e10vq

You will not exercise any subsequent influence over the amount of Shares to be sold hereunder to generate funds for the Tax Withholding Obligation or the price, date or time of such sale.

You are entering into this Agreement in good faith and have a bona fide intention to carry out the terms of this Agreement, and you will not enter into or alter a corresponding or hedging transaction or position with respect to the Shares.

(ii) By Share Withholding. If so elected in the sole discretion of the Committee, then in lieu of a market sale pursuant to Paragraph 10(b)(i) you authorize the Company to withhold from the Shares issuable to you the whole number of shares with a value equal to the Fair Market Value of the Shares on the Taxable Date or the first trading day before the Taxable Date, sufficient to satisfy the applicable Tax Withholding Obligation. You acknowledge that the withheld shares may not be sufficient to satisfy your Tax Withholding Obligation. Accordingly, you agree to pay to the Company as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the withholding of Shares described above.

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KgfUIPw/F8UZ7gRiAbpeGaLE9p/mfCDpjvP0SIwI6HIP9eAvJRMuCP4+4YuUowA8 lw4/y9xHOVPxZf5gzBwOpg== 0000950135-05-006238.txt : 20051104 0000950135-05-006238.hdr.sgml : 20051104 20051104164056 ACCESSION NUMBER: 0000950135-05-006238 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20050925 FILED AS OF DATE: 20051104 DATE AS OF CHANGE: 20051104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD SEMICONDUCTOR INTERNATIONAL INC CENTRAL INDEX KEY: 0001036960 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 043363001 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15181 FILM NUMBER: 051180838 BUSINESS ADDRESS: STREET 1: 82 RUNNING HILL RD CITY: SOUTH PORTLAND STATE: ME ZIP: 04106 BUSINESS PHONE: 2077758100 MAIL ADDRESS: STREET 1: 82 RUNNING HILL RD CITY: SOUTH PORTLAND STATE: ME ZIP: 04106 FORMER COMPANY: FORMER CONFORMED NAME: FSC SEMICONDUCTOR CORP DATE OF NAME CHANGE: 19970424 10-Q 1 b57410fse10vq.htm FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. FORM 10-Q e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 25, 2005
		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to .

Commission File Number: 001-15181

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


Delaware		04-3363001
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

82 Running Hill Road

South Portland, Maine 04106

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:

(207) 775-8100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the issuer’s classes of common stock as of the close of business on September 25, 2005:


Title of Each Class		Number of Shares

Common Stock		120,115,459

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX


			Page

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements (Unaudited)
		CONSOLIDATED BALANCE SHEETS as of September 25, 2005 and December 26, 2004		3
		CONSOLIDATED STATEMENTS OF OPERATIONS for the Three and Nine Months Ended September 25, 2005 and September 26, 2004		4
		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) for the Three and Nine Months Ended September 25, 2005 and September 26, 2004		5
		CONSOLIDATED STATEMENTS OF CASH FLOWS for the Nine Months Ended September 25, 2005 and September 26, 2004		6
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)		7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
	Item 3. Quantitative and Qualitative Disclosures about Market Risk			48
	Item 4. Controls and Procedures			48
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			49
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			50
	Item 6. Exhibits			50
	SIGNATURE			52
EX-10.1 FORM OF PERFORMANCE UNIT AWARD AGREEMENT
EX-10.2 NON-QUALIFIED STOCK OPTION AGREEMENT
EX-10.3 PERFORMANCE UNIT AWARD AGREEMENT (THOMPSON)
EX-10.4 DEFERRED STOCK UNIT AWARD AGREEMENT (THOMPSON)
EX-10.5 PERFORMANCE UNIT AWARD AGREEMENT (POND)
EX-10.6 PERFORMANCE UNIT AWARD AGREEMENT (MARTIN)
EX-31.1 SECTION 302 CERTIFICATION OF C.E.O.
EX-31.2 SECTION 302 CERTIFICATION OF INTERIM PRINCIPAL FINANCIAL OFFICER
EX-32.1 SECTION 906 CERTIFICATION OF C.E.O.
EX-32.2 SECTION 906 CERTIFICATION OF INTERIM PRINCIPAL FINANCIAL OFFICER

PART I. FINANCIAL INFORMATION


Item 1.	*Financial Statements*

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


			September 25,			December 26,
			2005			2004

			(In millions)
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	334.2		$	146.3
	Short-term marketable securities			106.4			422.1
	Accounts receivable, net of allowances of $34.3 and $22.5 at September 25, 2005 and December 26, 2004, respectively			140.6			154.0
	Inventories			216.3			253.9
	Deferred income taxes, net of allowances of $20.7 and $0 at September 25, 2005 and December 26, 2004, respectively			5.0			25.7
	Other current assets			32.9			30.4

		Total current assets		835.4			1,032.4
Property, plant and equipment, net				635.1			664.1
Deferred income taxes, net of allowances of $189.7 and $6.1 at September 25, 2005 and December 26, 2004, respectively				—			129.3
Intangible assets, net				131.9			151.6
Goodwill				229.9			229.9
Long-term marketable securities				64.0			124.0
Other assets				31.8			45.2

		Total assets	$	1,928.1		$	2,376.5


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt		$	4.5		$	3.3
	Accounts payable			96.2			118.2
	Accrued expenses and other current liabilities			131.1			165.1

		Total current liabilities		231.8			286.6
Long-term debt, less current portion				643.2			845.2
Deferred income taxes				28.6			—
Other liabilities				15.8			15.6

		Total liabilities		919.4			1,147.4
Commitments and contingencies
Stockholders’ equity:
	Common stock			1.2			1.2
	Additional paid-in capital			1,270.1			1,259.2
	Accumulated deficit			(261.2	)		(24.7	)
	Accumulated other comprehensive income (loss)			3.3			(2.5	)
	Less treasury stock (at cost)			(4.7	)		(4.1	)

		Total stockholders’ equity		1,008.7			1,229.1

		Total liabilities and stockholders’ equity	$	1,928.1		$	2,376.5

See accompanying notes to unaudited consolidated financial statements.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


		Three Months Ended						Nine Months Ended

		September 25,			September 26,			September 25,			September 26,
		2005			2004			2005			2004

		(In millions, except per share data)
		(Unaudited)
Total revenue		$	345.5		$	409.7		$	1,054.3		$	1,223.7
Cost of sales			273.8			285.4			829.9			872.7

	Gross profit		71.7			124.3			224.4			351.0

Operating expenses:
Research and development			19.7			20.6			58.2			62.3
Selling, general and administrative			51.8			46.1			146.7			131.9
Amortization of acquisition-related intangibles			5.9			6.1			18.1			19.9
Restructuring and impairments			4.2			8.2			12.2			16.4
Reserve for potential settlement losses			—			—			—			11.0

	Total operating expenses		81.6			81.0			235.2			241.5

Operating income (loss)			(9.9	)		43.3			(10.8	)		109.5
Interest expense			9.5			16.1			31.5			47.7
Interest income			(3.4	)		(2.6	)		(9.4	)		(6.9	)
Other (income) expense			(3.4	)		8.4			20.5			8.4

Income (loss) before income taxes			(12.6	)		21.4			(53.4	)		60.3
Provision for income taxes			8.2			8.0			183.1			16.9

Net income (loss)		$	(20.8	)	$	13.4		$	(236.5	)	$	43.4

Net income (loss) per common share:
	Basic	$	(0.17	)	$	0.11		$	(1.97	)	$	0.36

	Diluted	$	(0.17	)	$	0.11		$	(1.97	)	$	0.35

Weighted average common shares:
	Basic		120.0			119.5			119.9			119.4

	Diluted		120.0			121.7			119.9			123.8

See accompanying notes to unaudited consolidated financial statements.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


		Three Months Ended					Nine Months Ended

		September 25,			September 26,		September 25,			September 26,
		2005			2004		2005			2004

		(In millions)
		(Unaudited)
Net income (loss)		$	(20.8	)	$	13.4	$	(236.5	)	$	43.4
Other comprehensive income (loss), net of tax:
	Net change associated with hedging transactions		—			0.4		2.1			1.1
	Net amount reclassified to earnings for hedging		(0.1	)		—		0.2			1.1
	Net change associated with unrealized holding gain (loss) on marketable securities and investments.		3.7			0.7		3.4			(0.9	)
	Net amount reclassified to earnings for marketable securities		—			—		0.1			0.1

Comprehensive income (loss)		$	(17.2	)	$	14.5	$	(230.7	)	$	44.8

See accompanying notes to unaudited consolidated financial statements.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


			Nine Months Ended

			September 25,			September 26,
			2005			2004

			(In millions)
			(Unaudited)
Cash flows from operating activities:
Net income (loss)			$	(236.5	)	$	43.4
	Adjustments to reconcile net income (loss) to cash provided by operating activities:
	Depreciation and amortization			119.4			128.3
	Amortization of deferred compensation			1.6			2.3
	Non-cash restructuring and impairment expense			4.2			0.3
	(Gain) loss on disposal of property, plant, and equipment			0.3			(0.8	)
	Non-cash vesting of equity awards			3.8			—
	Non-cash financing expense			1.9			2.9
	Deferred income taxes, net			177.1			5.3
	Non-cash write off of deferred financing fees			5.4			—
Changes in operating assets and liabilities:
	Accounts receivable, net			13.4			(18.5	)
	Inventories			37.6			(24.9	)
	Other current assets			11.0			(0.3	)
	Current liabilities			(56.0	)		24.9
	Other assets and liabilities, net			1.9			(3.7	)

		Cash provided by operating activities		85.1			159.2

Cash flows from investing activities:
	Purchase of marketable securities			(472.1	)		(720.5	)
	Sale of marketable securities			825.4			577.0
	Maturity of marketable securities			20.6			51.7
	Capital expenditures			(71.9	)		(144.6	)
	Proceeds from sale of property, plant and equipment			—			6.7
	Purchase of molds and tooling			(1.8	)		(2.9	)

		Cash provided by (used in) investing activities		300.2			(232.6	)

Cash flows from financing activities:
	Repayment of long-term debt			(355.3	)		(2.5	)
	Issuance of long-term debt			154.5			—
	Proceeds from issuance of common stock and from exercise of stock options, net			10.4			21.6
	Purchase of treasury stock			(6.0	)		(6.6	)
	Debt issuance costs			(1.0	)		(0.4	)

		Cash provided by (used in) financing activities		(197.4	)		12.1

Net change in cash and cash equivalents				187.9			(61.3	)
Cash and cash equivalents at beginning of period				146.3			169.5

Cash and cash equivalents at end of period			$	334.2		$	108.2

See accompanying notes to unaudited consolidated financial statements.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation

The accompanying interim consolidated financial statements of Fairchild Semiconductor International, Inc. (the “company”) have been prepared in conformity with accounting principles generally accepted in the United States of America, consistent in all material respects with those applied in the company’s Annual Report on Form 10-K for the year ended December 26, 2004. The interim financial information is unaudited, but reflects all normal adjustments, which are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. The financial statements should be read in conjunction with the financial statements in the company’s Annual Report on Form 10-K for the year ended December 26, 2004. Certain amounts for prior periods have been reclassified to conform to the current presentation.

Note 2 — Financial Statement Details


			September 25,		December 26,
			2005		2004

			(In millions)
Inventories
Raw materials			$	27.3	$	30.9
Work in process				135.4		162.5
Finished goods				53.6		60.5

			$	216.3	$	253.9

Property, plant and equipment
	Land		$	32.0	$	32.1
	Buildings and improvements			304.4		299.5
	Machinery and equipment			1,314.1		1,273.9
	Construction in progress			99.7		109.8

		Total property, plant and equipment		1,750.2		1,715.3
	Less accumulated depreciation			1,115.1		1,051.2

			$	635.1	$	664.1

During the third quarter of 2005, the company completed an analysis of the useful life assumptions on certain factory machinery and equipment. As a result, the estimated useful life assumptions for certain machinery and equipment was adjusted to better align depreciation expense to the actual historical useful lives. As a result, the company had a reduction in depreciation expense of approximately $15 million in the third quarter of 2005, which was offset by approximately $12 million of cost of sales of inventory manufactured under previous costs. This resulted in a net favorable impact for the quarter of approximately $3 million.


Note 3 —	Computation of Net Income (Loss) Per Share

The company calculates earnings per share in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period. The dilutive effect of the common stock equivalents is included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive. Potentially dilutive common equivalent shares consist of stock options, deferred stock units (DSUs) and shares obtainable upon the conversion of the Convertible Senior Subordinated Notes, due November 1, 2008.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Three Months Ended				Nine Months Ended

	September 25,		September 26,		September 25,		September 26,
	2005		2004		2005		2004

	(In millions)
Basic weighted average common shares outstanding		120.0		119.5		119.9		119.4
Net effect of dilutive stock options and DSUs based on the treasury stock method using the average market price		—		2.2		—		4.4

Diluted weighted average common shares outstanding		120.0		121.7		119.9		123.8

For the three and nine months ended September 25, 2005, approximately 3.1 million and 2.7 million common equivalent shares from stock options and DSUs, respectively, have been excluded from the calculation of diluted net loss per common share because their effect would have been anti-dilutive. In addition, $1.7 million and $5.1 million were excluded in the computation of net income (loss) for the three and nine months ended September 25, 2005 and September 26, 2004, respectively, and 6.7 million potential common shares were excluded in the computation of diluted earnings per share as a result of the assumed conversion of the convertible senior subordinated notes because the effect would have been anti-dilutive.

For the three and nine months ended September 25, 2005, approximately 13.7 million and 16.1 million, respectively, of the company’s stock options were greater than or equal to the average price of the common shares, and therefore have been excluded because their inclusion would have been anti-dilutive. For the three and nine months ended September 26, 2004, approximately 18.3 million and 13.3 million, respectively, of the company’s stock options were greater than or equal to the average price of the common shares, and therefore have been excluded because their inclusion would have been anti-dilutive. These options could be dilutive in the future if the average share price increases and is greater than the exercise price of these options.

Note 4 — Supplemental Cash Flow Information


		Nine Months Ended

		September 25,		September 26,
		2005		2004

		(In millions)
Cash paid, net for:
	Income taxes	$	6.6	$	4.5

	Interest	$	38.0	$	51.8


Note 5 —	Marketable Securities

The company invests excess cash in marketable securities consisting primarily of commercial paper, corporate notes and bonds, and U.S. Government securities with maturities of no greater than 36 months. The company also invests in auction rate securities. These securities have long-term underlying maturities, however, the market is highly liquid and the interest rates reset based on an auction process every 7, 28 or 35 days. The company’s intent is not to hold these securities to maturity, but rather to use the interest rate reset feature to sell securities to provide liquidity as needed. The company’s practice is to invest in these securities for higher yields compared to cash equivalents. Prior to December 26, 2004, auction rate securities were classified as cash equivalents due to their highly liquid nature. They are now classified as short-term investments for the periods presented. In addition, due to the new classification all purchases and sales of auction rate securities are reflected in the investing section of the Consolidated Statements of Cash Flows. As a result, certain previously reported amounts have been reclassified in the accompanying Consolidated

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Statement of Cash Flows for the nine months ended September 26, 2004 to conform to this presentation. Auction rate securities of $420.1 million and $361.6 million were reclassified from cash to short-term marketable investments as of September 26, 2004 and December 28, 2003, respectively.

All of the company’s marketable securities are classified as available-for-sale. In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, available-for-sale securities are carried at fair value with unrealized gains and losses included as a component of other comprehensive income within stockholders’ equity, net of any related tax effect. Realized gains and losses and declines in value judged by management to be other than temporary on these investments are included in interest income and expense.

The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at September 25, 2005 are as follows:


	Amortized		Market
	Cost		Value

	(In millions)
Due in one year or less	$	50.6	$	50.0
Due after one year through three years		65.0		64.0
Due after ten years		56.5		56.4

	$	172.1	$	170.4


Note 6 —	Investments

The company has certain strategic investments that are typically accounted for on a cost basis as they are less than 20% owned, and the company does not exercise significant influence over the operating and financial policies of the investee. Under the cost method, investments are held at historical cost, less impairments, as there are no readily determinable market values. The company periodically assesses the need to record impairment losses on investments and records such losses when the impairment of an investment is determined to be other than temporary in nature. A variety of factors is considered when determining if a decline in fair value below book value is other than temporary, including, among others, the financial condition and prospects of the investee. During the third quarter of 2005, the company recorded a $1.1 million charge to other expense for the partial write-down of a strategic investment.

During the third quarter of 2005, one of the company’s strategic investments completed its initial public offering. As a result, the investment is now classified as available-for sale and is carried at fair market value with unrealized gains and losses included as a component of other comprehensive income within stockholders’ equity, net of any related tax effect. The cost basis of this investment as of June 26, 2005 was $0.5 million and was included in other assets on the balance sheet. The fair value based on the ending stock price as of September 25, 2005 was $4.4 million, which was included in other current assets on the balance sheet.

The total cost basis for strategic investments, which are included in other assets on the balance sheet, as of September 25, 2005 and December 26, 2004 are $4.0 million and $5.6 million respectively, net of write-offs. There were no strategic investments classified as available-for-sale as of December 26, 2004.


Note 7 —	Stock Based Compensation

The company has certain stock option plans. The company accounts for those plans under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The following table illustrates the effect on net income (loss) and net income (loss) per common share

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as if the company applied the fair value based method of SFAS No. 123, Accounting for Stock-Based Compensation, to record expense for stock option compensation.


		Three Months Ended						Nine Months Ended

		September 25,			September 26,			September 25,			September 26,
		2005			2004			2005			2004

		(In millions, except per share amounts)
Net income (loss), as reported		$	(20.8	)	$	13.4		$	(236.5	)	$	43.4
Add: Stock compensation charge included in net income (loss) determined under the intrinsic value method, net of tax			0.4			0.5			5.4			1.4
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax			(4.2	)		(11.4	)		(57.0	)		(35.4	)

Pro forma net income (loss)		$	(24.6	)	$	2.5		$	(288.1	)	$	9.4

Income (loss) per share:
	Basic — as reported	$	(0.17	)	$	0.11		$	(1.97	)	$	0.36

	Basic — pro forma	$	(0.21	)	$	0.02		$	(2.40	)	$	0.08

	Diluted — as reported	$	(0.17	)	$	0.11		$	(1.97	)	$	0.35

	Diluted — pro forma	$	(0.21	)	$	0.02		$	(2.40	)	$	0.08

Due to the income tax valuation allowance recorded by the company in the second quarter of 2005, the pro forma effect on net loss for the nine months ended September 25, 2005 reflects a zero U.S. tax rate. The nine months ended September 25, 2005 also includes the reversal of the first quarter tax effect.

The weighted average fair value of options granted was $7.13 and $7.20 for the three and nine months ended September 25, 2005, respectively, and $8.83 and $12.56 for the three and nine months ended September 26, 2004, respectively. The fair value of each option grant for the company’s plans is estimated on the date of the grant using the Black-Scholes option pricing model, with the following weighted average assumptions:


	Three Months Ended						Nine Months Ended

	September 25,			September 26,			September 25,			September 26,
	2005			2004			2005			2004

Expected volatility		53.3	%		67.0	%		53.7	%		68.0	%
Dividend yield		—			—			—			—
Risk-free interest rate		4.0	%		3.6	%		4.0	%		3.8	%
Expected life, in years		3.9			6.0			4.0			6.0

In light of new accounting guidance under SFAS No. 123R, Share-Based Payment, which addresses option valuation for employee awards, the company has reevaluated its assumptions used in estimating the fair value of employee options granted in the third quarter of 2005. Based on this reevaluation, the company has revised its methodology for estimating volatility and expected life. For the expected volatility, the company has evaluated historical volatility and adjusted for expected future results to determine a reasonable assumption. For expected term, the company has evaluated terms based on history and exercise patterns across its demographic population to determine a reasonable assumption. The company has estimated these assumptions considering the guidance in SFAS No. 123R and Staff Accounting Bulletin (SAB) No. 107 and has

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

determined that the assumptions used for the third quarter of 2005 are more appropriate estimates of the company’s expected volatility and expected life.

On February 18, 2005, the company announced the acceleration of certain unvested and “out-of-the-money” stock options previously awarded to employees and officers that have exercise prices per share of $19.50 or higher. As a result, options to purchase approximately six million shares of Fairchild stock became exercisable immediately upon the announcement. Based upon the company’s closing stock price of $16.15 on February 18, 2005, none of these options had economic value on the date of acceleration.

During the second quarter of 2005, the company accelerated unvested stock options related to certain employee retirements, effective June 26, 2005. As a result of this acceleration, options to purchase approximately 350,000 shares became exercisable at the date of acceleration. In addition, approximately $0.5 million of additional expense is included in pro forma net loss for the nine months ended September 25, 2005.

The company uses the expense recognition method in Financial Accounting Standards Board (FASB) Interpretation (FIN) 28: Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans for recognizing stock compensation expense for SFAS No. 123 disclosure purposes.

The company previously reported that it would apply the expense recognition provisions relating to stock options beginning in the third quarter of 2005 in accordance with the revised SFAS No. 123R; however, on April 14, 2005, the Securities and Exchange Commission adopted a new rule which amended the compliance date to the beginning of the first annual period that begins after June 15, 2005, therefore deferring the company’s required adoption to the beginning of the first quarter of 2006.

Under SFAS No. 123R, the pro forma disclosures previously permitted will no longer be an alternative to financial statement recognition. The company expects to apply the Black-Scholes valuation model in determining the fair value of share-based payments to employees. The company also expects to apply the modified prospective transition method upon adoption of SFAS No. 123R.


Note 8 —	Goodwill and Intangible Assets

A summary of acquired intangible assets is as follows:


					As of September 25, 2005					As of December 26, 2004

			Period of		Gross Carrying		Accumulated			Gross Carrying		Accumulated
			Amortization		Amount		Amortization			Amount		Amortization

					(In millions)
Identifiable intangible assets:
	Developed technology			5 - 15 years	$	225.6	$	(103.9	)	$	225.6	$	(89.5	)
	Customer base			8 years		55.8		(45.9	)		55.8		(40.7	)
	Covenant not to compete			5 years		30.4		(30.4	)		30.4		(30.4	)
	Trademarks and tradenames			4 years		24.9		(24.9	)		24.9		(24.9	)
	Patents			4 years		5.4		(5.1	)		5.4		(5.0	)

		Subtotal				342.1		(210.2	)		342.1		(190.5	)
	Goodwill					229.9		—			229.9		—

		Total			$	572.0	$	(210.2	)	$	572.0	$	(190.5	)

The company assesses the impairment of long-lived assets on an ongoing basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. During the third quarter of 2005, we determined that certain products acquired no longer fit the overall strategy of our business, which

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

triggered an intangible asset impairment review. The recoverability of these assets was measured by comparing the carrying value to the future undiscounted cash flows. The test determined that the undiscounted cash flows were less than the carrying amounts, so an impairment loss was recorded to the extent that the carrying amount exceeded the fair value. As a result, we recognized a $1.6 million impairment of developed technology during the third quarter of 2005, which was recorded in restructuring and impairments in the accompanying statement of operations.

