 

4

27

and not with a view to the sale or
distribution thereof, and shall make such
other representations as are deemed necessary
or appropriate by the Company and its counsel.

5

28

TRANSFER OF OPTION                Prior to your death, only you may exercise
this Option. You cannot transfer or assign
this Option. For instance, you may not sell
this Option or use it as security for a loan.
If you attempt to do any of these things, this
Option will immediately become invalid. You
may, however, dispose of this Option in your
will. Regardless of any marital property
settlement agreement, the Company is not
obligated to honor a notice of exercise from
your spouse, nor is the Company obligated to
recognize your spouse's interest in your
Option in any other way.

RETENTION RIGHTS                  Your Option or this Agreement does not give
you the right to be retained by the Company
(or any Parent or any Subsidiaries or

Affiliates) in any capacity. The Company (or
any Parent and any Subsidiaries or Affiliates)
reserves the right to terminate your Service
at any time and for any reason.

STOCKHOLDER RIGHTS                You, or your estate or heirs, have no rights
as a stockholder of the Company until a
certificate for your Option's Shares has been
issued. No adjustments are made for dividends
or other rights if the applicable record date
occurs before your stock certificate is
issued, except as described in the Plan.

ADJUSTMENTS                       In the event of a stock split, a stock
dividend or a similar 

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29

change in the Company stock, the number of
Shares covered by this Option and the exercise
price per Share may be adjusted (and rounded
down to the nearest whole number) pursuant to
the Plan. Your Option shall be subject to the
terms of the agreement of merger, liquidation
or reorganization in the event the Company is
subject to such corporate activity.

LEGENDS                           All certificates representing the Shares
issued upon exercise of this Option shall,
where applicable, have endorsed thereon the
following legends:

"THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AND OPTIONS TO PURCHASE SUCH
SHARES SET FORTH IN AN AGREEMENT BETWEEN
THE COMPANY AND THE REGISTERED HOLDER, OR
HIS OR HER PREDECESSOR IN INTEREST. A COPY
OF SUCH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY AND WILL BE
FURNISHED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE COMPANY BY THE HOLDER OF
RECORD OF THE SHARES REPRESENTED BY THIS
CERTIFICATE."

"THE SHARES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD,
PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."

APPLICABLE LAW                    This Agreement will be interpreted and
enforced under the laws of the State of
California.

BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE
TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

7

1
EXHIBIT 10.11

PDF SOLUTIONS, INC.
2001 EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED ON June 12, 2001)

SECTION 1
PURPOSE

PDF Solutions, Inc. hereby establishes the PDF Solutions, Inc. 2001
Employee Stock Purchase Plan, effective as of the Initial Public Offering Date,
in order to provide eligible employees of the Company and its participating
Subsidiaries with the opportunity to purchase Common Stock through payroll
deductions. The Plan is intended to qualify as an employee stock purchase plan
under Section 423(b) of the Code.

SECTION 2
DEFINITIONS

2.1 "1934 Act" means the Securities Exchange Act of 1934, as
amended. Reference to a specific Section of the 1934 Act or regulation
thereunder shall include such Section or regulation, any valid regulation
promulgated under such Section, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such Section or
regulation.

2.2 "Board" means the Board of Directors of the Company.

2.3 "Code" means the Internal Revenue Code of 1986, as amended.
Reference to a specific Section of the Code or regulation thereunder shall
include such Section or regulation, any valid regulation promulgated under such
Section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such Section or regulation.

2.4 "Committee" shall mean the committee appointed by the Board to
administer the Plan. Any member of the Committee may resign at any time by
notice in writing mailed or delivered to the Secretary of the Company. As of the
effective date of the Plan, the Plan shall be administered by the Compensation
Committee of the Board.

2.5 "Common Stock" means the common stock of the Company.

2.6 "Company" means PDF Solutions, Inc.

2.7 "Compensation" means a Participant's regular wages. The
Committee, in its discretion, may (on a uniform and nondiscriminatory basis)
establish a different definition of Compensation prior to an Enrollment Date for
all options to be granted on such Enrollment Date.

2.8 "Eligible Employee" means every Employee of an Employer, except
(a) any Employee who immediately after the grant of an option under the Plan,
would own stock and/or hold outstanding options to purchase stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or of any Subsidiary

2

of the Company (including stock attributed to such Employee pursuant to Section
424(d) of the Code), or (b) as provided in the following sentence. The
Committee, in its discretion, from time to time may, prior to an Enrollment Date
for all options to be granted on such Enrollment Date, determine (on a uniform
and nondiscriminatory basis) that an Employee shall not be an Eligible Employee
if he or she: (1) has not completed at least two years of service since his or
her last hire date (or such lesser period of time as may be determined by the
Committee in its discretion), (2) customarily works not more than 20 hours per
week (or such lesser period of time as may be determined by the Committee in its
discretion), or (3) customarily works not more than 5 months per calendar year
(or such lesser period of time as may be determined by the Committee in its
discretion).

2.9 "Employee" means an individual who is a common-law employee of
any Employer, whether such employee is so employed at the time the Plan is
adopted or becomes so employed subsequent to the adoption of the Plan.

2.10 "Employer" or "Employers" means any one or all of the Company,
and those Subsidiaries which, with the consent of the Board, have adopted the
Plan.

2.11 "Enrollment Date" means such dates as may be determined by the
Committee (in its discretion and on a uniform and nondiscriminatory basis) from
time to time.

2.12 "Grant Date" means any date on which a Participant is granted
an option under the Plan.

2.13 "Participant" means an Eligible Employee who (a) has become a
Participant in the Plan pursuant to Section 4.1 and (b) has not ceased to be a
Participant pursuant to Section 8 or Section 9.

2.14 "Plan" means the PDF Solutions, Inc. 2001 Employee Stock
Purchase Plan, as set forth in this instrument and as hereafter amended from
time to time.

2.15 "Purchase Date" means such dates as may be determined by the
Committee (in its discretion and on a uniform and nondiscriminatory basis) from
time to time prior to an Enrollment Date for all options to be granted on such
Enrollment Date.

2.16 "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

SECTION 3
SHARES SUBJECT TO THE PLAN

3.1 Number Available. A maximum of 300,000 shares (after giving
effect to the June 2001 stock split) of Common Stock shall be available for
issuance pursuant to the Plan. Beginning with the first fiscal year of the
Company beginning after the effective date of the Plan, on the first day of each
fiscal year of the Company, Shares will be added to the Plan equal to the least
of (a) 2% of the outstanding Shares on the last day of the prior fiscal year,
(b) 675,000 Shares (after giving effect to the June 2001 stock split), or (c)
such lesser amount as

2

3

determined by the Board. Shares sold under the Plan may be newly issued shares
or treasury shares.

3.2 Adjustments. In the event of any reorganization,
recapitalization, stock split, reverse stock split, stock dividend, combination
of shares, merger, consolidation, offering of rights or other similar change in
the capital structure of the Company, the Board may make such adjustment, if
any, as it deems appropriate in the number, kind and purchase price of the
shares available for purchase under the Plan and in the maximum number of shares
subject to any option under the Plan.

SECTION 4
ENROLLMENT

4.1 Participation. Each Eligible Employee may elect to become a
Participant by enrolling or re-enrolling in the Plan effective as of any
Enrollment Date. In order to enroll, an Eligible Employee must complete, sign
and submit to the Company an enrollment form in such form, manner and by such
deadline as may be specified by the Committee from time to time (in its
discretion and on a nondiscriminatory basis). Any Participant whose option
expires and who has not withdrawn from the Plan automatically will be
re-enrolled in the Plan on the Enrollment Date immediately following the
Purchase Date on which his or her option expires. Any Participant whose option
has not expired and who has not withdrawn from the Plan automatically will be
deemed to be un-enrolled from the Participant's current option and be enrolled
as of a subsequent Enrollment Date if the price per Share on such subsequent
Enrollment Date is lower than the price per Share on the Enrollment Date
relating to the Participant's current option.

4.2 Payroll Withholding. On his or her enrollment form, each
Participant must elect to make Plan contributions via payroll withholding from
his or her Compensation. Pursuant to such procedures as the Committee may
specify from time to time, a Participant may elect to have withholding equal to
a whole percentage from 1% to 10% (or such lesser, or greater, percentage that
the Committee may establish from time to time for all options to be granted on
any Enrollment Date). A Participant may elect to increase or decrease his or her
rate of payroll withholding by submitting a new enrollment form in accordance
with such procedures as may be established by the Committee from time to time. A
Participant may stop his or her payroll withholding by submitting a new
enrollment form in accordance with such procedures as may be established by the
Committee from time to time. In order to be effective as of a specific date, an
enrollment form must be received by the Company no later than the deadline
specified by the Committee, in its discretion and on a nondiscriminatory basis,
from time to time. Any Participant who is automatically re-enrolled in the Plan
will be deemed to have elected to continue his or her contributions at the
percentage last elected by the Participant.

SECTION 5
OPTIONS TO PURCHASE COMMON STOCK

5.1 Grant of Option. On each Enrollment Date on which the
Participant enrolls or re-enrolls in the Plan, he or she shall be granted an
option to purchase shares of Common Stock.

3

4

5.2 Duration of Option. Each option granted under the Plan shall
expire upon the conclusion of the option's offering period which will end on the
earliest to occur of (a) the completion of the purchase of shares on the last
Purchase Date occurring within 27 months of the Grant Date of such option, (b)
such shorter option period as may be established by the Committee from time to
time prior to an Enrollment Date for all options to be granted on such
Enrollment Date, or (c) the date on which the Participant ceases to be such for
any reason. Until otherwise determined by the Committee for all options to be
granted on an Enrollment Date, the period referred to in clause (b) in the
preceding sentence shall mean the period from the applicable Enrollment Date
through the last business day prior to the immediately following Enrollment
Date.

5.3 Number of Shares Subject to Option. The number of shares
available for purchase by each Participant under the option will be established
by the Committee from time to time prior to an Enrollment Date for all options
to be granted on such Enrollment Date.

5.4 Other Terms and Conditions. Each option shall be subject to the
following additional terms and conditions:

(a) payment for shares purchased under the option shall be made only
through payroll withholding under Section 4.2;

(b) purchase of shares upon exercise of the option will be
accomplished only in accordance with Section 6.1;

(c) the price per share under the option will be determined as
provided in Section 6.1; and

(d) the option in all respects shall be subject to such other terms
and conditions (applied on a uniform and nondiscriminatory basis), as
the Committee shall determine from time to time in its discretion.

SECTION 6
PURCHASE OF SHARES

6.1 Exercise of Option. Subject to Section 6.2, on each Purchase
Date, the funds then credited to each Participant's account shall be used to
purchase whole shares of Common Stock. Any cash remaining after whole shares of
Common Stock have been purchased shall be carried forward in the Participant's
account for the purchase of shares on the next Purchase Date. The price per
Share of the Shares purchased under any option granted under the Plan shall be
eighty-five percent (85%) of the lower of:

(a) the closing price per Share on the NASDAQ National Market System
on the business day preceding the Grant Date for such option; or

(b) the closing price per Share on the NASDAQ National Market System
on the Purchase Date;

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5

provided, however, that with respect to any Grant Date under the Plan that
coincides with the date of the final prospectus for the initial public offering
of the Common Stock, the price in clause (a) above shall be the price per Share
at which shares of Common Stock are initially offered for sale to the public by
the Company's underwriters in such offering.

6.2 Delivery of Shares. As directed by the Committee in its sole
discretion, shares purchased on any Purchase Date shall be delivered directly to
the Participant or to a custodian or broker (if any) designated by the Committee
to hold shares for the benefit of the Participants. As determined by the
Committee from time to time, such shares shall be delivered as physical
certificates or by means of a book entry system.

6.3 Exhaustion of Shares. If at any time the shares available under
the Plan are over-enrolled, enrollments shall be reduced proportionately to
eliminate the over-enrollment. Such reduction method shall be "bottom up," with
the result that all option exercises for one share shall be satisfied first,
followed by all exercises for two shares, and so on, until all available shares
have been exhausted. Any funds that, due to over-enrollment, cannot be applied
to the purchase of whole shares shall be refunded to the Participants (without
interest thereon).

SECTION 7
WITHDRAWAL

7.1 Withdrawal. A Participant may withdraw from the Plan by
submitting a completed enrollment form to the Company. A withdrawal will be
effective only if it is received by the Company by the deadline specified by the
Committee (in its discretion and on a uniform and nondiscriminatory basis) from
time to time. When a withdrawal becomes effective, the Participant's payroll
contributions shall cease and all amounts then credited to the Participant's
account shall be distributed to him or her (without interest thereon).

SECTION 8
CESSATION OF PARTICIPATION

8.1 Termination of Status as Eligible Employee. A Participant shall
cease to be a Participant immediately upon the cessation of his or her status as
an Eligible Employee (for example, because of his or her termination of
employment from all Employers for any reason). As soon as practicable after such
cessation, the Participant's payroll contributions shall cease and all amounts
then credited to the Participant's account shall be distributed to him or her
(without interest thereon). If a Participant is on a Company-approved leave of
absence, his or her participation in the Plan shall continue for so long as he
or she remains an Eligible Employee and has not withdrawn from the Plan pursuant
to Section 7.1.

SECTION 9
DESIGNATION OF BENEFICIARY

9.1 Designation. Each Participant may, pursuant to such uniform and
nondiscriminatory procedures as the Committee may specify from time to time,
designate one or more Beneficiaries to receive any amounts credited to the
Participant's account at the time of his or her death. Notwithstanding any
contrary provision of this Section 9, Sections 9.1 and 9.2 shall

5

6

be operative only after (and for so long as) the Committee determines (on a
uniform and nondiscriminatory basis) to permit the designation of Beneficiaries.

9.2 Changes. A Participant may designate different Beneficiaries (or
may revoke a prior Beneficiary designation) at any time by delivering a new
designation (or revocation of a prior designation) in like manner. Any
designation or revocation shall be effective only if it is received by the
Committee. However, when so received, the designation or revocation shall be
effective as of the date the designation or revocation is executed (whether or
not the Participant still is living), but without prejudice to the Committee on
account of any payment made before the change is recorded. The last effective
designation received by the Committee shall supersede all prior designations.

9.3 Failed Designations. If a Participant dies without having
effectively designated a Beneficiary, or if no Beneficiary survives the
Participant, the Participant's Account shall be payable to his or her estate.

SECTION 10
ADMINISTRATION

10.1 Plan Administrator. The Plan shall be administered by the
Committee. The Committee shall have the authority to control and manage the
operation and administration of the Plan.

10.2 Actions by Committee. Each decision of a majority of the
members of the Committee then in office shall constitute the final and binding
act of the Committee. The Committee may act with or without a meeting being
called or held and shall keep minutes of all meetings held and a record of all
actions taken by written consent.

10.3 Powers of Committee. The Committee shall have all powers and
discretion necessary or appropriate to supervise the administration of the Plan
and to control its operation in accordance with its terms, including, but not by
way of limitation, the following discretionary powers:

(a) To interpret and determine the meaning and validity of the
provisions of the Plan and the options and to determine any question
arising under, or in connection with, the administration, operation or
validity of the Plan or the options;

(b) To determine any and all considerations affecting the
eligibility of any employee to become a Participant or to remain a
Participant in the Plan;

(c) To cause an account or accounts to be maintained for each
Participant;

(d) To determine the time or times when, and the number of shares
for which, options shall be granted;

(e) To establish and revise an accounting method or formula for the
Plan;

6

7

(f) To designate a custodian or broker to receive shares purchased
under the Plan and to determine the manner and form in which shares are
to be delivered to the designated custodian or broker;

(g) To determine the status and rights of Participants and their
Beneficiaries or estates;

(h) To employ such brokers, counsel, agents and advisers, and to
obtain such broker, legal, clerical and other services, as it may deem
necessary or appropriate in carrying out the provisions of the Plan;

(i) To establish, from time to time, rules for the performance of
its powers and duties and for the administration of the Plan;

(j) To adopt such procedures and subplans as are necessary or
appropriate to permit participation in the Plan by employees who are
foreign nationals or employed outside of the United States;

(k) To delegate to any one or more of its members or to any other
person, severally or jointly, the authority to perform for and on behalf
of the Committee one or more of the functions of the Committee under the
Plan.

10.4 Decisions of Committee. All actions, interpretations, and
decisions of the Committee shall be conclusive and binding on all persons, and
shall be given the maximum possible deference allowed by law.

10.5 Administrative Expenses. All expenses incurred in the
administration of the Plan by the Committee, or otherwise, including legal fees
and expenses, shall be paid and borne by the Employers, except any stamp duties
or transfer taxes applicable to the purchase of shares may be charged to the
account of each Participant. Any brokerage fees for the purchase of shares by a
Participant shall be paid by the Company, but fees and taxes (including
brokerage fees) for the transfer, sale or resale of shares by a Participant, or
the issuance of physical share certificates, shall be borne solely by the
Participant.

10.6 Eligibility to Participate. No member of the Committee who is
also an employee of an Employer shall be excluded from participating in the Plan
if otherwise eligible, but he or she shall not be entitled, as a member of the
Committee, to act or pass upon any matters pertaining specifically to his or her
own account under the Plan.

10.7 Indemnification. Each of the Employers shall, and hereby does,
indemnify and hold harmless the members of the Committee and the Board, from and
against any and all losses, claims, damages or liabilities (including attorneys'
fees and amounts paid, with the approval of the Board, in settlement of any
claim) arising out of or resulting from the implementation of a duty, act or
decision with respect to the Plan, so long as such duty, act or decision does
not involve gross negligence or willful misconduct on the part of any such
individual.

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SECTION 11
AMENDMENT, TERMINATION, AND DURATION

11.1 Amendment, Suspension, or Termination. The Board, in its sole
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason. If the Plan is terminated, the Board, in its discretion, may
elect to terminate all outstanding options either immediately or upon completion
of the purchase of shares on the next Purchase Date, or may elect to permit
options to expire in accordance with their terms (and participation to continue
through such expiration dates). If the options are terminated prior to
expiration, all amounts then credited to Participants' accounts which have not
been used to purchase shares shall be returned to the Participants (without
interest thereon) as soon as administratively practicable.

11.2 Duration of the Plan. The Plan shall commence on the date
specified herein, and subject to Section 11.1 (regarding the Board's right to
amend or terminate the Plan), shall remain until June 30, 2011.

SECTION 12
GENERAL PROVISIONS

12.1 Participation by Subsidiaries. One or more Subsidiaries of the
Company may become participating Employers by adopting the Plan and obtaining
approval for such adoption from the Board. By adopting the Plan, a Subsidiary
shall be deemed to agree to all of its terms, including (but not limited to) the
provisions granting exclusive authority (a) to the Board to amend the Plan, and
(b) to the Committee to administer and interpret the Plan. An Employer may
terminate its participation in the Plan at any time. The liabilities incurred
under the Plan to the Participants employed by each Employer shall be solely the
liabilities of that Employer, and no other Employer shall be liable for benefits
accrued by a Participant during any period when he or she was not employed by
such Employer.

12.2 Inalienability. In no event may either a Participant, a former
Participant or his or her Beneficiary, spouse or estate sell, transfer,
anticipate, assign, hypothecate, or otherwise dispose of any right or interest
under the Plan; and such rights and interests shall not at any time be subject
to the claims of creditors nor be liable to attachment, execution or other legal
process. Accordingly, for example, a Participant's interest in the Plan is not
transferable pursuant to a domestic relations order.

12.3 Severability. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.

12.4 Requirements of Law. The granting of options and the issuance
of shares shall be subject to all applicable laws, rules, and regulations, and
to such approvals by any governmental agencies or securities exchanges as the
Committee may determine are necessary or appropriate.

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12.5 Compliance with Rule 16b-3. Any transactions under this Plan
with respect to officers (as defined in Rule 16a-1 promulgated under the 1934
Act) are intended to comply with all applicable conditions of Rule 16b-3. To the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee. Notwithstanding any contrary provision of the Plan,
if the Committee specifically determines that compliance with Rule 16b-3 no
longer is required, all references in the Plan to Rule 16b-3 shall be null and
void.

12.6 No Enlargement of Employment Rights. Neither the establishment
or maintenance of the Plan, the granting of options, the purchase of shares, nor
any action of any Employer or the Committee, shall be held or construed to
confer upon any individual any right to be continued as an employee of the
Employer nor, upon dismissal, any right or interest in any specific assets of
the Employers other than as provided in the Plan. Each Employer expressly
reserves the right to discharge any employee at any time, with or without cause.

12.7 Apportionment of Costs and Duties. All acts required of the
Employers under the Plan may be performed by the Company for itself and its
Subsidiaries, and the costs of the Plan may be equitably apportioned by the
Committee among the Company and the other Employers. Whenever an Employer is
permitted or required under the terms of the Plan to do or perform any act,
matter or thing, it shall be done and performed by any officer or employee of
the Employers who is thereunto duly authorized by the Employers.

12.8 Construction and Applicable Law. The Plan is intended to
qualify as an "employee stock purchase plan" within the meaning of Section
423(b) of the Code. Any provision of the Plan which is inconsistent with Section
423(b) of the Code shall, without further act or amendment by the Company or the
Committee, be reformed to comply with the requirements of Section 423(b). The
provisions of the Plan shall be construed, administered and enforced in
accordance with such Section and with the laws of the State of California
(excluding California's conflict of laws provisions).