Due to a change in our SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, segment reporting at the beginning of 2005, our new identified reporting units that carry goodwill include Power Analog Products Group (“Power Analog”), Power Discrete Products Group (“Power Discrete”) and Standard Products Group (“Standard Products”). The carrying amount of goodwill by reporting unit is as follows:


	Power		Power		Standard
	Analog		Discrete		Products		Total

	(In millions)
Balance as of September 25, 2005 and December 26, 2004	$	15.5	$	159.9	$	54.5	$	229.9

During the nine months ended September 25, 2005, there were no changes to the carrying amount of goodwill due to acquisitions or divestitures. Also, in conjunction with the change in our SFAS No. 131 segment reporting during the first quarter of 2005, goodwill was retested for impairment and the company concluded that goodwill was not impaired.

The estimated amortization expense for intangible assets for the remainder of 2005 and for each of the five succeeding fiscal years is as follows:


	(In millions)

Estimated Amortization Expense:
Remainder of 2005	$	5.9
2006		23.4
2007		18.3
2008		16.5
2009		16.4
2010		16.4

Note 9 — Segment Information

Effective December 27, 2004 (first day of fiscal year 2005), the company realigned its operating segments as a result of its reorganization of the reporting and management structure. The company is currently organized into three reportable segments: Power Discrete, Power Analog and Standard Products. Power Discrete includes high power, low power, automotive and radio frequency (“RF”) products. Power Analog includes system power, power conversion, signal conditioning, switches and interface products. Standard Products includes opto lighting, linear IC, logic, small signal products and foundry.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Historical amounts in the table below have been reclassified to align with these new operating segments. Selected operating segment financial information for the three and nine months ended September 25, 2005 and September 26, 2004 is as follows:


		Three Months Ended						Nine Months Ended

		September 25,			September 26,			September 25,			September 26,
		2005			2004			2005			2004

		(In millions)
Revenue and Operating Income (Loss):
Power Discrete
	Total revenue	$	195.0		$	220.3		$	592.7		$	644.0
	Operating income		6.1			39.0			27.1			94.3

Power Analog
	Total revenue		62.0			80.4			199.0			236.8
	Operating income (loss)		(14.8	)		4.9			(30.6	)		19.2

Standard Products
	Total revenue		88.5			109.0			262.6			342.9
	Operating income		3.0			7.6			4.9			23.4

Other
	Operating loss(1)		(4.2	)		(8.2	)		(12.2	)		(27.4	)

Total Consolidated
	Total revenue	$	345.5		$	409.7		$	1,054.3		$	1,223.7
	Operating income (loss)	$	(9.9	)	$	43.3		$	(10.8	)	$	109.5

(1)

Includes $4.2 million and $12.2 million of restructuring in the three and nine months ended September 25, 2005, respectively, and $8.2 million and $16.4 million of restructuring in the three and nine months ended September 26, 2004, respectively. Also includes $11.0 million for the nine months ended September 26, 2004 for a reserve for potential settlement losses stemming from customer claims related to products manufactured with a defective mold compound purchased from Sumitomo Bakelite Singapore Pte. Ltd and affiliated companies (see Note 13 and 16).

Note 10 — Restructuring and Impairments

During the three months and nine months ended September 25, 2005, the company recorded restructuring charges of $4.2 million and $12.2 million, respectively. In the third quarter of 2005, these charges include $2.9 million in employee separation costs, $1.6 million in asset impairment charges, and a $0.3 million net reserve release due to a revised estimate of employee separation medical costs. For the nine months ended September 25, 2005, these charges also include $5.7 million in employee separation costs, $0.5 million in office closure costs, $2.1 million in asset impairment charges, $0.2 million of other transfer costs, a $0.3 million reserve release associated with the 2004 Infrastructure Realignment Program due to revised estimates, and a $0.2 million net reserve release due to revised estimates associated with first quarter employee separation charges.

During the three and nine months ended September 26, 2004, the company recorded restructuring charges of $8.2 million and $16.4 million, respectively. In the third quarter of 2004, the charge included $2.9 million relating to our six-inch Mountaintop, Pennsylvania wafer fab closure, primarily associated with the decommissioning of certain assets, $5.0 million primarily relating to decommissioning of certain assets

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

relating to the closure of our four-inch South Portland, Maine wafer fab, and $0.3 million of additional charges related to the closure of our Kuala Lumpur, Malaysia plant; all related to restructuring actions announced in 2003. The company also released $0.4 million of reserves relating to employee separation costs at our four-inch South Portland wafer fab, due to revised estimates. In addition, the company recorded a charge of $0.4 million for additional employee separation costs relating to previously announced infrastructure alignment projects. For the nine months ended September 26, 2004, these charges also included $4.5 million relating to our six-inch Mountaintop wafer fab closure, primarily associated with the decommissioning of certain assets, $0.2 million of asset impairment charges relating to the discontinuation of our memory product line, $0.2 million of employee separation costs relating to the closure of our four-inch South Portland wafer fab, $2.6 million primarily relating to decommissioning of certain assets relating to the closure of our four-inch South Portland wafer fab, $0.7 million of additional charges relating to the closure of our Kuala Lumpur plant, and $1.7 million of employee separation costs relating to the severance for approximately 30 employees in the United States associated with on-going infrastructure alignment projects. The company recorded a $0.9 million reversal of employee separation costs related to fewer than anticipated headcount reduction actions related to the four-inch wafer fab closure in South Portland. In addition, the company also released $0.8 million of reserves relating primarily to second quarter and fourth quarter 2003 employee separation costs and our Kuala Lumpur plant closure due to revised estimates relating to these actions.

In the third quarter of 2004, the company also recorded net reserve releases of $0.2 million of sales reserves and $0.6 million of inventory reserves, recorded in revenue and cost of sales, respectively, due to a change in reserve estimates. For the nine months ended September 26, 2004, the company also recorded $1.9 million of distributor reserve release due to a change in estimate and a charge of $0.9 million of inventory reserve, recorded in revenue and cost of sales, respectively. All related charges were associated with our 2003 restructuring actions. Inventory and distributor reserves associated with these actions are complete.

The following table summarizes the activity in the company’s accrual for restructuring and impairment costs for the three and nine months ended September 25, 2005 (in millions):


		Accrual												Accrual
		Balance at		New		Cash			Reserve			Non-Cash		Balance at
		12/26/2004		Charges		Paid			Release			Items		3/27/2005

First Quarter 2003 Restructuring Program:
	Mountaintop, PA 6 Inch Closure Employee Separation Costs	$	0.1	$	—	$	(0.1	)	$	—		$	—	$	—
Second Quarter 2003 Restructuring Program:
	Employee Separation Costs		0.1		—		(0.1	)		—			—		—
	South Portland, ME 4 Inch Closure Employee Separation Costs		0.7		—		(0.1	)		—			—		0.6
	Kuala Lumpur, Malaysia Plant Closure Employee Separation Costs		0.5		—		(0.3	)		—			—		0.2
2004 Infrastructure Realignment Program:
	Employee Separation Costs		3.2		—		(1.0	)		(0.3	)		—		1.9
2005 Infrastructure Realignment Program:
	Employee Separation Costs		—		3.9		(0.9	)		—			—		3.0
	Office Closure Costs		—		0.5		—			—			—		0.5

		$	4.6	$	4.4	$	(2.5	)	$	(0.3	)	$	—	$	6.2

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		Accrual													Accrual
		Balance at		New		Cash			Reserve			Non-Cash			Balance at
		3/27/2005		Charges		Paid			Release			Items			6/26/2005

Second Quarter 2003 Restructuring Program:
	South Portland, ME 4 Inch Closure Employee Separation Costs	$	0.6	$	—	$	(0.1	)	$	—		$	—		$	0.5
	Kuala Lumpur, Malaysia Plant Closure Employee Separation Costs		0.2		—		—			—			—			0.2
2004 Infrastructure Realignment Program:
	Employee Separation Costs		1.9		—		(0.4	)		—			—			1.5
2005 Infrastructure Realignment Program:
	Employee Separation Costs		3.0		1.8		(3.0	)		(0.2	)		—			1.6
	Office Closure Costs		0.5		—		(0.1	)		—			—			0.4
	Asset Impairment		—		2.1		—			—			(2.1	)		—
	Transfer Costs		—		0.2		(0.2	)		—			—			—

		$	6.2	$	4.1	$	(3.8	)	$	(0.2	)	$	(2.1	)	$	4.2


		Accrual													Accrual
		Balance at		New		Cash			Reserve			Non-Cash			Balance at
		6/26/2005		Charges		Paid			Release			Items			9/25/2005

Second Quarter 2003 Restructuring Program:
	South Portland, ME 4 Inch Closure Employee Separation Costs	$	0.5	$	—	$	—		$	(0.3	)	$	—		$	0.2
	Kuala Lumpur, Malaysia Plant Closure Employee Separation Costs		0.2		—		—			—			—			0.2
2004 Infrastructure Realignment Program:
	Employee Separation Costs		1.5		—		(0.4	)		—			—			1.1
2005 Infrastructure Realignment Program:
	Employee Separation Costs		1.6		2.9		(0.7	)		—			(0.7	)		3.1
	Office Closure Costs		0.4		—		(0.3	)		—			—			0.1
	Asset Impairment		—		1.6		—			—			(1.6	)		—

		$	4.2	$	4.5	$	(1.4	)	$	(0.3	)	$	(2.3	)	$	4.7

The company expects to complete payment of substantially all 2003 and 2004 restructuring accruals by the second quarter of 2006, and substantially all 2005 accruals by the third quarter of 2006.


Note 11 —	Refinancing of Senior Credit Facility

In January 2005, the company increased its senior credit facility to $630 million, consisting of a term loan of $450 million replacing the previous $300 million term loan, and a $180 million revolving line of credit. On January 13, 2005, Fairchild Semiconductor Corporation gave notice to redeem all $350 million of its 10¹/2% Senior Subordinated Notes due 2009. The company used the proceeds of the $150 million increase of the term loan together with approximately $216 million of existing cash, to complete the redemption, which included a call premium of 5.25%, on February 13, 2005. The company incurred a cash charge of $19.6 million in the first quarter of 2005 for the call premium and accrued and unpaid interest through the date of

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

redemption. The company also incurred a non-cash charge of $5.4 million for the write-off of deferred financing fees associated with the redeemed notes. The refinancing reduced the company’s debt by approximately $200 million, net of the term loan increase, during the quarter ended March 27, 2005.


Note 12 —	Derivatives

The company uses derivative instruments to manage exposures to foreign currencies. In accordance with SFAS No. 133, Accounting for Certain Derivative Instruments and Certain Hedging Activities, the fair value of these hedges is recorded on the balance sheet. Certain forecasted transactions are exposed to foreign currency risks. The company monitors its foreign currency exposures to maximize the overall effectiveness of its foreign currency hedge positions. Currencies hedged include the euro, Japanese yen, Malaysian ringgit and Korean won. The company’s objectives for holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impacts of these exposures.

Changes in the fair value of derivative instruments related to time value are included in the assessment of hedge effectiveness. Hedge ineffectiveness, determined in accordance with SFAS No. 133 and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities — an amendment of FASB Statement No. 133, had no impact on earnings for the three and nine months ended September 25, 2005. Three cash flow hedges were discontinued for the nine months ended September 25, 2005. The $0.1 million favorable impact of terminating the hedges was recorded in the statement of operations in accordance with SFAS No. 133.

Derivative gains and losses included in other comprehensive income (OCI) are reclassified into earnings at the time the forecasted transaction revenue is recognized. The company estimates that the entire $0.5 million of net unrealized derivative gains included in OCI will be reclassified into earnings within the next twelve months.


Note 13 —	Contingencies

From time to time since late 2001, the company has received claims from a number of customers seeking damages resulting from certain products manufactured with a phosphorus-containing mold compound. Mold compound is the plastic resin used to encapsulate semiconductor chips. This particular mold compound causes some chips to short in some situations, resulting in chip failure. In May 2004 the company was named, along with three product distribution companies, as a defendant in a lawsuit filed by Alcatel Canada Inc. in the Ontario Superior Court of Justice. The lawsuit alleges breach of contract, negligence and other claims and seeks C$200,000,000 (Canadian dollars) in damages allegedly caused by the company’s products containing the mold compound. In January 2005 the company was named as a defendant in a lawsuit filed by Lucent Technologies Inc. in the Superior Court of New Jersey. The lawsuit alleges breach of contract and breach of warranty claims and seeks unspecified damages allegedly caused by our products. The company believes it has strong defenses against all these claims relating to mold compound and intends to vigorously defend both lawsuits.

Several other customers have made claims for damages or threatened to begin litigation as a result of the mold compound issue if their claims are not resolved according to their demands, and the company may face additional lawsuits as a result. The company has also resolved similar claims with several of its leading customers. The company has limited insurance coverage for such customer claims, almost all of which has been utilized. While the exact amount of these losses is not known, the company recorded a reserve for estimated potential settlement losses of $11.0 million in the Consolidated Statement of Operations during the second quarter of 2004. This estimate was based upon an assessment of the potential liability using an analysis of all the claims to date and historical experience. If the company continues to receive additional claims for damages from customers beyond the period of time normally observed for such claims, if more of these claims proceed to litigation, or if the company chooses to settle claims in settlement of or to avoid litigation, then the

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

company may incur a liability in excess of the current reserve. At September 25, 2005 and December 26, 2004 the reserve for estimated potential settlement losses was $10.3 million and $11.0 million, respectively.

In a related action, the company filed a lawsuit in August 2002 against the mold compound supplier, Sumitomo Bakelite Co. Ltd., and other related parties in California Superior Court for Santa Clara County, alleging claims for breach of contract, misrepresentation, negligence and other claims and seeking unspecified damages, including damages caused to the company’s customers as a result of mold compound supplied by Sumitomo. Other manufacturers have also filed lawsuits against Sumitomo relating to the same mold compound issue. During the third quarter the company agreed to settle litigation against Amkor Technology, Inc., a co-defendant with Sumitomo. As a result of this settlement the company recorded net settlement gains before taxes of approximately $2.7 million in the third quarter of 2005. On September 30, 2005, the company agreed to settle its lawsuit against Sumitomo. Accordingly, the company will record net settlement gains before taxes of approximately $18 million in the fourth quarter of 2005.

On October 20, 2004, the company and its wholly owned subsidiary, Fairchild Semiconductor Corporation, were sued by Power Integrations, Inc. (POWI) in the United States District Court for the District of Delaware. The complaint filed by POWI alleges that certain of the company’s Pulse-Width Modulator (PWM) integrated circuit products infringe four of POWI’s U.S. patents, and seeks a permanent injunction preventing the companies from manufacturing, selling, offering for sale or importing the allegedly infringing products as well as money damages for the alleged past infringement. The company has analyzed the POWI patents in light of its products and, based on that analysis, does not believe its products violate POWI’s patents and, accordingly, plans to vigorously contest this lawsuit.

On December 30, 2004, the company’s wholly owned subsidiary, Fairchild Semiconductor Corporation, was sued by ZTE Corporation, a communications equipment manufacturer, in Guangdong Higher People’s Court in Guangzhou, People’s Republic of China. The complaint filed by ZTE alleges that certain of the company’s products were defective and caused personal injury and/or property loss to ZTE. ZTE claims 65,733,478 RMB as damages. The company contested the lawsuit in a trial held on October 20, 2005 and the court’s decision is pending. The company continues to deny the allegations in the lawsuit.

From time to time the company is involved in legal proceedings in the ordinary course of business. The company believes that there is no such ordinary course litigation pending that could have, individually or in the aggregate, a material adverse effect on its business, financial condition, results of operations or financial condition.

Note 14 — Income Taxes

Income taxes from continuing operations for the third quarter and first nine months of 2005 was $8.2 million and $183.1 million, on loss before taxes of $12.6 million and $53.4 million, respectively, as compared to $8.0 million and $16.9 million, on income before taxes of $21.4 million and $60.3 million, respectively, for the comparable period of 2004. Included in worldwide tax expense of $8.2 million for the third quarter of 2005 is a non-cash charge of $9.2 million recorded to increase the valuation allowance for U.S. deferred tax assets. As a result of establishing a full valuation allowance against its net U.S. deferred tax assets in the second quarter of 2005, the company did not recognize any deferred tax benefits related to U.S. net losses incurred in the third quarter of 2005. The valuation allowance of $210.4 million as of September 25, 2005 consists of the beginning of the year allowance of $6.1 million and year to date 2005 charges (benefits) of $204.6 million to income from continuing operations, $0.9 million to additional paid in capital and $(1.2) million to other comprehensive income.

Significant management judgment is required in determining our provision for income taxes and in determining whether deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or foreign tax credit

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

carryforwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that are determined not likely to be realizable. Realization is based on our ability to generate sufficient future taxable income. The valuation allowance was determined in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. At the end of the second quarter of 2005, full year 2005 projections changed from a forecasted U.S. profit to a forecasted U.S. loss. This shift in full year 2005 forecasted results, from income to a loss, continues the cumulative losses incurred in the U.S. in recent years and represents significant negative evidence under SFAS No. 109 which is difficult to overcome. Accordingly, a full valuation allowance was recorded in the second quarter of 2005. The company will maintain a full valuation allowance on its net U.S. deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. Until such time that some or all of the valuation allowance is reversed, future income tax expense (benefit) in the U.S. will be offset by adjustments to the valuation allowance to effectively eliminate any income tax expense or benefit in the United States. Income taxes will continue to be recorded for other tax jurisdictions subject to the need for valuation allowances in those jurisdictions.

During the quarter ended September 25, 2005, in conjunction with the filing of current and amended U.S. income tax returns to make certain tax elections (the capitalization of research and development and the recording of foreign tax credits), the components of the U.S. deferred tax asset were recharacterized as compared to December 26, 2004. As a result of the amended returns, the deferred tax asset related to the U.S. net operating loss decreased by $104.2 million, foreign tax credits increased by $38.2 million and other temporary differences increased by $64.4 million.


Note 15 —	Condensed Consolidating Financial Statements

The company operates through its wholly owned subsidiary Fairchild Semiconductor Corporation and other indirect wholly owned subsidiaries. Fairchild Semiconductor International, Inc. and certain of Fairchild Semiconductor Corporation’s subsidiaries are guarantors under Fairchild Semiconductor Corporation’s 5% Convertible Senior Subordinated Notes. These guarantees are joint and several. Accordingly, presented below are condensed consolidating balance sheets of Fairchild Semiconductor International, Inc. as of September 25, 2005 and December 26, 2004 and related condensed consolidating statements of operations for the three and nine months ended September 25, 2005 and September 26, 2004 and condensed consolidating cash flows for the nine months ended September 25, 2005 and September 26, 2004.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET


			September 25, 2005

			Unconsolidated			Unconsolidated											Consolidated
			Fairchild			Fairchild						Non-					Fairchild
			Semiconductor			Semiconductor			Guarantor			Guarantor					Semiconductor
			International, Inc.			Corporation			Subsidiaries			Subsidiaries		Eliminations			International, Inc.

			(In millions)
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	—		$	85.0		$	—		$	249.2	$	—		$	334.2
	Short-term marketable securities			—			106.4			—			—		—			106.4
	Accounts receivable, net			—			17.9			—			122.7		—			140.6
	Inventories			—			109.8			4.9			101.6		—			216.3
	Deferred income taxes, net			—			—			—			5.0		—			5.0
	Other current assets			—			20.0			—			12.9		—			32.9

		Total current assets		—			339.1			4.9			491.4		—			835.4
Property, plant and equipment, net				—			293.3			1.5			340.3		—			635.1
Intangible assets, net				—			32.1			14.2			85.6		—			131.9
Goodwill				—			167.7			61.8			0.4		—			229.9
Long-term marketable securities				—			64.0			—			—		—			64.0
Investment in subsidiary				1,005.4			874.7			263.3			89.4		(2,232.8	)		—
Other assets				—			15.8			1.8			14.2		—			31.8

		Total assets	$	1,005.4		$	1,786.7		$	347.5		$	1,021.3	$	(2,232.8	)	$	1,928.1


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt		$	—		$	4.5		$	—		$	—	$	—		$	4.5
	Accounts payable			—			63.8			0.2			32.2		—			96.2
	Accrued expenses and other current liabilities			—			77.2			0.9			53.0		—			131.1

		Total current liabilities		—			145.5			1.1			85.2		—			231.8
Long-term debt, less current portion				—			643.2			—			—		—			643.2
Net intercompany (receivable) payable				—			(29.3	)		(15.5	)		44.8		—			—
Deferred income taxes				—			18.1			—			10.5		—			28.6
Other liabilities				—			0.5			—			15.3		—			15.8

		Total liabilities		—			778.0			(14.4	)		155.8		—			919.4

Commitments and contingencies
Stockholders’ equity:
	Common stock			1.2			—			—			—		—			1.2
	Additional paid-in capital			1,270.1			—			—			—		—			1,270.1
	Retained earnings (deficit)			(261.2	)		1,005.4			361.9			865.5		(2,232.8	)		(261.2	)
	Accumulated other comprehensive loss			—			3.3			—			—		—			3.3
	Less treasury stock (at cost)			(4.7	)		—			—			—		—			(4.7	)

		Total stockholders’ equity		1,005.4			1,008.7			361.9			865.5		(2,232.8	)		1,008.7

		Total liabilities and stockholders’ equity	$	1,005.4		$	1,786.7		$	347.5		$	1,021.3	$	(2,232.8	)	$	1,928.1

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


		Three Months Ended September 25, 2005

		Unconsolidated			Unconsolidated												Consolidated
		Fairchild			Fairchild						Non-						Fairchild
		Semiconductor			Semiconductor			Guarantor			Guarantor						Semiconductor
		International, Inc.			Corporation			Subsidiaries			Subsidiaries			Eliminations			International, Inc.

		(In millions)
		(Unaudited)
Total revenue		$	—		$	324.2		$	1.1			429.0		$	(408.8	)	$	345.5
Cost of sales			—			298.9			3.3			380.4			(408.8	)		273.8

	Gross profit (loss)		—			25.3			(2.2	)		48.6			—			71.7

Operating Expenses:
Research and development			—			11.5			2.6			5.6			—			19.7
Selling, general and administrative			—			35.5			1.1			15.2			—			51.8
Amortization of acquisition-related intangibles			—			1.4			0.5			4.0			—			5.9
Restructuring and impairments			—			3.9			0.1			0.2			—			4.2

	Total operating expenses		—			52.3			4.3			25.0			—			81.6

Operating income (loss)			—			(27.0	)		(6.5	)		23.6			—			(9.9	)
Interest expense			—			9.5			—			—			—			9.5
Interest income			—			(2.9	)		(0.1	)		(0.4	)		—			(3.4	)
Other income, net			—			(3.4	)		—			—			—			(3.4	)
Equity in subsidiary (income) loss			20.8			(12.8	)		7.1			—			(15.1	)		—

Income (loss) before income taxes			(20.8	)		(17.4	)		(13.5	)		24.0			15.1			(12.6	)
Provision for income taxes			—			3.4			0.1			4.7			—			8.2

Net income (loss)		$	(20.8	)	$	(20.8	)	$	(13.6	)	$	19.3		$	15.1		$	(20.8	)

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


		Nine Months Ended September 25, 2005

		Unconsolidated			Unconsolidated												Consolidated
		Fairchild			Fairchild						Non-						Fairchild
		Semiconductor			Semiconductor			Guarantor			Guarantor						Semiconductor
		International, Inc.			Corporation			Subsidiaries			Subsidiaries			Eliminations			International, Inc.

		(In millions)
		(Unaudited)
Total revenue		$	—		$	1,007.6		$	3.7		$	1,312.0		$	(1,269.0	)	$	1,054.3
Cost of sales			—			929.6			8.1			1,161.2			(1,269.0	)		829.9

	Gross profit (loss)		—			78.0			(4.4	)		150.8			—			224.4

Operating expenses:
Research and development			—			32.7			8.0			17.5			—			58.2
Selling, general and administrative			—			99.1			3.1			44.5			—			146.7
Amortization of acquisition-related intangibles			—			4.3			1.8			12.0			—			18.1
Restructuring and impairments			—			10.8			0.1			1.3			—			12.2

	Total operating expenses		—			146.9			13.0			75.3			—			235.2

Operating income (loss)			—			(68.9	)		(17.4	)		75.5			—			(10.8	)
Interest expense			—			31.5			—			—			—			31.5
Interest income			—			(8.6	)		(0.1	)		(0.7	)		—			(9.4	)
Other expense, net			—			20.5			—			—			—			20.5
Equity in subsidiary (income) loss			230.6			(38.9	)		(3.4	)		—			(188.3	)		—

Income (loss) before income taxes			(230.6	)		(73.4	)		(13.9	)		76.2			188.3			(53.4	)
Provision for income taxes			5.9			157.2			12.5			7.5			—			183.1

Net income (loss)		$	(236.5	)	$	(230.6	)	$	(26.4	)	$	68.7		$	188.3		$	(236.5	)

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS


			Nine Months Ended September 25, 2005

			Unconsolidated			Unconsolidated								Consolidated
			Fairchild			Fairchild					Non-			Fairchild
			Semiconductor			Semiconductor			Guarantor		Guarantor			Semiconductor
			International, Inc.			Corporation			Subsidiaries		Subsidiaries			International, Inc.

			(In millions)
			(Unaudited)
Cash flows provided by (used in) operating activities:			$	—		$	(161.7	)	$	—	$	246.8		$	85.1

Investing activities:
	Purchase of marketable securities			—			(472.1	)		—		—			(472.1	)
	Sale of marketable securities			—			825.4			—		—			825.4
	Maturity of marketable securities			—			20.6			—		—			20.6
	Capital expenditures			—			(26.4	)		—		(45.5	)		(71.9	)
	Purchase of molds and tooling			—			—			—		(1.8	)		(1.8	)
	Investment (in) from affiliate			(4.4	)		4.4			—		—			—

		Cash provided by (used in) investing activities		(4.4	)		351.9			—		(47.3	)		300.2

Financing activities:
	Repayment of long-term debt			—			(355.3	)		—		—			(355.3	)
	Issuance of long-term debt			—			154.5			—		—			154.5
	Proceeds from issuance of common stock and from exercise of stock options, net			10.4			—			—		—			10.4
	Purchase of treasury stock			(6.0	)		—			—		—			(6.0	)
	Other			—			(1.0	)		—		—			(1.0	)

		Cash provided by (used in) financing activities		4.4			(201.8	)		—		—			(197.4	)

Net change in cash and cash equivalents				—			(11.6	)		—		199.5			187.9
Cash and cash equivalents at beginning of period				—			96.6			—		49.7			146.3

Cash and cash equivalents at end of period			$	—		$	85.0		$	—	$	249.2		$	334.2

Supplemental Cash Flow Information:
	Cash paid during the period for:
		Income taxes	$	—		$	—		$	—	$	6.6		$	6.6

		Interest	$	—		$	38.0		$	—	$	—		$	38.0

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET


			December 26, 2004

			Unconsolidated			Unconsolidated												Consolidated
			Fairchild			Fairchild						Non-						Fairchild
			Semiconductor			Semiconductor			Guarantor			Guarantor						Semiconductor
			International, Inc.			Corporation			Subsidiaries			Subsidiaries			Eliminations			International, Inc.

			(In millions)
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	—		$	96.6		$	—		$	49.7		$	—		$	146.3
	Short-term marketable securities			—			422.1			—			—			—			422.1
	Accounts receivable, net			—			20.0			—			134.0			—			154.0
	Inventories			—			129.7			13.8			110.4			—			253.9
	Deferred income taxes, net			—			22.7			0.8			2.2			—			25.7
	Other current assets			—			18.0			0.5			11.9			—			30.4

		Total current assets		—			709.1			15.1			308.2			—			1,032.4
Property, plant and equipment, net				—			232.6			91.2			340.3			—			664.1
Deferred income taxes				5.9			118.9			11.7			(7.2	)		—			129.3
Intangible assets, net				—			5.8			48.7			97.1			—			151.6
Goodwill				—			8.0			221.5			0.4			—			229.9
Long-term marketable securities				—			124.0			—			—			—			124.0
Investment in subsidiary				1,225.7			1,158.6			262.9			84.6			(2,731.8	)		—
Other assets				—			27.6			1.7			15.9			—			45.2

		Total assets	$	1,231.6		$	2,384.6		$	652.8		$	839.3		$	(2,731.8	)	$	2,376.5


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt		$	—		$	3.3		$	—		$	—		$	—		$	3.3
	Accounts payable			—			62.0			4.3			51.9			—			118.2
	Accrued expenses and other current liabilities			—			99.8			5.8			59.5			—			165.1

		Total current liabilities		—			165.1			10.1			111.4			—			286.6
Long-term debt, less current portion				—			845.2			—			—			—			845.2
Net intercompany (receivable) payable				—			150.9			(13.5	)		(137.4	)		—			—
Other liabilities				—			0.2			—			15.4			—			15.6

		Total liabilities		—			1,161.4			(3.4	)		(10.6	)		—			1,147.4

Commitments and contingencies
Stockholders’ equity:
	Common stock			1.2			—			—			—			—			1.2
	Additional paid-in capital			1,259.2			—			—			—			—			1,259.2
	Retained earnings (deficit)			(24.7	)		1,225.7			656.2			849.9			(2,731.8	)		(24.7	)
	Accumulated other comprehensive loss			—			(2.5	)		—			—			—			(2.5	)
	Less treasury stock (at cost)			(4.1	)		—			—			—			—			(4.1	)

		Total stockholders’ equity		1,231.6			1,223.2			656.2			849.9			(2,731.8	)		1,229.1

		Total liabilities and stockholders’ equity	$	1,231.6		$	2,384.6		$	652.8		$	839.3		$	(2,731.8	)	$	2,376.5

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


		Three Months Ended September 26, 2004

		Unconsolidated			Unconsolidated												Consolidated
		Fairchild			Fairchild						Non-						Fairchild
		Semiconductor			Semiconductor			Guarantor			Guarantor						Semiconductor
		International, Inc.			Corporation			Subsidiaries			Subsidiaries			Eliminations			International, Inc.

		(In millions)
		(Unaudited)
Total revenue		$	—		$	356.5		$	24.2		$	467.7		$	(438.7	)	$	409.7
Cost of sales			—			321.1			22.9			380.1			(438.7	)		285.4

	Gross profit		—			35.4			1.3			87.6			—			124.3

Operating Expenses:
Research and development			—			8.3			6.2			6.1			—			20.6
Selling, general and administrative			—			29.9			2.2			14.0			—			46.1
Amortization of acquisition-related intangibles			—			0.2			1.9			4.0			—			6.1
Restructuring and impairments			—			5.0			2.9			0.3			—			8.2

	Total operating expenses		—			43.4			13.2			24.4			—			81.0

Operating income (loss)			—			(8.0	)		(11.9	)		63.2			—			43.3
Interest expense			—			16.0			—			0.1			—			16.1
Interest income			—			(2.4	)		—			(0.2	)		—			(2.6	)
Other expense			—			8.4			—			—			—			8.4
Equity in subsidiary income			(13.4	)		(48.2	)		(12.3	)		—			73.9			—

Income before income taxes			13.4			18.2			0.4			63.3			(73.9	)		21.4
Provision for income taxes			—			4.8			—			3.2			—			8.0

Net income		$	13.4		$	13.4		$	0.4		$	60.1		$	(73.9	)	$	13.4

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


		Nine Months Ended September 26, 2004

		Unconsolidated			Unconsolidated												Consolidated
		Fairchild			Fairchild						Non-						Fairchild
		Semiconductor			Semiconductor			Guarantor			Guarantor						Semiconductor
		International, Inc.			Corporation			Subsidiaries			Subsidiaries			Eliminations			International, Inc.

		(In millions)
		(Unaudited)
Total revenue		$	—		$	1,031.8		$	90.9		$	1,385.4		$	(1,284.4	)	$	1,223.7
Cost of sales			—			918.3			86.6			1,152.2			(1,284.4	)		872.7

	Gross profit		—			113.5			4.3			233.2			—			351.0

Operating expenses:
Research and development			—			23.9			20.0			18.4			—			62.3
Selling, general and administrative			—			85.8			6.2			39.9			—			131.9
Amortization of acquisition-related intangibles			—			0.5			5.9			13.5			—			19.9
Restructuring and impairments			—			9.6			6.4			0.4			—			16.4
Reserve for potential settlement losses			—			11.0			—			—			—			11.0

	Total operating expenses		—			130.8			38.5			72.2			—			241.5

Operating income (loss)			—			(17.3	)		(34.2	)		161.0			—			109.5
Interest expense			—			47.6			—			0.1			—			47.7
Interest income			—			(6.5	)		—			(0.4	)		—			(6.9	)
Other expense			—			8.4			—			—			—			8.4
Equity in subsidiary income			(43.4	)		(113.9	)		(35.3	)		—			192.6			—

Income before income taxes			43.4			47.1			1.1			161.3			(192.6	)		60.3
Provision for income taxes			—			3.7			0.9			12.3			—			16.9

Net income		$	43.4		$	43.4		$	0.2		$	149.0		$	(192.6	)	$	43.4

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


			Nine Months Ended September 26, 2004

			Unconsolidated			Unconsolidated									Consolidated
			Fairchild			Fairchild						Non-			Fairchild
			Semiconductor			Semiconductor			Guarantor			Guarantor			Semiconductor
			International, Inc.			Corporation			Subsidiaries			Subsidiaries			International, Inc.

			(In millions)
			(Unaudited)
Cash flows provided by operating activities:			$	—		$	45.4		$	26.9		$	86.9		$	159.2

Investing activities:
	Purchase of marketable securities			—			(720.5	)		—			—			(720.5	)
	Sale of marketable securities			—			577.0			—			—			577.0
	Maturity of marketable securities			—			51.7			—			—			51.7
	Capital expenditures			—			(36.5	)		(26.7	)		(81.4	)		(144.6	)
	Proceeds from sale of property, plant and equipment			—			—			—			6.7			6.7
	Purchase of molds and tooling			—			—			(0.2	)		(2.7	)		(2.9	)
	Investment (in) from affiliate			(15.0	)		15.0			—			—			—

		Cash used in investing activities		(15.0	)		(113.3	)		(26.9	)		(77.4	)		(232.6	)

Financing activities:
	Repayment of long-term debt			—			(2.5	)		—			—			(2.5	)
	Proceeds from issuance of common stock and from exercise of stock options, net			21.6			—			—			—			21.6
	Purchase of treasury stock			(6.6	)		—			—			—			(6.6	)
	Debt issuance costs			—			(0.4	)		—			—			(0.4	)

		Cash provided by (used in) financing activities		15.0			(2.9	)		—			—			12.1

Net change in cash and cash equivalents				—			(70.8	)		—			9.5			(61.3	)
Cash and cash equivalents at beginning of period				—			141.7			—			27.8			169.5

Cash and cash equivalents at end of period			$	—		$	70.9		$	—		$	37.3		$	108.2

Supplemental Cash Flow Information:
	Cash paid during the period for:
		Income taxes	$	—		$	0.1		$	—		$	4.4		$	4.5

		Interest	$	—		$	51.8		$	—		$	—		$	51.8

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 16 —	Subsequent Events

On September 30, 2005, the company agreed to settle a lawsuit against Sumitomo Bakelite Co., Ltd. and related parties which will result in net settlement gains before taxes of approximately $18 million being recorded in the fourth quarter of 2005. For further information see Footnote 13.

During the fourth quarter of 2005, the company’s chief executive officer approved the domestic reinvestment plan for qualifying dividends under the American Jobs Creation Act of 2004 (AJCA) (see Recently Issued Financial Accounting Standards). As a result, the company expects to take advantage of the special repatriation provisions provided by the AJCA on certain unremitted foreign earnings. The amount of undistributed earnings that the company expects to repatriate is approximately $270 million. The estimated income tax effect of such repatriation is expected to be approximately $21 million and is expected to be recorded in the fourth quarter of 2005. Under the AJCA, the company has until December 25, 2005 to remit such earnings. The primary uses of the repatriated earnings as outlined in the domestic reinvestment plan will be for qualified wages, capital spending, acquisitions and debt repayment.


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

Except as otherwise indicated in this Quarterly Report on Form 10-Q, the terms “we,” “our,” the “company,” “Fairchild” and “Fairchild International” refer to Fairchild Semiconductor International, Inc. and its consolidated subsidiaries, including Fairchild Semiconductor Corporation, our principal operating subsidiary. We refer to individual corporations where appropriate.

Overview

Effective for the first quarter of 2005, we reorganized our internal reporting and management structure and, accordingly, our segment reporting to reflect our strategic focus on power products. The new segments, Power Discrete, Power Analog and Standard Products, align with the way we now manage the business and should help investors better judge our performance. All segment reporting within management’s discussion and analysis has been restated to reflect this change.

One of our primary goals for 2005 is to reduce both internal and distribution inventories by increasing our focus on channel sell through while constraining our factory output and shipments. While our distributor resales have increased during 2005, we have slowed sales into the distribution channel allowing the distributor inventory levels to adjust to lower levels. This has reduced distribution inventory of supply on hand from more than 16 weeks to less than 13 weeks at the end of the third quarter. During the fourth quarter we expect to refine the product line inventory levels at the distributors and complete this phase of channel inventory adjustments. In addition, we have been working to reduce our internal inventory as well. Through the end of the third quarter, we had reduced internal inventory by $37.6 million from our December 26, 2004 balances and increased inventory turns to 5.1 times.

We are also focused on improving the quality of our business by managing our product mix more selectively while increasing the mix of our more proprietary, higher margin new products. One element of this approach is our plan to hold annual capital expenditures to 6 to 8% of sales. This is down from our approximate 11% average of the past few years. Limiting our capital spending for additional capacity requires us to aggressively manage product mix in order to free up capacity for higher margin, faster growing products.

Gross margins, operating margins and inventory turns are key indices that both senior management and our investors utilize to measure our financial performance. In order to improve these margins, management has implemented the above discussed inventory reduction initiative. During the third quarter of 2005, the useful life change described below contributed approximately $12.0 million to the inventory reduction. Other indicators that we use are days sales outstanding (DSO). In the third quarter of 2005, DSO was 37.0 days compared to 38.8 days in the third quarter of 2004.

In addition to reducing our capital spending model to 6 to 8% of sales, we also completed an analysis of the useful life of our factory machinery and equipment and adjusted our estimated useful life assumptions upward in the third quarter of 2005 to better align our depreciation to our actual historical useful lives. This led to a reduction in depreciation expense of approximately $15 million in the third quarter, which was offset by cost of sales of inventory manufactured under previous costs of approximately $12 million for a net favorable impact in the third quarter of approximately $3 million. In addition, we have also identified certain software programs that we will no longer be utilizing. In the third quarter of 2005, this resulted in approximately $5 million of accelerated depreciation on these assets that we intend to abandon. We also expect an additional $1 million of accelerated depreciation in the fourth quarter, to reflect these shortened useful lives.

We continue to follow our “asset-light” investment strategy for many of our standard products, which typically have lower gross margins and lower or negative long-term sales growth potential. Through this strategy we are gradually transferring the manufacturing for these mature products to third party subcontractors, where appropriate, thereby allowing our own manufacturing facilities to focus on building higher-growth, higher-margin and more strategic products. We believe that by following this long term “asset-light” approach for mature products we will improve our return on invested capital and lessen our exposure to falling prices on commodity products during industry downturns.

While our expanding power product portfolio serves a wide variety of end markets, our sales tend to follow a seasonal pattern which is affected by consumer and corporate purchasing patterns, and regional lifestyle issues such as vacation periods and holidays. Typically, our strongest shipping quarter is the fourth quarter, which is driven by sales into products that are purchased by consumers for the Christmas holiday season. First quarter sales are generally weaker than the fourth quarter, as our production lines are constrained by the celebration of Lunar New Year holidays in Asia. Second quarter sales are generally stronger than the first quarter, often driven by stronger corporate spending. Third quarter sales are generally weaker than the second quarter as customer summer vacation schedules slow business activity. These are general seasonal trends that we have observed over many years, however, specific conditions in any given year, such as channel inventory builds or corrections, customer demand increases or decreases, new end market product cycles, or macroeconomic or political events may override these cyclical patterns.

Results of Operations

The following table summarizes certain information relating to our operating results as derived from our unaudited consolidated financial statements:


		Three Months Ended										Nine Months Ended

		September 25,					September 26,					September 25,					September 26,
		2005					2004					2005					2004

		(Dollars in millions)
Total revenues		$	345.5		100	%	$	409.7		100	%	$	1,054.3		100	%	$	1,223.7		100	%
Gross profit			71.7		21	%		124.3		30	%		224.4		21	%		351.0		29	%
Operating expenses:
Research and development			19.7		6	%		20.6		5	%		58.2		6	%		62.3		5	%
Selling, general and administrative			51.8		15	%		46.1		11	%		146.7		14	%		131.9		11	%
Amortization of acquisition-related intangibles			5.9		2	%		6.1		1	%		18.1		2	%		19.9		2	%
Restructuring and impairments			4.2		1	%		8.2		2	%		12.2		1	%		16.4		1	%
Reserve for potential settlement losses			—		0	%		—		0	%		—		0	%		11.0		1	%

	Total operating expenses		81.6		24	%		81.0		20	%		235.2		22	%		241.5		20	%
Operating income (loss)			(9.9	)	(3	)%		43.3		11	%		(10.8	)	(1	)%		109.5		9	%
Interest expense			9.5		3	%		16.1		4	%		31.5		3	%		47.7		4	%
Interest income			(3.4	)	(1	)%		(2.6	)	(1	)%		(9.4	)	(1	)%		(6.9	)	(1	)%
Other (income) expense			(3.4	)	(1	)%		8.4		2	%		20.5		2	%		8.4		1	%

Income (loss) before income taxes			(12.6	)	(4	)%		21.4		5	%		(53.4	)	(5	)%		60.3		5	%
Provision for income taxes			8.2		2	%		8.0		2	%		183.1		17	%		16.9		1	%

Net income (loss)		$	(20.8	)	(6	)%	$	13.4		3	%	$	(236.5	)	(22	)%	$	43.4		4	%

Total Revenues. Total revenues for the three and nine months of 2005 decreased $64.2 million and $169.4 million, or 16% and 14%, respectively, compared to 2004. The decrease came across all segments, particularly the Standard Products group, which accounted for almost half the decline (or $80.3 million on a year to date basis). Overall, decreases in average selling prices contributed 52% of the decrease, while unit volumes accounted for the remaining 48% of the decline for the first nine months of 2005. In addition, our revenue declines were in line with our goal to reduce internal and distributor inventory. We anticipate this trend to turn around in the coming quarters as inventories levels off.

Geographic revenue information is based on the customer location within the indicated geographic region. As a percentage of sales, geographic sales for the United States, Other Americas, Europe, China, Taiwan, Korea and Other Asia/ Pacific (which for our geographic reporting purposes includes Japan and

Singapore and excludes Korea) were as follows for the three and nine months ended September 25, 2005 and September 26, 2004:


	Three Months Ended						Nine Months Ended

	September 25,			September 26,			September 25,			September 26,
	2005			2004			2005			2004

United States		10	%		11	%		10	%		12	%
Other Americas		2			2			2			2
Europe		11			11			11			11
China		25			21			25			20
Taiwan		20			21			20			22
Korea		16			18			16			18
Other Asia/ Pacific		16			16			16			15

Total		100	%		100	%		100	%		100	%

The decrease in our United States percentage of sales is a result of customers moving purchases of product to the Asia region. The increase in our China percentage of sales is due to our growing customer base, as well as our commitment to investing our resources in this growing region. The decrease in our Korean percentage of sales is due to slower than expected sales, which we anticipate will begin to increase in future quarters.

Gross Profit. Consistent with our revenues, our gross profits were impacted by our continued efforts to reduce internal and channel inventory levels. For the third quarter of 2005, approximately 37% of the gross profit decrease in dollar terms was due to the previously discussed decline in revenues, with the remaining decrease due to lower factory utilization, particularly in Power Analog as the product line adjusted inventory levels to support their business model. Also included in gross profit in the third quarter of 2005 is a net $3.0 million benefit related to the change in useful life as discussed above. In addition, the third quarter and first nine months of 2005 includes $1.6 million of sales reserves associated with product discontinuations and a charge of $0.8 million for accelerated depreciation on assets to be abandoned, recorded in revenue and cost of sales, respectively. For the first nine months of 2004, gross profit included a $2.1 million net reversal of sales reserves and a $0.3 million inventory charge associated with the discontinuation of certain products in connection with our 2003 restructuring actions.