12.9 Captions. The captions contained in and the table of contents
prefixed to the Plan are inserted only as a matter of convenience, and in no way
define, limit, enlarge or describe the scope or intent of the Plan nor in any
way shall affect the construction of any provision of the Plan.

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1
CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

CONFIDENTIAL TREATMENT
PDF SOLUTIONS, INC. HAS REQUESTED
THAT THE MARKED PORTIONS OF THIS
DOCUMENT BE ACCORDED CONFIDENTIAL
TREATMENT PURSUANT TO RULE 406 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.

EXHIBIT 10.15

INTEGRATION TECHNOLOGY AGREEMENT

THIS INTEGRATION TECHNOLOGY AGREEMENT ("this Agreement") is made and
entered into as of ********** (the "EFFECTIVE DATE") by and between
Semiconductor Company of Matsushita Electronics Corporation, a Japanese
corporation ("CUSTOMER") and PDF Solutions, Inc., a California corporation ("PDF
SOLUTIONS").

TERM AND CONTACTS

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

Customer: Semiconductor Company,            Contact: **********
Matsushita Electronics Corporation

Address:  **********                        Phone:  **********

**********                        Fax:    **********

Website: http://www.**********              E-Mail: **********

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

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

Term: This agreement shall commence on the Effective Date and shall expire on
**********, unless sooner terminated in accordance with Sections 1.2 or 1.3.

All notices, correspondence and invoices
pertaining to this Agreement shall be
sent to the persons and addresses listed,
or such other address as the applicable
party designates by giving written notice:

To Customer:
To PDF Solutions:
Matsushita Electronics Corporation **,
********************                        PDF Solutions, Inc.
********************                        333 West San Carlos Street
Suite 700
Phone:  **********                          San Jose, CA 95110
Fax:    **********                          Attn:     Chief Financial Officer
Tel:      (408) 938-6445
Fax:      (408) 938-6478

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

The parties have caused their duly authorized representatives to execute
and deliver this Agreement, which consists of this cover page, the attached
Terms and Conditions and any attached executed exhibits.

CUSTOMER                                    PDF SOLUTIONS, INC.
Matsushita Electronics Corporation
-----------------------------------

Signed: /s/ Seiji Ueda                     Signed: /s/ John K. Kibarian
----------------------------                -----------------------------

Printed: Seiji Ueda                        Printed: John K. Kibarian
---------------------------                 ----------------------------

TITLE:  Director                           TITLE:  President & CEO
-----------------------------               ------------------------------

* Certain information on this page has been omitted and filed separately with 
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

2

TERMS AND CONDITIONS

INTEGRATION TECHNOLOGY AGREEMENT

RECITALS

A. PDF Solutions possesses technology and expertise useful in
discovering, analyzing, and fixing problems in the design and manufacturing
processes that cause low yields of useable integrated circuits.

B. Customer desires to engage PDF Solutions and receive a license to
certain technology useful to analyze its internal integrated circuit
manufacturing process, identify problems therewith, and recommend solutions
thereto, by way of methodology or otherwise, upon the terms and conditions
contained herein.

C. PDF Solutions desires to be so engaged upon the terms and conditions
contained herein.

DEFINITIONS

"Analysis" refers to all interpretations, recommendations, extractions,
statistical models or other yield and performance models developed by PDF
Solutions and derived in whole or in part from Customer's Raw Data; provided,
however, that Analysis does not include any information sufficiently detailed
that Raw Data could be feasibly re-constructed.

"Characterization Vehicle" or "CV" refers to the parameterized layout structures
or circuit elements, specific implementations of said structures or circuit
elements either in computer format or layout format (for example, GDS-II files),
and images of said structures or circuit elements, historically or hereafter
created or customized by PDF Solutions for the purposes of creating a test
vehicle used to characterize any given manufacturing process. Manufacturing
Designs are usually referenced in the process of generating CVs for the purposes
of optimizing or tuning the vehicle to the targeted designs and process. The CV
is used to create a Mask Set which is used by the fabrication facility to
generate test wafers.

"Developed Technology" refers to all methodologies, techniques, designs, problem
solving processes and practices developed by jointly by the parties in the
course of the performance of this Agreement.

"Manufacturing Designs" refers to all non-public information relating to
*****************

"Mask Set" refers to translucent glass plates used as a light filter to transfer
designs onto a wafer.

"Modified Standard Process of Customer" means the standard process of Customer
for comparison purpose which will be obtained by Customer as the result of
successful completion of this project under the Agreement."

"Permitted Field of Use" means the field of use described in Exhibit "A".

"Proprietary Rights" shall mean all intellectual property rights including, but
not limited to, patents, patent applications, copyrights, copyright
registrations, moral rights, mask work rights, rights of authorship, industrial
design rights, trademarks, tradenames, know-how and trade secrets, irrespective
of whether such rights arise under U.S. or worldwide intellectual property,
unfair competition or trade secret laws.

"PDF Technology" refers to (a) all the methodologies, techniques, software,
designs, CVs, CV layout, Design of Experiments used in creating CV layout,
problem solving processes and practices developed and utilized by PDF Solutions
(i) prior to the Effective Date of this Agreement or (ii) during the term hereof
independently of this Agreement and (b) ***********

* Certain information on this page has been omitted and filed separately with 
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

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***

"Raw Data" shall mean the data generated by PDF Solutions using the CV in
conjunction with Customer's Manufacturing Design.

"R&D Team" means those employees of Customer and employees of the ********
(****) who provide research and development work with respect to Customers IC
products in the pre-qualification effort or have a need to know with regards to
the development work of the pre-qualification effort.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises herein
contained, the above recitals and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Customer and PDF
Solutions, intending to be legally bound, hereby agree as follows:

SECTION 1. TERM AND TERMINATION

1.1 Term. This Agreement shall commence on the Effective Date and shall
expire as described in the attached cover sheet.

1.2 Termination for Cause. This Agreement may be terminated upon thirty
(30) days prior written notice by either party if the other party materially
breaches or fails to perform any material obligations hereunder and the
breaching party fails to cure such breach within thirty (30) days of such
written notice. Notwithstanding the foregoing, the cure period for any failure
of Customer to pay Fees and Reimbursements due hereunder shall be ten (10) days
from the date of receipt by Customer of any notice of breach relating thereto.
In the event of a termination under this Section 1.2, Customer shall pay PDF
Solutions all Fixed Fees incurred through the effective date of such
termination, all Reimbursements incurred through the effective date of such
termination and, if PDF Solutions shall so terminate this Agreement, all
Incentive Fees that would otherwise have been earned had this Agreement not been
terminated shall be paid after such termination in accordance with the time
schedule and milestone objectives in Exhibit B.

1.3 Survival of Provisions. Any and all obligations and duties which
have accrued hereunder upon such termination shall survive the termination and
remain obligations and duties of the burdened party. Additionally, Sections 3
(Payment for Services and Technology) as modified by this Section 1, 4
(Proprietary Rights), 5 (Confidentiality), 6 (Representations and Warranties), 7
(Indemnity), 8 (Limitation of Liability), 9 (Export Controls) and 10
(Miscellaneous) shall survive the expiration or sooner termination of this
Agreement and remain binding upon the parties hereto; provided that in the event
of any termination of this Agreement by PDF Solutions pursuant to Section 1.3,
any and all rights and licenses granted by PDF Solutions to Customer hereunder
shall terminate effective upon such termination.

SECTION 2. DELIVERY OF SERVICES

2.1 Scope of Services. During the term of this Agreement, PDF Solutions
shall furnish the PDF technology and related services (the "SERVICES AND
TECHNOLOGY") described in detail in EXHIBIT "A" attached hereto (the "SCOPE OF
SERVICES AND TECHNOLOGY"). The manner and means used by PDF Solutions to provide
the Services and Technology are in the control of PDF Solutions but shall at all
times be satisfactory to Customer.

2.2 Standard for Performance. PDF Solutions shall perform and deliver
the Services and Technology under this Agreement in accordance with the
standards and practices of care consistent with the quality of services PDF
Solutions performs for its other similarly situated clients. PDF Solutions at
all times shall

* Certain information on this page has been omitted and filed separately with 
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

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4

provide such number of qualified and skilled personnel to perform and deliver
the Services and Technology in accordance with the quality standards, time
frames and other requirements set forth in this Agreement. PDF Solutions shall
utilize and comply with the relevant portions of any regulatory standards
applicable to the provision of the Services and Technology. PDF Solutions shall
promptly repair or replace at its own expense all damages, scars or
disfigurements to any materials or property that is part of, or contained in,
Customer's work site that are the result of the negligence of personnel employed
by PDF Solutions.

2.3 Customer Assistance. Subject to Section 5 (Confidentiality),
Customer will provide PDF Solutions with such information, materials, technology
and Proprietary Rights as PDF Solutions shall reasonably require in order to
perform and deliver the Services and Technology as specified in the Scope of
Services and Technology.

2.4 Mutual Cooperation; Schedule. Customer and PDF Solutions agree to
cooperate in good faith to achieve completion of the Services and Technology in
a timely and professional manner. Customer understands and agrees that PDF
Solutions' provision of the Services and Technology may depend on Customer or a
third party completing certain tasks or adhering to certain schedules within
Customer's control. Consequently, the schedule for completion of the Services
and Technology or any portion thereof or milestones for payment of Fees may
require adjustments or changes in the event such tasks are not completed as
anticipated. PDF Solutions shall bear no liability or otherwise be responsible
for or penalized by delays in the provision of Services and Technology or any
portion thereof proximately caused by failure by Customer or a third party to
complete a reasonable task or adhere to a reasonable schedule.

SECTION 3. PAYMENT FOR SERVICES

3.1 Fees. As compensation for the Services and Technology, Customer
shall pay to PDF Solutions the fees ("FEES") set forth in EXHIBIT "B" attached
hereto.

3.2 Expenses. Customer shall also reimburse PDF Solutions for its
reasonable out-of-pocket expenses incurred in carrying out its obligations under
this Agreement including, but not limited to, travel, hotel, meals, document
production and other customary business expenses directly related to the
Services and Technology ("REIMBURSEMENT"). Travel, other than trips to
Customer's office or fabrication facilities, shall be in accordance with PDF
Solution's travel policy. Reimbursement for expenses incurred in an amount of up
to $******* in any calendar month shall not require the written approval of
Customer; provided, however, that any extraordinary engagement-related purchases
including, but not limited to, expenses for mask production, equipment
purchases, on-site facilities and on-site communications services, must receive
Customer's prior written authorization. Customer shall not have any liability to
PDF Solutions for any Reimbursement for expenses incurred in an amount in excess
of $******* in any calendar month, unless such expenses are approved in writing
by both parties.

3.3 Invoice. PDF Solutions shall bill Customer as agreed herein for
Services and Technology pursuant to an invoice delivered on a monthly basis.
Each invoice shall be accompanied by a reasonably detailed breakdown of the
invoiced amount.

3.4 Payment of Invoices. All payments by Customer hereunder shall be
made in U.S. Dollars by telegraphic transfer to the bank designated by PDF
Solutions. All invoices shall be due and payable within **************** after
the date of invoice. Amounts not paid in accordance herewith shall be subject to
a late charge equal to ************************ (or, if less, the maximum
allowed by applicable law). Without prejudice to other remedies available, PDF
Solutions reserves the right to suspend performance and delivery of Services and
Technology until such delinquency is corrected, provided that PDF Solutions
shall give written notice of payment delinquency and

* Certain information on this page has been omitted and filed separately with 
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

4

5

shall give ten (10) days advance written notice of its intention to suspend
performance. The amounts payable to PDF Solutions hereunder are exclusive of any
sales or use or other taxes or governmental charges. Customer shall be
responsible for payment of all such taxes or charges except for any taxes based
solely on PDF Solutions' net income. If Customer is required to pay any taxes
based on this Section 3.4, Customer shall pay such taxes with no reduction or
offset in the amounts payable to PDF Solutions hereunder.

SECTION 4. PROPRIETARY RIGHTS

4.1 Ownership. Customer and PDF Solutions acknowledge and agree that, as
between them, ownership shall be as follows:

(a) PDF Solutions is the exclusive owner of all PDF Technology
and all Proprietary Rights in the PDF Technology;

(b) Customer is the exclusive owner of all Analysis,
Manufacturing Designs, Raw Data, Modified Standard Process of Customer and all
Proprietary Rights in the Analysis, Manufacturing Design ,the Raw Data and
Modified Standard Process of Customer;

(c) Customer and PDF Solutions shall jointly own the Developed
Technology and related Proprietary Rights and each party shall be free to
exploit Developed Technology without any obligation to account to the other
party for royalties, to share any royalties or to cooperate in the enforcement
or defense of Proprietary Rights in Developed Technology.

(d) Customer is the exclusive owner of *****; provided, however,
that during the term of this Agreement and thereafter, such ***** may be used
only by the ***** and only within the Permitted Field of Use, and Customer will
not license, transfer or disclose the ***** to any third party or outside of the
*****.

To the extent the law would provide for ownership other than as provided
herein, (y) Customer hereby assigns to PDF Solutions its right, title and
interest in and to the PDF Technology and the Proprietary Rights in the PDF
Technology and (z) PDF Solutions hereby assigns to Customer its right, title and
interest in and to the Analysis, Manufacturing Designs, Raw Data, Modified
Standard Process of Customer and the Proprietary Rights in the Analysis,
Manufacturing Designs and Raw Data, such Modified Standard Process of Customer
and in the Mask Sets for CVs, subject to the restrictions set forth in
Subsection (c) above.

4.2 Grant of License by PDF Solutions. Subject to the terms and
conditions of this Agreement, including the timely payment of Fees, PDF
Solutions hereby grants to Customer, a perpetual, non-exclusive, irrevocable,
non-transferable license (without any right to sublicense) only for the
********** to use the PDF Technology and associated Proprietary Rights disclosed
by PDF Solutions under this Agreement, but only to the extent PDF Solutions has
the right to grant such license; provided that such license is solely for use of
PDF Technology by the ******** within the permitted field of use. The foregoing
license includes all PDF Technology disclosed by PDF Solutions in its work for
Customer hereunder (including methodologies and practices observed by the
******** in the course of PDF Solutions' work hereunder); provided, however,
that specifically excluded from this license of PDF Technology is any and all
software or software tools or software manuals and documentation to the extent
related to PDF Technology. Customer shall not disclose or license PDF Technology
to any third party or outside of the *******.

4.3 Grant of License by Customer. Subject to the terms and conditions of
this Agreement, Customer hereby grants to PDF Solutions a perpetual,
non-exclusive, irrevocable, worldwide, non-transferable, license (without the
right to sublicense), but only to the extent Customer has the right to grant
such license, as follows:

5

* Certain information on this page has been omitted and filed separately with 
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

6

(a) to incorporate Customer's Manufacturing Designs in CVs at
any time during the term solely for the purpose of performing under this
Agreement; and

(b) to use, copy, compile, manipulate, analyze or reproduce Raw
Data and the Mask Sets for CVs solely for the purpose of performing under this
Agreement.

4.4 No Other Rights. Except as otherwise set forth in this Section 4,
neither this Agreement nor performance and delivery of the Services and
Technology shall give either PDF Solutions or Customer any ownership, interest
in, or rights to, the Proprietary Rights owned or provided by the other party.

4.5 Reference Right. Nothing in this Agreement shall be construed as
limiting the free right of Customer to refer to the Modified Standard Process of
Customer for the purpose of development and mass production of any semiconductor
products.

SECTION 5. CONFIDENTIALITY

The parties acknowledge and agree that during the course of the performance of
the mutual obligations hereunder, each party will occasionally deliver to the
other party certain information (including proprietary information, technical
data, trade secrets, know-how, research, software, developments, inventions,
processes, design flows, methods, methodologies, formulas, algorithms,
technologies, designs, drawings, engineering, hardware configuration
information, yield data or other similar information, and related documentation
and information) which the disclosing party deems to be confidential or
proprietary. Such information shall be considered and treated hereunder as
proprietary and confidential information if it is identified as "Confidential"
or "Proprietary" (hereinafter referred to as "CONFIDENTIAL INFORMATION"): (i) by
stamp or legend if communicated in writing or other tangible form, or (ii)
orally at the time of disclosure with a written confirmation within thirty days
describing the Confidential Information communicated orally. All restrictions as
to use and disclosure shall apply during such thirty day period. Except as
permitted hereunder, the receiving party shall not use or disclose the
Confidential Information of the disclosing party. Any recipient of Confidential
Information disclosed pursuant to this Agreement shall hold the Confidential
Information in strictest confidence and shall protect the Confidential
Information by using the same degree of care, but no less than a reasonable
degree of care, to prevent the unauthorized use, disclosure, dissemination or
publication of the Confidential Information as the recipient uses to protect its
own comparable confidential and proprietary information. Any permitted
reproduction of Confidential Information shall contain all confidential or
proprietary legends which appear on the original. If the disclosing party
discloses any software, the recipient is prohibited from disassembling,
decompiling, reverse-engineering or otherwise attempting to discover or disclose
the disclosing party's source code, trade secrets, ideas or methods or concepts
embodied in such software. Subject to the licenses granted in Section 4, upon
receipt of the written request of the disclosing party, the receiving party will
return, or give written certification of the destruction of all Confidential
Information in any tangible or digital form, including all copies thereof
whether on paper or in digital form, which are in the recipient's possession or
control. The recipient will immediately notify the disclosing party in the event
of any loss or unauthorized disclosure of Confidential Information. The above
restrictions on use and disclosure shall not apply to any Confidential
Information that: (1) is in the public domain or in the possession of the
recipient without restriction at the time of receipt under this Agreement
through no wrongful act or omission of the recipient, (2) is disclosed with the
prior written approval of the disclosing party, (3) is disclosed after
********** ***** from the date of expiration or earlier termination of this
Agreement, (4) is independently developed by the recipient without breach of
this Agreement which independent development is supported by reasonable
contemporary evidence, (5) becomes

* Certain information on this page has been omitted and filed separately with 
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

6

7
known to the recipient from a source other than the disclosing party without
breach of this Agreement by the recipient or any other wrongful act or omission
by recipient or any third party; or (6) is required to be disclosed pursuant to
law, provided the recipient uses reasonable efforts to give the disclosing party
reasonable notice of such required disclosure sufficient to give the disclosing
party the opportunity to contest such disclosure. The obligations of
confidentiality shall survive the expiration or sooner termination of this
Agreement for a period of ********** ***** thereafter. Disclosing party assumes
no responsibility or liability whatever under this Agreement for any use of
Confidential Information by the recipient or its agents. Nothing in this
Agreement shall restrict recipient's discretion to transfer or assign its
personnel, providing the obligations of recipient under this Agreement are
otherwise met. Subject to the provisions of Section 4, either party shall be
free to use for any purpose the "residuals" resulting from access to or work
with such Confidential Information, provided that such party shall maintain the
confidentiality of the Confidential Information as provided herein. The term
"residuals" means information in non-tangible form, which may be retained in the
memories (without intentional memorization) by persons who have had access to
the Confidential Information, including ideas, concepts, know-how or techniques
contained therein. Neither party shall have any obligation to limit or restrict
the assignment of such persons or to pay royalties for any work resulting from
the use of residuals. Each party hereto recognizes and agrees that there is no
adequate remedy at law for a breach of this Section 5, that such a breach would
irreparably harm the disclosing party and that the disclosing party shall be
entitled to seek equitable relief (including, without limitation, injunctions)
with respect to any such breach or potential breach in addition to any other
remedies. PDF Solutions acknowledges that Confidential Information disclosed by
Customer may include the information of ****, and some employees of **** will
participate in the ****. Customer shall be liable for the performance of
employees of **** in the **** in performing under this Agreement and also be
liable for the confidentiality obligation of **** with respect to the
Confidential Information disclosed by PDF Solutions. The parties agree that the
MUTUAL NON-DISCLOSURE AGREEMENT among PDF Solutions, Customer and **** dated the
********** (NDA) shall be superseded by this Agreement, provided, however, that
any of the Confidential Information exchanged by the parties under the NDA shall
be treated as and included in the Confidential Information under this Agreement.

SECTION 6. REPRESENTATIONS AND WARRANTIES

6.1 Corporate Warranties. Each party hereby represents and warrants to
the other party that: (i) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was organized, (ii) the
person executing this Agreement on behalf of each party is duly authorized to
bind such party to all terms and conditions of this Agreement, (iii) this
Agreement, when executed and delivered by each party, will be the legal, valid,
and binding obligation of such party, enforceable against it in accordance with
its terms, and (iv) the execution, delivery and performance of this Agreement by
each party does not and will not conflict with or constitute a breach or default
under such party's charter documents, delegations of authority, or any material
agreement, contract or commitment of such party, or require the consent,
approval or authorization of, or notice, declaration, filing or registration
with, any third party or governmental or regulatory authority.

6.2 Infringement. PDF Solutions warrants that it is not aware of
infringement or alleged infringement of its deliverables under third parties'
valid worldwide intellectual property rights.