Operating Expenses. Research and development (R&D) expenses were slightly higher as a percentage of sales for the three and nine month periods ended September 25, 2005, as compared to 2004. We continue to maintain R&D spending despite revenue declines, as we believe it is necessary for the generation of future revenue. Selling, general and administrative (SG&A) expenses increased as a percentage of sales for the three and nine months ended September 25, 2005, as compared to 2004. For the third quarter and first nine months of 2005, SG&A includes a charge of $4.2 million for accelerated depreciation on certain assets to be abandoned. Also included in SG&A in the first nine months of 2005, is a $3.8 million non-cash expense for the vesting of equity awards related to certain employee retirements recorded in the first quarter of 2005 and a year to date increase of approximately $6 million in legal costs associated with on-going litigation.

The decrease in amortization of acquisition-related intangibles is due to certain intangibles becoming fully amortized during the first quarter of 2004 and the second quarter of 2005.

During the three and nine months ended September 25, 2005, we recorded restructuring charges of $4.2 million and $12.2 million, respectively. In the third quarter of 2005, these charges include $2.9 million in employee separation costs, $1.6 million in asset impairment charges, and a $0.3 million net release due to a revised estimate of employee separation medical costs. For the nine months ended September 25, 2005, these charges also include $5.7 million in employee separation costs, $0.5 million in office closure costs, $2.1 million in asset impairment charges, $0.2 million of other charges, a $0.3 million reserve release associated with the 2004 Infrastructure Realignment Program due to new estimates in restructuring expenses, and a $0.2 million net release due to a revised estimate associated with first quarter employee separation charges.

The 2005 Infrastructure Realignment Program commenced during the first quarter of 2005 and is expected to be substantially complete by the third quarter of 2006. This program will impact approximately 160 manufacturing and non-manufacturing personnel. We anticipate annual cost savings associated with employee separation of approximately $8.3 million beginning in the first quarter of 2006 and an additional $1.7 million beginning in the second quarter of 2006. In addition, we expect annualized cost savings of $0.8 associated with depreciation savings related to second and third quarter asset impairment charges.

During the three and nine months ended September 26, 2004, we recorded restructuring charges of $8.2 million and $16.4 million, respectively. In the third quarter of 2004, the charge included $2.9 million relating to our six-inch Mountaintop, Pennsylvania wafer fab closure, primarily associated with the decommissioning of certain assets, $5.0 million primarily relating to decommissioning of certain assets relating to the closure of our four-inch South Portland, Maine wafer fab, and $0.3 million of additional charges related to the closure of our Kuala Lumpur, Malaysia plant; all related to restructuring actions announced in 2003. We also released $0.4 million of reserves relating to employee separation costs at our four-inch South Portland wafer fab, due to revised estimates. In addition, we recorded a charge of $0.4 million for additional employee separation costs relating to previously announced infrastructure alignment projects. For the nine months ended September 26, 2004, these charges also included $4.5 million relating to our six-inch Mountaintop wafer fab closure, primarily associated with the decommissioning of certain assets, $0.2 million of asset impairment charges relating to the discontinuation of our memory product line, $0.2 million of employee separation costs relating to the closure of our four-inch South Portland wafer fab, $2.6 million primarily relating to decommissioning of certain assets relating to the closure of our four-inch South Portland wafer fab, $0.7 million of additional charges relating to the closure of our Kuala Lumpur plant, and $1.7 million of employee separation costs relating to the severance for approximately 30 employees in the United States associated with on-going infrastructure alignment projects. We recorded a $0.9 million reversal of employee separation costs related to fewer than anticipated headcount reduction actions related to the four-inch wafer fab closure in South Portland. In addition, we also released $0.8 million of reserves relating primarily to second quarter and fourth quarter 2003 employee separation costs and our Kuala Lumpur plant closure due to revised estimates relating to these actions.

In the third quarter of 2004, we also recorded net reserve releases of $0.2 million of sales reserves and $0.6 million of inventory reserves, recorded in revenue and cost of sales, respectively, due to a change in reserve estimates. For the nine months ended September 26, 2004, we also recorded $1.9 million of distributor reserve release due to a change in estimate and a charge of $0.9 million of inventory reserve, recorded in revenue and cost of sales, respectively. All related charges were associated with our 2003 restructuring actions. Inventory and distributor reserves associated with these actions are complete.

Total net costs for the closure of the six-inch wafer fab in Mountaintop were approximately $5.0 million for severance and $14.4 million for all other related costs and impairments. This closure was considered substantially complete as of March 27, 2005. Based on comparisons to our fourth quarter 2003 spending levels, the closure of the Mountaintop six-inch fab is expected to save us approximately $8.0 million annually in manufacturing costs, including salary and benefits associated with the termination of approximately 160 employees.

Total net costs for the South Portland four-inch wafer fab closure were approximately $2.1 million in severance and $10.3 million in asset impairments and other exit costs including decommissioning and technology transfer costs. This closure was considered substantially complete as of December 26, 2004. The South Portland four-inch wafer fab closure is expected to save us approximately $10.0 million annually in manufacturing costs, including salary and benefits associated with the termination of approximately 90 employees.

Total net costs for the Wuxi and Kuala Lumpur closures are approximately $5.4 million in severance and $5.6 million in asset impairments and other exit costs including decommissioning and technology transfer costs. Both of these closures were considered substantially complete as of December 26, 2004. These closures are expected to save us approximately $3.0 million annually in manufacturing costs, including salary and benefits associated with the termination of approximately 1,060 employees.

On February 18, 2005, we announced the acceleration of certain unvested and “out-of-the-money” stock options previously awarded to employees and officers that have exercise prices per share of $19.50 or higher. As a result, options to purchase approximately 6 million shares of our stock became exercisable immediately upon the announcement. Based upon our closing stock price of $16.15 on February 18, 2005, none of these options had economic value on the date of acceleration. As a result of the acceleration, we expect to reduce the non-cash stock option expense that would otherwise be required in accordance with SFAS 123R, Share-Based Payment, by approximately $12 million in 2006, $4 million in 2007 and $1 million in 2008 on a pre-tax basis. We believe that reducing these expenses in future periods is in the best interest of the company and its stockholders. We also believe that with exercise prices in excess of current market values, the stock options were not fully achieving their original objectives of incentive compensation and employee retention. Lastly, we also believe the acceleration may have a positive effect on employee morale.

Interest Expense. Interest expense decreased $6.6 million and $16.2 million in the three and nine month periods ended September 25, 2005, as compared to 2004. For the nine months ended September 25, 2005, we had gross interest expense savings of $22.6 million related to the paydown of our 10¹/2% Notes on February 13, 2005. These savings were offset by an increase in interest paid on our term loan resulting from the $150 million increase in the term loan, which was used to paydown the Notes, as well as rising interest rates on the variable rate loan over the first nine months of 2005.

Interest Income. The increase in interest income in the three and nine month periods ended September 25, 2005, as compared to 2004, is due to higher interest rates earned on investments.

Other (Income) Expense. In the third quarter of 2005, we recorded $(2.7) million for lawsuit settlement gains and a net $(0.7) million recovery of equity investment write-offs. The $(0.7) million recovery includes a $1.1 million charge associated with the write-down of an equity investment, offset by a $1.8 million recovery of a third quarter 2004 equity investment write-off. The first nine months of 2005 also included $23.9 million for costs associated with the redemption of our 10¹/2% Notes. These costs included $18.5 million for the call premium and other transaction fees and a $5.4 million non-cash write off of deferred financing fees. In the third quarter of 2004, we recorded a charge of $8.4 million related to losses associated with our strategic investments.

Income Taxes. Income taxes from continuing operations for the third quarter and first nine months of 2005 was $8.2 million and $183.1 million, on loss before taxes of $12.6 million and $53.4 million, respectively, as compared to $8.0 million and $16.9 million, on income before taxes of $21.4 million and $60.3 million, respectively, for the comparable period of 2004. Included in worldwide tax expense of $8.2 million for the third quarter of 2005 is a non-cash charge of $9.2 million recorded to increase the valuation allowance for U.S. deferred tax assets. As a result of establishing a full valuation allowance against its net U.S. deferred tax assets in the second quarter of 2005, the company did not recognize any deferred tax benefits related to U.S. net losses incurred in the third quarter of 2005. The valuation allowance of $210.4 million as of September 25, 2005 consists of the beginning of the year allowance of $6.1 million and year to date 2005 charges (benefits) of $204.6 million to income from continuing operations, $0.9 million to additional paid in capital and $(1.2) million to other comprehensive income.


	Reportable Segments.

Comparative disclosures of revenue and gross profit of our reportable segments are as follows:


	Three Months Ended

	September 25,								September 26,
	2005								2004

						Gross								Gross
	Revenue		% of Total			Profit %			Revenue		% of Total			Profit %

	(Dollars in millions)
Power Discrete	$	195.0		56.5	%		23.5	%	$	220.3		53.8	%		33.7	%
Power Analog		62.0		17.9	%		14.8	%		80.4		19.6	%		32.5	%
Standard Products		88.5		25.6	%		18.8	%		109.0		26.6	%		22.0	%

Total	$	345.5		100.0	%		20.8	%	$	409.7		100.0	%		30.3	%


	Nine Months Ended

	September 25,								September 26,
	2005								2004

						Gross								Gross
	Revenue		% of Total			Profit %			Revenue		% of Total			Profit %

	(Dollars in millions)
Power Discrete	$	592.7		56.2	%		23.8	%	$	644.0		52.6	%		30.8	%
Power Analog		199.0		18.9	%		19.4	%		236.8		19.4	%		34.5	%
Standard Products		262.6		24.9	%		17.0	%		342.9		28.0	%		20.6	%

Total	$	1,054.3		100.0	%		21.3	%	$	1,223.7		100.0	%		28.7	%


	Power Discrete Group

Power Discrete revenues decreased approximately 11% and 8% in the third quarter and first nine months of 2005, respectively, compared to the same periods of 2004. A decline in average selling prices brought revenues down 3%, while a 5% decline in unit volume contributed the remainder of the overall decrease in the first nine months of 2005. The decline in average selling prices was the result of continued pricing pressure, particularly from competition in China and changes in our product mix. The decline in unit volume was the result of reduced demand, particularly in Korea, Taiwan and Other Asia Pacific, as a result of our focus on reducing distributor inventory levels. Sales in all regions declined, except for the China region, driven by lower product sales in the computing, display, and industrial end markets. The increase in the China region was driven by increased sales in the consumer, motion control and offline power supply end markets, due to design wins and captured market share. Gross profits decreased due to unfavorable changes in product mix, as well as our attempts to reduce inventory which, as a result, decreased our factory utilization. Power Discrete gross profit in the third quarter and first nine months of 2005 includes $0.1 million of sales reserves associated with product discontinuations and a charge of $0.3 million for accelerated depreciation on assets to be abandoned, recorded in revenue and cost of sales, respectively. Gross profit in the first nine months of 2004 includes a release of $(0.2) million of sales reserves and $(0.4) million of inventory reserves, recorded in revenue and cost of sales, respectively, both associated with the discontinuation of certain products in connection with our 2003 restructuring actions.

Power Discrete had operating income of $6.1 million and $27.1 million in the third quarter and first nine months of 2005, compared to $39.0 million and $94.3 for the comparable periods of 2004. The decrease in operating income was due to lower gross profits and higher SG&A expenses. R&D expenses were roughly flat. SG&A expenses increased due mainly to increased allocated legal expenses, an increased focus on more field application support, as well as non-cash expenses related to certain employee retirement benefits. Also, included in SG&A is a charge of $2.2 million for accelerated depreciation on certain assets to be abandoned. Acquisition amortization decreased due to certain intangibles becoming fully amortized during the first quarter of 2004.


	Power Analog Group

Power Analog revenues decreased approximately 23% and 16% in the third quarter and first nine months of 2005, respectively, compared to the same periods of 2004. A decline in average selling prices and product mix decreased revenues 18%, while a moderate increase in unit volume grew revenues 2% in the first nine months of 2005. The decline in average selling prices was seen across all product lines, due to aggressive pricing pressures in the market, the reduction of distributor inventory levels and weaker demand in the Korean region. Gross profits decreased in relation to the revenue declines due to modest unit volume growth and overall lower average selling prices. This along with our business model that focuses on faster turning, more proprietary products, contributed to slightly lower factory utilization as well as inventory write-downs. In the future this will allow us to focus on higher value and higher gross margin business. In addition, Analog also recorded approximately $2.0 million related to a quality issue which was subsequently resolved. Analog gross profit in the third quarter and first nine months of 2005 also includes $1.3 million of sales reserves associated with product discontinuations and a charge of $0.3 million for accelerated depreciation on assets to be abandoned, recorded in revenue and cost of sales, respectively. Gross profit in the first nine months of 2004 includes a charge (release) of $(0.2) million of sales reserves and $0.1 million of inventory reserves, recorded in revenue and cost of sales, respectively, both associated with the discontinuation of certain products in connection with our 2003 restructuring actions.

Power Analog had operating income (loss) of $(14.8) million and $(30.6) million in the third quarter and first nine months of 2005, respectively, compared to $4.9 million and $19.2 million for the comparable periods of 2004, respectively. R&D expenses increased as a percentage of sales as spending remained roughly flat, but revenues declined. We will continue to invest in R&D to be able to fund future higher value, higher margin products. SG&A expenses increased due to non-cash expenses related to certain employee retirement benefits as well as higher allocated legal expenses. Also, included in SG&A is a charge of $0.9 million for accelerated depreciation on certain assets to be abandoned. Acquisition amortization decreased due to certain intangibles becoming fully amortized during the first quarter of 2004.


	Standard Products Group

Standard Products revenues decreased approximately 19% and 23% in the third quarter and first nine months of 2005, respectively, compared to the same period of 2004. Unit volumes decreased sales 15%, while declines in average selling prices contributed an additional 8% to the overall decrease in the first nine months of 2005. The decline in revenues was due to reduced demand as our distributors actively reduced their inventory levels, as well as significant pricing pressure. The decline in units was driven mainly by reduced demand for our logic and discrete standard products. Virtually all end markets declined and on a regional basis, Japan saw an over 48% decrease in revenues as distributors substantially reduced their inventories of our products. In addition, revenues declined $5.4 million in the first nine months of 2005, compared to the same periods of 2004 due to the discontinuation of the Memory product line during 2004. In the future, we anticipate that Standard Products as a percentage of total revenue will continue to decrease, as our strategic focus shifts to the Power Analog and Power Discrete segments. Standard Product gross profit in the third quarter and first nine months of 2005 includes $0.2 million of sales reserves associated with product discontinuations and a charge of $0.2 million for accelerated depreciation on assets to be abandoned, recorded in revenue and cost of sales, respectively. Standard Product gross profits, excluding the effect of the discontinuation of the Memory product line, which was approximately $2.3 million in the first nine months of 2004, decreased due to a combination of lower factory utilization and our initiative to more selectively chose the business in this area. While we anticipate revenues will continue to decline as a percentage of our total company revenues, our strategy is to manage standard products more selectively, while increasing our margins in this business. Standard Products gross profit in the first nine months of 2004 includes a charge (release) of $(1.7) million of sales reserves and $0.6 million of inventory reserves, recorded in revenue and cost of sales, respectively, associated with the discontinuation of certain products in connection with our 2003 and 2004 restructuring actions.

Standard Products had operating income of $3.0 million and $4.9 million in the third quarter and first nine months of 2005, respectively, compared to $7.6 million and $23.4 million for the comparable periods of

2004. R&D expenses were flat as a percentage of revenue, while SG&A expenses increased slightly due to a one-time non-cash expense related to certain employee retirement benefits and higher allocated legal expenses. Also, included in SG&A is a charge of $1.1 million for accelerated depreciation on certain assets to be abandoned. Acquisition amortization decreased due to certain intangibles becoming fully amortized during the first quarter of 2004 and the second quarter of 2005.

Liquidity and Capital Resources

We have a borrowing capacity of $180.0 million on a revolving basis for working capital and general corporate purposes, including acquisitions, under our senior credit facility. At September 25, 2005, after adjusting for outstanding letters of credit we had up to $179.2 million available under this senior credit facility. At September 25, 2005, we had additional outstanding letters of credit of $1.1 million and guarantees totaling $2.9 million that were issued on behalf of an unaffiliated company with which we had a strategic investment. At September 25, 2005, we also had $15.0 million of undrawn credit facilities at certain of our foreign subsidiaries. These amounts outstanding do not impact available borrowings under the senior credit facility.

Our senior credit facility, which includes the $450 million term loan and the $180 million revolving line of credit, the indenture governing our 5% Convertible Senior Subordinated Notes, and other debt instruments we may enter into in the future, impose various restrictions and contain various covenants which could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities. The restrictive covenants include limitations on consolidations, mergers and acquisitions, creating liens, paying dividends or making other similar restricted payments, asset sales, capital expenditures and incurring indebtedness, among other restrictions. The covenants in the senior credit facility also include financial measures such as a minimum interest coverage ratio, a maximum senior leverage ratio and a minimum EBITDA (earnings before interest, taxes, depreciation and amortization) less capital expenditures measure. At September 25, 2005, we were in compliance with these covenants. The senior credit facility also limits our ability to modify our certificate of incorporation and bylaws, or enter into shareholder agreements, voting trusts or similar arrangements. Under our debt instruments, the subsidiaries of Fairchild Semiconductor Corporation cannot be restricted, except to a limited extent, from paying dividends or making advances to Fairchild Semiconductor Corporation. We believe that funds to be generated from operations, together with existing cash, will be sufficient to meet our debt obligations over the next twelve months. We expect that existing cash and available funds from our senior credit facility and funds generated from operations will be sufficient to meet our anticipated operating requirements and to fund our research and development and planned capital expenditures for the remainder of the year and for the next twelve months. We had capital expenditures of $71.9 million in the first nine months of 2005. This capital was primarily spent on expanding manufacturing capacity in Korea.

We frequently evaluate opportunities to sell additional equity or debt securities, obtain credit facilities from lenders or restructure our long-term debt to further strengthen our financial position. The sale of additional equity or convertible securities could result in additional dilution to our stockholders. Additional borrowing or equity investment may be required to fund future acquisitions.

As of September 25, 2005, our cash and cash equivalents were $334.2 million, an increase of $187.9 million from December 26, 2004. Our short term and long term marketable securities totaled $106.4 million and $64.0 million, respectively, a decrease of $315.7 million and $60.0 million, respectively as compared to December 26, 2004. Included in the short-term marketable securities are auction rate securities in which we invest to help maintain liquidity. These securities have long-term underlying maturities, but are sold in a market which is highly liquid with interest rates reset through an auction process every 7, 28, or 35 days. Our practice is to not hold these underlying securities to maturity but to take advantage of this interest rate reset feature to provide short-term liquidity for the company at advantageous yields when compared to cash equivalents. As of September 25, 2005, we held $56.5 million of auction rate securities, a decrease of $355.3 million from December 26, 2004.

During the first nine months of 2005, our cash provided by operations was $85.1 million compared to $159.2 million in the comparable period of 2004. The decrease in cash provided by operating activities was due

to a net loss in 2005 (exclusive of the non-cash deferred income tax reserve expense) in comparison to income in 2004, as well as other changes in working capital items, primarily current liabilities and inventories. Decreases in current liabilities was due to payments made on operating accruals, payables and a decrease in interest payable due to the payoff on the 10¹/2% Notes.

Cash provided by investing activities during the first nine months of 2005 totaled $300.2 million compared to $232.6 million of cash used in investing activities for the comparable period of 2004. The increase primarily results from the sale of marketable investments, reduced purchases of marketable securities and decreased capital expenditures.

Cash used in financing activities of $197.4 million for the first nine months of 2005 was primarily due to the repayment of our 10¹/2% Notes, net of the issuance of long term debt. Cash provided by financing activities of $12.1 million for the first nine months of 2004 was primarily from proceeds from the exercise of stock options.

Liquidity and Capital Resources of Fairchild International, Excluding Subsidiaries

Fairchild Semiconductor International, Inc. is a holding company, the principal asset of which is the stock of its sole subsidiary, Fairchild Semiconductor Corporation. Fairchild Semiconductor International on a stand-alone basis had no cash flow from operations and has no cash requirements for the next twelve months.

Forward Looking Statements

This quarterly report includes “forward-looking statements” as that term is defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by the use of forward-looking terminology such as “we believe,” “we expect,” “we intend,” “may,” “will,” “should,” “seeks,” “approximately,” “plans,” “estimates,” “anticipates,” or “hopeful,” or the negative of those terms or other comparable terms, or by discussions of our strategy, plans or future performance. For example, the Outlook section below contains numerous forward-looking statements. All forward-looking statements in this report are made based on management’s current expectations and estimates, which involve risks and uncertainties, including those described below and more specifically in the Business Risks section below. Among these factors are the following: changes in overall global or regional economic conditions; changes in demand for our products; changes in inventories at our customers and distributors; technological and product development risks, including the risks of failing to maintain the right to use some technologies or failing to adequately protect our own intellectual property against misappropriation or infringement; availability of manufacturing capacity; the risk of production delays; availability of raw materials; competitors’ actions; loss of key customers, including but not limited to distributors; the inability to attract and retain key management and other employees; order cancellations or reduced bookings; changes in manufacturing yields or output; risks related to warranty and product liability claims; risks inherent in doing business internationally; regulatory risks; and significant litigation. These and other risks are described in the Business Risks section in the quarterly and annual reports we file with the Securities and Exchange Commission. Such risks and uncertainties could cause actual results to be materially different from those expressed in forward-looking statements. Readers are cautioned not to place undue reliance on the forward-looking statements.

Policy on Business Outlook Disclosure and Quiet Periods

It is our current policy to update our outlook at least twice each quarter. The first update is near the beginning of each quarter, within the press release that announces the previous quarter’s results. The outlook below is consistent with the outlook included in our October 13, 2005 press release announcing third quarter results. The second update is within a press release issued approximately two months into each quarter. The current outlook is accessible at the Investor Relations section of our website at http://investor.fairchildsemi.com. Toward the end of each quarter, and until that quarter’s results are publicly announced, we observe a “quiet period,” when the outlook is not updated to reflect management’s current expectations. The quiet period for the fourth quarter of 2005 will be from December 12, 2005 until our earnings release for the fourth quarter and full year 2005 results, which will occur in January 2006, on a date to

be announced. Except during quiet periods, the outlook posted on our website reflects current guidance unless and until updated through a press release, SEC filing or other public announcement. During quiet periods, our outlook, as posted on our website, announced in press releases and provided in quarterly, annual and special reports or other filings with the SEC, should be considered to be historical, speaking as of prior to the quiet period only and not subject to update by the company. During quiet periods, Fairchild Semiconductor representatives will not comment about the outlook of the company’s financial results or expectations for the quarter in question.

Outlook

For the fourth quarter of 2005, we expect revenues to increase approximately 5% from the third quarter of 2005 as we complete our efforts to adjust distributor inventories. We expect gross margins to increase 200 to 300 basis points over third quarter 2005 due to higher factory loadings, lower depreciation expense (due to our previously discussed change in useful life estimates for certain machinery and equipment), and better product mix.

In the fourth quarter of 2005, we expect to increase utilization rates and run our factories at end-market consumption rates during the first quarter of 2006 as part of our goal to reduce internal and distributor inventories. We believe that this improvement in utilization, as well as our lower depreciation expenses, will drive gross margins into the high 20% range during the first half of 2006. We further expect to improve our gross margins through higher value products and actively managing our product mix to drive higher margins and sustain our lower capital spending. We believe that the combination of these actions will allow us to achieve our near-term goal of 30% gross margins and then mid 30% gross margins within two years.

Subsequent to September 25, 2005, the company’s chief executive officer approved the domestic reinvestment plan for qualifying dividends. As a result we expect to take advantage of the repatriation provisions on certain unremitted foreign earnings. The amount of undistributed earnings that we expect to repatriate is approximately $270 million. The estimated income tax effect of such repatriation is approximately $21 million and is expected to be recorded in the fourth quarter of 2005. We have until December 25, 2005 to remit such earnings.

On September 30, 2005, we agreed to settle our lawsuit against Sumitomo Bakelite Co., Ltd. and related parties. As a result this settlement we expect to record net settlement gains before taxes of approximately $18 million in the fourth quarter of 2005. See Legal Proceedings, below.

10b5-1 Trading Plans

Mark S. Thompson, our president and CEO, has entered into a stock trading plan intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, pursuant to which he expects to sell up to 12,500 shares of our common stock before year-end in connection with financial planning related to his relocation to the Portland, Maine area. Kirk P. Pond, our chairman, has entered into a plan pursuant to which he expects to sell up to 85,000 shares of our common stock before or near year-end in connection with the settlement of deferred stock units at that time. Other executives and directors may enter into similar plans from time to time.

Recently Issued Financial Accounting Standards

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This statement replaces APB Opinion No. 20 and SFAS No. 3 and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 requires the retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period specific effects or the cumulative effect of the change. This statement is effective for fiscal periods beginning after December 15, 2005. The company has yet to determine the impact, if any, of SFAS No. 154 on its consolidated financial statements.

In March 2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement Obligations. FIN 47 clarifies that the term Conditional Asset Retirement Obligation as used in SFAS No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform as asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the

control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The company is required to adopt the provisions of FIN 47 by May 2006, although earlier adoption is permitted. The company does not expect the adoption of FIN 47 to have a material impact on our consolidated financial statements.

In March 2004, the FASB approved the consensus reached on the Emerging Issues Task Force (EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The Issue’s objective is to provide guidance for identifying other-than-temporarily impaired investments. EITF No. 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB issued a FASB Staff Position (FSP) EITF No. 03-1-1 that delays the effective date of the measurement and recognition guidance in EITF No. 03-1 until further notice. Once the FASB reaches a final decision on the measurement and recognition provisions, the company will evaluate the impact of the adoption of the accounting provisions of EITF No. 03-1.

In December 2004, the FASB issued FSP No. 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, to the Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004. The American Jobs Creation Act of 2004 (AJCA) introduces a special 9% tax deduction on qualified production activities. FSP 109-1 clarifies that this tax deduction should be accounted for as a special tax deduction in accordance with SFAS No. 109. Given our U.S. net operating losses, we do not expect the adoption of this new tax provision to have a material impact on our consolidated financial statements.

In December 2004, the FASB issued FSP No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. The AJCA introduces a limited time 85% dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria are met. FSP 109-2 provides accounting and disclosure guidance for the repatriation provision. During the fourth quarter of 2005, the company’s chief executive officer approved the domestic reinvestment plan for qualifying dividends under the AJCA. As a result, the company expects to take advantage of the special repatriation provisions on certain unremitted foreign earnings. The amount of undistributed earnings that the company expects to repatriate is approximately $270 million. The estimated income tax effect of such repatriation is expected to be approximately $21 million and is expected to be recorded in the fourth quarter of 2005. Under the AJCA, the company has until December 25, 2005 to remit such earnings. The primary uses of the repatriated earnings under the domestic reinvestment plan will be for qualified wages, capital spending, acquisitions and debt repayment.

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share Based Payment. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. The company previously reported that it will apply the expense recognition provisions relating to stock options beginning in the third quarter of 2005; however, on April 14, 2005, the Securities and Exchange Commission adopted a new rule which amends the compliance date to the beginning of the first annual period that begins after June 15, 2005, therefore deferring the company’s required adoption to the beginning of the first quarter of 2006. SFAS No. 123R allows for either prospective recognition of compensation expense or retrospective recognition. The company also expects to apply the modified prospective transition method upon adoption of SFAS No. 123R. See Note 7 of Item 1, Notes to Consolidated Financial Statements (Unaudited).

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets. This statement amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. This statement is effective for fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material affect on our consolidated financial statements.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs. This statement amends the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material

(spoilage). This statement is effective for fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material affect on our consolidated financial statements.

Business Risks

Our business is subject to a number of risks and uncertainties. The risks described below are not the only ones facing us. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and financial condition.


	*The price of our common stock has fluctuated widely in the past and may fluctuate widely in the future.*

Our common stock, which is traded on The New York Stock Exchange, has experienced and may continue to experience significant price and volume fluctuations that could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in financial results, earnings below analysts’ estimates and financial performance and other activities of other publicly traded companies in the semiconductor industry could cause the price of our common stock to fluctuate substantially. In addition, in recent periods, our common stock, the stock market in general and the market for shares of semiconductor industry-related stocks in particular have experienced extreme price fluctuations which have often been unrelated to the operating performance of the affected companies. Any similar fluctuations in the future could adversely affect the market price of our common stock.


	*We maintain a backlog of customer orders that is subject to cancellation, reduction or delay in delivery schedules, which may result in lower than expected revenues.*

We manufacture products primarily pursuant to purchase orders for current delivery or to forecast, rather than pursuant to long-term supply contracts. The semiconductor industry is subject to rapid changes in customer outlooks or unexpected build ups of inventory in the supply channel as a result of shifts in end market demand. Accordingly, many of these purchase orders or forecasts may be revised or canceled without penalty. As a result, we must commit resources to the production of products without any advance purchase commitments from customers. Our inability to sell products after we devote significant resources to them could have a material adverse effect on both our levels of inventory and revenues.


	Downturns in the highly cyclical semiconductor industry or changes in end user market demands could reduce the profitability and overall value of our business, which could cause the trading price of our stock to decline or have other adverse effects on our financial position.

The semiconductor industry is highly cyclical, and the value of our business may decline during the “down” portion of these cycles. Beginning in the fourth quarter of 2000 and continuing into 2003, we and the rest of the semiconductor industry experienced backlog cancellations and reduced demand for our products, resulting in significant revenue declines, due to excess inventories at computer and telecommunications equipment manufacturers and general economic conditions, especially in the technology sector. Although we believe the low point of this most recent cycle occurred in the third quarter of 2001, the semiconductor industry did not experience a recovery in orders until 2003. We may experience renewed, possibly more severe and prolonged, downturns in the future as a result of such cyclical changes. Even as demand increases following such downturns, our profitability may not increase because of price competition that historically accompanies recoveries in demand. For example, in 2002, we sold approximately 7% more units than in 2001, yet our revenues were essentially unchanged. And, in 2003 we sold approximately the same numbers of units as in 2002, while at the same time experiencing revenue declines due to price decreases. In addition, we may experience significant changes in our profitability as a result of variations in sales, changes in product mix, changes in end user markets and the costs associated with the introduction of new products, and our efforts to reduce excess inventories that may have built up as a result of any of these factors. The markets for our products depend on continued demand for consumer electronics such as personal computers, cellular telephones, handsets and digital cameras, and automotive, household and industrial goods. These end user markets may experience changes in demand that could adversely affect our prospects.


	*We may not be able to develop new products to satisfy changes in consumer demands.*

Our failure to develop new technologies, or react to changes in existing technologies, could materially delay development of new products, which could result in decreased revenues and a loss of market share to our competitors. The semiconductor industry is characterized by rapidly changing technologies and industry standards, together with frequent new product introductions. Our financial performance depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. New products often command higher prices and, as a result, higher profit margins. We may not successfully identify new product opportunities and develop and bring new products to market or succeed in selling them into new customer applications in a timely and cost-effective manner. Products or technologies developed by other companies may render our products or technologies obsolete or noncompetitive. Many of our competitors are larger, older and well established international companies with greater engineering and research and development resources than us. Our failure to identify or capitalize on any fundamental shifts in technologies in our product markets relative to our competitors could have a material adverse effect on our competitive position within our industry.


	*Our failure to protect our intellectual property rights could adversely affect our future performance and growth.*

Failure to protect our existing intellectual property rights may result in the loss of valuable technologies. We rely on patent, trade secret, trademark and copyright law to protect such technologies. Some of our technologies are not covered by any patent or patent application, and we cannot assure you that:


	•	the patents owned by us or numerous other patents which third parties license to us will not be invalidated, circumvented, challenged or licensed to other companies; or

	•	any of our pending or future patent applications will be issued within the scope of the claims sought by us, if at all.

In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in some countries.

We also seek to protect our proprietary technologies, including technologies that may not be patented or patentable, in part by confidentiality agreements and, if applicable, inventors’ rights agreements with our collaborators, advisors, employees and consultants. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that such persons or institutions will not assert rights to intellectual property arising out of such research. Some of our technologies have been licensed on a non-exclusive basis from National Semiconductor, Samsung Electronics and other companies which may license such technologies to others, including our competitors. In addition, under a technology licensing and transfer agreement, National Semiconductor has limited royalty-free, worldwide license rights (without right to sublicense) to some of our technologies. If necessary or desirable, we may seek licenses under patents or intellectual property rights claimed by others. However, we cannot assure you that we will obtain such licenses or that the terms of any offered licenses will be acceptable to us. The failure to obtain a license from a third party for technologies we use could cause us to incur substantial liabilities and to suspend the manufacture or shipment of products or our use of processes requiring the technologies.


	*Our failure to obtain or maintain the right to use some technologies may negatively affect our financial results.*

Our future success and competitive position depend in part upon our ability to obtain or maintain proprietary technologies used in our principal products, which is achieved in part by defending claims by competitors and others of intellectual property infringement. The semiconductor industry is characterized by claims of intellectual property infringement and litigation regarding patent and other intellectual property rights. From time to time, we may be notified of claims (often implicit in offers to sell us a license to another company’s patents) that we may be infringing patents issued to other companies, and we may subsequently engage in license negotiations regarding these claims. Such claims relate both to products and manufacturing

processes. Even though we maintain procedures to avoid infringing others’ rights as part of our product and process development efforts, it is impossible to be aware of every possible patent which our products may infringe, and we cannot assure you that we will be successful. Furthermore, even if we conclude our products do not infringe another’s patents, others may not agree. We have been and are involved in lawsuits, and could become subject to other lawsuits, in which it is alleged that we have infringed upon the patent or other intellectual property rights of other companies. For example, on October 20, 2004, POWI sued us in the United States District Court for the District of Delaware, alleging that some of our PWM integrated circuit products infringe four of its U.S. patents. We do not believe our products violate POWI’s patents and plan to vigorously contest the lawsuit. Our involvement in this lawsuit and future intellectual property litigation, or the costs of avoiding or settling litigation by purchasing licenses rights or by other means, could result in significant expense to our company, adversely affecting sales of the challenged product or technologies and diverting the efforts of our technical and management personnel, whether or not such litigation is resolved in our favor. We may decide to settle patent infringement claims or litigation by purchasing license rights from the claimant, even if we believe we are not infringing, in order to reduce the expense of continuing the dispute or because we are not sufficiently confident that we would eventually prevail. In the event of an adverse outcome as a defendant in any such litigation, we may be required to:


	•	pay substantial damages;

	•	indemnify our customers for damages they might suffer if the products they purchase from us violate the intellectual property rights of others;

	•	stop our manufacture, use, sale or importation of infringing products;

	•	expend significant resources to develop or acquire non-infringing technologies;

	•	discontinue manufacturing processes; or

	•	obtain licenses to the intellectual property we are found to have infringed.

We cannot assure you that we would be successful in such development or acquisition or that such licenses would be available under reasonable terms. Any such development, acquisition or license could require the expenditure of substantial time and other resources.


	*We may not be able to consummate future acquisitions or successfully integrate acquisitions into our business.*

We have made eleven acquisitions of various sizes since we became an independent company in 1997, and we plan to pursue additional acquisitions of related businesses. The costs of acquiring and integrating related businesses, or our failure to integrate them successfully into our existing businesses, could result in our company incurring unanticipated expenses and losses. In addition, we may not be able to identify or finance additional acquisitions or realize any anticipated benefits from acquisitions we do complete.

We are constantly pursuing acquisition opportunities and consolidation possibilities and are frequently conducting due diligence or holding preliminary discussions with respect to possible acquisition transactions, some of which could be significant. No material potential acquisition transactions are subject to a letter of intent or otherwise so far advanced as to make the transaction reasonably certain.

If we acquire another business, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of existing operations. Some of the risks associated with acquisitions include:


	•	unexpected losses of key employees, customers or suppliers of the acquired company;

	•	conforming the acquired company’s standards, processes, procedures and controls with our operations;

	•	coordinating new product and process development;

	•	hiring additional management and other critical personnel;


	•	negotiating with labor unions; and

	•	increasing the scope, geographic diversity and complexity of our operations.

In addition, we may encounter unforeseen obstacles or costs in the integration of other businesses we acquire.

Possible future acquisitions could result in the incurrence of additional debt, contingent liabilities and amortization expenses related to intangible assets, all of which could have a material adverse effect on our financial condition and operating results.

We depend on suppliers for timely deliveries of raw materials of acceptable quality. Production time and product costs could increase if we were to lose a primary supplier or if a primary supplier increased the prices of raw materials. Product performance could be affected and quality issues could develop as a result of a significant degradation in the quality of raw materials we use in our products.

Our manufacturing operations depend upon obtaining adequate supplies of raw materials on a timely basis. Our results of operations could be adversely affected if we were unable to obtain adequate supplies of raw materials in a timely manner or if the costs of raw materials increased significantly. Results could also be adversely affected if there is a significant degradation in the quality of raw materials used in our products, or if the raw materials give rise to compatibility or performance issues in our products, any of which could lead to an increase in customer returns or product warranty claims. Although we maintain rigorous quality control systems, errors or defects may arise from a supplied raw material and be beyond our detection or control. For example, some phosphorus-containing mold compound received from one supplier and incorporated into our products has resulted in a number of claims for damages from customers. We purchase raw materials such as silicon wafers, lead frames, mold compound, ceramic packages and chemicals and gases from a limited number of suppliers on a just-in-time basis. From time to time, suppliers may extend lead times, limit supplies or increase prices due to capacity constraints or other factors. We subcontract a minority of our wafer fabrication needs, primarily to Advanced Semiconductor Manufacturing Corporation, Phenitec Semiconductor, Taiwan Semiconductor Manufacturing Company, Central Semiconductor Manufacturing Corporation, United Microelectronic Corporation, WIN Semiconductor and New Japan Radio Corporation. In order to maximize our production capacity, some of our back-end assembly and testing operations are also subcontracted. Primary back-end subcontractors include AUK, Enoch, Liteon Technology, Panjit Semiconductor, GEM Services, Hana Semiconductor, SP Semiconductor, STATS ChipPAC, STS Semiconductor and Wooseok. Our operations and ability to satisfy customer obligations could be adversely affected if our relationships with these subcontractors were disrupted or terminated.


	Delays in beginning production at new facilities, expanding capacity at existing facilities, implementing new production techniques, or incurring problems associated with technical equipment malfunctions, all could adversely affect our manufacturing efficiencies.

Our manufacturing efficiency is an important factor in our profitability, and we cannot assure you that we will be able to maintain our manufacturing efficiency or increase manufacturing efficiency to the same extent as our competitors. Our manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified in an effort to improve yields and product performance. Impurities or other difficulties in the manufacturing process can lower yields. In 2003, we began initial production at a new assembly and test facility in Suzhou, China. We are transferring some production from subcontractors to this new facility. Delays or technical problems in completing these transfers could lead to order cancellations and lost revenue. In addition, we are currently engaged in an effort to expand capacity at some of our manufacturing facilities. As is common in the semiconductor industry, we have from time to time experienced difficulty in beginning production at new facilities or in completing transitions to new manufacturing processes at existing facilities. As a consequence, we have suffered delays in product deliveries or reduced yields.

We may experience delays or problems in bringing our new factory in Suzhou, China or other new manufacturing capacity to full production. Such delays, as well as possible problems in achieving acceptable yields, or product delivery delays relating to existing or planned new capacity could result from, among other

things, capacity constraints, construction delays, upgrading or expanding existing facilities or changing our process technologies, any of which could result in a loss of future revenues. Our operating results could also be adversely affected by the increase in fixed costs and operating expenses related to increases in production capacity if revenues do not increase proportionately.


	Almost 70% of our sales are made by distributors who can terminate their relationships with us with little or no notice. The termination of a distributor could reduce sales and result in inventory returns.

Distributors accounted for 67% of our net sales for the first nine months of 2005. Our top five distributors worldwide accounted for 19% of our net sales for the first nine months of 2005. As a general rule, we do not have long-term agreements with our distributors, and they may terminate their relationships with us with little or no advance notice. Distributors generally offer competing products. The loss of one or more of our distributors, or the decision by one or more of them to reduce the number of our products they offer or to carry the product lines of our competitors, could have a material adverse effect on our business, financial condition and results of operations. The termination of a significant distributor, whether at our or the distributor’s initiative, or a disruption in the operations of one or more of our distributors, could reduce our net sales in a given quarter and could result in an increase in inventory returns.


	*The semiconductor business is very competitive, especially in the markets we serve, and increased competition could reduce the value of an investment in our company.*

The semiconductor industry is, and the standard component or “multi-market” semiconductor product markets in particular are, highly competitive. Competitors offer equivalent or similar versions of many of our products, and customers may switch from our products to competitors’ products on the basis of price, delivery terms, product performance, quality, reliability and customer service or a combination of any of these factors. Competition is especially intense in the multi-market semiconductor segment because it is relatively easier for customers to switch suppliers of more standardized, multi-market products like ours, compared to switching suppliers of more highly integrated or customized semiconductor products such as processors or system-on-a-chip products, which we do not manufacture. Even in strong markets, price pressures may emerge as competitors attempt to gain a greater market share by lowering prices. Competition in the various markets in which we participate comes from companies of various sizes, many of which are larger and have greater financial and other resources than we have and thus are better able to pursue acquisition candidates and can better withstand adverse economic or market conditions. In addition, companies not currently in direct competition with us may introduce competing products in the future.


	*We may not be able to attract or retain the technical or management employees necessary to remain competitive in our industry.*

Our continued success depends on the retention and recruitment of skilled personnel, including technical, marketing, management and staff personnel. In the semiconductor industry, the competition for qualified personnel, particularly experienced design engineers and other technical employees, is intense, particularly in the “up” portions of our business cycle, when competitors may try to recruit our most valuable technical employees. There can be no assurance that we will be able to retain our current personnel or recruit the key personnel we require.


	*We may face product warranty or product liability claims that are disproportionately higher than the value of the products involved.*

Our products are typically sold at prices that are significantly lower than the cost of the equipment or other goods in which they are incorporated. For example, our products that are incorporated into a personal computer may be sold for several dollars, whereas the personal computer might be sold by the computer maker for several hundred dollars. Although we maintain rigorous quality control systems, we manufacture and sell approximately 16 billion individual semiconductor devices per year to customers around the world, and in the ordinary course of our business we receive warranty claims for some of these products that are defective or that do not perform to published specifications. Since a defect or failure in our product could give

rise to failures in the goods that incorporate them (and consequential claims for damages against our customers from their customers), we may face claims for damages that are disproportionate to the revenues and profits we receive from the products involved. We attempt, through our standard terms and conditions of sale and other customer contracts, to limit our liability for defective products to obligations to replace the defective goods or refund the purchase price. Nevertheless, we have received claims for other charges, such as for labor and other costs of replacing defective parts, lost profits and other damages. In addition, our ability to reduce such liabilities may be limited by the laws or the customary business practices of the countries where we do business. And, even in cases where we do not believe we have legal liability for such claims, we may choose to pay for them to retain a customer’s business or goodwill or to settle claims to avoid protracted litigation. Our results of operations and business could be adversely affected as a result of a significant quality or performance issue in our products, if we are required or choose to pay for the damages that result.

For example, from time to time since late 2001, we have received claims from a number of customers seeking damages resulting from certain products manufactured with a phosphorus-containing mold compound. Mold compound is the plastic resin used to encapsulate semiconductor chips. This particular mold compound causes some chips to short in some situations, resulting in chip failure. We have been named in two lawsuits relating to these mold compound claims. In May 2004 we were named, along with three product distribution companies, as a defendant in a lawsuit filed by Alcatel Canada Inc. in the Ontario Superior Court of Justice. The lawsuit alleges breach of contract, negligence and other claims and seeks C$200,000,000 (Canadian dollars) in damages allegedly caused by our products containing the mold compound. In January 2005 we were named as a defendant in a lawsuit filed by Lucent Technologies Inc. in the Superior Court of New Jersey. The lawsuit alleges breach of contract and breach of warranty claims and seeks unspecified damages allegedly caused by our products. We believe we have strong defenses against all these claims and intend to vigorously defend both lawsuits.

Several other customers have made claims for damages or threatened to begin litigation as a result of the mold compound issue if their claims are not resolved according to their demands, and we may face additional lawsuits as a result. We have also resolved similar claims with several of our leading customers. We have limited insurance coverage for such customer claims. While the exact amount of these losses is not known, we recorded a reserve for estimated potential settlement losses of $11.0 million in the Consolidated Statement of Operations during the second quarter of 2004. This estimate was based upon an assessment of the potential liability using an analysis of the claims and historical experience. If we continue to receive additional claims for damages from customers beyond the period of time normally observed for such claims, if more of these claims proceed to litigation, or if we choose to settle claims in settlement of or to avoid litigation, then we may incur a liability in excess of the current reserve. At September 25, 2005 and December 26, 2004 the reserve for estimated potential settlement losses was $10.3 million and $11.0 million, respectively.