6.3 Disclaimer of Warranties. THE WARRANTIES STATED IN THIS SECTION 6
ARE THE PARTIES' SOLE AND EXCLUSIVE WARRANTIES PERTAINING TO THE SUBJECT MATTER
OF THIS AGREEMENT, AND EACH PARTY HEREBY

* Certain information on this page has been omitted and filed separately with 
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

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DISCLAIMS ANY OTHER WARRANTY, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF TITLE, MERCHANTABILITY, NON-INFRINGEMENT OR
FITNESS FOR A PARTICULAR PURPOSE. NOTHING UNDER THIS AGREEMENT, OR THE STATEMENT
OF WORK OR PROJECT SHALL BE DEEMED TO BE A WARRANTY AS TO THE OUTCOME OF ANY
PROJECT OR THE EFFICACY OF ANY RECOMMENDATIONS MADE BY PDF SOLUTIONS. NOTHING
UNDER THIS AGREEMENT OR THE STATEMENT OF WORK SHALL BE DEEMED TO CREATE ANY
LIABILITY ON THE PART OF EITHER PARTY WITH RESPECT TO THE OUTCOME OF A PROJECT
OR ANY ACTIONS TAKEN BY CUSTOMER OR THE PDF SOLUTIONS AS A CONSEQUENCE OF THE
OTHER PARTY'S RECOMMENDATIONS.

SECTION 7. INDEMNIFICATION. PDF Solutions shall defend or settle at PDF
Solutions' expense any claim ("Claim") brought against Customer that the
Services and Technology and/or any tangible or intangible delivered in
connection therewith impermissibly contains third party's proprietary rights,
trade secrets, or copyrighted materials or that Customer's use of any such
materials, as permitted hereunder by the ******** in the Permitted Field of Use,
infringes any patent issued in Japan; provided that such indemnification shall
not extend (a) to any infringement by Customer's designs or products, (b) to any
infringement resulting from any infringement contained in any technical data,
Manufacturing Designs, Mask Sets or materials or reports or information provided
by Customer. The indemnification obligations set forth in this Section 7 are
subject to the conditions that the Customer: (i) gives prompt written notice of
the Claim to the PDF Solutions, (ii) gives the PDF Solutions the exclusive
authority to control and direct the defense or settlement of such Claim,
provided that the PDF Solutions does not take any positions that may be
prejudicial to Customer and (iii) gives the PDF Solutions, at Customer's own
expense (except for the value of the Customer's employees' time), all reasonably
necessary information and reasonable assistance with respect to such Claim. PDF
Solutions shall pay all amounts paid in settlement and all damages and costs
awarded with respect to such Claim. PDF Solutions will not be liable for any
costs or expenses incurred without its prior written authorization. In the event
of any Claim under this Section 7, PDF Solutions shall have the option, at its
election, to (a) obtain a license to permit continued use of the allegedly
infringing item or practice, (b) modify the allegedly infringing item or
practice to avoid continued infringement provided the modified item or practice
is substantially equivalent, (c) procure or provide a substantially equivalent
substitute for the allegedly infringing item or practice or (d) if PDF Solutions
is unable to achieve (a), (b) or (c) after reasonable efforts, then PDF
Solutions may require that Customer cease use of the infringing item or practice
as soon as feasible and terminate this Agreement and refund all Incentive Fees
paid by Customer to PDF Solutions.

SECTION 8. LIMITATION OF LIABILITY

THE LIABILITY OF EITHER PARTY AND OF SUCH PARTY'S OFFICERS, DIRECTORS,
EMPLOYEES, CONTRACTORS AND AGENTS, TAKEN AS A WHOLE, WHETHER IN TORT, CONTRACT
OR OTHERWISE, AND NOTWITHSTANDING ANY FAULT, NEGLIGENCE, STRICT LIABILITY OR
PRODUCT LIABILITY OF SUCH PARTY OR OF ITS OFFICERS, DIRECTORS, EMPLOYEES, OR
AGENTS OR FAILURE OF ESSENTIAL PURPOSE, WITH REGARD TO ANY SERVICES OR OTHER
ITEMS FURNISHED UNDER THIS AGREEMENT SHALL IN NO EVENT EXCEED THE AGGREGATE
COMPENSATION PAID BY CUSTOMER TO PDF SOLUTIONS HEREUNDER. NOTWITHSTANDING
ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY CLAIM FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR

* Certain information on this page has been omitted and filed separately with 
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omitted portions.

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CONSEQUENTIAL DAMAGES, COVER OR ANY LOSS OF DATA, PROFIT, REVENUE OR USE UNDER
ANY THEORY OF LAW OR FOR ANY CAUSE OF ACTION.

SECTION 9. EXPORT CONTROL

9.1 Both parties acknowledge that certain technical information
disclosed by PDF Solutions to Customer hereunder may be subject to the export
control laws or regulations of the U. S. A. PDF Solutions shall be responsible
for obtaining any export license required under such laws or regulations with
respect to the export of any Confidential Information, and shall promptly notify
Customer in writing the technical information which is subject to the
restrictions under such laws or regulations as well as the type of license to
have been obtained.

9.2 In the event that a Japanese governmental authorization is required
for the disclosure of technical information under this Agreement, Customer will
not disclose such information until Customer obtains such authorization.

SECTION 10. MISCELLANEOUS

10.1 Publicity. Neither party shall disclose the existence of or the
terms of this Agreement to any third party, or in any manner advertise or
publish statements to such effect, without the prior written consent and mutual
agreement as to the content, medium, and manner of the public announcement of
the other party. Notwithstanding the above, should one of the parties be
required by laws or regulations to disclose either the existence or terms of
this Agreement to a court of law, a governmental agency, an auditor, a bank, or
any person such party may do so without the prior written consent of the other
party provided that the disclosing party: (i) notifies the recipient of the
confidential nature of the information, (ii) requests confidential treatment of
such information, (iii) limits the disclosure to only such information as is
required under the circumstances, and (iv) delivers prompt notice to the other
party of such requested or actual disclosure.

10.2 Assignment. Neither party shall assign any portion of its rights,
duties, or obligations under this Agreement without the prior written consent of
the other party, which consent will not be unreasonably withheld or delayed,
provided that PDF Solutions may utilize the services of consultants and
subcontractors to perform hereunder with the prior written consent of Customer.

10.3 Changes. No modification to this Agreement will be binding unless
in writing and signed by a duly authorized representative of each party. Change
orders affecting any Scope of Services and Technology will not be effective
until reviewed and approved in writing by PDF Solutions and Customer. PDF
Solutions will submit to Customer a report on how the proposed changes will
affect the current Services and Technology including the effect on the time
schedule and cost estimates. The parties will have no obligation to proceed with
changed work until both parties have approved the change in writing.

10.4 Notices. All notices or corres-pondence pertaining to this
Agreement shall be in writing, delivered by either first class mail with receipt
or by facsimile with receipt. Such notice shall be effective upon the earlier of
actual receipt or the expiration of three business days following the date of
mailing, or such alternative address the parties may designate in the future.

10.5 Independent Contractors. PDF Solutions and Customer shall perform
their obligations under this Agreement as independent contractors, and nothing
contained in this Agreement shall be construed to create or imply a joint
venture, partnership, principal-agent or employment relationship between the
parties. Neither party shall take any action or permit any action to be taken on
its behalf which purports to be done in the name of or on behalf of the other
party and shall have no power or authority to bind the other party to assume or
create any obligation or responsibility express or implied

9

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on the other party's behalf or in its name, nor shall such party represent to
any one that it has such power or authority. Each party shall be responsible for
damages to tangible property or personal injury cause by the gross negligence or
willful misconduct of the employees or agents of such party.

10.6 Force Majeure. Neither party shall be liable to the other party for
any loss, damage, or penalty arising from delay to the extent due to causes
beyond its reasonable control including acts of God, acts of government, war,
riots, or embargoes.

10.7 Severability. If any term or provision of this Agreement is
determined to be invalid or unenforceable for any reason, it shall be adjusted
rather than voided, if possible, to achieve the intent of the parties to extent
possible. In any event, all other terms and provisions shall be deemed valid and
enforceable to the maximum extent possible.

10.8 Insurance. PDF Solutions shall carry Workers' Compensation and
Comprehensive General Liability Insurance (including Products, Contractual, and
Automobile Liability) having limits of liability not less than $1 million
combined single limit per occurrence for bodily injury, including death and
property damages, prior to performing any services on Customer's site.

10.9 Disputes. If any claim or controversy arises out of this Agreement,
the parties shall first make a good faith attempt to resolve the matter through
a designated executive officer. The officers having cognizance of the subject
matter of the Agreement for each of the parties shall first meet and make a good
faith attempt to resolve such controversy or claim. In the event such good faith
negotiation fails to settle any dispute within ********** days from notice of
such dispute, the controversy shall be settled by binding arbitration by one or
three arbitrators, (if three are used, each party shall select one, and the
third shall be selected by mutual agreement of the parties), conducted in Santa
Clara County, California, if Customer initiates the proceedings, and in Osaka,
Japan, if PDF Solutions initiates the proceeding, and in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and
judgment upon the award rendered by the arbitrator(s) may be entered by any
court having jurisdiction thereof. The arbitrator(s) shall not be empowered to
award damages in excess of, and/or in addition to, actual damages, and the
arbitrator(s) shall deliver a reasoned opinion in connection with his/her/their
decision. Nothing herein, however, shall prohibit either party from seeking
injunctive relief if such party would be substantially prejudiced by a failure
to act during the time that such good faith efforts are being made to resolve
the claim or controversy. In the event either party seeks injunctive relief, the
parties agree that jurisdiction will be before a state or district court seated
in Santa Clara County, California.

10.10 Governing Law. This Agreement and any and all disputes arising
hereunder shall be governed by the internal laws of the State of California,
without regard to choice of law principles. This Agreement is prepared and
executed and shall be interpreted in the English language only, and no
translation of the Agreement into another language shall have any effect. The
parties agree that the United Nations Convention on Contracts for the
International Sale of Goods (1980) is specifically excluded from and shall not
apply to this Agreement.

10.11 Waiver. The failure of any party hereto to enforce at any time any
of the provisions of this Agreement or to require at any time performance by the
other party of any of the provisions of this Agreement, or any part hereof,
shall not be construed to be a waiver of said provision or to effect the right
of any party to enforce each and every provision in accordance with the terms of
this Agreement.

10.12 Interpretation. In the event that any term of the Scope of
Services and Technology conflicts with the terms of this Agreement, the terms of
this Agreement shall take precedence.

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10

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10.13 Non-Solicitation. Customer shall not actively solicit or influence
or attempt to influence any person employed by PDF Solutions to terminate or
otherwise cease his or her employment with PDF Solutions or become an employee
of Customer. PDF Solutions shall not actively solicit or influence or attempt to
influence any person employed by Customer to terminate or otherwise cease his or
her employment with Customer or become an employee of PDF Solutions.

10.14 Drafter. Neither party will be deemed the drafter of this
Agreement, which Agreement will be deemed to have been jointly prepared by the
parties. If this Agreement is ever construed, whether by a court or by an
arbitrator, such court or arbitrator will not construe this Agreement or any
provision hereof against any party as drafter.

10.15 Entire Agreement. The parties acknowledge that PDF Solutions is
not providing or licensing to Customer under this Agreement any software
programs or products and anticipate that they will enter into a Software
Evaluation and/or Software License Agreement related to the subject matter
hereof. Such agreement shall also not be affected by this Agreement. Except for
such software agreements, this Agreement shall constitute the entire agreement
between the parties with respect to the subject matter hereof and: (i) shall
supersede all prior contemporaneous oral or written communications, proposals
and representations with respect to its subject matter, and (ii) shall prevail
over any conflicting or additional terms of any statement of work, quote, order
acknowledgment or similar communication between the parties during the term of
this Agreement.

10.16 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.

10.17 Exhibits. Exhibits "A" and "B" attached hereto are incorporated
herein by this reference as if fully set forth herein.

PDF SOLUTIONS, INC., A CALIFORNIA CORPORATION

By: /s/ John K. Kibarian
--------------------------------
Name: John K. Kibarian
------------------------------
Title: President & CEO
-----------------------------
Date:   **********
------------------------------

CUSTOMER

By: /s/ Seiji Ueda
--------------------------------
Name: Seiji Ueda
------------------------------
Title: Director
-----------------------------
Date:   **********
------------------------------

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12

EXHIBIT "A" TO INTEGRATION TECHNOLOGY AGREEMENT
SCOPE OF SERVICES AND TECHNOLOGY
--------------------------------------------------------------------------------

PERMITTED FIELD OF USE

PDF Solutions agrees to provide Customer with **********************************
**************************************************************.  The Agreement,
and all licenses granted by PDF Solutions to Customer under the Agreement,
extends only *******************************************************************
*********.

PROJECT PHASES & DESCRIPTION

The project is described below in the following three phases. Phases may be
amended upon written notice to more appropriately achieve the targeted project
goals.

------------- ------------------------------------------------- ----------------------
PROJECT PHASE                 GENERAL WORK STEPS                  ESTIMATED DURATION
------------- ------------------------------------------------- ----------------------

**********    ***********************************************        **********
**********    ***********************************************        **********
***********************************************        **********
***********************************************
***********************************************

------------- ------------------------------------------------- ----------------------
**********    ***********************************************        **********
**********    ***********************************************        **********
***********************************************        **********
***********************************************
***********************************************

------------- ------------------------------------------------- ----------------------
**********    ***********************************************        **********
**********    ***********************************************        **********
***********************************************        **********
***********************************************
***********************************************

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

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omitted portions.

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13

EXHIBIT "A" TO INTEGRATION TECHNOLOGY AGREEMENT
SCOPE OF SERVICES AND TECHNOLOGY
--------------------------------------------------------------------------------

DELIVERABLES

PDF Solutions agrees to provide Customer the following deliverables:

----------- ----------------------------------------------------------------
PHASE                             DELIVERABLE
----------- ----------------------------------------------------------------

**********  **************************************************************
**********  **************************************************************
**************************************************************

----------- ----------------------------------------------------------------
**********  **************************************************************
**********  **************************************************************
**************************************************************

----------- ----------------------------------------------------------------
**********  **************************************************************
**********  **************************************************************
**************************************************************

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

PROJECT ACCOUNTABILITY

PDF Solutions will maintain an engagement manager to lead the project effort
throughout the duration of the project. PDF Solutions' engagement manager
currently assigned to the project is **********. Customer will also maintain a
project leader to lead the project effort and Customer team. ********** will
serve as the primary point of contact for Customer's project leader or other
Customer representatives regarding project status and updates.

REPORTS AND DOCUMENTATION

PDF Solutions agrees to provide at minimum ***** updates to Customer's Project
Leader. PDF Solutions will provide a formal presentation at the conclusion
***************.

REQUIREMENTS FROM CUSTOMER

To assist in the success completion of the project, Customer's cooperation to
support the following as reasonably required by PDF Solutions:

- Business Resources: Secure and private office space (with 24 hour access) and
other customary and reasonable business resources as required. Reasonable and
customary communication and business resources including, but is not limited
to, international access telephones, multiple analog lines, international
access fax machines and access to a photocopier.

- Computing Resources: Customary and reasonable computing resources as required.

- CVs: Customer agrees to run PDF Solution's characterization vehicles.

- Engineering Resources: Customer's engineering resources as required.

* Certain information on this page has been omitted and filed separately with 
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omitted portions.

13

14

GENERAL

Customer agrees to pay *** types of fees associated with the services and
technologies rendered with the Integration Technology Agreement.

1. A fixed fee ("Fixed Fee") component, and

2. **********

FIXED FEE

PDF Solutions shall invoice Customer the Fixed Fee on a monthly basis. The Fixed
Fee rates will be as follows:

1. *****************************************************************************
******************************************.
2.

Customer shall pay such invoices in accordance with this Agreement. If the term
of this Agreement is extended with prior written approval, both parties may
elect to continue services under this Agreement at a Fixed Fee ***************.

INCENTIVE FEE

PDF Solutions may earn **************** as follows:

--- -------------- -------------- ------------------------------------------
INCENTIVE FEE   INCENTIVE FEE  INCENTIVE FEE MILESTONE OBJECTIVE(S)
DUE DATE          AMOUNT
--- -------------- -------------- ------------------------------------------

1  **********              ***** ***************************************
***************************************
***************************************
***************************************

--- -------------- -------------- ------------------------------------------
2  **********             *****  ***************************************
*  ***************************************
***************************************
***************************************

--- -------------- -------------- ------------------------------------------
3  **********             *****  ***************************************
*  ***************************************
***************************************
***************************************

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

**************************************

Customer's obligation to pay the Incentive Fee shall be contingent on
satisfaction of the applicable milestone objective(s). PDF Solutions cannot
pre-earn any incentive; each milestone must be achieved during the time frame
applicable to such incentive payment. Should conditions beyond the control of
PDF Solutions result in an inability to achieve incentive(s) including, but not
limited to, delays in Customer

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15

process roll-out plans, both parties agree to adjust either the Incentive Fee
milestones, Incentive Fee deadlines or both as required.

PRODUCT VOLUME EXCLUDED FROM INCENTIVE FEE CALCULATIONS

The following wafers shall be excluded from the calculation of the defect
density in determining Incentive Fees:

- Mis-processed wafers

- Wafers adversely affected by equipment failures or malfunctions

- Wafers adversely affected by non-qualified PM (preventative maintenance)
adjustments. Non-qualified means new equipment introduced but not verified to
process tolerances. Customer and PDF Solutions agree to review the
qualification process within forty-five (45) days of Effective Date. Customer
may elect not to make any changes suggested by PDF Solutions that are deemed
unreasonable or beyond Customer's control.

- Zero yielding wafers traceable to equipment failures, malfunction, or PM cycle
dependency.

- Operator errors

- Mishandled wafers during processing or test.

- Scrapped wafers

- Failures caused by tester malfunction, test program inadequacy, or measuring
beyond the capability of the tester.

If products under this Agreement contains a design *****************************
**************************************************

********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************

Wafers included or excluded in the yield calculations may be modified provided
both Customer's designated Project Manager and PDF Solutions' designated
Engagement Manager agree to the modifications in writing.

YIELD MODEL

For the purposes of this Agreement, the yield model equation used in determining
Incentive Fees when appropriate will be the ************************************
******************************.

* Certain information on this page has been omitted and filed separately with 
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

1
CONFIDENTIAL TREATMENT
PDF SOLUTIONS, INC. HAS REQUESTED
THAT THE MARKED PORTIONS OF THIS
DOCUMENT BE ACCORDED CONFIDENTIAL
TREATMENT PURSUANT TO RULE 406 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.

EXHIBIT 10.16

[cadence logo]

SOFTWARE OEM LICENSE AGREEMENT

BETWEEN

PDF SOLUTIONS, INC.

AND

CADENCE DESIGN SYSTEMS, INC.

EFFECTIVE DATE: July 7, 2000

AGREEMENT NO.

1

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INDEX

Section  Description                                                        Page
-------  -----------                                                        ----

RECITAL...........................................................   3

1.0      DEFINITIONS.......................................................   3

2.0      APPOINTMENT.......................................................   5

3.0      DELIVERY AND ACCEPTANCE...........................................   5

4.0      LICENSE GRANT.....................................................   5

5.0      MAINTENANCE, TRAINING AND ENHANCEMENTS............................   6

6.0      MARKETING AND PROMOTION...........................................   7

7.0      FEES..............................................................   7

8.0      SOURCE CODE ESCROW................................................   8

9.0      PROTECTION OF CONFIDENTIAL INFORMATION............................   8

10.0     WARRANTY AND INDEMNIFICATION......................................   9

11.0     TERM AND TERMINATION .............................................  10

12.0     GENERAL...........................................................  10

EXHIBITS:

Exhibit A   - Products and Designated Equipment
Exhibit B   - Maintenance and Support Services
Exhibit C   - Fees and Payment
Exhibit D   - Software Deposit Agreement
Exhibit E   - Cadence standard form of license agreement
Exhibit F   - Trademark Specifications

2

3

[cadence logo]

SOFTWARE OEM LICENSE AGREEMENT

Effective Date: July 7, 2000

Agreement No:

This Software OEM License Agreement ("Agreement") is entered into effective as
of the date set forth above by and among, on the one hand, CADENCE DESIGN
SYSTEMS, INC., a Delaware corporation having a principal place of business at
555 River Oaks Parkway, San Jose, California 95134, and CADENCE DESIGN SYSTEMS
(IRELAND) LIMITED, a corporation organized and existing under the laws of
Ireland having a place of business at Block U, East Point Business Park, Dublin
3, Ireland (collectively with its Subsidiaries, as defined below, "Cadence"),
and, on the other hand, PDF Solutions, Inc., a California corporation, having a
principal place of business at 333 W. San Carlos Street, Suite 700, San Jose CA
95110 ("VENDOR").

WHEREAS Cadence develops and markets software application programs used in the
electronic design automation industry for the computer-aided engineering,
design, co-verification, simulation, and layout of advanced electronic circuits,
printed circuit boards and electronic systems and subsystems; and

WHEREAS Vendor has developed certain computer programs and desires to grant
Cadence rights to commercially exploit such programs on a world-wide basis in
combination with certain software and systems which Cadence develops and/or
distributes; and

WHEREAS Cadence is willing, subject to the terms of this Agreement, to market,
distribute and sublicense Vendor's programs as stand alone products, or in
combination or for use with the software and systems which Cadence develops or
distributes;

NOW THEREFORE in consideration of the mutual promises herein contained the
parties hereby agree as follows:

1.0 DEFINITIONS.

In addition to the terms defined elsewhere in this Agreement, the
following terms have the following meanings:

1.1 "Ancillary Work" means any software code written by or for Cadence
(and not by Vendor) for the purpose of tightly integrating the Licensed Work as
an integral and functioning part of Cadence's product framework environment
and/or to meet unique requirements of an End User, or provide new or improved
features, functionality or enhancements to the Licensed Work.