In a related action, we filed a lawsuit in August 2002 against the mold compound supplier, Sumitomo Bakelite Co., Ltd. and other related parties in California Superior Court for Santa Clara County, alleging claims for breach of contract, misrepresentation, negligence and other claims and seeking unspecified damages, including damages caused to our customers as a result of mold compound supplied by Sumitomo. Other manufacturers have also filed lawsuits against Sumitomo relating to the same mold compound issue. On September 30, 2005, we agreed to settle the lawsuit. We previously agreed to settle litigation against Amkor Technology, Inc., a co-defendant with Sumitomo.


	*Our international operations subject our company to risks not faced by domestic competitors.*

Through our subsidiaries we maintain significant operations in the Philippines, Malaysia, China and South Korea and also operate facilities in Singapore. We have sales offices and customers around the world. Approximately three-quarters of our revenues in the first nine months of 2005 were from Asia. The following are some of the risks inherent in doing business on an international level:


	•	economic and political instability;

	•	foreign currency fluctuations;


	•	transportation delays;

	•	trade restrictions;

	•	work stoppages; and

	•	the laws of, including tax laws, and the policies of the United States toward, countries in which we manufacture our products.


	*Our power device business subjects our company to risks inherent in doing business in Korea, including political risk, labor risk and currency risk.*

As a result of the acquisition of the power device business from Samsung Electronics in 1999, we have significant operations and sales in South Korea and are subject to risks associated with doing business there. Korea accounted for 16% of our revenue for the third quarter of 2005.

Relations between South Korea and North Korea have been tense over most of South Korea’s history, and more recent concerns over North Korea’s nuclear capability, and relations between the United States and North Korea, have created a global security issue that may adversely affect Korean business and economic conditions. We cannot assure you as to whether or when this situation will be resolved or change abruptly as a result of current or future events. An adverse change in economic or political conditions in South Korea or in its relations with North Korea could have a material adverse effect on our Korean subsidiary and our company. In addition to other risks disclosed relating to international operations, some businesses in South Korea are subject to labor unrest.

Our Korean power device business’ sales are increasingly denominated primarily in U.S. dollars while a significant portion of its costs of goods sold and its operating expenses are denominated in South Korean won. Although we have taken steps to fix the costs subject to currency fluctuations and to balance won revenues and won costs as much as possible, a significant change in this balance, coupled with a significant change in the value of the won relative to the dollar, could have a material adverse effect on our financial performance and results of operations (see Item 3, Quantitative and Qualitative Disclosures about Market Risk).


	A change in foreign tax laws or a difference in the construction of current foreign tax laws by relevant foreign authorities could result in us not recognizing the benefits we anticipated in connection with the transaction structure used to consummate the acquisition of the power device business.

The transaction structure we used for the acquisition of the power device business is based on assumptions about the various tax laws, including income and withholding tax, and other relevant laws of foreign jurisdictions. In addition, our Korean subsidiary was granted a ten-year tax holiday under Korean law in 1999. The first seven years are tax-free, followed by three years of income taxes at 50% of the statutory rate. In 2000, the tax holiday was extended such that the exemption amounts were increased to 75% in the eighth year and a 25% exemption was added to the eleventh year. If our assumptions about tax and other relevant laws are incorrect, or if foreign taxing jurisdictions were to change or modify the relevant laws, or if our Korean subsidiary were to lose its tax holiday, we could suffer adverse tax and other financial consequences or lose the benefits anticipated from the transaction structure we used to acquire that business.


	We have significantly expanded our manufacturing operations in China and, as a result, will be increasingly subject to risks inherent in doing business in China, which may adversely affect our financial performance.

In July 2003, we began production on an 800,000 square foot assembly and test facility in Suzhou, China. We have completed the first phase of the project and in 2004 began implementing the second phase. The factory began production in 2003 and is steadily increasing its output. Although we expect a significant portion of our production from this new facility will be exported out of China, especially initially, we are hopeful that a significant portion of our future revenue will result from the Chinese markets in which our products are sold, and from demand in China for goods that include our products. Our ability to operate in China may be adversely affected by changes in that country’s laws and regulations, including those relating to taxation,

import and export tariffs, environmental regulations, land use rights, property and other matters. In addition, our results of operations in China are subject to the economic and political situation there. We believe that our operations in China are in compliance with all applicable legal and regulatory requirements. However, there can be no assurance that China’s central or local governments will not impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures. Changes in the political environment or government policies could result in revisions to laws or regulations or their interpretation and enforcement, increased taxation, restrictions on imports, import duties or currency revaluations. In addition, a significant destabilization of relations between China and the United States could result in restrictions or prohibitions on our operations or the sale of our products in China. The legal system of China relating to foreign trade is relatively new and continues to evolve. There can be no certainty as to the application of its laws and regulations in particular instances. Enforcement of existing laws or agreements may be sporadic and implementation and interpretation of laws inconsistent. Moreover, there is a high degree of fragmentation among regulatory authorities resulting in uncertainties as to which authorities have jurisdiction over particular parties or transactions.


	*We are subject to many environmental laws and regulations that could affect our operations or result in significant expenses.*

Increasingly stringent environmental regulations restrict the amount and types of pollutants that can be released from our operations into the environment. While the cost of compliance with environmental laws has not had a material adverse effect on our results of operations historically, compliance with these and any future regulations could require significant capital investments in pollution control equipment or changes in the way we make our products. In addition, because we use hazardous and other regulated materials in our manufacturing processes, we are subject to risks of liabilities and claims, regardless of fault, resulting from accidental releases, including personal injury claims and civil and criminal fines, any of which could be material to our cash flow or earnings. For example:


	•	we currently are remediating contamination at some of our operating plant sites;

	•	we have been identified as a potentially responsible party at a number of Superfund sites where we (or our predecessors) disposed of wastes in the past; and

	•	significant regulatory and public attention on the impact of semiconductor operations on the environment may result in more stringent regulations, further increasing our costs.

Although most of our known environmental liabilities are covered by indemnification agreements with Raytheon Company, National Semiconductor, Samsung Electronics and Intersil Corporation, these indemnities are limited to conditions that occurred prior to the consummation of the transactions through which we acquired facilities from those companies. Moreover, we cannot assure you that their indemnity obligations to us for the covered liabilities will be available, or, if available, adequate to protect us.


	We are a leveraged company with a ratio of debt-to-equity at September 25, 2005 of approximately 0.6 to 1, which could adversely affect our financial health and limit our ability to grow and compete.

At September 25, 2005, we had total debt of $647.7 million, and the ratio of this debt to equity was approximately 0.6 to 1. In June 2003 we entered into a new senior credit facility that included a $300 million term loan, the proceeds of which were used to redeem our 10³/8% Senior Subordinated Notes due 2007, and a $180 million revolving line of credit. In January 2005 we increased the senior credit facility to $630 million, consisting of a term loan of $450 million replacing the previous $300 million term loan, and a $180 million revolving line of credit of which $179.2 million remained undrawn as of September 25, 2005, adjusted for outstanding letters of credit. The proceeds from the increased senior credit facility were used, together with approximately $216 million in cash, to redeem all our outstanding 10¹/2% Senior Subordinated Notes due

2009. Despite reducing some of our long term debt we continue to carry substantial indebtedness which could have important consequences. For example, it could:


	•	require us to dedicate a portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes;

	•	increase the amount of our interest expense, because certain of our borrowings (namely borrowings under our senior credit facility) are at variable rates of interest, which, if interest rates increase, could result in higher interest expense;

	•	increase our vulnerability to general adverse economic and industry conditions;

	•	limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

	•	restrict us from making strategic acquisitions, introducing new technologies or exploiting business opportunities;

	•	make it more difficult for us to satisfy our obligations with respect to the instruments governing our indebtedness;

	•	place us at a competitive disadvantage compared to our competitors that have less indebtedness; or

	•	limit, along with the financial and other restrictive covenants in our debt instruments, among other things, our ability to borrow additional funds, dispose of assets, repurchase stock or pay cash dividends. Failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations.


	*Despite current indebtedness levels, we may still be able to incur substantially more indebtedness. Incurring more indebtedness could exacerbate the risks described above.*

We may be able to incur substantial additional indebtedness in the future. The indenture governing Fairchild Semiconductor Corporation’s outstanding 5% Convertible Senior Subordinated Notes Due 2008 does not limit the amount of additional debt that we may incur. Although the terms of the credit agreement relating to the senior credit facility contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, additional indebtedness incurred in compliance with these restrictions or upon further amendment of the credit facility could be substantial. The senior credit facility, as amended in January 2005, permits borrowings of up to $180.0 million in revolving loans under the line of credit, in addition to the outstanding $450 million term loan that is currently outstanding under that facility. As of September 25, 2005, adjusted for outstanding letters of credit, we had up to $179.2 million available under the revolving loan portion of the senior credit facility. If new debt is added to our subsidiaries’ current debt levels, the substantial risks described above would intensify.


	We may not be able to generate the necessary amount of cash to service our indebtedness, which may require us to refinance our indebtedness or default on our scheduled debt payments. Our ability to generate cash depends on many factors beyond our control.

Our historical financial results have been, and our future financial results are anticipated to be, subject to substantial fluctuations. We cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized on schedule or at all, or that future borrowings will be available to us under our senior credit facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. In addition, because our senior credit facility has variable interest rates, the cost of those borrowings will increase if market interest rates increase. If we are unable to meet our expenses and debt obligations, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets or raise equity. We cannot assure you that we would be able to refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all, which

could cause us to default on our obligations and impair our liquidity. Restrictions imposed by the credit agreement relating to our senior credit facility restrict or prohibit our ability to engage in or enter into some business operating and financing arrangements, which could adversely affect our ability to take advantage of potentially profitable business opportunities.

The operating and financial restrictions and covenants in the credit agreement relating to our senior credit facility may limit our ability to finance our future operations or capital needs or engage in other business activities that may be in our interests. The credit agreement imposes significant operating and financial restrictions that affect our ability to incur additional indebtedness or create liens on our assets, pay dividends, sell assets, engage in mergers or acquisitions, make investments or engage in other business activities. These restrictions could place us at a disadvantage relative to competitors not subject to such limitations.

In addition, the senior credit facility also requires us to maintain specified financial ratios. Our ability to meet those financial ratios can be affected by events beyond our control, and we cannot assure you that we will meet those ratios. As of September 25, 2005, we were in compliance with these ratios. A breach of any of these covenants, ratios or restrictions could result in an event of default under the senior credit facility. Upon the occurrence of an event of default under the senior credit facility, the lenders could elect to declare all amounts outstanding under the senior credit facility, together with accrued interest, to be immediately due and payable. If we were unable to repay those amounts, the lenders could proceed against our assets, including any collateral granted to them to secure the indebtedness. If the lenders under the senior credit facility accelerate the payment of the indebtedness, we cannot assure you that our assets would be sufficient to repay in full that indebtedness and our other indebtedness.


Item 3.	*Quantitative and Qualitative Disclosures about Market Risk*

Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosure about Market Risk, in Fairchild Semiconductor International’s annual report on Form 10-K for the year ended December 26, 2004 and under the subheading “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 43 of the Form 10-K. There were no material changes in the information we provided in our Form 10-K during the period covered by this Quarterly Report.


Item 4.	*Controls and Procedures*

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to assure, as much as is reasonably possible, that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is communicated to management and recorded, processed, summarized and disclosed within the specified time periods. As of the end of the period covered by this report, our chief executive officer and interim principal financial officer have evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures. Based on the evaluation, our CEO and interim principal financial officer concluded that as of September 25, 2005, our disclosure controls and procedures are effective.

Inherent Limitations on Effectiveness of Controls

The company’s management, including the CEO and interim principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that the breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two

or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of a control effectiveness in future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or a deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the third quarter of 2005 that have materially affected, or are reasonably likely to materially affect, our own internal control over financial reporting. During the first quarter of 2005, we implemented an upgrade to several modules of our enterprise resource planning (ERP) system.

PART II. OTHER INFORMATION


Item 1.	*Legal Proceedings*

From time to time since late 2001, we have received claims from a number of customers seeking damages resulting from certain products manufactured with a phosphorus-containing mold compound. Mold compound is the plastic resin used to encapsulate semiconductor chips. This particular mold compound causes some chips to short in some situations, resulting in chip failure. On May 14, 2004 we were named, along with three product distribution companies, as a defendant in a lawsuit filed by Alcatel Canada Inc. in the Ontario Superior Court of Justice in Toronto. The other named defendants are Arrow Electronics Canada Ltd., Avnet International (Canada) Ltd. and Future Electronics Inc. The lawsuit alleges breach of contract, negligence and other claims and seeks C$200,000,000 (Canadian dollars) in damages allegedly caused by some of our products manufactured with the phosphorous-containing mold compound. In January 2005 we were named as a defendant in a lawsuit filed by Lucent Technologies Inc. in the Superior Court of New Jersey. The lawsuit alleges breach of contract and breach of warranty claims and seeks unspecified damages allegedly caused by our products. We believe we have strong defenses against all these claims and intend to vigorously defend both lawsuits.

Several other customers have made claims for damages or threatened to begin litigation as a result of the mold compound issue if their claims are not resolved according to their demands, and we may face additional lawsuits as a result. We have also resolved similar claims with several of our leading customers. We have limited insurance coverage for such customer claims. While the exact amount of these losses is not known, we recorded a reserve for estimated potential settlement losses of $11.0 million in the Consolidated Statement of Operations during the second quarter of 2004. This estimate was based upon an assessment of the potential liability using an analysis of all the claims and historical experience. If we continue to receive additional claims for damages from customers beyond the period of time normally observed for such claims, if more of these claims proceed to litigation, or if we choose to settle claims in settlement of or to avoid litigation, then we may incur a liability in excess of the current reserve. At September 25, 2005 and December 26, 2004 the reserve for estimated potential settlement losses was $10.3 million and $11.0 million, respectively.

In a related action, we filed a lawsuit in August 2002 against the mold compound supplier, Sumitomo Bakelite Co., Ltd., and other related parties in California Superior Court for Santa Clara County, alleging claims for breach of contract, misrepresentation, negligence and other claims and seeking unspecified damages, including damages caused to our customers as a result of mold compound supplied by Sumitomo. Other manufacturers have also filed lawsuits against Sumitomo relating to the same mold compound issue. During the third quarter, we agreed to settle litigation against Amkor Technology, Inc., a co-defendant with Sumitomo. As a result of this settlement we recorded net settlement gains before taxes of approximately $2.7 million in the third quarter of 2005. On September 30, 2005 we agreed to settle our lawsuit against Sumitomo. Accordingly, we will record net settlement gains before taxes of approximately $18 million in the fourth quarter of 2005.

On October 20, 2004, we and our wholly owned subsidiary, Fairchild Semiconductor Corporation, were sued by POWI in the United States District Court for the District of Delaware. The complaint filed by POWI alleges that certain of our PWM integrated circuit products infringe four of POWI’s U.S. patents, and seeks a permanent injunction preventing us from manufacturing, selling, offering for sale or importing the allegedly infringing products as well as money damages for the alleged past infringement. We have analyzed the POWI patents in light of our products and, based on that analysis, we do not believe our products violate POWI’s patents and, accordingly, plan to vigorously contest this lawsuit.

On December 30, 2004, our wholly owned subsidiary, Fairchild Semiconductor Corporation, was sued by ZTE Corporation, a communications equipment manufacturer, in Guangdong Higher People’s Court in Guangzhou, People’s Republic of China. The complaint filed by ZTE alleges that certain of our products were defective and caused personal injury and/or property loss to ZTE. ZTE claims 65,733,478 RMB as damages. We contested the lawsuit in a trial held on October 20, 2005 and the court’s decision is pending. We continue to deny the allegations in the lawsuit.

From time to time we are involved in legal proceedings in the ordinary course of business. We believe that there is no such ordinary course litigation pending that could have, individually or in the aggregate, a material adverse effect on our business, financial condition, results of operations or cash flows.


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*

There were no sales of unregistered equity securities in the third quarter of 2005. The following table provides information with respect to purchases made by the company of its own common stock.


					Total Number of		Maximum Number (or
					Shares Purchased		Approximate Dollar Value)
	Total Number of		Average Price		as Part of Publicly		of Shares That May yet be
	Shares (or Units)		Paid per		Announced Plans		Purchased Under the Plans
Period	Purchased(1)		Share ($)		or Programs		or Programs

June 27, 2005 - July 24, 2005		—		—		—		—
July 25, 2005 - August 21, 2005		125,000		15.90		—		—
August 22, 2005 - September 25, 2005		—		—		—		—
Total		125,000		15.90		—		—


(1)	All of these shares were purchased by the company in open-market transactions to satisfy its obligations to deliver shares under the company’s employee stock purchase plan. The purchase of these shares satisfied the conditions of the safe harbor provided by the Securities Exchange Act of 1934.


Item 6.	*Exhibits*


Exhibit
No.			Description

	3	.1	Bylaws, as amended through August 23, 2005 (incorporated by reference from our current report on Form 8-K filed on August 29, 2005).

	10	.1	Form of Performance Unit Award Agreement under the Fairchild Semiconductor Stock Plan.

	10	.2	Non-Qualified Stock Option Agreement under the Fairchild Semiconductor Stock Plan dated July 15, 2005, between Fairchild Semiconductor International, Inc. and Mark S. Thompson.

	10	.3	Performance Unit Award Agreement under the Fairchild Semiconductor Stock Plan dated July 15, 2005, between Fairchild Semiconductor International, Inc. and Mark S. Thompson.

	10	.4	Deferred Stock Unit Award Agreement under the Fairchild Semiconductor Stock Plan dated July 18, 2005, between Fairchild Semiconductor International, Inc. and Mark S. Thompson.


Exhibit
No.			Description


	10	.5	Performance Unit Award Agreement under the Fairchild Semiconductor Stock Plan dated July 15, 2005, between Fairchild Semiconductor International, Inc. and Kirk P. Pond.

	10	.6	Performance Unit Award Agreement under the Fairchild Semiconductor Stock Plan dated July 15, 2005, between Fairchild Semiconductor International, Inc. and Joseph R. Martin.

	31	.1	Section 302 Certification of the Chief Executive Officer.

	31	.2	Section 302 Certification of the Interim Principal Financial Officer.

	32	.1	Certification, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Mark S. Thompson.

	32	.2	Certification, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Robin A. Sawyer.

Items 3, 4, and 5 are not applicable and have been omitted.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Fairchild Semiconductor International, Inc.


Date: November 4, 2005		By: /s/ Robin A. Sawyer Robin A. Sawyer Vice President, Corporate Controller (Principal Accounting Officer)

52 EX-10.1 2 b57410fsexv10w1.htm EX-10.1 FORM OF PERFORMANCE UNIT AWARD AGREEMENT exv10w1

Exhibit 10.1

Fairchild Semiconductor Stock Plan
Performance Unit Award Agreement


PARTICIPANT:	EMPLOYEE ID:	GLOBAL ID:

GRANT DATE:		___, 2005

TARGET NUMBER OF PERFORMANCE UNITS:		units

PERFORMANCE YEAR:		Fiscal Year Ending December 25, 2005

By accepting this Grant, you irrevocably agree, on your own behalf and on behalf of your heirs and any other person claiming rights under this Agreement, to all of the terms and conditions of the Performance Unit Award as set forth in or pursuant to this Agreement and the Plan (as such may be amended from time to time). You and the Company agree as follows:


1.	Application of Plan; Administration	This Agreement and your rights under this Agreement are subject to all the terms and conditions of the Plan, as it may be amended from time to time, as well as to such rules and regulations as the Committee may adopt. It is expressly understood that the Committee that administers the Plan is authorized to administer, construe and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon you to the extent permitted by the Plan. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan.

2.	Performance Goal	The issuance of Performance Units pursuant to this Agreement shall be subject to the Company achieving earnings before interest and taxes, as determined by the Committee pursuant to the Plan, (“EBIT”) for the Performance Year set forth above equal to at least the 50% EBIT Target established by the Committee and set forth in the table below. If EBIT for the Performance Year does not equal or exceed the 50% EBIT Target threshold, the right to receive any Performance Units pursuant to this Agreement shall expire without consideration.

		Subject to the foregoing paragraph and provided that you have remained in the full time employment or service of the Company or an Affiliate from the Grant Date set forth above, the number of Performance Units issued to you under this Agreement (such units, the “Granted Performance Units”) shall be determined in accordance with the following schedule:


	EBIT Required to
Percentage EBIT	Achieve Percentage	Number of Granted
Target	EBIT Target	Performance Units If Percentage EBIT Goal Achieved
50% EBIT Target		0.50 x the Target Number of Performance Units

100% EBIT Target		1.00 x the Target Number of Performance Units

150% EBIT Target		1.50 x the Target Number of Performance Units

200% EBIT Target		2.00 x the Target Number of Performance Units


				In the event that the Company’s EBIT for the Performance Year falls between two of the Percentage EBIT Targets listed in the table above, the number of Granted Performance Units shall be determined by linear interpolation. Notwithstanding anything herein to the contrary, in no event shall more that 2.00 times the Target Number of Performance Units be issued under this Agreement.


		Following the end of the Performance Year and the collection of relevant data necessary to determine the extent to which the performance goal set forth in this Paragraph 2 has been satisfied, the Committee will determine: (a) the extent to which the performance goal was achieved by the Company for the Performance Year; and (b) the percentage of the Target Number of Performance Units to be issued pursuant to the Performance Unit Award program for the Performance Year. The Committee shall make these determinations in its sole discretion. The number and kind of shares subject to or issued under the Performance Unit Award shall be subject to adjustment as provided for in Section 3(c) of the Plan. The achievement of the performance goal (or lack thereof) shall be evidenced by the Committee’s written certification. For the avoidance of doubt, the right to receive up to 200% of the Target Number of Performance Units shall expire without consideration to the extent that such units do not become Granted Performance Units.

3.	Vesting	The Granted Performance Units will vest (becoming “Vested Performance Units”) on the following Vesting Dates provided that you have remained in the full time employment or service of the Company or an Affiliate from the Grant Date set forth above until the respective Vesting Date, provided that in no case shall the units vest before the date of the Committee’s written certification of the performance goal achievement under Paragraph 2:


	Percentage Vested
Vesting Date	(including portion that vested the preceding year)
July __, 20__		33	%
February __, 20__		66	%
February __, 20__		100	%


		The vesting period set forth above may be adjusted by the Committee to reflect the decreased level of employment or service during any period in which you are on an approved leave of absence or are employed on a less than full time basis.

4.	Termination of Employment	Except as otherwise provided in Paragraph 8 of this Agreement, the right to issuance of Performance Units and the rights under any Granted Performance Units that have not become Vested Performance Units at the time your employment or service with the Company terminates for any reason will be forfeited without consideration as of the date of termination.

5.	Settlement of Granted Performance Units and Issuance of Shares	Each Vested Performance Unit will be settled by the delivery of one share of Common Stock (subject to adjustment under Section 3(c) of the Plan, a “Share”) to you or, in the event of your death, to your designated beneficiary, promptly following the Vesting Date with respect to such Shares, subject to your satisfaction of any tax withholding obligations as described in Paragraph 10 of this Agreement. You hereby authorize any brokerage service provider determined acceptable to the Company, to open a securities account for you to be used for the settlement of Vested Performance Units. The date on which Shares are issued may include a delay in order to provide the Company such time as it determines appropriate to address tax withholding and other administrative matters.

6.	Rights as Stockholder	Except as otherwise provided in this Agreement, you will not be entitled to any privileges of ownership of the shares of Common Stock underlying your Performance Units unless and until Shares are actually delivered to you under this Agreement.

7.	Dividends	From and after the date a number of Granted Performance Units are issued to you under Paragraph 2 or Paragraph 8, you will be credited with additional Performance Units having a value equal to declared dividends, if any, with record dates that occur prior to the settlement of any Granted Performance Units as if such Granted Performance Units had been actual shares of Common Stock, based on the Fair Market Value of a share of Common Stock on the applicable dividend payment date. Any such additional Performance Units shall be considered Granted Performance Units under this Agreement and shall also be credited with additional Performance Units as dividends, if any, are declared, and shall be subject to the same restrictions and conditions (including the risk of forfeiture under Paragraph 4) as Granted Performance Units with respect to which they were credited. Notwithstanding the foregoing, no such additional Performance Units will be credited with respect to any dividend in connection with which Granted Performance Units are adjusted pursuant to Section 3(c) of the Plan.


8.		Change in Control		Notwithstanding anything to the contrary in this Agreement, the Granted Performance Units shall be subject to acceleration of vesting upon a Change in Control as provided with respect to restricted stock under Section 11(a)(ii) of the Plan, and shall be settled as if pursuant to Paragraph 5 of this Agreement, provided that if a Change in Control occurs during the Performance Year, a number of Performance Units equal to 100% of the Target Number of Performance Units shall be issued to you (and become Granted Performance Units) immediately prior to the Change in Control.


9.	Transferability	(a)	Your Performance Units are not transferable, whether voluntarily or involuntarily, by operation of law or otherwise, except as provided in the Plan. Any assignment, pledge, transfer, or other disposition, voluntary or involuntary, of your Units made, or any attachment, execution, garnishment, or lien issued against or placed upon the Units, other than as so permitted, shall be void.

		(b)	You acknowledge that, from time to time, the Company may be in a “blackout period” and/or subject to applicable securities laws that could subject you to liability for engaging in any transaction involving the sale of the Company’s shares. You further acknowledge and agree that, prior to the sale of any Shares, it is your responsibility to determine whether or not such sale of Shares will subject you to liability under insider trading rules or other applicable securities laws.

10.	Taxes	(a)	General. You are ultimately liable and responsible for all taxes owed by you in connection with your Performance Units, regardless of any action the Company takes or any transaction pursuant to this Paragraph 10 with respect to any tax withholding obligations that arise in connection with the Performance Units. The Company makes no representation or undertaking regarding the treatment of any tax withholding in connection with the grant, issuance, vesting or settlement of the Performance Units or Granted Performance Units or the subsequent sale of any of the Shares underlying the Granted Performance Units that vest. The Company does not commit and is under no obligation to structure this Agreement to reduce or eliminate your tax liability.

		(b)	Taxes. You will be subject to federal and state income and other tax withholding requirements on a date (generally, the Vesting Date) determined by applicable law (any such date, the “Taxable Date”), based on the Fair Market Value of the Shares underlying the Granted Performance Units that vest. You will be solely responsible for the payment of all U.S. federal income and other taxes, including any state, local or non-U.S. income or employment tax obligation that may be related to the Shares, including any such taxes that are required to be withheld and paid over to the applicable tax authorities (the “Tax Withholding Obligation”). You will be responsible for the satisfaction of such Tax Withholding Obligation in a manner acceptable to the Company in its sole discretion, including through payroll withholding.

			(i) By Sale of Shares. Your acceptance of this Agreement constitutes your instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to sell on your behalf a whole number of shares from those Shares issuable to you as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the applicable Tax Withholding Obligation. Such shares will be sold on the Taxable Date or as soon thereafter as practicable. You will be responsible for all brokers’ fees and other costs of sale, which fees and costs may be deducted from the proceeds of the foregoing sale of Shares, and you agree to indemnify and hold the Company and any brokerage firm selling such Shares harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed your Tax Withholding Obligation, such excess cash will be deposited into the securities account established with the brokerage service provider for the settlement of your Vested Performance Units. Such Shares will be sold through the broker at market prices; however the price you receive will reflect a weighted average sales price based on the sales price of Shares on behalf of you and others for whom the designated broker may be selling shares on the relevant day(s), and you acknowledge that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy your Tax Withholding Obligation. Accordingly, you agree to pay to the Company as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of shares described above. Unless otherwise authorized by the Committee in its sole discretion, the sale of shares will be the primary method used by the Company to satisfy the applicable Tax Withholding Obligation, and accordingly you represent and warrant to the Company as follows:


				A.		You are accepting this Agreement during a permitted trading period, and at the time of accepting this Agreement you are not aware of any Material Nonpublic Information (as defined in the Company’s Corporate Legal Insider Trading and Tipping Policy) concerning the Company.


11.	Data Privacy	As an essential term of this Agreement, you consent to the collection, use and transfer, in electronic or other form, of personal data as described in this Agreement for the exclusive purpose of implementing, administering and managing your participation in the Plan. By entering into this Agreement and accepting the Performance Units, you acknowledge that the Company holds certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, tax rates and amounts, nationality, job title, any shares of stock or directorships held in the Company, details of all awards or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding, for the purpose of implementing, administering and managing the Plan (“Data”). You acknowledge that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in jurisdictions that may have different data privacy laws and protections, and you authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom you or the Company may elect to deposit any shares of stock acquired under this Agreement. You acknowledges that Data may be held only as long as is necessary to implement, administer and manage your participation in the Plan as determined by the Company, and that you may request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, provided however, that refusing or withdrawing your consent may adversely affect your ability to participate in the Plan.

12.	Electronic Delivery	The Company may, in its sole discretion, decide to deliver any documents related to any awards granted under the Plan by electronic means or to request your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company, and such consent shall remain in effect throughout your term of employment or service with the Company and thereafter until withdrawn in writing by you.


13.	Miscellaneous	(a)	This Agreement shall not confer upon you any right to continue as an employee, or otherwise in the service of, the Company or any Affiliate, nor shall this Agreement interfere in any way with the Company’s or such Affiliate’s right to terminate your employment or service at any time.

		(b)	Without limiting the generality of Paragraph 13(a) above, this Agreement and the Plan may be amended without your consent to the extent provided in Section 14(b) of the Plan.

		(c)	This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges as may be required. The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by you or other subsequent transfers by you of any shares of Common Stock issued as a result of or under this Agreement, including without limitation (i) restrictions under an insider trading policy, (ii) restrictions that may be necessary in the absence of an effective registration statement under the Securities Act of 1933, as amended, covering the Performance Units and (iii) restrictions as to the use of a specified brokerage firm or other agent for such resales or other transfers. Any sale of shares of Common Stock issued pursuant to this Agreement must also comply with other applicable laws and regulations governing the sale of such shares.

		(d)	To the extent not preempted by U.S. federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.

		(e)	Any question concerning the interpretation of this Agreement or the Plan, any adjustments required to be made under the Plan, and any controversy that may arise under the Plan or this Agreement shall be determined by the Committee (including any person(s) to whom the Committee has delegated its authority) in its sole and absolute discretion. Such decision by the Committee shall be final and binding.

14.	Signatures	By the signatures below, you and the authorized representative of the Company acknowledge agreement to this Performance Unit Award Agreement as of the Grant Date specified above.

To accept your Performance Unit grant:

(a)		Sign BOTH copies of this Performance Unit Award Agreement;

(b)		Retain one copy of each for your records;

(c)		Return one copy of each in the enclosed envelope by August 22, 2005.

EX-10.2 3 b57410fsexv10w2.htm EX-10.2 NON-QUALIFIED STOCK OPTION AGREEMENT exv10w2

Exhibit 10.2

Fairchild Semiconductor Stock Plan
Non-Qualified Stock Option Agreement

This is a Non-Qualified Stock Option Agreement (the “Agreement”) under the Fairchild Semiconductor Stock Plan, as amended from time to time (the “Plan”), dated July 15, 2005 (the “Grant Date”) between Fairchild Semiconductor International, Inc. (the “Company”) and Mark S. Thompson, a regular salaried employee of the Company or one of its subsidiaries (“you” or the “Optionee”).


1.	Option Grant; Exercise Price	The Company grants you the option to purchase up to 275,000 shares of the Company’s Common Stock at an exercise price of $15.91 per share. This Agreement is made pursuant to your Employment Agreement with the Company and Fairchild Semiconductor Corporation dated April 6, 2005, as amended from time to time (your “Employment Agreement”). This Agreement consists of this document, your Employment Agreement and the Plan. Any inconsistency among this Agreement, your Employment Agreement and the Plan shall be resolved in favor of your Employment Agreement, the Plan and this Agreement, in that order of priority. Capitalized terms not defined in this Agreement are defined in the Plan.

2.	Option Term; Vesting	The term of your option is 8 years and one day from the Grant Date. Your option terminates at the end of the term and cannot be exercised after the term. You can exercise your option only to the extent it has vested. Your option will vest in increments, as follows:


	Percentage Vested
Vesting Date	(including portion that vested the preceding year)
1^st Anniversary of Grant Date		25	%
2^nd Anniversary of Grant Date		50	%
3^rd Anniversary of Grant Date		75	%
4^th Anniversary of Grant Date		100	%


		provided that your option will vest in its entirety in accordance with the terms of your Employment Agreement.

3.	Termination of Employment	Except as otherwise set forth in your Employment Agreement, you must remain an employee of the Company or an Affiliate to be able to exercise your option, provided as follows:

		Retirement, Disability or death. If your employment terminates because of your Retirement or Disability (as those terms are defined in the Plan) or your death, then you (or your estate) will have five years from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise. In addition, if your employment terminates because of your Retirement or Disability and you die within the five-year exercise period, your estate will have at least one year after your death to exercise, unless the option term ends earlier, in which case your estate will have until the end of the term to exercise.

		Termination by the Company. If your employment is terminated for Cause (as defined in the Plan), all options will be terminated, whether or not vested, and you may have to repay any gains on prior exercised options. If your employment is terminated by the Company not for Cause and not as a result of your Retirement, Disability or death, then you (or your estate) will have 90 days from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise.

		All other cases. If your employment terminates because you resign voluntarily, or for any other reason other than those stated above, you (or your estate, if you die within the period) will have 30 days from your termination date to exercise your option, unless the option term ends earlier, in which case you (or your estate) will have until the end of the term to exercise.

		Regardless of the cause of your termination, you (or your estate) can exercise your option only to the extent it is vested on your termination date.

4.	No Acquired Rights	Discretionary grant. Any options granted under the terms of this Agreement are entirely at the discretion of the Company. With the approval of the Board, and subject to the terms of the Plan, the Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any way adversely affect your rights under this Agreement without your consent.

		No acquired right. The options granted under the terms of this Agreement do not make you eligible for any further options at any time in the future.

		No guarantee of employment. Neither the Plan nor this Agreement imposes an obligation on the Company to at


		any time continue your employment relationship with the Company.

		Not liable for Loss of Value. The Company is not liable for any financial loss on your part as a result of any mandatory taxes and other withholdings related to the options or financial loss due to foreign exchange fluctuations between your local currency and the US dollar (if applicable). Nor will the Company or its Affiliates be liable for any loss of value of the shares upon the exercise of the option.

5.	Foreign Exchange/ Ownership	Please note that the exercise of your option may result in your ownership of the Company’s common stock, and may also require the transfer of funds outside of your country to the US (if you are a non-US participant), and the use of a US-based brokerage account. By signing this Agreement you acknowledge that you will personally bear responsibility for any compliance requirements under local or national law regulating such foreign investment and capital flows. These laws may change from time to time and the Company cannot guarantee that you will be able to use all of the exercise methods permitted under the Plan. It is recommended to seek your own professional advice in relation to your participation in this stock option program.

6.	Personal Data Protection	By signing this Agreement, you confirm that you understand and agree that it will be necessary for the administration of the Plan to collect and process your personal data relating to the options that were granted to you. Moreover, if you are a non-US participant it may be necessary to transfer this personal data, outside of the country in which you work or are employed, to the United States or any other third countries. By signing this Agreement, you explicitly consent to the collection, use and transfer of your personal data for the above described purpose to the Company or its Affiliates and any third party service provider as selected by the Company insofar it relates to the administration of the Plan. The United States may be considered to have a different or lower level of data protection than your country. You may request access to and correction of your personal data by contacting your local Human Resources Manager. You understand that failure to consent to the collection use and transfer of your personal data for the administration of Plan may affect your ability to receive options.


7.	Electronic Delivery	The Company may, in its sole discretion, decide to deliver any documents related to any awards granted under the Plan by electronic means or to request your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company, and such consent shall remain in effect throughout your term of employment or service with the Company and thereafter until withdrawn in writing by you.

8.	Non- Transferability	Your options are not transferable except by will or the laws of descent and distribution. This option shall not be subject to attachment or similar process. Any attempted sale, pledge, assignment, transfer or other disposition of your option contrary to the provisions of this Agreement or the Plan, or the levy of any attachment or similar process upon your option, shall be null and void without effect.

9.	Applicable Law	This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

10.	Signatures	Your signature and the signature of an authorized officer of the Company below indicate your and the Company’s agreement to the terms of this Non-Qualified Stock Option Agreement as of the Grant Date.


		OPTIONEE:				FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

		/s/ Mark S. Thompson				/s/ Paul D. Delva

		Mark S. Thompson				Paul D. Delva
		Global ID/SSN:				Vice President, General Counsel and Secretary

EX-10.3 4 b57410fsexv10w3.htm EX-10.3 PERFORMANCE UNIT AWARD AGREEMENT (THOMPSON) exv10w3

Exhibit 10.3

Fairchild Semiconductor Stock Plan
Performance Unit Award Agreement


PARTICIPANT: Mark S. Thompson		EMPLOYEE ID:		GLOBAL ID:


GRANT DATE:		July 15, 2005

TARGET NUMBER OF PERFORMANCE UNITS:		46,000

PERFORMANCE YEAR:		Fiscal Year Ending December 25, 2005

THIS AGREEMENT, effective as of the Grant Date set forth above, is between Fairchild Semiconductor International, Inc., a Delaware corporation (the “Company”, “we”, “our” or “us”) and the Participant named above (“you” or “yours”), pursuant to the provisions of the Fairchild Semiconductor Stock Plan (the “Plan”) with respect to the award of the number of performance units (“Performance Units”) specified above. This Agreement is made pursuant to your Employment Agreement with the Company and Fairchild Semiconductor Corporation dated April 6, 2005, as amended from time to time (your “Employment Agreement”). This Agreement consists of this document, any related Settlement Election Form, your Employment Agreement and the Plan. Any inconsistency among this Agreement, your Employment Agreement and the Plan shall be resolved in favor of your Employment Agreement, the Plan and this Agreement, in that order of priority. Capitalized terms used and not defined in this Agreement shall have the meanings given to them in the Plan.


1.	Application of Plan; Administration	This Agreement and your rights under this Agreement are subject to all the terms and conditions of the Plan, as it may be amended from time to time, as well as to such rules and regulations as the Committee may adopt. It is expressly understood that the Committee that administers the Plan is authorized to administer, construe and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon you to the extent permitted by the Plan.

2.	Performance Goal	The issuance of Performance Units pursuant to this Agreement shall be subject to the Company achieving earnings before interest and taxes, as determined by the Committee pursuant to the Plan, (“EBIT”) for the Performance Year set forth above equal to at least the 50% EBIT Target established by the Committee and set forth in the table below. If EBIT for the Performance Year does not equal or exceed the 50% EBIT Target threshold, the right to receive any Performance Units pursuant to this Agreement shall expire without consideration.

		Subject to the foregoing paragraph and provided that you have remained in the full time employment or service of the Company or an Affiliate from the Grant Date set forth above, the number of Performance Units issued to you under this Agreement (such units, the “Granted Performance Units”) shall be determined in accordance with the following schedule:


	EBIT Required to
Percentage EBIT	Achieve Percentage	Number of Granted
Target	EBIT Target	Performance Units If Percentage EBIT Goal Achieved
50% EBIT Target		0.50 x the Target Number of Performance Units

100% EBIT Target		1.00 x the Target Number of Performance Units

150% EBIT Target		1.50 x the Target Number of Performance Units

200% EBIT Target		2.00 x the Target Number of Performance Units


		In the event that the Company’s EBIT for the Performance Year falls between two of the Percentage EBIT Targets listed in the table above, the number of Granted Performance Units shall be determined by linear interpolation. Notwithstanding anything herein to the contrary, in no event shall more that 2.00 times the Target Number of Performance Units be issued under this Agreement.

		Following the end of the Performance Year and the collection of relevant data necessary to determine the extent to which the performance goal set forth in this Paragraph 2 has been satisfied, the Committee will determine: (a) the extent to which the performance goal was achieved by the Company for the Performance Year; and (b) the percentage of the Target Number of Performance Units to be issued pursuant to the Performance Unit Award program for the Performance Year. The Committee shall make these determinations in its sole discretion. The number and kind of shares subject to or issued under the Performance Unit Award shall be subject to adjustment as provided for in Section 3(c) of the Plan. The achievement of the performance goal (or lack thereof) shall be evidenced by the Committee’s written certification. For the avoidance of doubt, the right to receive up to 200% of the Target Number of Performance Units shall expire without consideration to the extent that such units do not become Granted Performance Units.

3.	Vesting	The Granted Performance Units will vest (becoming “Vested Performance Units”) on the following Vesting Dates provided that (i) you have remained in the full time employment or service of the Company or an Affiliate from the Grant Date set forth above until the respective Vesting Date, (ii) your Granted Performance Units will vest in their entirety in accordance with the terms of your Employment Agreement and (iii) in no case shall the units vest before the date of the Committee’s written certification of the performance goal achievement under Paragraph 2:


	Percentage Vested
Vesting Date	(including portion that vested the preceding year)
July 15, 2006		33	%
February 15, 2007		66	%
February 15, 2008		100	%


		The vesting period set forth above may be adjusted by the Committee to reflect the decreased level of employment or service during any period in which you are on an approved leave of absence or are employed on a less than full time basis.

4.	Termination of Employment	Except as otherwise provided in Paragraph 8 of this Agreement, the right to issuance of Performance Units and the rights under any Granted Performance Units that have not become Vested Performance Units at the time your employment or service with the Company terminates for any reason will be forfeited without consideration as of the date of termination.

5.	Settlement of Granted Performance Units and Issuance of Shares	Each Vested Performance Unit will be settled by the delivery of one share of Common Stock (subject to adjustment under Section 3(c) of the Plan, a “Share”) to you or, in the event of your death, to your designated beneficiary, promptly following the Vesting Date with respect to such Shares, subject to your satisfaction of any tax withholding obligations as described in Paragraph 10 of this Agreement. You hereby authorize any brokerage service provider determined acceptable to the Company, to open a securities account for you to be used for the settlement of Vested Performance Units. The date on which Shares are issued may include a delay in order to provide the Company such time as it determines appropriate to address tax withholding and other administrative matters.

6.	Rights as Stockholder	Except as otherwise provided in this Agreement, you will not be entitled to any privileges of ownership of the shares of Common Stock underlying your Performance Units unless and until Shares are actually delivered to you under this Agreement.


7.	Dividends	From and after the date a number of Granted Performance Units are issued to you under Paragraph 2 or Paragraph 8, you will be credited with additional Performance Units having a value equal to declared dividends, if any, with record dates that occur prior to the settlement of any Granted Performance Units as if such Granted Performance Units had been actual shares of Common Stock, based on the Fair Market Value of a share of Common Stock on the applicable dividend payment date. Any such additional Performance Units shall be considered Granted Performance Units under this Agreement and shall also be credited with additional Performance Units as dividends, if any, are declared, and shall be subject to the same restrictions and conditions (including the risk of forfeiture under Paragraph 4) as Granted Performance Units with respect to which they were credited. Notwithstanding the foregoing, no such additional Performance Units will be credited with respect to any dividend in connection with which Granted Performance Units are adjusted pursuant to Section 3(c) of the Plan.

8.	Change in Control	Except as otherwise set forth in your Employment Agreement, notwithstanding anything to the contrary in this Agreement, the Granted Performance Units shall be subject to acceleration of vesting upon a Change in Control as provided with respect to restricted stock under Section 11(a)(ii) of the Plan, and shall be settled as if pursuant to Paragraph 5 of this Agreement, provided that if a Change in Control occurs during the Performance Year, a number of Performance Units equal to 100% of the Target Number of Performance Units shall be issued to you (and become Granted Performance Units) immediately prior to the Change in Control.


9.	Transferability	(a)	Your Performance Units are not transferable, whether voluntarily or involuntarily, by operation of law or otherwise, except as provided in the Plan. Any assignment, pledge, transfer, or other disposition, voluntary or involuntary, of your Units made, or any attachment, execution, garnishment, or lien issued against or placed upon the Units, other than as so permitted, shall be void.

		(b)	You acknowledge that, from time to time, the Company may be in a “blackout period” and/or subject to applicable securities laws that could subject you to liability for engaging in any transaction involving the sale of the Company’s shares. You further acknowledge and agree that, prior to the sale of any Shares, it is your responsibility to determine whether or not such sale of Shares will subject you to liability under insider trading rules or other applicable securities laws.

10.	Taxes	(a)	General. You are ultimately liable and responsible for all taxes owed by you in connection with your Performance Units, regardless of any action the Company takes or any transaction pursuant to this Paragraph 10 with respect to any tax withholding obligations that arise in connection with the Performance Units. The Company makes no representation or undertaking regarding the treatment of any tax withholding in connection with the grant, issuance, vesting or settlement of the Performance Units or Granted Performance Units or the subsequent sale of any of the Shares underlying the Granted Performance Units that vest. The Company does not commit and is under no obligation to structure this Agreement to reduce or eliminate your tax liability.