1.2 "Cadence" means Cadence and its world-wide Subsidiaries and the
successors and assigns of any of them.

1.3 "Designated Equipment" means computer hardware contained in one of
the equipment product families listed on Exhibit A and all improved and enhanced
versions of such equipment, and also including the operating system environment
with which Cadence's products operate. At the request of either party from time
to time, the parties shall amend Exhibit A to reflect expansions and extensions
of the product families there represented and will in good faith negotiate the
inclusion of additional product lines.

1.4 "Documentation" means all data sheets, user manuals and/or education
and training materials in human or machine readable form, and all Maintenance
Modifications and Enhancements thereto which: (i) document the design or details
of the Product(s); and/or (ii) explain the capabilities of the Product(s);
and/or (iii)

3

4

provide operating instructions for using the Product(s).

1.5 "End User" means an entity that acquires the Licensed Work for its
internal production use.

1.6 "Enhancement" means any modification(s), revision(s), upgrade(s) or
addition(s) to a Product made by or on behalf of Vendor (other than a
Maintenance Modification) that improves its function, adds new function(s) or
substantially enhances its performance, including, without limitation, new
versions of the Products. Enhancements shall include updates to the
Documentation.

1.7 "Error(s)" means any malfunction or defect in the Products and/or a
mistake in the Documentation that prevents the Product from correctly operating
in substantial conformance with its functional specifications, including,
without limitation, any significant deviation from commonly accepted standards
for normal and correct operation of computer programs, even if not explicitly
mentioned in the Documentation, e.g., any case where the Product, in any
significant respect, abnormally ceases function, produces incorrect or
misleading information or erroneously interprets information given to it, and
similar deviations.

1.8 "Fees" means the fees that Cadence shall pay to Vendor for the
rights granted hereunder, as more specifically described in Section 7 below.

1.9 "Licensed Work(s)" means the Products and Documentation
collectively.

1.10 "Maintenance Modification" means any modification(s), revision(s)
or addition(s) to the Products necessary to: (i) correct Errors; or (ii) support
new releases of the Designated Equipment or subsequent revisions of its
operating system; or (iii) update a Product to ensure its continuing
compatibility with versions of Cadence's product(s) it is intended to be used
with, if any; or (iv) other modification(s) or addition(s) which are not
Enhancements. Maintenance Modifications shall include correction to
Documentation.

1.11 "Marketing Agent(s)" means those distributors, dealers, resellers,
representatives, affiliates or Subsidiaries with whom Cadence enters into a
contractual relationship for the express purpose of engaging such entity to
market to End-Users the Licensed Work or other Cadence products which include
the Licensed Works.

1.12 "Net Maintenance Revenues" means the portion of gross revenues
recognized by Cadence that is directly attributable to the sale of maintenance
services directly related and apportioned to the Licensed Works, net of
Marketing Agent commissions, refunds, commodity taxes, value added taxes, sales
taxes, and provision for bad debt. Net Maintenance Revenues specifically
excludes revenues recognized by Cadence from the sale or provision of
maintenance services related to or in connection with Licensed Works that are
provided to persons for evaluation or demonstration purposes only.

1.13 "Net Product Revenues" means the portion of gross revenues
recognized by Cadence that is directly attributable to the sale or license of
the Licensed Works, net of Marketing Agent commissions, returns, commodity
taxes, value added taxes, sales taxes, and provision for bad debt. Net Product
Revenues specifically excludes revenues recognized by Cadence from any Licensed
Works that are provided to persons for evaluation or demonstration purposes
only.

1.14 "Product(s)" means the Vendor software product(s), in object code
form, as specified in Exhibit A, including any Maintenance Modifications and/or
Enhancements thereto.

1.15 "Subsidiary" means a corporation, limited liability company,
partnership, joint venture, company, unincorporated association or other entity
in which more than fifty percent (50%) of the outstanding shares, securities or
other ownership interest (representing the right to vote for the election of
directors or other managing authority or the right to make the decisions for
such entity, as applicable) is, now or hereafter, owned or controlled, directly
or indirectly, by a party hereto. Such corporation, company or other entity
shall be deemed to be a Subsidiary only so long as such ownership or control
exists.

1.16 "Term" means the initial term and any renewal term of this
Agreement as specified in Section

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11.1 below.

2.0 APPOINTMENT.

2.1 Subject to the terms and conditions if this Agreement, Vendor hereby
appoints Cadence as its non-exclusive OEM for the delivery of Licensed Works to
End Users world-wide, and Cadence hereby accepts such appointment.
Notwithstanding the foregoing, during the Term of this Agreement, Cadence is
hereby authorized to distribute the Licensed Work known as "Circuit Surfer" on
an exclusive basis provided however, that Vendor retains the right to license
Circuit Surfer to those customer sites where (1) Cadence's Analog Design
Environment (or other replacement name for the product currently called "Analog
Artist")product is not installed and there is no reasonable likelihood for the
license of Analog Design Environment for a period of ninety (90) days from the
date that PDF notifies Cadence of the opportunity as specified in 6.2, or (2)
such license of Circuit Surfer is made solely in connection with and solely
during the period of time during which Vendor is providing yield improvement
services to a customer

2.2 Cadence shall arrange for delivery of Licensed Works to the End
Users and providing End Users maintenance support of Licensed Works, through
Cadence's usual channels for distribution and maintenance. Cadence will pay
Vendor the license and maintenance fees as more fully described in Section 7.

3.0 DELIVERY AND ACCEPTANCE.

3.1 Initial Delivery, Acceptance Tests and Corrections. For the initial
Licensed Work, each additional Licensed Work and each major revision thereof,
Vendor shall deliver to Cadence a copy of the Licensed Work in accordance with
the delivery schedule mutually agreed upon by the parties. Cadence shall have
sixty (60) days after the initial delivery of the Product to perform such tests
Cadence deems reasonably necessary to determine whether such version meets the
specifications and performance standards represented by Vendor and is capable of
performing repetitively in a variety of situations without failure (the
"Acceptance Standards"). Cadence shall promptly notify Vendor if Cadence
determines that the Product does not meet the Acceptance Standards. Vendor shall
then have thirty (30) days to modify or improve such Product version, at
Vendor's expense, so that it performs in accordance with the Acceptance
Standards and to redeliver it to Cadence. Cadence shall have a second sixty (60)
day test period to reconduct the acceptance tests. Failure of the Product to
meet the Acceptance Standards shall constitute a material breach by Vendor.

3.2 Acceptance Date. If and when the acceptance tests establish that the
Product is performing in accordance with the Acceptance Standards, Cadence shall
promptly notify Vendor in writing that it accepts that Product version (the
"Acceptance Date"). Within ten (10) days of the Acceptance Date Vendor shall
deliver to Cadence: (i) one (1) reproducible master copy of the Product, and
(ii) a camera ready hard copy of the Documentation, with a collation guide for
printing and reproduction together with an electronic soft copy of the
Documentation in FrameMaker, Word, PostScript format or as otherwise specified
by Cadence. Vendor shall deliver the Licensed Works to Cadence on such media and
format as Cadence specifies. It is the intent of the parties that Vendor shall
provide Cadence a "golden master" copy of the Licensed Work from which Cadence
can thenceforth replicate, without intervention or assistance from Vendor,
additional copies of the Products and Documentation as necessary to exercise the
grants of Section 4.

3.3 Test Plan. Vendor and Cadence shall use reasonable efforts to
develop as soon as possible following the execution of this Agreement a test
plan and quality assurance plan necessary for the development of the acceptance
tests to verify a Product's conformance to the Acceptance Standards.

4.0 LICENSE GRANT.

4.1 Distribution License. Subject to the terms and conditions of this
Agreement, Vendor hereby grants Cadence a non-exclusive, worldwide, fully-paid
right and license (sublicenseable at any level),

5

6
for the Term of this Agreement, to use, copy, reproduce, market, display,
perform and distribute externally and to prepare derivative works including
Ancillary Works of the Licensed Work. Such right and license includes the right
and license of Cadence to sublicense and distribute copies of Licensed Work and
derivative works including Ancillary Work to End Users world-wide and under the
same forms of license and maintenance agreements Cadence uses with respect to
the licensing of, and providing maintenance for, its own proprietary software
products, and to permit End Users to copy the Products or Documentation as is
necessary in connection with their internal use of the Products on the
Designated Equipment. A copy of Cadence's current form of license agreement is
attached hereto as Exhibit E.

With respect to the source code of the Licensed Work, effective
currently but exercisable only if and when the source code is released from
escrow in accordance with Section 8 hereof, Vendor hereby grants to Cadence the
non-exclusive, irrevocable, perpetual (except where earlier termination is
provided in Section 8 hereof), worldwide royalty free, fully-paid right and
license to modify and prepare derivative works of the source code, to replicate
the source code, and to use the source code, including such modifications
internally, in each case solely to fulfill Vendor's maintenance and support
obligations hereunder. The object code version of such revisions, enhancements
and derivative works may be distributed to End Users under maintenance or if
otherwise permitted under Section 8, as included in "Products". The parties
expressly agree that a derivative work shall not include a new software product
that would not constitute a Product hereunder. If upon the release of the source
code from escrow, Cadence requests that Vendor continues to perform maintenance
hereunder, Vendor shall use reasonable efforts to continue to perform its
maintenance obligations hereunder and payment of maintenance fees to Vendor
shall continue for so long as Vendor has maintenance obligations hereunder.
Cadence shall license to Vendor those enhancements or modifications Cadence
makes to the source code of the Licensed Work during the time Vendor so performs
maintenance obligations hereunder, following source code release from escrow, on
an non-exclusive basis, irrevocable, perpetual, worldwide, royalty-free, fully
paid basis.

4.2 Internal Use License. Vendor hereby grants Cadence and its Marketing
Agents a non-exclusive, non-sublicenseable, perpetual, fully paid, royalty free,
worldwide right and license to internally use the Licensed Works for the
purposes of technical support, quality assurance, manufacturing, testing,
demonstration, training, marketing and other tasks incidental to and reasonably
necessary in connection with: (a) carrying out the distribution activities of
Section 4.1; and (b) supporting End Users in their use of the Products
sublicensed to them by Cadence and/or its Marketing Agent(s). The internal use
described in the preceding sentence shall be at no charge or Fee to Cadence.

4.3 Ownership. Title to and ownership of the Licensed Works shall not be
modified by this Agreement and shall at all times remain with Vendor or Vendor's
suppliers. Title to and ownership of all derivative works made by Cadence,
including Ancillary Works and modifications thereof, shall be held exclusively
by Cadence. Vendor and its suppliers, shall have no rights in, or license to use
any Ancillary Works in any manner without the express prior written permission
of Cadence.

4.4 Exclusivity. Subject to Section 2.1 above, the licenses granted to
Cadence hereunder are exclusive solely with respect to Vendors Circuit Surfer
product;

5.0 MAINTENANCE, TRAINING AND ENHANCEMENTS.

5.1 Maintenance and Training Services. Vendor will provide Cadence with
the maintenance and training services described on Exhibit B hereto. All
references to Exhibit B include Exhibit B-1 if applicable. Vendor's maintenance
and support obligations hereunder and under Exhibit B shall survive termination
of this Agreement for whatever reason for a period of two years. The maintenance
and support obligations of Vendor following the termination or expiration of
this Agreement are for wind-down purposes only, and accordingly shall consist of
the error corrections and second level telephone support as provided for in
Exhibit B. Such continuing obligations will not include any upgrades to the
Licensed Works.

5.2 Maintenance Modifications, Enhancements. Within thirty (30) days
after the execution of this Agreement, each party shall designate, and notify
the other party in writing of, a company representative; both persons together
shall comprise a steering committee ("Steering Committee") whose function shall
be to evaluate the functionality and overall performance of the Licensed Works
and Products and determine the need for additional functionality, features,
Maintenance Modifications and Enhancements with respect thereto in a mutually
agreed upon schedule. The Steering Committee shall meet at least once each
calendar quarter during the Term of this Agreement in the performance of its
functions. Vendor shall develop all Maintenance Modifications and Enhancements
so agreed upon by the Steering Committee. Vendor shall provide Cadence, at no
charge, all Maintenance Modifications and Enhancements of the Licensed Works and
related Documentation created by or for

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Vendor during the term of this Agreement on or before the date Vendor's first
release of such Maintenance Modifications and/or Enhancements to any of its
other distributors, OEM's, marketing partners or end customers. Such Maintenance
Modifications and Enhancements shall, upon their availability, automatically
become part of the Licensed Work(s) for the purpose of this Agreement.

5.3 Directed Development and Services. The steering Committee shall also
determine enhancements, new features and services that benefit Cadence customers
but may not benefit non-Cadence users of Circuit Surfer. During the first year
of this Agreement, a Vendor software engineer will work at Cadence's research
and development facility agreed upon by the parties at least twenty (20) hours
per week for the purposes of performing the development work described in this
section. The parties intend that the majority of the development efforts during
the first year of the term of this Agreement will be directed toward integrating
the Licensed Works with the Cadence Product. Fees for such development and
services are specified in Exhibit C.

6.0 MARKETING AND PROMOTION.

6.1 Control of Marketing. The means by which Cadence markets and
distributes the Licensed Work shall be in Cadence's sole discretion and control,
including without limitation the methods of pricing, marketing, naming,
packaging, labeling, advertising, and collection of fees. Cadence may distribute
the Licensed Work world-wide through any combination of direct marketing,
Marketing Agents, original equipment manufacturers, and other means, and either
alone or in combination with other products.

6.2 Referral of Inquiries. *********************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
******************************************.

6.3 CADENCE MAKES NO WARRANTY OR REPRESENTATION CONCERNING THE SUCCESS
OF SUCH MARKETING AND DISTRIBUTION EFFORTS. VENDOR AGREES THAT CADENCE SHALL IN
NO CIRCUMSTANCES BE LIABLE TO VENDOR FOR ANY LOST PROFITS, OR FOR ANY OTHER
INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES ARISING UNDER ANY LEGAL THEORY OUT
OF OR IN CONNECTION WITH THIS AGREEMENT.

6.4 Sales Support. Vendor agrees to provide Cadence sufficient sales and
technical support, as mutually agreed upon by the parties, including but not
limited to Vendor personnel proficient in the performance, use, implementation
and modification of the Licensed Works and Products (collectively, "Sales
Support"), as Cadence may reasonably require with respect to the training of its
Marketing Agent(s) to sell and market sublicenses to the Licensed Works and/or
Products to customers and/or potential End Users hereunder. Such Sales Support
shall be at no charge to Cadence.

6.5 Marketing Support. Vendor agrees to provide Cadence sufficient
marketing training, as mutually agreed upon by the parties, such that Cadence
can support ("Marketing Support") marketing events (e.g., industry conferences,
business/trade shows, marketing seminars, presentations and/or demonstration for
key customers or strategic accounts). Such Marketing Support shall be at no
charge to Cadence.

6.6 Trademarks and Copyrights. Vendor hereby grants to Cadence (and its
applicable subcontractors) a non-exclusive license to use the trademarks and
logos set forth on Exhibit F (the "Trademarks") in connection with the
manufacture, distribution, license and promotion of the Licensed Works. However,
Vendor agrees that Cadence need not use the Trademarks and may, in its
discretion, market and distribute the Products under Cadence's own trademarks.
If Cadence uses the Trademarks, then the use of such Trademarks shall conform
with all trademark

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the Commission. Confidential treatment has been requested with respect to the
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specifications of Vendor for such Trademarks, which specifications are attached
hereto as Exhibit F. If Cadence manufactures the Products, then Cadence shall
cause the manufacture of the Products to conform to the reasonable quality
standards of Vendor for the manufacture of the Products and Vendor may review
the Products manufactured by Cadence, upon reasonable notice to Cadence, to make
sure that such quality standards are met. Except for the use of the Trademarks
however, the packaging design, and advertising for the Licensed Products shall
be within the discretion and control of Cadence. Vendor represents and warrants
to Cadence that it is not aware and has not received notice of any infringement
or claim of infringement of any Trademark upon any rights of any third party
anywhere in the world. Cadence shall replicate Vendor's copyright notices (as
they appear or as designated by Vendor) in any Product and Documentation
reproduced under this Agreement. Use of Vendor's Trademarks shall inure to the
benefit of Vendor.

6.7 Drop Shipment. If Cadence does not manufacture the Products and
Vendor drop ships the Products, then the drop shipment box on Exhibit A shall be
checked.

7.0 FEES.

7.1 Amount. Cadence shall pay to Vendor Fees on revenues from the
Licensed Work distributed by Cadence to End Users or Marketing Agents, as
applicable, under the terms of Exhibit C hereto.

7.2 Payments, Quarterly Reports. Fees shall be remitted on a ***** basis
within ********** following the end of Cadence's ********** during which Cadence
recognized revenues for the Licensed Work to which the Fee payment applies.
Cadence will deliver written reports to Vendor within *************** after the
last day of each ********** stating: (i) the amount of Net Product Revenues
recognized during the *****; and (ii) the amount of Net Maintenance Revenues
recognized during that same *****, and (iii) the resulting Fees due. Cadence
will enclose with the report the Fee payment so calculated.

7.3 Records and Audit. Cadence agrees that it shall maintain records
sufficient to establish the Fees payable pursuant to this Section 7. Vendor may,
with prior written notice and during normal business hours, have independent
certified public accountants acceptable to Cadence examine, at Vendor's expense,
Cadence's records relating to the Fees payable pursuant to this Agreement. Such
accountants must agree in advance in writing to maintain in confidence and not
to disclose to any party any information obtained during the course of such
examination, other than a disclosure to Vendor of the amounts of Fees that
should have been paid for the period covered by the examination. Any errors
discovered during such examination shall be corrected by the appropriate party.
In no event shall any such adjustment be made more than two (2) years after the
end of the period in error. The audit right contained in this Section may not be
exercised more than once during any 12 month period.

8.0 SOURCE CODE ESCROW.

8.1 Deposit. Within ten (10) days of the Acceptance Date, Vendor shall,
at Vendor's expense, place the complete Licensed Work source code ("Source Code
Materials") into escrow with an independent third party escrow holder. The form
of escrow deposit agreement to be used is attached hereto as Exhibit D.
Throughout the Term of this Agreement, Vendor shall update the Source Code
Materials at least once every six months to include Maintenance Modifications 
and Enhancements, so that the deposit at all times reflects the most current 
version of the Licensed Work distributed by Cadence hereunder.

8.2 Release Event. If Vendor materially breaches its obligations under
this Agreement, including, without limitation, its obligations under Exhibit B
(all as more fully set forth in the escrow deposit agreement), Cadence may
retrieve the Source Code Materials and use same to fulfill Vendors obligations
hereunder respecting the Licensed Work and otherwise continue to exercise the
license grants of Section 5. If the source code is released from escrow Cadence
may (i) fully exercise its source code license rights granted in Section 4.1
hereof, solely for purposes fulfilling Vendor's support and maintenance
obligations hereunder regarding the Licensed Work, and (ii) if the release event
occurred during the Term, continue to exercise the license grants of Section 4
as if this Agreement continued in full force and effect for the full Term
(initial or then applicable renewal) as if such Term

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the Commission. Confidential treatment has been requested with respect to the
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had continued. Upon release of the source code from escrow all other terms and
conditions of this Agreement shall continue to apply, including Cadence's
obligation to pay product and maintenance fees. The license to the source code
granted herein shall be irrevocable but shall expire five years after the
occurrence of a release event

8.3 Escrow Termination. The escrow shall continue and survive on its own
terms independent of the existence of this Agreement and shall terminate on the
fifth (5th) anniversary of the termination of this Agreement, if no release
event has occurred prior thereto, or such other date as mutually agreed upon by
the parties in writing.

9.0 PROTECTION OF CONFIDENTIAL INFORMATION.

9.1 The parties acknowledge that: (i) Licensed Work in the case of
Vendor; and (ii) Ancillary Works in the case of Cadence; and/or (iii) any other
information which the parties desire to exchange to conduct the activities
contemplated by this Agreement, which the revealing party ("Discloser") holds in
confidence or received from a third party under confidentiality obligations
("Proprietary Materials"), are confidential information of the Discloser. Except
as permitted under this Agreement, the receiving party ("Recipient") shall treat
Discloser's Proprietary Materials that are prominently marked with a notice in
human readable form noting their confidential nature, with the same standard of
care that Recipient uses to safeguard its own proprietary materials from
unauthorized access, use, disclosure or dissemination. Proprietary Materials
disclosed orally or visually shall be identified as confidential prior to the
discussion or presentation, then furnished to Recipient in tangible form within
thirty (30) days thereof and marked as confidential.

9.2 Recipient's obligations respecting Discloser's Proprietary Materials
shall terminate with respect to any part thereof which Recipient can establish
by documentary evidence: (i; (ii) now or hereafter may be in the public domain
by acts not attributable to Recipient; (iii) was rightfully in the possession of
or known to Recipient prior to its receipt from Discloser under this Agreement;
(iv) is or becomes available without restriction to Recipient from a source
independent of Discloser who was in lawful possession of same and authorized to
disclose it to Recipient without restriction; or (v) is agreed to be
unrestricted by Discloser in writing.

9.3 Nothing herein shall restrict Recipient's right to disclose the
Proprietary Materials where such disclosure is required by written order of a
judicial, legislative, or administrative authority of competent jurisdiction, or
is necessary to establish its rights under this Agreement, provided, however
that, in each case, Recipient will, if practicable, first notify Discloser of
such need or requirement and cooperate with Discloser, at Discloser's expense,
in limiting the scope of the proposed disclosure. Recipient will assist
Discloser, at Discloser's expense, in taking all reasonable steps for obtaining
further appropriate means of limiting the scope of the required disclosure of
Discloser's Proprietary Materials.

9.4 Within ten (10) days of the earlier of (i) receipt of Discloser's
written request for return of same (other than the Licensed Work), or (ii) the
termination or expiration of this Agreement (except as and to the extent
otherwise provided herein); Recipient shall return all Discloser's Proprietary
Materials along with Recipient's certification that to the best of its knowledge
all Discloser's Proprietary Materials have either been returned or destroyed and
no Discloser Proprietary Materials, or copies thereof, remain in the possession
of Recipient, its employees or agents; provided, however, that Cadence as
Recipient may retain such of Vendor's Proprietary Materials as Cadence may
reasonably require to provide the support and maintenance obligations of Vendor
for the Licensed Works to its customers. Recipient's obligations set forth in
this Section 9 shall terminate on the ********************** of the termination
or expiration of this Agreement, excluding those obligations with respect to the
source code placed in escrow pursuant to Section 8 above which shall terminate
on the ************ of the termination or expiration of this Agreement.

9.5 Equitable Relief. Each party acknowledges that unauthorized
disclosure or use of the Proprietary Materials may cause irreparable harm to the
other party for which recovery of money damages would be inadequate, and the
other party shall therefore be entitled to obtain timely injunctive relief to
protect the other party rights under this Agreement in addition to any and all
remedies available at law.

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the Commission. Confidential treatment has been requested with respect to the
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10

10.0 WARRANTY AND INDEMNIFICATION.

10.1 Vendor warrants and represents that: (i) it has the right and power
to enter into this Agreement, and that doing so does not violate or conflict
with any other Vendor obligations; and (ii) Vendor shall not assume any
obligation or restriction which would, in any way, interfere, be inconsistent
with or present a conflict of interest concerning the rights granted to Cadence
hereunder or the services to be performed by Vendor under this Agreement.

10.2 Vendor warrants and represents that: (i) the Licensed Works and
Vendor's services which are the subject matter of this Agreement are the
original product of Vendor and Vendor is the sole and exclusive owner of the
Licensed Works; and (ii) that no portion of such items, or their distribution or
use is protected by or infringes any third party(ies)'s US patent, patent
applications, copyright, trade secret, trademark.

10.3 Vendor warrants and represents that the Licensed Works, and all
Maintenance Modifications and Enhancements thereto shall conform to and perform
in accordance with Vendor's published specifications therefor.

10.4 Vendor warrants and represents that the Licensed Work is designed
to be used prior to, during and after the calendar year 2000 A.D., and that the
Licensed Work will operate during each such time period without error relating
to date data, specifically including any error relating to, or the product of,
date data which represents or references different centuries or more than one
century. Without limiting the forgoing, Vendor represents and warrants that (i)
the Licensed Work will properly manage and manipulate data involving dates,
including single-century and multi-century formulas, and will not abnormally
end, or cause an abnormally ending scenario, within the application or generate
incorrect values or invalid results involving such dates; and (ii) the Licensed
Work has been designed to ensure year 2000 compatibility, including, without
limitation, date data century recognition, calculations which accommodate same
century and multiple century formulas and date values, and date data interface
values that reflect the century, and (iii) the Licensed Work provides that all
date-related user interface functionalities and data fields include the
indication of the century, and that all date-related data interface
functionalities include the indication of the century, and (iv) handle all leap
years, including, without limitation, the year 2000 leap year, correctly. Vendor
shall promptly advise Cadence of any breach of the above warranty.

10.5 Vendor agrees to indemnify and hold Cadence, its Marketing Agents
and End Users entirely harmless from any and all losses, costs, claims, damages,
settlements and judgments, including, without limitation, any expenses and
attorneys' fees, arising out of or related in any way to any breach or alleged
breach of any of the above warranties. Cadence agrees to defend and indemnify
Vendor from and against any and all losses, costs, claims, damages, settlements
and judgments, including without limitation, any expenses and attorneys' fees
arising out of any action brought against Vendor alleging that a Cadence
software product utilized with the Licensed Work infringes any US patent,
copyright or trade secret. If any claim or action is commenced against a party
entitled to indemnification under this Section, (a "Claim"), such party shall
give written notice to the other party within ten (10) days of notice of such
Claim. If such party receiving notice is obligated under this Section to defend
the party against such Claim, then the indemnifying party shall take control of
the defense and investigation of the Claim, using such attorneys and other
assistance as it selects in its discretion. The indemnified party shall
cooperate in all reasonable respects in such investigation and defense,
including trial and any appeals, provided that such party may also participate,
at its own expense, in such defense. No settlement of a Claim that involves a
remedy other than payment of money by indemnifying party shall be agreed to and
entered without the consent of the indemnified party, which consent shall not be
unreasonably withheld.

10.6 EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 10, THE LICENSED
WORKS, ENHANCEMENTS, MAINTENANCE MODIFICATIONS, AND SERVICES PROVIDED BY VENDOR
ARE PROVIDED "AS IS," AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
VENDOR DISCLAIMS ALL OTHER WARRANTIES, EXPRESS AND IMPLIED, INCLUDING WITHOUT
LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE (EVEN
IF VENDOR IS ADVISED OF SUCH PURPOSE) AND NON-INFRINGEMENT.

10.7 EXCEPT FOR A BREACH OF AN OBLIGATION OF CONFIDENTIALITY, TO THE
MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, UNDER NO CIRCUMSTANCES SHALL

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EITHER PARTY BE LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT
OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT, OR ITS SUBJECT MATTER,
INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS OR REVENUES, OR THE
COST OF PROCUREMENT OF SUBSTITUTE GOODS AND/OR SERVICES, REGARDLESS OF THE LEGAL
OR EQUITABLE BASIS FOR SUCH DAMAGES, WHETHER IN CONTRACT, TORT OR OTHERWISE,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. COSTS
AND EXPENSES ASSOCIATED WITH ANY CLAIM FOR WHICH A PARTY HAS AN OBLIGATION TO
INDMENIFY THE OTHER PARTY PURSUANT TO SECTION 10.5 SHALL NOT BE CONSIDERED
CONSEQUENTIAL DAMAGES

11.0 TERM AND TERMINATION.

11.1 Term. The initial term of this Agreement shall be for a period
commencing upon the effective date first set forth above and ending three (3)
years thereafter. This Agreement shall subsequently automatically renew, and
thereafter re-renew for additional terms of one (1) year each unless terminated
by either party, providing the other one-hundred eighty (180) days written
notice prior to the end of the then current term.

11.2 Termination. This Agreement may be terminated at any time:

11.2.2 For Cause. By either party at any time immediately upon
written notice to the other party in the event the other party fails to observe
or perform a material obligation of this Agreement (a "Default"), which Default
is not cured within thirty (30) days after the non-defaulting party has given
written notice of the Default and demanded its cure.

11.3 Effect of Termination. Upon non-renewal or termination of this
Agreement for any reason, all rights and licenses previously granted to End
Users shall continue in full force and effect and Vendor shall (continue to
provide Cadence all Licensed Work and support services necessary to enable
Cadence and Marketing Agents to fulfill its continuing obligations to End User's
respecting the Licensed Work for a period of two years following such
termination. The maintenance and support obligations of Vendor following the
termination or expiration of this Agreement are for wind-down purposes only, and
accordingly shall consist of the error corrections and second level telephone
support as provided for in Exhibit B. Such continuing obligations will not
include any upgrades to the Licensed Works.

11.4 Survival. The provisions of Sections 4.2, 4.3, 4.5 (and Exhibit E),
5.1 (and Exhibit B), 6.3, 7(until all amounts due and owing have been paid), 8
(and other provisions of this Agreement (including Exhibits) as contemplated
therein), 9, 10, 11.3 (and the provisions of Section 7 to the extent
applicable), 11.4 and 12, along with any other provision which by its terms
continues after termination, shall survive the termination of this Agreement.

12.0 GENERAL.

12.1 Relationship. The relationship between the parties under this
Agreement is that of independent contractors, and nothing contained in this
Agreement shall be construed to constitute either party as an agent, partner, or
joint venturer of the other.

12.2 Rights. Nothing in this Agreement shall be construed as prohibiting
or restricting: (i) either partyfrom independently developing or acquiring
products which are competitive, irrespective of the similarity to or
substitutability for theother party's products; or (ii) the rights which the
parties have outside the scope of this Agreement; or (iii) the rights of either
party to make, have made, use, lease, license, sell or otherwise dispose of any
particular product(s) not herein described subject to the restrictions set forth
in Section 9.

12.3 Notices. All notices, demands or consents required or permitted
hereunder shall be delivered in writing to the respective parties at the
addresses set forth above, and, in the case of Cadence, to the attention of the
General Counsel, or at such other address as shall have been given to the other
party in writing for the purposes of

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this clause. Such notices shall be deemed effective upon the earliest to occur
of: (i) actual delivery; or (ii) five (5) calendar days after mailing (airmail
for international mailings), addressed and postage prepaid, return receipt
requested (except for international mailings); or (iii) one (1) day after
transmission by fax, if to Cadence to (408) 944-0215, and if to Vendor, to
(408)280-7915.

12.4 Assignment. Neither this Agreement nor any rights hereunder, in
whole or in part, shall be assignable or otherwise transferable by either party
without the express written consent of the other party. However, the foregoing
notwithstanding, an assignment by either party in connection with the transfer
of all, or a substantial portions of its assets, product lines or businesses, or
by reason of acquisition, merger, consolidation or operation of law shall not
require consent. Subject to the above, this Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the parties hereto.

12.5 Severability, Waiver or Amendment. If any Agreement provision is
determined by a court of competent jurisdiction to be contrary to law, the
remaining provisions of this Agreement will continue in effect. No waiver,
amendment or modification of any provision hereof shall be effective unless in
writing and signed by the party against whom such waiver, amendment or
modification is sought to be enforced. No failure or delay by either party in
exercising any right, power or remedy hereunder shall operate as a waiver of any
such right, power or remedy.

12.6 Rights and Remedies Cumulative. Except as expressly provided
herein, the rights and remedies provided in this Agreement shall be cumulative
and not exclusive of any other rights or remedies provided at law, in equity or
otherwise.

12.7 Government Provisions. When the Licensed Works are to be furnished
to the United States Government, or, to an End User for use on a subcontract
under a United States Government prime contract (collectively a "Government
Contract"), Vendor agrees to comply with provisions that are contained in the
Government Contract, insofar as Cadence is required by law or regulations to
flow down or otherwise make such provisions applicable to Vendor as a
supplier/subcontractor of Cadence.

12.8 Excusable Delays; Force Majeure. Neither party shall be responsible
for any delay in or failure to deliver or perform any obligations which is due
to circumstances beyond that party's reasonable control. In the event of any
such failure or delay, the time of performance shall be extended for a period
equal to the time lost by reason of the delay.

12.9 Governing Law. This Agreement is made under, governed by, and shall
be construed in accordance with the laws of the state of California, excluding
its choice of laws rule, as applied to contracts between California corporations
entered into and to be performed entirely in California. The prevailing party in
any judicial action brought to enforce or interpret this Agreement or for relief
for its breach shall be entitled to recover its costs and its reasonable
attorneys' fees incurred to prosecute or defend such action.

12.10 Entire Agreement. The provisions of this Agreement and the
Exhibits hereto, which are incorporated herein by this reference, except for
Exhibit D which is a separate agreement, constitute the entire agreement between
the parties in connection with the subject matter hereof and supersede all prior
and contemporaneous agreements, understanding, negotiations and discussions,
whether oral or written, between the parties hereto with respect to the subject
matter hereof.

12.11 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which will be considered an original, but all of
which together will constitute one and the same instrument.

12.12 Export. Vendor will notify Cadence from time to time of all export
classifications for the Licensed Works (including ECCNs) and all unusual export
requirements of which they are aware. Each party will comply with all applicable
laws in the performance of this Agreement.

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IN WITNESS WHEREOF the parties have entered into this Agreement
effective as of the year and date first set forth above.

CADENCE DESIGN SYSTEMS, INC.                VENDOR:

By: /s/ R.L. SMITH MCKEITHEN                 By: /s/ P.S. MELMAN
--------------------------------             --------------------------------

Name:   R.L. Smith McKeithen                 Name:   P.S. Melman
------------------------------               ------------------------------

Title:  Sr. V.P. & General Counsel           Title:  Chief Financial Officer
-----------------------------                -----------------------------

Date:   July 7, 2000                         Date:   July 7, 2000
------------------------------               ------------------------------

CADENCE DESIGN SYSTEMS (IRELAND) LIMITED

By: /s/ R.L. SMITH MCKEITHEN
--------------------------------

Name:   R.L. Smith McKeithen
------------------------------

Title:  Director
-----------------------------

Date:   July 7, 2000
------------------------------

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EXHIBIT A

PRODUCTS AND DESIGNATED EQUIPMENT

REF: Software OEM Agreement
Dated:
================================================================================

1. DESCRIPTION OF PRODUCTS AND DOCUMENTATION.

Product Name         Description
------------         -----------

Circuit Surfer       Circuit Surfer is a software program for the analysis and
optimization of parametric yield/performance issues in
analog and mixed/signal circuits.

1.1 New Products. If Vendor develops or commercially offers a program
("New Product") that may be complementary to either the above Products or other
programs marketed by Cadence, Vendor will use commercially reasonable efforts to
give Cadence the right of first refusal to market the New Product pursuant to
this Agreement. In addition, Vendor agrees to use reasonable efforts to
preferentially select Cadence for the distribution of such New Products. In the
event the New Product is one which Cadence desires to include in its program
offerings, the parties shall negotiate in good faith to include the New
Product(s) at mutually agreeable prices.

2. DESIGNATED EQUIPMENT.

The Products shall operate on the following equipment product families
and operating system version level on which the programs that Cadence offers on
such equipment operate: Solarisx.x, HPUXx.x, and operating system version level
on which Cadence programs may operate currently and in the future.
****************************
*********************************.

3. DROP SHIPMENT.

[ ] If the box is checked the parties agree that Vendor will drop ship the
Products to End Users (or Marketing Agents, as applicable) worldwide, as
designated by Cadence from time to time, and at no charge to Cadence.

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EXHIBIT B

MAINTENANCE AND SUPPORT SERVICES

REF: Software OEM Agreement
Dated:
================================================================================

1.0 MAINTENANCE.

1.1 FOR CADENCE.

1.1.1 Error Correction. Vendor will use its commercially
reasonable efforts to provide a Maintenance Modification to correct any Errors
in the Licensed Works reported by Cadence. Such response shall include as
appropriate: (i) reviewing the Error with Cadence; and (ii) gathering additional
information about the Error; and (iii) analyzing the Error to determine its
cause; and (iv) providing an Error solution if already known; and (v) where
required providing a Maintenance Modification. Maintenance Modifications will be
delivered promptly to Cadence at no additional cost. Vendor shall provide
Cadence with an estimate of how long it will take to correct the Error(s)
reported by Cadence and shall keep Cadence informed of the progress of the
problem resolution.

1.1.2 Error Classification & Response: Cadence will notify
Vendor when Errors are discovered. Cadence and Vendor will classify Errors by
severity as: "Fatal ", preventing a Product from performing any useful work; or
"Severe Impact ", disables major function(s); or "Degraded Operations ", Errors
disabling non-essential functions; or "Minor ", all other Errors. Vendor's
response remedy shall be in three levels defined as follows: (i) Level 1,
Cadence's receipt of Vendor's written confirmation acknowledging Vendor's
receipt of the Error report; and (ii) Level 2, Cadence's receipt of Vendor's
patch, workaround or temporary fix including Documentation changes; and (iii)
Level 3, Cadence's receipt of Vendor's official fix or update, including
applicable Documentation changes. The response/correction timetable shall be as
follows, wherein a day shall be considered to be a workday. Vendor shall use
commercially reasonable efforts to meet the timeframes set forth below.

Response/Correction Timetable

Severity              Level 1      Level 2              Level 3
--------              -------      -------              -------

Fatal                 *****        ***************      **********
Severe Impact         *****        ***************      **********
Degraded Operations   *****        ***************      **********
Minor                 *****        ***************      **********

1.1.3 Telephone Support: Provide reasonable telephone support to
Cadence on an as-needed basis. Vendor shall maintain a telephone hotline service
to enable Cadence to obtain a quick response to any Errors with the Licensed
Work. Service Hot lines, at a minimum, must be attended during the hours from
9:00 a.m. to 5:00 p.m. Pacific Standard Time, Monday through Friday excluding
standard Vendor holidays.

1.1.4 Fees for Such maintenance services shall be specified in
Exhibit C.

1.1.5 Vendor shall use reasonable efforts to provide to Cadence
sufficient advance notice of any planned Maintenance Modification or
Enhancements to the Products(s)

1.2 FOR END USERS:

1.2.1 Vendor agrees to support its existing end users until such
time as Cadence and Vendor put a support plan in place and transition such
customers to Cadence.

* Certain information on this page has been omitted and filed separately with 
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

15

16

1.2.2 After 2.1 is satisfied, or such other date as mutually agreed upon
by the parties in writing, Cadence shall be responsible for providing "first
line" maintenance and support services directly to End Users in accordance with
the terms and conditions of the End User Software Maintenance Agreement attached
hereto as Exhibit B1. During this time, Vendor shall continue to provide "second
line" maintenance and support services to Cadence, consistent with the terms and
conditions of Section 1.1 of this Exhibit B, and such other maintenance and
support services as Cadence may reasonably require in order to fulfill and
satisfy its maintenance and support obligations to End Users.

2.0 TRAINING.

2.1 Cadence Internal. During the Term of this Agreement, Vendor shall
provide training to Cadence and its Marketing Agents' personnel. Such training
shall cover, without limitation, the following topics in detail: (i)
installation and configuration procedures, (ii) operating, usage and performance
characteristics of the Product, (iii) Error diagnosis and isolation. Such
training shall be without charge to Cadence, shall consist of at least one
courses per release, and shall be conducted at such facilities with such
schedule as is mutually agreeable, except however Cadence shall reimburse Vendor
for its out of pocket costs for the instructor's travel, lodging and meal
expenses for training held at Cadence's facilities. Additionally, if any of the
foregoing topics are covered in regularly scheduled classes held at Vendor's
facilities, then Cadence or its Marketing Agents' personnel who are engaged in
the marketing, sales, integration or support of the Products may attend any such
course(s) at no charge, provided however Cadence shall be responsible for the
travel and living expenses of its course attendees.

2.2 End User training. Cadence shall be responsible for selling and
delivering End User training in a manner consistent with other Cadence products.
Cadence may desire to contract PDF to do the training. PDF will provide the
training material and reasonable consultation necessary for Cadence to develop a
production customer training class.

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16

17

EXHIBIT C

FEES AND PAYMENT

REF: Software OEM Agreement
Dated:
================================================================================

1. FEES.

Cadence shall pay Vendor the following amounts in Fees:

------ ----------------- -----------
YEAR    LICENSE FEES     DATE DUE
------ ----------------- -----------

1    ***************    *****
**********       *****

------ ----------------- -----------
2    ***************    *****
**********       *****

------ ----------------- -----------
3    ***************    *****
**********       *****

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

*Payment terms of **********.

1.2 Maintenance Fees. Cadence shall pay to Vendor the fees for the
maintenance and support services set forth on Exhibit B, in accordance with the
schedule set forth below:

------ ------------------ -----------
YEAR   MAINTENANCE FEES   DATE DUE
------ ------------------ -----------

1     ***************    *****
**********       *****

------ ------------------ -----------
2     ***************    *****
**********       *****

------ ------------------ -----------
3     ***************    *****
**********       *****

------ ------------------ -----------
4     ***************    *****
**********       *****

------ ------------------ -----------
5     ***************    *****
**********       *****

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

*Payment terms of **********.

* Certain information on this page has been omitted and filed separately with 
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

17

18

1.3 Development Fees. Cadence shall pay to Vendor the following minimum
fees for development services that may be provided by Vendor under Section 5.2
of the Agreement:

------ -------------------------- -----------
YEAR   MINIMUM DEVELOPMENT FEES   DATE DUE
------ -------------------------- -----------

1         ***************        *****
**********           *****

------ -------------------------- -----------
2         ***************        *****
**********           *****

------ -------------------------- -----------
3         ***************        *****
**********           *****

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

*Payment terms of **********.

***********************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
******************************************.

1.3 Prices. The parties agree that Cadence shall be free to determine
its prices to its customers.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

* Certain information on this page has been omitted and filed separately with 
the Commission. Confidential treatment has been requested with respect to the
omitted portions.

18

19

EXHIBIT D

SOFTWARE DEPOSIT AGREEMENT

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19

20

EXHIBIT E
STANDARD FORM OF LICENSE AGREEMENT

20

21

EXHIBIT F

TRADEMARK SPECIFICATIONS

REF:  Software OEM Agreement
Dated:
================================================================================

1. TRADEMARK SPECIFICATIONS.

The following are the trademark specifications for the Trademarks:
______________________ of Vendor.

[CONTENT TO BE PROVIDED BY VENDOR IN DIFFERENT SIZES AND SCALED]

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21

1
CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

CONFIDENTIAL TREATMENT
PDF SOLUTIONS, INC. HAS REQUESTED
THAT THE MARKED PORTIONS OF THIS
DOCUMENT BE ACCORDED CONFIDENTIAL
TREATMENT PURSUANT TO RULE 406 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.

Exhibit 10.17

PROJECT: TOSHIBA --
*******************

YIELD IMPROVEMENT CONSULTING AGREEMENT

This Yield Improvement Consulting Agreement dated as of ****** **, ****
(this "AGREEMENT") is entered into by and between Toshiba Corporation, a
corporation organized under the laws of Japan ("TOSHIBA") having its principal
place of business at 1-1 Shibaura 1-chome, Minato-ku, Tokyo 105-8001, Japan, and
PDF Solutions, Inc., a corporation organized under the laws of California
("PDF") having its principal place of business at 333 West San Carlos Street,
Suite 700, San Jose, California, U.S.A.

RECITALS

A. PDF Solutions possesses technology and expertise useful in
discovering, analyzing, and fixing problems in the design and manufacturing
processes that cause low yields of useable integrated circuits.

B. Toshiba desires to engage PDF Solutions and receive a license to
certain technology useful to analyze its internal integrated circuit
manufacturing process, identify problems therewith, and recommend solutions
thereto, by way of methodology or otherwise, upon the terms and conditions
contained herein.

C. PDF Solutions desires to be so engaged upon the terms and
conditions contained herein.

DEFINITIONS

"Analysis" refers to all interpretations, recommendations, extractions,
statistical models or other yield and performance models developed by PDF
Solutions and derived in whole or in part from Toshiba's Raw Data; provided,
however, that Analysis does not include any information sufficiently detailed
that Raw Data could be feasibly re-constructed.

"Characterization Vehicle" or "CV" refers to the parameterized layout structures
or circuit elements, specific implementations of said structures or circuit
elements either in computer format or layout format (for example, GDS-II files),
and images of said structures or circuit elements, historically or hereafter
created or customized by PDF Solutions for the purposes of creating a test
vehicle used to characterize any given manufacturing process. Manufacturing
Designs are usually referenced in the process of generating CVs for the purposes
of optimizing or tuning the vehicle to the targeted designs and process. The CV
is used to create a Mask Set which is used by the fabrication facility to
generate test wafers.

"Foundry" refers to any facility Toshiba owns or operates to manufacture
products and any third party foundry with which Toshiba has a relationship that
manufactures products for Toshiba.

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"Manufacturing Designs" refers to all non-public information relating to
Toshiba's manufacturing processes and integrated circuit designs (structures and
elements) used in connection with the CV to generate Raw Data.

"Mask Set" refers to translucent glass plates used as a light filter to transfer
designs onto a wafer.

"Proprietary Rights" shall mean all intellectual property rights including, but
not limited to, patents, patent applications, copyrights, copyright
registrations, moral rights, mask work rights, rights of authorship, industrial
design rights, trademarks, tradenames, know-how and trade secrets, irrespective
of whether such rights arise under U.S. or international intellectual property,
unfair competition or trade secret laws.

"PDF Technology" refers to all historically, or hereafter developed
methodologies, techniques, software, designs, CVs, problem solving processes and
practices utilized by PDF Solutions, and any modifications, compilations or
works derivative of the foregoing, excluding know-how, methodologies, techniques
or practices that are commonly known or that Toshiba independently has the right
to use. PDF Technology also refers to the CV layout and the Design of
Experiments used in creating the CV layout.

"Raw Data" shall mean the data generated by PDF Solutions using the CV in
conjunction with Toshiba's Manufacturing Design.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises herein
contained, the above recitals and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Toshiba and PDF
Solutions, intending to be legally bound, hereby agree as follows:

1.      YIELD IMPROVEMENT SERVICES.

1.1 PROVISION OF SERVICES. During the term of this Agreement, PDF will
provide to Toshiba development work and services with respect to integrated
circuit yield management issues. The services and the Deliverables to be
delivered as a result thereof (the "PROJECT") are described in detail on a
statement of work (the "STATEMENT OF WORK") attached hereto as Exhibit A. The
Statement of Work shall be governed by the terms of this Agreement, and
specifies:

(a)    Deliverables. The specific deliverables (the
"DELIVERABLES") to be delivered under the Project and
relevant milestones for delivering the Deliverables;

(b)    Team Structure. The team members from PDF and Toshiba who
are to work on the Project and the expected time
contributions for each such member;

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3

(c)    Tools. The required data, tools, hardware, software,
materials, access to personnel and facilities, and other
materials required for effectively completing the Project;

(d)    Location. The geographic location where each component of
the Project will be completed;

(e)    Fees and Expenses. The amount and structure of PDF's Fees
(as defined below) payable upon delivery of the
Deliverables and Expenses (as defined below).

1.2 TOSHIBA INTELLECTUAL PROPERTY. Toshiba will disclose to PDF on a
timely basis such Proprietary Rights (as defined in Section 3.1) and such other
data and materials as PDF shall reasonably require in order to perform the
Project and/or prepare the Deliverables as defined in the Statement of Work.

1.3 DELIVERABLES. In performing the Project, PDF shall develop and/or
make for Toshiba the Deliverables in accordance with any schedules set forth in
the Statement of Work. The Deliverables shall meet in all material respects the
description of the Deliverable (the "DELIVERABLE DESCRIPTION") set forth in the
Statement of Work.

1.4 ACCEPTANCE. Upon delivery of any Deliverable by PDF to Toshiba,
Toshiba shall examine the Deliverable to determine whether it reasonably
conforms to the Deliverable Description. If the Deliverable does not reasonably
conform to such Deliverable Description, Toshiba shall have fifteen (15) days
from the date of delivery thereof to reject such Deliverable and specify in
writing why it does not reasonably conform to such Deliverable Description. Upon
such rejection the parties shall work together to determine what needs to be
done to bring such Deliverable up to such Deliverable Description. If the
Deliverable does not meet the Deliverable Description, PDF shall exercise
reasonable efforts to correct promptly such nonconformity of the Deliverable
with the Deliverable Description and redeliver the Deliverable to Toshiba upon
completion of such correction within one month following the parties' agreement
referenced in the preceding sentence but only if there are no limitations
outside of PDF's control. If there are limitations outside PDF's control, PDF
and Toshiba will negotiate in good faith a time for delivery of the Deliverable.
If a rejection of the Deliverable is not received by PDF within fifteen (15)
days after any delivery or redelivery of a Deliverable under this Section 1.4,
the Deliverable shall be deemed accepted. "ACCEPTANCE" (including with
correlative meaning the term "ACCEPT") shall mean any acceptance under this
Section 1.4. Toshiba agrees to deliver a notice of Acceptance (the "NOTICE OF
ACCEPTANCE") upon its decision to Accept any Deliverable hereunder within such
fifteen (15) days following such delivery or redelivery.

2.      FEES AND EXPENSES.

2.1 SERVICES FEES AND EXPENSES. Upon delivery of each of the respective
Deliverables provided by PDF hereunder, Toshiba shall pay to PDF the fees
specified to the extent and in the manner set forth in the Statement of Work
("FEES"), and shall

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reimburse PDF for its out-of-pocket expenses incurred in carrying out its
obligations under this Agreement including, but not limited to, travel, hotel,
meal, document production, equipment and other expenses directly related to the
services performed hereunder further subject to the terms and conditions set
forth in the Statement of Work ("EXPENSES"). In no event shall the Expenses for
which Toshiba shall be liable hereunder exceed any limitation on Expenses
specified in the Statement of Work without written agreement from Toshiba. PDF
shall use reasonable and diligent efforts to deliver the Deliverables hereunder
within the estimated expenses and time schedule specified in the Statement of
Work.

2.2 PAYMENT OF INVOICES If required by applicable law, PDF shall pay any
taxes and assessments levied or imposed by any Japanese tax or other
governmental body resulting from the services or the Deliverables to be provided
by PDF to Toshiba and the payment to be made by Toshiba to PDF hereunder,
including without limitation all personal property taxes on any of the foregoing
and any taxes or amounts in lieu of any of the foregoing paid or payable by PDF,
other than taxes based on PDF's net income. Toshiba agrees that PDF Solutions or
PDF Solutions' designated representative will have the right to participate and
negotiate in all discussions with the appropriate tax authorities regarding
taxes to be paid by PDF Solutions in the process of determining the required tax
burden, if any. The parties acknowledge that PDF Solutions shall be obligated to
pay any such tax at the reduced withholding income tax rate rather than the
ordinary rate by filing "Application Form for Income Tax Convention between the
United States and Japan" with the Japanese tax authorities. If applicable,
Toshiba shall send PDF the application form immediately after the execution of
this Agreement for PDF's signature and PDF shall promptly sign it and return it
to Toshiba so that Toshiba may file it with the applicable Japanese tax
authorities on behalf of PDF.

3.      PROPRIETARY RIGHTS

3.1 OWNERSHIP. Toshiba and PDF Solutions acknowledge and agree that, as
between them, ownership shall be as follows:

(a) PDF Solutions is the exclusive owner of all PDF Technology
and all Proprietary Rights in the PDF Technology;

(b) Toshiba is the exclusive owner of all Analysis,
Manufacturing Designs, Raw Data and all Proprietary Rights in the Analysis,
Manufacturing Design and the Raw Data; and

(c) Toshiba is the exclusive owner of Mask Sets.

3.2 SOLELY DEVELOPED PROPRIETARY RIGHTS OWNERSHIP. Each party shall
solely own any Proprietary Rights solely developed by such party or the
employee(s) of such party, whether before, during or after the term of this
Agreement.

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

3.3 GRANT OF LICENSE BY PDF SOLUTIONS. Subject to the terms and conditions of
this Agreement, including the timely payment of Fees, PDF Solutions hereby
grants to Toshiba and its Subsidiaries, a perpetual, non-exclusive, irrevocable,
worldwide, non-transferable license (with the right of Toshiba to sublicense its
Subsidiaries) to use, copy for internal use, modify and/or enhance the
Deliverables (as set forth in the Statement of Work), any PDF Technology and
associated Proprietary Rights disclosed by PDF Solutions under this Agreement,
but only to the extent PDF Solutions has the right to grant such license;
provided that such license is solely for the development, manufacture,
fabrication and sale of all Toshiba's semiconductor products associated with
Toshiba's ***********. The foregoing license includes all PDF Technology
disclosed by PDF Solutions in its work for Toshiba hereunder; provided, however,
that specifically excluded from this license of PDF Technology is any and all
software or software tools used by PDF in connection with or during the course
of such services, or software manuals and documentation relating to such
software or tools. Notwithstanding the foregoing, Toshiba shall not be limited
to the *********** with respect to PDF Technology that consists of methodologies
or practices observed by Toshiba personnel in the course of PDF Solutions' work
hereunder. In particular, Toshiba shall have the right to create any ***** *****
***** ***** ***** ***** for the purpose of transferring to other semiconductor
****** than ****** by using PDF's know-how of ***** ***** ***** ***** by PDF
under this Agreement ("******"); provided that Toshiba shall not violate any
PDF's copyright or patent. In the event that Toshiba reasonably determines that
there is a possibility of violating PDF's copyright or patent in connection with
the modification of ****** to be implemented by Toshiba, Toshiba shall consult
PDF and PDF shall provide Toshiba with its views thereon and/or alternative
solution to avoid such possible violation. Toshiba shall be bound by and shall
cause its sublicensees to be bound by the confidentiality obligations contained
in Section 6 or obligations at least as restrictive as the confidentiality
obligations contained in Section 6. Except as specifically provided herein,
Toshiba shall not disclose or license PDF Technology to any third party. Toshiba
understands that PDF Solutions will not disclose to Toshiba certain proprietary
methods or trade secrets in connection with the services to be rendered by PDF
Solutions hereunder. To this end, PDF Solutions retains the right to take
industry standard measures to keep such proprietary methods or trade secrets
from Toshiba, unless the same defeats or substantially impedes the Scope of
Services and Technology under this Agreement.

3.4 PDF SOLUTIONS SERVICES. PDF Solutions may do the following:

(a) to use, copy, compile, manipulate, analyze or reproduce Raw
Data and the Mask Sets solely for the purpose of performing under this
Agreement; and (b) to use and rely upon Raw Data and Analysis for the purpose of
supporting Toshiba's yield ***. PDF Solutions shall be bound by and shall cause
its sublicensees to be bound by the confidentiality obligations contained in
Section 6 or obligations at least as restrictive as the confidentiality
obligations contained in Section 6. 

3.5 NO OTHER RIGHTS. Except as otherwise set forth in this Section 3,
neither this Agreement nor performance and delivery of the Services and
Technology shall give

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

either PDF Solutions or Toshiba any ownership, interest in, or rights to, the
Proprietary Rights owned or provided by the other party.

3.6 DEFINITION OF SUBSIDIARY. For the purpose of this Agreement and the
Statement of Work, the term "SUBSIDIARY" of any party shall mean any corporation
or other entity more than fifty percent (50%) of the Voting Stock of which is
beneficially owned or controlled, directly or indirectly, by such party;
provided that such corporation, company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists. "VOTING STOCK" of
any entity shall mean any stock or other equity interest entitled to vote for
the election of directors or any equivalent governing body of such entity.
Notwithstanding the above, ********** ********** ********* ************* *******
************* ************ *********** ********** ********** ******** ********
******** ********* *** **********.

4.      TERM AND TERMINATION.

4.1 COMMENCEMENT. This Agreement shall commence as of the date first set
forth above and shall continue in force until completion of the Project, unless
sooner terminated as provided in this Section 4.

4.2 TERMINATION.

(a) If either party defaults in the performance of any material
obligation hereunder the non-defaulting party may give the defaulting party
written notice of such default within twenty (20) days following the
non-defaulting party's discovery of such default. If the defaulting party fails
to cure such default within forty-five (45) days (or such other time period as
the parties shall mutually agree) after the defaulting party's receipt of such
notice of default, then the non-defaulting party, at its option, may, terminate
this Agreement by giving the defaulting party written notice of termination of
this Agreement within ten days following the end of such 45-day period. If such
notice of default or notice of termination is not given within such period, then
the default shall no longer constitute cause for termination of this Agreement.

(b) Either party may terminate this Agreement effective upon written
notice to the other party in the event the other party becomes the subject of a
voluntary or involuntary petition in bankruptcy or any proceeding relating to
insolvency, or assignment for the benefit creditors, if that petition or
proceeding is not dismissed within sixty (60) days after filing. Such written
notice of termination must be delivered no later than ten (10) days following
the expiration of such 60-day period. If such notice of termination is not given
within such 10-day period, then the default shall no longer constitute cause for
termination of this Agreement.

(c) Either party may terminate this Agreement effective upon written
notice to the other party in the event that the other party is merged with or
into, or all or substantially all or the other party's assets are sold to, a
third party corporation or other entity, unless such acquiring corporation or
entity expressly agrees to assume the other

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party's obligations under this Agreement. Such written notice of termination
must be delivered no later than ten (10) days following the consummation of such
transaction. If such notice of termination is not given within such 10-day
period, then the default shall no longer constitute cause for termination of
this Agreement.

(d) Toshiba shall be entitled to terminate this Agreement upon
forty-five (45) days prior written notice if (i) Toshiba reasonably rejects the
Deliverables due to their material nonconformity with the Deliverable
Description set forth in the Statement of Work (and clearly and properly
specifies the reason for such nonconformity), the Acceptance procedure set forth
in Section 1.4 shall have been exhausted without an Acceptance, and PDF does not
reasonably cure such material nonconformity within forty-five (45) days
following the final written rejection of such Deliverable, or (ii) Toshiba
reasonably and in good faith judges that the expected progress for the services
to be performed by PDF necessary to deliver the Deliverables hereunder cannot be
achieved within the mutually agreed time frame, and within forty-five (45) days
following such notice PDF cannot reasonably establish that such progress can be
achieved. This Agreement may then be terminated by a written notice of
termination delivered within ten (10) days following the applicable foregoing
forty-five (45) day period. If such written notice of termination is not given
within such 10-day period, then the default under this Section 4.2(d) shall no
longer constitute cause for termination of this Agreement.

4.3 TERMINATION OF RIGHTS. Upon expiration or termination of this
Agreement, all rights and licenses granted and all obligations undertaken
hereunder shall forthwith terminate except the following:

(a) Any and all licenses granted by PDF to Toshiba and its
Subsidiaries under this Agreement as to previously delivered, Accepted and paid
for Deliverables shall survive the expiration or termination of this Agreement
unless this Agreement is terminated by PDF in accordance with the provisions of
Section 4.2(a), (b) or (c) in which case none of such licenses shall survive and
all copies of such Deliverables shall be returned to PDF.

(b) If Toshiba terminates this Agreement for the reason as stated in
Section 4.2, Toshiba shall pay to PDF, within thirty (30) days after the date of
termination, (i) the actual amount of unreimbursed Expenses incurred by PDF
through the date of termination by Toshiba, (ii) the amount of the Deliverables
Fees with respect to Deliverables delivered or otherwise accrued, and unpaid
through the date of termination; provided that payment of such Fees and Expenses
shall be subject to the provisions of Section 2.

(c) If Toshiba terminates this Agreement for the reason specified in
Section 4.2, Toshiba shall pay to PDF:

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

(i) the amount of any unpaid Product Fees accrued prior to the
date of termination; and

(ii) the amount of any future Product Fees in accordance with
Paragraph (e)(iii) of the Statement of Work. Such Product Fees shall be payable
through the term of payment specified in such Paragraph (e)(iii); provided that
Product Fees to be accrued and paid following a date of termination shall
terminate only if the basis for termination of this Agreement shall be (A) an
involuntary bankruptcy under Section 4.2(b) or (B) the material default under
PDF's confidentiality obligations under Section 6 of this Agreement; provided
that payment of such Product Fees under this Section 4.3(c) shall be subject to
the provisions of Section 2.

(d) The provisions of Sections 2 (including by reference Toshiba's
obligations to pay Fees and Expenses set forth in the Statement of Work but
subject to Section 4.3(b) and (c)), 3.1, 3.2, 3.4 (with respect to Deliverables
delivered by PDF to Toshiba and Accepted and paid for by Toshiba), 4, 6, 7, 8.4,
8.7 and 8.8 shall survive any expiration or termination of this Agreement.

5. INDEPENDENT CONTRACTORS. The relationship of PDF and Toshiba established by
this Agreement is that of independent contractors, and nothing contained in this
Agreement shall be construed to (i) give either party the power to direct or
control the day-to-day activities of the other, (ii) constitute the parties as
agents, partners, joint venturers, co-owners or otherwise as participants in a
joint or common undertaking, or (iii) allow either party to create or assume any
obligation on behalf of the other for any purpose whatsoever.

6. CONFIDENTIALITY. Except as otherwise provided herein, each party agrees, at
all times during the term of this Agreement and for ** years after receipt of
Confidential Information, to hold in strictest confidence (and to cause its
Subsidiaries to hold in strictest confidence), and not to use, except for the
purposes contemplated herein, or to disclose to any person, firm or corporation
without written authorization of the other party, any Confidential Information
of the disclosing party. As used in this Agreement, "CONFIDENTIAL INFORMATION"
means any proprietary information, technical data, trade secrets or know-how,
including, but not limited to, research, software, developments, inventions,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, yield data or other information disclosed by one
party to the other, which is marked as "Confidential," and/or orally or in other
tangible form identified as confidential at the time of disclosure and confirmed
as Confidential Information in writing within thirty (30) days of its initial
disclosure, provided that any methodologies, practices or procedures used by PDF
and observed by Toshiba shall constitute "Confidential Information" within the
meaning of this Agreement without any such notification. Confidential
Information does not include any of the foregoing items which have become
publicly known and made generally available through no wrongful act of the
receiving party, or which is already known by the receiving party as evidenced
by the receiving party's files immediately prior to such disclosure, or which
the receiving party proves was independently developed, prior to the receiving
party's receipt of such

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Confidential Information, by employees or other representatives of such
receiving party who have not had access to such information or the ideas or
theories underlying such Confidential Information. Each party receiving
Confidential Information of the other party agrees to limit disclosure of
Confidential Information to only those of its officers and employees the
receiving party considers necessary to complete its services contemplated in
this Agreement and then only after such officers and employees have undertaken
by employment agreement or otherwise to comply with the obligations undertaken
by Recipient under this Agreement. Except as otherwise agreed by both parties,
PDF shall return to Toshiba all Confidential Information of Toshiba owned by
Toshiba and not licensed to PDF or jointly owned by PDF and Toshiba and copies
thereof, within thirty (30) days after completion of the Project or after
expiration or termination of this Agreement. Except as otherwise agreed by both
parties, Toshiba shall return to PDF all Confidential Information of PDF owned
by PDF and not licensed to Toshiba or jointly owned by PDF and Toshiba and
copies thereof, within thirty (30) days after completion of the Project or after
expiration or termination of this Agreement.

7.      WARRANTY. PDF warrants to Toshiba that PDF's Intellectual Property
utilized by PDF in performing the Project does not infringe any patent,
copyright, trade secret, and any other proprietary rights of any third party.
EXCEPT FOR THE FOREGOING, NOTHING UNDER THIS AGREEMENT, OR THE STATEMENT OF WORK
OR PROJECT SHALL BE DEEMED TO BE A WARRANTY OR REPRESENTATION AS TO THE OUTCOME
OF ANY PROJECT OR THE EFFICACY OF ANY RECOMMENDATIONS MADE BY PDF. NOTHING UNDER
THIS AGREEMENT OR THE STATEMENT OF WORK SHALL BE DEEMED TO CREATE ANY LIABILITY
ON THE PART OF PDF WITH RESPECT TO THE OUTCOME OF A PROJECT OR ANY ACTIONS TAKEN
BY TOSHIBA AS A CONSEQUENCE OF PDF'S RECOMMENDATIONS.

8.      MISCELLANEOUS.

8.1 AMENDMENTS AND WAIVERS. Any term of this Agreement or any Statement
of Work may be amended or waived only with the written consent by the
representatives of the parties.

8.2 SOLE AGREEMENT. This Agreement and the Statement of Work constitute
the sole agreement of the parties and supersede all oral negotiations and prior
writings with respect to the subject matter hereof.

8.3 NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by an internationally-recognized delivery service (such as Federal
Express or DHL), or after being deposited in the U.S. mail as certified or
registered mail with postage prepaid, if such notice is addressed to the party
to be notified at such party's address as set forth above or as subsequently
modified by written notice.

8.4 CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California,

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without giving effect to the principles of conflict of laws.

8.5 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of this
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of this Agreement shall be enforceable in accordance with its other
terms.

8.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.

8.7 ARBITRATION. The parties shall attempt in good faith to resolve any
dispute arising under this Agreement. If the parties are unable to resolve
dispute within a reasonable period then the dispute shall be finally settled by
binding arbitration (a) if brought by Toshiba, in San Jose, California, in
accordance with the Commercial Rules of the American Arbitration Association
and, (b) if brought by PDF, in Tokyo, Japan in accordance with the rules of the
International Chamber of Commerce. In either case such arbitration shall be
conducted by one arbitrator appointed in accordance with said rules. The
arbitrator shall apply California law, without reference to rules of conflicts
of law or rules of statutory arbitration, to the resolution of any dispute.
Judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision.

8.8 EXPORT CONTROL. Neither party shall, directly or indirectly export
or re-export any technical data or information or data received from the other
party hereunder or the direct products thereof to any destination prohibited or
restricted by export control regulations of Japan and the United States,
including U.S. Export Administration Regulations, without proper authorization
from the appropriate governmental authorities. In addition, the parties agree
that no technology furnished to the other will be used for any purpose to
develop and/or manufacture nuclear, chemical or biological weapons and/or
missiles.

8.9 NON-SOLICITATION. Toshiba shall not solicit or influence or attempt
to influence any person employed by PDF to terminate or otherwise cease his or
her employment with PDF or become an employee of Toshiba or any competitor of
PDF. A company's status as a competitor of PDF shall be determined by PDF in its
sole discretion.

8.10 PUBLICITY. Neither party shall disclose the terms of this Agreement
to any third party, or in any manner advertise or publish statements to such
effect, without the prior written consent and mutual agreement as to the
content, medium, and manner of the public announcement of the other party.
Customer agrees during the term to work in good

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11

faith with PDF Solutions to produce mutually acceptable public announcements by
PDF Solutions of PDF Solutions' engagement with Customer under this Agreement.
Notwithstanding the above, should one of the parties be required to disclose
either the existence or terms of this Agreement to a court of law, a
governmental agency, an auditor or a bank, such party may do so without the
prior written consent of the other party provided that the disclosing party: (i)
notifies the recipient of the confidential nature of the information, (ii)
requests confidential treatment of such information, (iii) limits the disclosure
to only such information as is required under the circumstances, and (iv)
delivers prompt notice to the other party of such requested or actual
disclosure.

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

PDF SOLUTIONS, INC.                         TOSHIBA CORPORATION

By:                                         By:
----------------------------                ---------------------------------

Name:    John K. Kibarian                   Name:         Yasuo Morimoto

Title:       President                      Title:     President & CEO,
Semiconductor Company

DATE:                                       DATE:
--------------------------                  -------------------------------

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

EXHIBIT A

STATEMENT OF WORK
************
**
****************

This Statement of Work is made between PDF Solutions, Inc. ("PDF") and
Toshiba Corporation ("TOSHIBA") pursuant to and attached as an exhibit to that
certain Yield Improvement Consulting Agreement dated as of ****** **, **** (the
"AGREEMENT") between PDF and Toshiba. All terms and conditions contained in this
Statement of Work are subject to the terms and conditions set forth in the
Agreement. The date of commencement of services under this Agreement was ******
**, **** (the "ENGAGEMENT COMMENCEMENT DATE").

PROJECT DESCRIPTION & GOALS

PDF Solutions agrees to provide Toshiba with ************ services for
Toshiba's **** developed as ************ ******* ******. Services in support of
this project described in this contract is consists with one major components:

(1) ******* PROJECT

(a) PROJECTS, DELIVERABLES AND FEE

The section is outlined below that review the project services. The
section has Project Phases and Deliverables.

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

***** PROJECT

Two phases are included in this project;

(i)   *****************************************

(ii)  *****************************************

****  deliverables are included in this project;

(i)   *****************************************

(ii)  *****************************************

(iii) *****************************************

(iv)  *****************************************

(v)   *****************************************

(a) DESCRIPTION OF PHASES FOR EACH *** (START DATE: ******)

-----------------  --------------------------------------  ---------------
PROJECT PHASE        PDF SOLUTIONS WORK STEPS                DURATION
-----------------  --------------------------------------  ---------------

***************        - *******************************   ************** 
*                        ************                      *****

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

***************        - *******************************   ************** 
*                        *******************************   ***
****
-----------------  --------------------------------------  ---------------

(b) DELIVERABLES

---------------------------------------------------------------------------------------------------------
MAINTENANCE    ESTIMATED
PLANED                      FEE        PERIOD OF
DELIVERY    DELIVERABLE    (per 6      MAINTENANCE
PHASE       DELIVERABLE          DESCRIPTION           MONTH        FEE         months)         FEE
---------------------------------------------------------------------------------------------------------

****        *****                ***********        **********   ***********        *****   *************
***********
*****
-----------          -----------        ----------   -----------  -----------   -------------
***********          ***********        *********            **
---------------------------------------------------------------------------------------------------------
*****       *****                ***********        **********   ***********        *****   *************
***********
*****
-----------          -----------        ----------   -----------  -----------   -------------
***********          ***********        *********            **
---------------------------------------------------------------------------------------------------------
*****       *****                ***********        **********   ***********        *****   *************
***********
*****
-----------          -----------        ----------   -----------  -----------   -------------
***********          ***********        *********            **
---------------------------------------------------------------------------------------------------------
****        *****                ***********        **********   ***********        *****   *************
***********
*****
-----------          -----------        ----------   -----------  -----------   -------------
***********          ***********        *********            **
---------------------------------------------------------------------------------------------------------
******      *****                ***********        **********   ***********        *****   *************
*                           ***********
*****
---------------------------------------------------------------------------------------------------------

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

(b) TEAM STRUCTURE

The team is structured to divide the decision-making, project leadership
and analysis management between three bodies in the form of "TEAM STRUCTURE" in
the form attached to this Statement of Work as Exhibit C.

Toshiba will establish a Steering Committee (the "STEERING COMMITTEE")
which will consist of (a) ****** ******* and any other Toshiba manager who is
necessary in order for yield improvement decisions to be made, and (b) ******
******* or another senior executive of PDF. The Steering Committee will be
limited to four representatives of Toshiba and one representative of PDF. The
Steering Committee will have sufficient authority to make the relevant decisions
concerning this Project. The Steering Committee is responsible for giving the
team its charter, deciding which yield improvement actions to take and who in
the Toshiba organization will be responsible for carrying out the improvement.

Project leadership responsibility will be shared by ****** ******* (the
"TOSHIBA PROJECT MANAGER") on behalf of Toshiba, and ****** ******* (the "PDF
PROJECT MANAGER"), on behalf of PDF. Their primary responsibility will be to
ensure overall project status include delivery timing and the deliverables of
the work chartered by the Steering Committee. In order to maximize the
likelihood that the team is making good progress, the Project Managers will
monitor the team's work on a monthly basis and help reduce any organizational
obstacles which may impede the team's progress.

Technical responsibility will be shared by the personnel assigned by
Toshiba and PDF(the "TOSHIBA ENGAGEMENT MANAGER", on behalf of Toshiba, the "PDF
ENGAGEMENT MANAGER", on behalf of PDF, respectively). Their primary
responsibility will be to ensure that the team is making good progress toward
delivery of the work. Engagement Managers will monitor the team's work on a
weekly basis and ensure the project from technical view point.

The day-to-day analyses will be conducted by a ******** ******* Team
("******") of engineers from Toshiba and PDF. A PDF Engagement Manager will
manage the activities of the ****. The PDF Engagement Manager will be
responsible for directing all team members in their analyses as well as
aggregating and synthesizing the results of all the analyses conducted by the
entire team. In addition, the Engagement Managers will be the principal point of
contact for any technical questions regarding the project.

********** Toshiba engineers will be asked to participate actively with
the **** Toshiba team members should be assigned to **** and be skilled at
******* ******* ******* ******* *******. Toshiba engineers will be placed on the
Team after approval by PDF for the purpose of gathering data and conducting
analyses. The Toshiba team members will work at the direction of the Engagement
Managers.

(c) TOOLS

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

Toshiba will provide PDF with office space and other reasonable and
customary business resources. In particular, Toshiba will provide PDF with
secure office space large enough to accommodate the required PDF personnel in
addition to the Toshiba engineers assigned to work on the ****. Toshiba will
provide PDF with office equipment reasonably requested by PDF from time to time
including **** international access telephones (including such analog lines as
PDF shall request), an international access Facsimile machine and line, and a
photocopier. Toshiba will provide PDF with 24-hour access to the team office so
work can continue at night and on weekends.

Toshiba will provide PDF with computing resources that PDF reasonably
deems necessary to ***** ***** ***** *****. The details of such request will be
sent in a separate document to the Toshiba Engagement Manager but in general,
Toshiba will provide ******** engineering workstations connected to both the
Toshiba network and the Internet. Toshiba will also provide such other
accessories as PDF shall reasonably request including, but not limited to, a
removable data storage device, such as a tape drive, and a printer.

(d) LOCATION

The Project will be conducted by Toshiba's and PDF's personnel at
Toshiba's **** ********* in ************ and Toshiba's **** ********* in
*************, and PDF's facilities in San Jose, CA. In certain cases, PDF may
require Toshiba engineers to work at the PDF facility in San Jose, California.
PDF engineers may also work in ***** and ********* when the engagement manager
believes this is necessary to achieve progress. If Toshiba shall provide PDF
employees with an English version of the employee rules and regulations in force
at the Toshiba facilities, then PDF employees shall comply with such rules and
regulations in all material respects in an equivalent manner as other Toshiba
employees generally. Any failure to comply with such rules and regulations shall
not constitute a default of a material obligation constituting a basis for
termination of this Agreement unless (A) Toshiba has repeatedly given notices of
such failure to PDF and PDF has repeatedly failed to remedy such noncompliance
as specified in such notices, (B) Toshiba shall notify PDF in writing that
failure to cure such repeated non compliance within ** ***** shall constitute a
basis for termination of the Agreement and PDF shall fail to remedy such non
compliance, and (C) Toshiba gives final notice of termination within ** *****
following such ***** period. PDF shall take all reasonable steps necessary to
ensure that all employees resident at or visiting a Toshiba facility shall treat
as confidential in accordance with Section 6 all material information of a
proprietary nature observed by or disclosed to such employee, and shall comply
in all material respects with the all export control obligations contained in
Section 8.8.

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

(e) FEES AND EXPENSES.

Toshiba will pay PDF Fees consisting of three components: (1) the
Deliverable Fees and (2) the Maintenance Fees and (3) the Product Fees, each as
defined below:

(i)     DELIVERABLE FEES. Toshiba will pay PDF a deliverable fee described in
each deliverable tables after each deliverable are provided to Toshiba
(the "DELIVERABLE FEES"). The payment will be made within *** days of
receipt of an invoice covering such Deliverable Fees.

(ii)    MAINTENANCE FEE. *******************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************

(iii)   PRODUCT FEE.
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
****************

EXPENSES.

Toshiba will reimburse PDF for all reasonable and customary Expenses
incurred by PDF in performing the services, delivering the Deliverables and
fulfilling its obligations under the Project. The Expenses will be billed to
Toshiba at PDF's cost and will not exceed an average of *** per calendar quarter
without the written consent of Toshiba. PDF will submit to Toshiba invoices
specifying the Expenses and Toshiba will pay the Expenses within ****** of the
receipt of the invoice. Invoices will be submitted to Toshiba no more frequently
than a monthly basis. Payments of invoices for PDF's expenses will be made in
accordance with the provisions of Section 2.2 of the Agreement. Notwithstanding
the foregoing

SOW-5

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if PDF is entitled to receive reimbursement of the same travel, lodging and
other similar expenses from both Toshiba and other customers, then PDF will
allocate any expenses that are for the benefit of both Toshiba and such other
customers, among Toshiba and such other customers on a basis that PDF shall
determine is fair, just and equitable to Toshiba and such other customers taking
into account all relevant factors.

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

CONFIDENTIAL TREATMENT
PDF SOLUTIONS, INC. HAS REQUESTED
THAT THE MARKED PORTIONS OF THIS
DOCUMENT BE ACCORDED CONFIDENTIAL
TREATMENT PURSUANT TO RULE 406 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.

EXHIBIT 10.18

PDF SOLUTIONS, INC.

SOFTWARE SITE LICENSE AGREEMENT

This SOFTWARE SITE LICENSE AGREEMENT is made as of ************* (this
"AGREEMENT") between PDF SOLUTIONS, INC., a corporation organized and existing
under the laws of the State of California ("LICENSOR"), whose address is 333
West San Carlos Street, Suite 700, San Jose, California, U.S.A. and TOSHIBA
CORPORATION, a corporation organized and existing under the laws of Japan (the
"CUSTOMER"), whose address is 1-1 Shibaura 1-chome, Minato-ku, Tokyo 105-01,
Japan.

RECITALS:

WHEREAS, Licensor has previously licensed to Customer certain of the
computer software packages identified on Schedule A hereto (the "SOFTWARE
PRODUCT") including end-user manuals and documentation, for use on a single
central processing unit pursuant to prior agreements between Licensor and
Customer.

WHEREAS, Licensor and Customer wish to enter into a site or enterprise
license providing for a license of the Software Product by all employees of
Customer on Customer's central processing units, and to have all copies of
Software Product used by Customer covered under this Agreement.

WHEREAS, this Agreement shall govern the relationship between both parties
with regard to any Software Product used by Customer.

NOW, THEREFORE, in consideration of the mutual promises contained herein,
Licensor and Customer agree as follows:

1.    SOFTWARE PRODUCT LICENSE.

(a)   GRANT.

(i)   Licensor hereby grants to Customer a non-exclusive and
non-transferable license, without the right to sublicense, to use the Software
Product solely on the central processing units and other equipment owned or
operated by Customer on which the Software Product is designated to be used and
set forth in Schedule A (the "DESIGNATED EQUIPMENT"), and only for Customer's
own internal business use in the integrated circuit manufacturing and design
business. This Software Product License shall govern the license of all Software
Product licensed or used by Customer whether previously or hereafter provided or
licensed by Licensor to 

-1-

2
Customer and shall replace any prior agreements entered into between Licensor
and Customer relating to licensing of copies the Software Product previously
delivered.

(ii)  Subject to the provisions of Section 8, the term of the
Software Product License shall be for a period of three (3) years commencing on
January 1, 2001 after which period the Software Product License shall terminate
unless extended by mutual agreement between the parties.

(iii) Customer shall not make the Software Product available to any
other party except (i) its subsidiaries in which Customer maintains a fifty
percent (50%) or greater ownership interest (but only for so long as Customer
retains such a percentage interest), by time-sharing or otherwise or (ii) others
who use the Software Product on Designated Equipment on Customer's premises for
the purposes specified in this Agreement and who agree in writing to maintain
the confidentiality of Licensor Information (as defined in Section 3(a).
Customer shall not use the Software Product to process any data other than its
own.

(iv)  Customer shall not operate the Software Product on any central
processing unit other than the Designated Equipment, without the prior written
consent of Licensor.

(v)   Customer acknowledges that it is receiving only a limited
license to use the Software Product and related documentation and that Licensor
retains all right, title and interest in and to the Software Product and related
documentation, including all patent, copyright, trade secret and other
intellectual property rights and any corrections, bug fixes, enhancements,
updates or other modifications, whether made by Licensor, Customer or any third
party.

(vi)  Licensor shall grant to Customer, free of additional charge, a
license to use the interface and the related documentation therefor which is
developed by Licensor only for Customer. Such interface and documentation shall
constitute Software Product licensed under this Agreement.

(b)   RISK OF LOSS. Licensor assumes the risk of loss or injury to
the Software Product until delivered to Customer. Thereafter, the risk of loss
and damage to the Software Product (except for replacement of defective items as
set forth in Section 5 hereof relating to warranties) shall be upon Customer.
Customer hereby assumes full responsibility for the selection, installation and,
subject to Section 4, maintenance of the Software Product.

(c)   COPIES. In addition to such copies as are installed on Designated
Equipment, Customer may make one (1) copy of each item of the Software Product
for backup purposes only.

(d)   REVERSE ENGINEERING. Customer agrees that only Licensor shall have
the right to maintain, enhance or otherwise modify the Software Product.
Customer shall not cause or permit the decompilation, disassembly, modification
or reverse engineering of all or any part of the Software Product and shall not
attempt to do so. Customer further acknowledges that the Product Software
incorporates certain tracking software (the "TRACKING SOFTWARE") designed to
track use of the Product Software and the fees payable hereunder. Customer shall
not amend or modify 

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CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

such tracking software or take any other action which might disable or alter
such tracking features or the results obtained therefrom.

2.    PAYMENTS TO BE MADE BY CUSTOMER.

(a)   PAYMENTS. Customer shall pay the charges for the Software Product in
the amounts and at the times indicated in Schedule B hereto.
********************************************************************************
********************************************************************************
********************* Customer shall hold Licensor harmless from all claims and 
liabilities arising from Customer's failure to report or pay any such taxes, 
duties and assessments subject to the following conditions and procedures.
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
**********************************************. Licensor agrees that the 
payment may be made by Toshiba America Incorporated on Customer's behalf
provided that such payment is made in accordance with the conditions required by
Customer under this Agreement.

(b)   AUDITING. In furtherance of any and all of Licensor's rights under
this Agreement, Customer shall, upon forty-eight (48) regular business hours
prior notice and no more than once during any twelve (12) month period, provide
Licensor with sufficient access to the data generated by and results of the
Tracking Software and shall provide such materials, documentation, reports and
other information as Licensor shall request to support and prove the usage of
and number of copies made under this Agreement and Customer's compliance with
the other provisions of this Agreement. Following delivery of such data, results
and other materials, if Licensor is not reasonably satisfied with such proof and
should Licensor reasonably request, Customer shall permit an independent third
party mutually acceptable to Licensor and Customer to enter upon Customer's
premises to audit Customer's compliance with the terms of this Agreement at
Licensor's expense.

3.    CONFIDENTIALITY AND USE OF SOFTWARE PRODUCT.

(a)   GENERAL. Customer acknowledges that it has no proprietary interest
in or right to use the Software Product except in accordance with the terms of
the Software Product License granted in this Agreement. Customer agrees that,
during the term of this Agreement and thereafter, it will hold the Software
Product, the terms of this Agreement and any other confidential information of
the Licensor that may come into Customer's possession ("LICENSOR INFORMATION")
in confidence, that it will not sell, license, sublicense, publish, display,
distribute, disclose or otherwise make the Licensor Information or any part
thereof available to any third party except employees of Customer within the
scope of their employment and to others under a duty of confidence to Customer
while on Customer's premises, and that it will take all reasonable steps and
precautions to maintain the confidentiality of the Licensor Information.

-3-

4

Notwithstanding the foregoing, information received by Customer in
connection with this Agreement shall not be considered Licensor Information if:

(i)   The information is known by written records to Customer at the
time of disclosure; or

(ii)  The information is or becomes public knowledge other than
through the unauthorized disclosure by Customer; or

(iii) The information is rightfully received from a third party who
has the right to disclose the information; or

(iv)  The information is specifically excluded from Licensor
Information by Licensor's prior written approval; or

(v)   The information is independently developed by Customer without
prior knowledge of the Licensor's information.

(b)   SPECIFIC. Without limiting the foregoing, Customer further agrees as
follows:

(i)   It will not use the Software Product or any part thereof on
any central processing unit other than Designated Equipment, or at any location
other than Customer's business addresses, except as indicated in Section 1(a) of
this Agreement.

(ii)  It will not remove or permit to be removed from any item
included in the Software Product any notice placed thereon by Licensor
indicating the confidential or proprietary nature thereof.

(iii) Other than copies installed pursuant to Section 1(a)(i) and
the backup copy permitted by Section 1(c), it will not copy or duplicate by any
means the Software Product or any part thereof without the prior written consent
of Licensor. Any copy made by Customer shall include all copyright or other
proprietary notices of Licensor included in or on the original Software Product
provided by Licensor. Customer shall keep a record of each copy made, where such
copy is located and in whose custody it is, and shall provide to Licensor a
monthly report specifying all additional central processing units on which the
Product Software is installed and designated to be used under Section 1(a).

(iv)  It will restrict all use of the information provided hereunder
solely to the field of use defined and granted herein, and will not use any
information in tangible or intangible form which has been or may be delivered or
disclosed to Customer or Customer's employees by Licensor or Licensor's
employees for the purpose of creating or attempting to create, or permitting
others to create or attempt to create, any product similar to the Software
Product or any part thereof.

(v)   It will limit access to the Software Product to only those
employees of Customers and others who who need access thereto for the purposes
specified in this Agreement

-4-

5

and who have agreed in writing to protect the confidentiality of the Licensor
Information in the manner set forth in this Section

(vi)  It will not copy any source code received by it from Licensor,
and it will take all necessary steps to assure that no copies are made by
employees or third parties.

(vii) To protect and maintain the confidentiality of the Licensor
Information, it will take precautions at least as stringent as it uses to
protect its own confidential information.

(c)   DISCLOSURE. Licensor recognizes that under certain circumstances,
Customer may be required by judicial order, regulatory authority, or in order to
satisfy its auditors, to disclose certain information about the Software
Product, and Licensor hereby consents to such disclosure, provided that:

(i)   If the disclosure is to be to a governmental authority or
pursuant to judicial order, Customer shall notify Licensor within forty-eight
(48) regular business hours after Customer receives such a notice, and

(ii)  If such request is by Customer's auditors, then before any
disclosure is made, Customer shall obtain from such auditors a covenant and
agreement to respect the confidentiality required by this Section 3. Upon
request, Licensor shall provide forms for this purpose.

4.    UPDATES, SUPPORT AND MAINTENANCE. Customer shall receive modifications and
updates to the Software Product, including updates to user documentation, and
advice by telephone or mail and other support and maintenance services with
respect thereto in accordance with the terms of a separate Software Maintenance
Agreement executed simultaneously with the execution of this Agreement. Such
modifications, updates, support and maintenance will be provided without
additional charges beyond those set forth in this Agreement, except as
specifically provided in the Software Maintenance Agreement.

5.    EXPRESS WARRANTIES AND EXCLUSION OF IMPLIED WARRANTIES.

(a)   AUTHORITY. Licensor warrants that it has the right to grant the
license of the Software Product granted in this Agreement.

(b)   INFRINGEMENT ACTIONS. Licensor will defend at its expense any action
brought against Customer to the extent that it is based on a claim that the
Software Product constitutes infringement of any patent, copyright, or other
intellectual proprietary rights in the United States and Japan, and Licensor
will pay all damages and costs reasonably incurred by Customer in such action
which are attributable to such claims, provided that Licensor is informed in
writing and furnished a copy of each communication, notice or other action
relating to the alleged infringement and is given authority, information and
assistance (at Licensor's expense) necessary to defend or settle such claim.
Should the Software Product become, or in Licensor's opinion be likely to
become, the subject of a claim of infringement of any United States and/or
Japanese patent, copyright, or other intellectual proprietary rights, then
Licensor may at its option (i) 

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6

procure for Customer the right to use the Software Product free of any liability
for infringement or (ii) replace such Software Product with non-infringing
substitutes otherwise complying substantially with all of the requirements of
this contract. In the event that Licensor attempts in good faith but is unable
to resolve such infringement, Licensor may terminate this Agreement and shall
refund to Customer a prorated portion of the amount Customer has paid to
Licensor based upon the portion of the year that customer has had use of the
Software Product prior to such termination.

Licensor will not be obligated to defend or be liable for costs and
damages if the infringement arises out of any software developed by Licensor in
compliance with the Customer's specifications or a modification of the Software
Product after delivery by Licensor.

(c)   PATENTS AND COPYRIGHTS. If any action is brought against Licensor,
based on a claim that any software developed by Licensor in compliance with
Customer's specifications and supplied to Customer directly infringes any duly
issued United States patent, copyright, or other proprietary right in the United
States, then the indemnity obligation herein stated with respect to Licensor
shall reciprocally apply with respect to Customer with respect to such claim of
infringement.

(d)   CONFORMITY AND DOCUMENTATION. Licensor warrants that the Software
Product will, when delivered, conform to the documentation therefor provided by
Licensor. If, within 60 days after delivery of the Software Product, Customer
reports an alleged defect in the Software Product, Licensor's qualified
personnel will attempt to verify the defect and, within thirty (30) days
(determined in light of the nature and scope of the alleged defect), after
confirming the existence of a defect, Licensor shall correct the defect in the
Software Product or provide Customer with an avoidance procedure to correct the
defect.

(e)   EXTENT OF LIABILITY.

(i)   THE PROVISIONS OF SECTIONS 5(b) AND (c) STATE THE SOLE AND
EXCLUSIVE LIABILITY OF THE PARTIES HERETO FOR PATENT AND COPYRIGHT INFRINGEMENT
AND IS IN LIEU OF ALL CONDITIONS OR WARRANTIES EXPRESSED, IMPLIED, STATUTORY OR
OTHERWISE IN REGARD THERETO.

(ii)  THE FOREGOING WARRANTIES DO NOT APPLY TO THE SOFTWARE PRODUCT
IF LOCATED OR USED IN A MANNER INCONSISTENT WITH ANY TERMS OR LIMITATIONS OF
THIS AGREEMENT. EXCEPT FOR THE EXPRESS WARRANTIES STATED IN THIS AGREEMENT,
LICENSOR DISCLAIMS ALL OTHER CONDITIONS AND WARRANTIES, WHETHER EXPRESSED,
IMPLIED OR STATUTORY INCLUDING ALL IMPLIED CONDITIONS OR WARRANTIES INCLUDING
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

6.    LIMITATION OF DAMAGES. In no event will Licensor be liable for any damages
arising from performance or non-performance of the Software Product or for any
lost profits, loss of use, loss of data, cost of procurement of substitute goods
or services, or other consequential,

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ASTERISKS DENOTE SUCH OMISSIONS.

incidental, special, indirect or exemplary damages, however caused and under any
theory of liability, even if Licensor has been advised of the possibility of
such damage, or for any claim against the Customer by any other party, except as
provided for in Section 5 with respect to infringement of the rights of others.
In no event shall Licensor's liability for any cause exceed the aggregate amount
paid by Customer to Licensor pursuant to this Agreement except for personal
injury or death resulting from Licensor's gross negligence or willful
misconduct. Customer acknowledges that the amounts payable hereunder are based
in part on these limitations and further agrees that these limitations shall
apply notwithstanding any failure of essential purpose of any limited remedy.

7.    NONTRANSFERABILITY. Customer shall not assign, sublicense, extend or
other-wise transfer in whole or in part this Agreement or any license granted
hereunder without written consent of Licensor to such transfer which consent
shall not be unreasonably withheld. Licensor will notify Customer in writing
prior to transferring or assigning this Agreement and Licensor will not be
released from its obligations hereunder without written consent of Customer to
such transfer or assignment. As used in the preceding sentence, "Customer" means
only the specific entity that has executed this Software License Agreement as
Customer.

8.    DEFAULT; EFFECT OF TERMINATION.

(a)   DEFAULT; TERMINATION BY CUSTOMER. Customer shall be in default
hereunder upon the occurrence of any of the following events: (i) any sum of
money owed by Customer hereunder is not paid when due; (ii) Customer breaches
any provision of this Agreement relating to the non-disclosure or limited use of
confidential or proprietary information; or (iii) there occurs any material
violation of or failure to perform any other term of this Agreement to be
performed by Customer which is not remedied by Customer within thirty (30) days
after notice of such violation or failure has been given by Licensor to
Customer. Upon the occurrence of any such default, Licensor may terminate the
Software Product License granted in this Agreement and all sums of money owed by
Customer hereunder shall thereupon become due and payable to Licensor within
thirty (30) days. When the Software Product License granted in this Agreement
shall terminate due to violations of this Agreement without notice of
termination, such termination shall be effective as of the date upon which
Customer ceases to use the Software Product, and Licensor shall at all times
thereafter have the same rights and remedies as Licensor would have in the event
the Software Product License were terminated by virtue of a default by Customer
with notice having been given.

(b)   NON-WAIVER. The exercise or non-exercise of any right granted to
Licensor or to Customer under the terms of this Section 8 or under any other
provision of this Agreement shall not operate as a waiver of any right which may
subsequently accrue to Licensor or Customer under any provision of this
Agreement and shall not preclude the exercise by Licensor or Customer of any
other rights or remedies which either Licensor or Customer may have in law or
equity or under the terms of this Agreement.

(c)   SURVIVAL. The provisions of this Agreement relating to
confidentiality shall survive for a period of *********** after the termination
of the Software Product License. The 

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provisions of this Agreement relating to payments due, extent of liability,
limitation of damages, governing law and arbitration as well as this Section 8
shall survive the termination of the Software Product License.

(d)   DISPOSITION OF SOFTWARE AND LICENSOR INFORMATION. Upon the
termination of the Software Product License, Customer agrees to return to
Licensor all copies of tangible portions of the Software Product and any
material containing or pertaining to the Licensor Information delivered or
disclosed to Customer by Licensor pursuant to the terms of this Agreement, or
otherwise, as well as any copies made by Customer. Title to the Software Product
and any changes, modifications or improvements made or developed with regard to
the Software Product, whether or not made or developed at Customer's request,
shall remain the property of Licensor and shall be deemed to have been part of
the Software Product, as of the date of this Agreement.

9.    ACCEPTANCE BY LICENSOR; ENTIRE AGREEMENT; AMENDMENTS. This Agreement shall
not be effective until accepted in writing by Licensor at its office set forth
in this Agreement. This Agreement constitutes the entire agreement and
understanding between Licensor and Customer concerning the subject matter
hereof, and cancels, terminates and supersedes all prior written and oral
understandings, agreements, proposals, promises and representations of the
parties respecting any and all subject matter contained herein. No
representation or promise hereafter made by a party, nor any modification or
amendment of this Agreement, shall be binding upon either party unless in
writing and signed by Customer and accepted in writing by an authorized agent of
Licensor at its office set forth in this Agreement.

10.   NOTICES. Any notices required or permitted to be given under the terms of
this Agreement shall be deemed given upon personal delivery or five days after
the day of postmark thereof if sent by mail, postage prepaid, registered or
certified mail, return receipt requested, and addressed to the other party at
the address as shown below or at such address as such party from time to time
may indicate by written notice given to the other party hereto.

If to Licensor:      PDF Solutions, Inc.
333 West San Carlos Street
Suite 700
San Jose, California 95110
U.S.A.
Attention:     President
Fax:           (408) 280-7915
Phone:         (408)280-7900

If to Customer:      Toshiba Corporation
*************************
*************************
Japan
Attention:   *************
*************************
Fax:         *************

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Phone:       *************

11.   GOVERNING LAW. This Agreement is entered into in, and shall be governed by
and construed in accordance with the laws of, the State of California without
reference to conflicts of law provisions.

12.   SEVERABILITY. The invalidity of unenforceability of any particular
provisions of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions had been omitted.

13.   HEADINGS AND CAPTIONS. The headings and captions used in this Agreement
are for convenience of the parties only and shall in no way define, limit,
expand or otherwise affect the meaning of construction of any provision of this
Agreement.

14.   BINDING EFFECT. Subject to all of the terms and conditions hereof, this
Agreement inures to the benefit of and is binding upon the parties hereto and
their successors and assigns.

15.   ARBITRATION. Any dispute arising in connection with this Agreement shall
be amicably settled. Should both parties fail to do so within *********** from
the date in which one party sends to the other party a letter describing the
dispute, such dispute shall be finally settled by arbitration in accordance of
the rules of the International Chamber of Commerce (ICC). Licensor and Customer
shall appoint one arbitrator each and the third arbitrator shall be appointed by
the other two arbitrators or, failing the agreement between them, by the
president of the International Chamber of Commerce within the time limits
provided for by the then existing rules of the International Chamber of
Commerce. The arbitration shall take place in Honolulu, Hawaii and the
arbitrator shall decide all disputes in accordance with equity and good
commercial practice and shall not be bound by the law of any jurisdiction of
process. The decision of the arbitrators shall be final and unappealable and may
be enforced in any country having jurisdiction over the parties or their assets.

16.   ESCROW.

(a)   ESCROW AGENT. Immediately upon execution of this Agreement, Licensor
shall deposit with an escrow agent selected by Licensor ("ESCROW AGENT"), the
source code language of the Software Product, as well as source code
enhancements and modification to the Software Product (together referred to as
"SOURCE CODE") within ten (10) days after the same becomes available. Escrow
Agent shall act as custodian of the Source Code as long as this Agreement shall
be in effect

Within one (1) month from the date of execution of this Agreement,
Licensor shall provide Customer with the evidence of the deposit of Source Code
and the copy of the escrow agreement between Licensor and Escrow Agent which
specifies the contingent events and procedure effecting disclosure of the
deposit to Customer.

(b)   INSOLVENCY. Upon the occurrence of any one of the following events:

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(i)   Liquidation of Licensor or discontinuation of business by
Licensor without proper provisions for support to be provided by a third party
appointed by Licensor; or

(ii)  Licensor's inability or failure to reasonably support all or
any portion of the Software Product within ninety (90) days after receiving
written notification of such failure;

Escrow Agent is hereby authorized to provide to Customer, upon Customer's
written request, a copy of the portion of the Source Code not so supported.

(c)   USE OF SOURCE CODE. Upon provision by Escrow Agent of a copy of all
or any portion of the Source Code to Customer pursuant to Section 16(b),
Customer shall only have the right to use the Source Code for the purpose of
maintaining the Software Product and for support thereof but only for such
purpose and only for the term of this Agreement and for so long as the condition
set forth in such Section 16(b) is satisfied. The Source Code shall be deemed to
be confidential information as provided in Section 3 hereof with Customer
subject to all of the obligations set forth therein with regard to such Source
Code.

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11
(d)   AVAILABILITY OF SOURCE PRODUCT AND DIGITAL CONNECTION. Customer
shall have the right to continue to purchase the Software Product from Escrow
Agent or receiver per term's and conditions of this Agreement.

IN WITNESS WHEREOF, the parties hereto executed this Agreement on the day
and year first written above.

LICENSOR:                              CUSTOMER:

PDF SOLUTIONS, INC.                    TOSHIBA CORPORATION

By:  /s/ P. Steven Melman              By:  /s/ Y. Morimoto
-----------------------------          ---------------

Name:  P.S. Melman                     Name: Y. Morimoto
---------------------------           -----------

Title:  CFO                            Title: CEO Toshiba Semiconductor Company
--------------------------            ---------------------------------

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ASTERISKS DENOTE SUCH OMISSIONS.

SCHEDULE A

SOFTWARE PRODUCT

*************

*************

*************

*************

*************

*************

*************

*************

*************

DESIGNATED EQUIPMENT

1)    *************************

2)    *************************

3)    *************************

4)    *************************

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OMITTED AND FILED SEPARATELY WITH
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ASTERISKS DENOTE SUCH OMISSIONS.

SCHEDULE B

LICENSE FEES

Pursuant to Section 2 of that certain Software Site License Agreement
dated as of ************* between PDF Solutions, Inc. and Toshiba Corporation,
Toshiba agrees to pay the fees set forth herein for use of the Software Product
licensed under the License Agreement:

1.    DEFINITIONS. All defined terms used in this Schedule B shall have
the meanings ascribed to them in the Agreement; provided that for purposes of
this Schedule B, the following terms shall have the following respective
meanings:

"AVERAGE ANNUAL PEAK USAGE" means the average of the Peak Monthly
Usage for the twelve (12) calendar months in any Usage Year.

"PEAK MONTHLY USAGE" means the highest number of Usage Units
determined on any day during a specified Usage Month.

"PRODUCT USES" with respect to any individual Software Product on
any day, shall mean the number of times on such day all users are using or
running such individual Software Product. For the purpose of this definition, a
time being used shall occur if on a particular day a particular user is using or
running a particular Software Product; provided that if at any given time on
that day such user is concurrently using or running such Software Product on
more than one central processing unit, then each such concurrent use shall count
as a separate time being used by such user; provided further that if on a day
such user is using or running a Software Product on more than one central
processing unit but such uses are at no time concurrent, then all such
nonconcurrent uses on such day by such user shall count as one time being used.
For example, if user A uses or has running ****** on two central processing
units and such uses are concurrent at any time during such day, user B uses or
has running ******** on three central processing units during such day but on
not more than two central processing units at any given time during such day,
and user C uses or has running ****** on two central processing units during
such day but such uses are not at any time concurrent, and there are no other
users of ********on such day then the number of ******** Product Uses on such
day is five (calculated as two times being used for user A, two times being used
for user B and one time being used for user C). As other examples, (a) the use
by user X of ****** on three separate occasions on the same central processing
unit on one day shall count as one time being used and (b) the nonconcurrent use
by user Y of ****** on three central processing units shall count as one time
being used. Uses of such Software Product shall include all copies of such
Software Product being used by Customer, including copies thereof delivered to
Customer prior to the execution of this Agreement.

"USAGE DAY" shall mean the 24 hour period commencing at midnight and
ending at the following midnight, *************, Japan time.

"USAGE MONTH" shall mean any calendar month during any
Usage Year.

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OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

"USAGE UNITS" accruing on any specific day shall mean a number equal
to (a) *********** of **** Product Uses for such day ****** (b) ***** multiplied
by ************************* Product Uses for such day ******* (c) ****
multiplied by ************* Product Uses for such day ***** (d) ***** multiplied
by ************************************* Product Uses ******* (e) *****
multiplied by ************************* Product Uses for such day ****** (f)
******* multiplied by ************************************* Product Uses for
such day **** (g) ****** multiplied by ************************* Product Uses
for such day ****** (h) ****************** Product Uses for such day (i)
************* ************************* Product uses for such day.

"USAGE YEAR" shall mean the 12 month period commencing on any Usage
Year Commencement Date during the term of this Agreement and ending on the last
day of such twelfth month.

"USAGE YEAR COMMENCEMENT DATE" shall mean January 1, 2001 (the
"FIRST USAGE YEAR COMMENCEMENT DATE") and each one year anniversary of such date
during the term of this Agreement.

2. INITIAL LICENSE FEE; ADDITIONAL LICENSE FEE. Within 30 days of
each Usage Year Commencement Date during the term of this Agreement Toshiba
shall pay PDF the following initial license fee (the "INITIAL LICENSE FEE"): (a)
on the First Usage Year Commencement Date, an amount equal to equal to
$*************; and (b) on each subsequent Usage Year Commencement Date, an
amount equal to $*************. Within 30 days following the end of each Usage
Year, Toshiba shall pay, in addition to the Initial License Fee, the following
additional license fee (the "ADDITIONAL LICENSE FEE") for such just completed
Usage Year corresponding to the Average Annual Peak Usage for such Usage Year:

AVERAGE ANNUAL
PEAK USAGE FOR THE                               ADDITIONAL
USAGE YEAR                                 LICENSE FEE
------------------                              -----------

Greater than *** Usage Units but                   $*************
less than or equal to *** Usage
Units

Greater than *** Usage Units but                   $*************
less than or equal to **** Usage
Units

Greater than *** Usage Units but                   $*************
less than or equal to **** Usage
Units

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Greater than *** Usage Units                       $*************

3.    U.S. DOLLARS. All Dollar ($) amounts shall refer to United States Dollars.
All payments shall be made by wire transfer of immediately available funds to an
account specified by Licensor.

1
Exhibit 23.1

CONSENT OF DELOITTE & TOUCHE LLP

We consent to the use in this Amendment No. 7 to Registration Statement No.
333-43192 of PDF Solutions, Inc. of our report dated January 19, 2001 (July 6,
2001 as to the third paragraph of Note 12), appearing in the Prospectus,
which is part of such Registration Statement, and of our report dated January
19, 2001 relating to the financial statement schedule appearing elsewhere in
this Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ DELOITTE & TOUCHE LLP

San Jose, California
July 6, 2001

1

EXHIBIT 23.2

CONSENT OF DELOITTE & TOUCHE GmbH

We consent to the use in this Amendment No. 7 to Registration Statement No.
333-43192 of PDF Solutions, Inc. of our report dated July 26, 2000 (relating to
the financial statements of Applied Integrated Systems & Software Entwicklungs-,
Produktions- und Vertriebs GmbH as of and for the year ended December 31, 1999),
appearing in the Prospectus, which is part of such Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Registration Statement.

/s/ Deloitte & Touche GmbH
/s/ Wirtschaftsprufungsgesellschaft

Munich, Germany
July 6, 2001