		(b)	Taxes. You will be subject to federal and state income and other tax withholding requirements on a date (generally, the Vesting Date) determined by applicable law (any such date, the “Taxable Date”), based on the Fair Market Value of the Shares underlying the Granted Performance Units that vest. You will be solely responsible for the payment of all U.S. federal income and other taxes, including any state, local or non-U.S. income or employment tax obligation that may be related to the Shares, including any such taxes that are required to be withheld and paid over to the applicable tax authorities (the “Tax Withholding Obligation”). You will be responsible for the satisfaction of such Tax Withholding Obligation in a manner acceptable to the Company in its sole discretion, including through payroll withholding.

			(i) By Sale of Shares. Your acceptance of this Agreement constitutes your instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to sell on your behalf a whole number of shares from those Shares issuable to you as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the applicable Tax Withholding Obligation. Such shares will be sold on the Taxable Date or as soon thereafter as practicable. You will be responsible for all brokers’ fees and other costs of sale, which fees and costs may be deducted from the proceeds of the foregoing sale of Shares, and you agree to indemnify and hold the Company and any brokerage firm selling such Shares harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed your Tax Withholding Obligation, such excess cash will be deposited into the securities account established with the brokerage service provider for the settlement of your Vested Performance Units. Such Shares will be sold through the broker at market prices; however the


						price you receive will reflect a weighted average sales price based on the sales price of Shares on behalf of you and others for whom the designated broker may be selling shares on the relevant day(s), and you acknowledge that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy your Tax Withholding Obligation. Accordingly, you agree to pay to the Company as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of shares described above. Unless otherwise authorized by the Committee in its sole discretion, the sale of shares will be the primary method used by the Company to satisfy the applicable Tax Withholding Obligation, and accordingly you represent and warrant to the Company as follows:


				A.		You are accepting this Agreement during a permitted trading period, and at the time of accepting this Agreement you are not aware of any Material Nonpublic Information (as defined in the Company’s Corporate Legal Insider Trading and Tipping Policy) concerning the Company.

				B.		You will not exercise any subsequent influence over the amount of Shares to be sold hereunder to generate funds for the Tax Withholding Obligation or the price, date or time of such sale.

				C.		You are entering into this Agreement in good faith and have a bona fide intention to carry out the terms of this Agreement, and you will not enter into or alter a corresponding or hedging transaction or position with respect to the Shares.

				(ii) By Share Withholding. If so elected in the sole discretion of the Committee, then in lieu of a market sale pursuant to Paragraph 10(b)(i) you authorize the Company to withhold from the Shares issuable to you the whole number of shares with a value equal to the Fair Market Value of the Shares on the Taxable Date or the first trading day before the Taxable Date, sufficient to satisfy the applicable Tax Withholding Obligation. You acknowledge that the withheld shares may not be sufficient to satisfy your Tax Withholding Obligation. Accordingly, you agree to pay to the Company as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the withholding of Shares described above.


11.	Data Privacy	As an essential term of this Agreement, you consent to the collection, use and transfer, in electronic or other form, of personal data as described in this Agreement for the exclusive purpose of implementing, administering and managing your participation in the Plan.

		By entering into this Agreement and accepting the Performance Units, you acknowledge that the Company holds certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, tax rates and amounts, nationality, job title, any shares of stock or directorships held in the Company, details of all awards or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding, for the purpose of implementing, administering and managing the Plan (“Data”). You acknowledge that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in jurisdictions that may have different data privacy laws and protections, and you authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom you or the Company may elect to deposit any shares of stock acquired under this Agreement. You acknowledges that Data may be held only as long as is necessary to implement, administer and manage your participation in the Plan as determined by the Company, and that you may request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, provided however, that refusing or withdrawing your consent may adversely affect your ability to participate in the Plan.

12.	Electronic Delivery	The Company may, in its sole discretion, decide to deliver any documents related to any awards granted under the Plan by electronic means or to request your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company, and such consent shall remain in effect throughout your term of employment or service with the Company and thereafter until withdrawn in writing by you.


13.	Miscellaneous	(a)	This Agreement shall not confer upon you any right to continue as an employee, or otherwise in the service of, the Company or any Affiliate, nor shall this Agreement interfere in any way with the Company’s or such Affiliate’s right to terminate your employment or service at any time.

		(b)	Without limiting the generality of Paragraph 13(a) above, this Agreement and the Plan may be amended without your consent to the extent provided in Section 14(b) of the Plan.

		(c)	This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges as may be required. The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by you or other subsequent transfers by you of any shares of Common Stock issued as a result of or under this Agreement, including without limitation (i) restrictions under an insider trading policy, (ii) restrictions that may be necessary in the absence of an effective registration statement under the Securities Act of 1933, as amended, covering the Performance Units and (iii) restrictions as to the use of a specified brokerage firm or other agent for such resales or other transfers. Any sale of shares of Common Stock issued pursuant to this Agreement must also comply with other applicable laws and regulations governing the sale of such shares.

		(d)	To the extent not preempted by U.S. federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.

		(e)	Any question concerning the interpretation of this Agreement or the Plan, any adjustments required to be made under the Plan, and any controversy that may arise under the Plan or this Agreement shall be determined by the Committee (including any person(s) to whom the Committee has delegated its authority) in its sole and absolute discretion. Such decision by the Committee shall be final and binding.

14.	Signatures	By the signatures below, you and the authorized representative of the Company acknowledge agreement to this Performance Unit Award Agreement as of the Grant Date specified above.


		PARTICIPANT:				FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

		/s/ Mark S. Thompson				/s/ Paul D. Delva

		Mark S. Thompson				Paul D. Delva
						Vice President, General Counsel and Secretary

To accept your Performance Unit grant:

	(a)		Sign BOTH copies of this Performance Unit Award Agreement;

	(b)		Retain one copy of each for your records;

	(c)		Return one copy of each in the enclosed envelope by August 22, 2005.

EX-10.4 5 b57410fsexv10w4.htm EX-10.4 DEFERRED STOCK UNIT AWARD AGREEMENT (THOMPSON) exv10w4

Exhibit 10.4

Fairchild Semiconductor Stock Plan
Deferred Stock Unit Agreement


PARTICIPANT: Mark S. Thompson		EMPLOYEE ID:		GLOBAL ID:

DATE OF GRANT: July 15, 2005

NUMBER OF DEFERRED STOCK UNITS GRANTED: 45,000

THIS AGREEMENT, effective as of the Date of Grant set forth above, is between Fairchild Semiconductor International, Inc., a Delaware corporation (the “Company”, “we”, “our” or “us”) and the Participant named above (“you” or “yours”), pursuant to the provisions of the Fairchild Semiconductor Stock Plan (the “Plan”) with respect to the number of Deferred Stock Units (“Units”) specified above. This Agreement is made pursuant to your Employment Agreement with the Company and Fairchild Semiconductor Corporation dated April 6, 2005, as amended from time to time (your “Employment Agreement”). This Agreement consists of this document, any related Settlement Election Form, your Employment Agreement and the Plan. Any inconsistency among this Agreement, your Employment Agreement and the Plan shall be resolved in favor of your Employment Agreement, the Plan and this Agreement, in that order of priority. Capitalized terms used and not defined in this Agreement shall have the meanings given to them in the Plan.

You and the Company agree as follows:


1.	Application of Plan; Administration	This Agreement and your rights under this Agreement are subject to all the terms and conditions of the Plan, as it may be amended from time to time, as well as to such rules and regulations as the Committee may adopt. It is expressly understood that the Committee that administers the Plan is authorized to administer, construe and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon you to the extent permitted by the Plan.

2.	Vesting	The Units will vest (becoming “Vested Units”) on the following dates (each a “Vesting Date” and collectively, the “Vesting Dates”) if you are employed or in the service of the Company or an Affiliate on those dates:


	Percentage Vested
Vesting Date	(including portion that vested the preceding year)
July 15, 2006		33	%
July 15, 2007		66	%
July 15, 2008		100	%


		provided that your Units will vest in their entirety in accordance with the terms of your Employment Agreement.

3.	Rights as Stockholder	Except as otherwise provided in this Agreement, you will not be entitled to any privileges of ownership of the shares of Common Stock underlying your Units (the “Shares”) unless and until Shares are actually delivered to you under this Agreement.

4.	Dividends	You will be credited with additional Deferred Stock Units having a value equal to declared dividends, if any, with record dates that occur prior to the settlement of any Units as if such Units had been actual Shares, based on the Fair Market Value of a Share on the applicable dividend payment date. Any such additional Deferred Stock Units shall be considered Units under this Agreement and shall also be credited with additional Deferred Stock Units as dividends, if any, are declared, and shall be subject to the same restrictions and conditions as Units with respect to which they were credited. Notwithstanding the foregoing, no such additional Deferred Stock Units will be credited with respect to any dividend in connection with which Units are adjusted pursuant to Section 3(c) of the Plan.


5.		Settlement of Units		(a)		Time of Settlement. Each Vested Unit will be settled by the delivery of one Share to you or, in the event of your death, to your designated beneficiary, promptly following the date (such date, the “Settlement Date”) you have elected on the attached Settlement Election Form, subject to your payment of any tax withholding obligations as described in Section 7 below. You hereby authorize any brokerage service provider determined acceptable to the Company, to open a securities account for you to be used for the settlement of Vested Units. You may change the Settlement Election Date one time only, and only to a later date, as provided in Section 3 of the Settlement Election Form, subject to the important restrictions


			contained in Section 3.

		(b)	Termination Prior to Settlement Date. If your employment or service with the Company is terminated prior to any Settlement Date, your Units will be treated as specified in the Settlement Election Form.

		(c)	Forfeiture of Unvested Units. All Units that are not Vested Units at the time of termination will be forfeited effective as of the date of such termination of employment.

6.	Transferability	(a)	Your Units are not transferable, whether voluntarily or involuntarily, by operation of law or otherwise, except as provided in the Plan. Any assignment, pledge, transfer, or other disposition, voluntary or involuntary, of your Units made, or any attachment, execution, garnishment, or lien issued against or placed upon the Units, other than as so permitted, shall be void.

		(b)	You acknowledge that, from time to time, the Company may be in a “blackout period” and/or subject to applicable securities laws that could subject you to liability for engaging in any transaction involving the sale of the Company’s shares. You further acknowledge and agree that, prior to the sale of any Shares, it is your responsibility to determine whether or not such sale of Shares will subject you to liability under insider trading rules or other applicable securities laws.

7.	Taxes	(a)	General. You are ultimately liable and responsible for all taxes owed by you in connection with your Units, regardless of any action the Company takes or any transaction pursuant to this Section 7 with respect to any tax withholding obligations that arise in connection with the Units. The Company makes no representation or undertaking regarding the treatment of any tax withholding in connection with the grant or vesting of the Units or the subsequent sale of any of the Shares underlying the Units that vest. The Company does not commit and is under no obligation to structure this Agreement to reduce or eliminate your tax liability.

		(b)	Social Taxes. You may be subject to U.S. or local social taxes, including U.S. Social Security and Medicare taxes, on the Vesting Date, based on the Fair Market Value of the Shares underlying the Units that vest. The Company will pay such taxes on your behalf, including any income, U.S. Social Security and Medicare taxes, and non-U.S. social taxes attributable to the Company’s payment of such taxes. Payments on your behalf will be reflected in your compensation for federal, state and local income tax purposes.

		(c)	Income Taxes. You will be subject to federal and state income and other tax withholding requirements on a date (generally, the Settlement Date) determined by applicable law (any such date, the “Taxable Date”), based on the Fair Market Value of Shares received in settlement of Vested Units. You will be solely responsible for the payment of all U.S. federal income and other taxes, including any state, local or non-U.S. income or employment tax obligation that may be related to the Shares, including any such taxes that are required to be withheld and paid over to the applicable tax authorities (the “Tax Withholding Obligation”). You will be responsible for the satisfaction of such Tax Withholding Obligation in a manner acceptable to the Company in its sole discretion, including through payroll withholding.

			(i) By Sale of Shares. Your acceptance of this Agreement constitutes your instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to sell on your behalf a whole number of shares from those Shares issuable to you as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the applicable Tax Withholding Obligation. Such shares will be sold on the Taxable Date or as soon thereafter as practicable. You will be responsible for all brokers’ fees and other costs of sale, which fees and costs may be deducted from the proceeds of the foregoing sale of Shares, and you agree to indemnify and hold the Company and any brokerage firm selling such Shares harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed your Tax Withholding Obligation, such excess cash will be deposited into the securities account established with the brokerage service provider for the settlement of your Vested Units. Such Shares will be sold through the broker at market prices; however the price you receive will reflect a weighted average sales price based on the sales price of Shares on behalf of you and others for whom the designated broker may be selling shares on the relevant day(s), and you acknowledge that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy your Tax Withholding Obligation. Accordingly, you agree to pay to the Company as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of shares described above. Unless otherwise authorized by the Committee in its sole discretion, the sale of shares will be the primary method used by the Company to satisfy the applicable Tax Withholding Obligation, and accordingly you represent and warrant to the Company as follows:


						A.		You are accepting this Agreement during a permitted trading period, and at the time of accepting this Agreement you are not aware of any Material Nonpublic Information (as defined in the Company’s Corporate Legal Insider Trading and Tipping Policy) concerning the Company.

						B.		You will not exercise any subsequent influence over the amount of Shares to be sold hereunder to generate funds for the Tax Withholding Obligation or the price, date or time of such sale.


	C.	You are entering into this Agreement in good faith and have a bona fide intention to carry out the terms of this Agreement, and you will not enter into or alter a corresponding or hedging transaction or position with respect to the Shares.

(ii)	By Share Withholding. If so elected in the sole discretion of the Committee, then in lieu of a market sale pursuant to Section 7(c)(i) you authorize the Company to withhold from the Shares issuable to you the whole number of shares with a value equal to the Fair Market Value of the Shares on the Taxable Date or the first trading day before the Taxable Date, sufficient to satisfy the applicable Tax Withholding Obligation. You acknowledge that the withheld shares may not be sufficient to satisfy your Tax Withholding Obligation. Accordingly, you agree to pay to the Company as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the withholding of Shares described above.


8.	Personal Data Protection	By signing this Agreement you confirm that you understand and agree that it will be necessary for the administration of the Plan to collect and process your personal data relating to the Units that were granted to you. Moreover, it may be necessary to transfer this personal data, outside of the country in which you work or are employed, to the United States or any other countries. By signing this Agreement, you explicitly consent to the collection, use and transfer of your personal data for the above described purpose to the Company or its Affiliates and any third party service provider as selected by the Company insofar it relates to the administration of the Plan. The United States may be considered to have a different or lower level of data protection than your country. You may request access to and correction of your personal data by contacting your local Human Resources Manager. You understand that failure to consent to the collection use and transfer of your personal data for the administration of Plan may affect your ability to receive the Units.

9.	Electronic Delivery	The Company may, in its sole discretion, decide to deliver any documents related to any awards granted under the Plan by electronic means or to request your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company, and such consent shall remain in effect throughout your term of employment or service with the Company and thereafter until withdrawn in writing by you.

10.	Compliance With Laws	The execution of this Agreement may result in your ownership of the Company’s common stock, and may also require the use of a US-based brokerage account. By signing this Agreement you acknowledge that you will personally bear responsibility for any compliance requirements under local or national law regulating such investment, and that these laws may change from time to time. It is recommended that you seek your own professional advice in relation to your participation in the Plan.


11.	Miscellaneous	(a)	This Agreement shall not confer upon you any right to continue as an employee, or otherwise in the service of, the Company or any Affiliate, nor shall this Agreement interfere in any way with the Company’s or such Affiliate’s right to terminate your employment or service at any time.

		(b)	Any Units granted under the terms of this Agreement are entirely at the discretion of the Company. Without limiting the generality of Section 1 above, with the approval of the Board, and subject to the terms of the Plan, the Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any way adversely affect your rights under this Agreement without your consent.

		(c)	This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges as may be required.

		(d)	To the extent not preempted by U.S. federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.


12.		Signatures		By the signatures below, the Participant and the authorized representative of the Company acknowledge agreement to this Deferred Stock Unit Agreement as of the Grant Date specified above.


		PARTICIPANT:				FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

		/s/ Mark S. Thompson				/s/ Paul D. Delva

		Mark S. Thompson				Paul D. Delva
						Vice President, General Counsel and Secretary

To accept your DSU grant:

1.		Sign BOTH copies of this Deferred Stock Unit Agreement;

2.		Sign BOTH copies of the Settlement Election Form;

3.		Retain one copy of each for your records;

4.		Return one copy of each in the enclosed envelope by August 22, 2005.

Fairchild Semiconductor Stock Plan
Deferred Stock Unit Settlement Election Form

This Settlement Election Form relates to the following grant of Deferred Stock Units:


PARTICIPANT: Mark S. Thompson		EMPLOYEE ID:		GLOBAL ID:

DATE OF GRANT: July 15, 2005

NUMBER OF DEFERRED STOCK UNITS GRANTED: 45,000


1. Settlement Election		Subject to Sections 2 and 3 below, I elect to have all Vested Units that I may hold under the Deferred Stock Unit Award Agreement to which this election relates settled by delivery of Shares to me on July 15, 2008, which date is at least three (3) years following the Grant Date of such Units.

2. Settlement Upon Termination		I hereby acknowledge and agree that if, prior to the Settlement Election Date specified above (a) my employment is terminated for any reason other than Cause, death or Disability, any Vested Units will be settled following my termination date, provided that if such termination corresponds to my separation from service with the Company then any vested Units shall instead be settled promptly after the six month anniversary of separation from service, in accordance with Sections 409A(a)(2)(A)(i) and 409A(a)(2)(B)(i) of the Code, (b) my employment is terminated for Cause, all unsettled Units (including Vested Units that have not been settled) will be immediately forfeited, and (c) my employment is terminated for death or Disability, any Vested Units will be settled following my termination date.

3. One-Time Change of Election Permitted (Available for Option 1 Settlement Elections Only)		I understand that I can change the date specified as my settlement election date in Section 1 above once, but only once, to a Settlement Date that must be at least five years after the date indicated in Section 1 above by filing a new signed Settlement Election Form with the Company at any time on or before the day (the “Change Deadline Day”) that falls one year before the Settlement Date that would occur based on my initial election in Section 1. I understand that (a) I cannot change my election after the Change Deadline Day, (b) I cannot change my election more than once and (c) the later Settlement Date I choose must occur at least five years after the initial specified date indicated in my previously filed Settlement Election Form. If the Change Deadline Day falls on a day that is not a business day for the Company, then the last day to change the election in Section 1 will be the first business day preceding the Change Deadline Day. Any new Settlement Election Form will revoke the previously filed Settlement Election Form, except that, if any Settlement Date purportedly elected on the new form falls within five years after the specified date indicated in my previously filed Settlement Election Form, then such new form will have no effect and the previously elected Settlement Date shall continue to apply.


4. Signature	PARTICIPANT:	DATED AS OF:

	/s/ Mark S. Thompson	July 15, 2005

	Mark S. Thompson

To accept your DSU grant:

	1.		Sign BOTH copies of the Deferred Stock Unit Agreement;

	2.		Sign the BOTH copies of this Settlement Election Form;

	3.		Retain one copy of each for your records;

	4.		Return one copy of each in the enclosed envelope by August 22, 2005.

EX-10.5 6 b57410fsexv10w5.htm EX-10.5 PERFORMANCE UNIT AWARD AGREEMENT (POND) exv10w5

Exhibit 10.5

Fairchild Semiconductor Stock Plan
Performance Unit Award Agreement


PARTICIPANT: Kirk Pond		EMPLOYEE ID:		GLOBAL ID:


GRANT DATE:		July 18, 2005

TARGET NUMBER OF PERFORMANCE UNITS:		11,591

PERFORMANCE YEAR:		Fiscal Year Ending December 25, 2005


1.	Application of Plan; Administration	This Agreement and your rights under this Agreement are subject to all the terms and conditions of the Plan, as it may be amended from time to time, as well as to such rules and regulations as the Committee may adopt. It is expressly understood that the Committee that administers the Plan is authorized to administer, construe and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon you to the extent permitted by the Plan. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan.

2.	Performance Goal	The issuance of Performance Units pursuant to this Agreement shall be subject to the Company achieving earnings before interest and taxes, as determined by the Committee pursuant to the Plan, (“EBIT”) for the Performance Year set forth above equal to at least the 50% EBIT Target established by the Committee and set forth in the table below. If EBIT for the Performance Year does not equal or exceed the 50% EBIT Target threshold, the right to receive any Performance Units pursuant to this Agreement shall expire without consideration.

		Subject to the foregoing paragraph and provided that you have remained in the full time employment or service of the Company or an Affiliate from the Grant Date set forth above, the number of Performance Units issued to you under this Agreement (such units, the “Granted Performance Units”) shall be determined in accordance with the following schedule:


	EBIT Required to
Percentage EBIT	Achieve Percentage	Number of Granted
Target	EBIT Target	Performance Units If Percentage EBIT Goal Achieved
50% EBIT Target		0.50 x the Target Number of Performance Units

100% EBIT Target		1.00 x the Target Number of Performance Units

150% EBIT Target		1.50 x the Target Number of Performance Units

200% EBIT Target		2.00 x the Target Number of Performance Units


				In the event that the Company’s EBIT for the Performance Year falls between two of the Percentage EBIT Targets listed in the table above, the number of Granted Performance Units shall be determined by linear interpolation. Notwithstanding anything herein to the contrary, in no event shall more that 2.00 times the Target Number of Performance Units be issued under this Agreement.


		Following the end of the Performance Year and the collection of relevant data necessary to determine the extent to which the performance goal set forth in this Paragraph 2 has been satisfied, the Committee will determine: (a) the extent to which the performance goal was achieved by the Company for the Performance Year; and (b) the percentage of the Target Number of Performance Units to be issued pursuant to the Performance Unit Award program for the Performance Year. The Committee shall make these determinations in its sole discretion. The number and kind of shares subject to or issued under the Performance Unit Award shall be subject to adjustment as provided for in Section 3(c) of the Plan. The achievement of the performance goal (or lack thereof) shall be evidenced by the Committee’s written certification. For the avoidance of doubt, the right to receive up to 200% of the Target Number of Performance Units shall expire without consideration to the extent that such units do not become Granted Performance Units.

3.	Vesting	The Granted Performance Units will vest in full (becoming “Vested Performance Units”) on February 15, 2006 (the “Vesting Date”) provided that you have remained in the full time employment or service of the Company or an Affiliate from the Grant Date set forth above until the Vesting Date, provided that in no case shall the units vest before the date of the Committee’s written certification of the performance goal achievement under Paragraph 2.

4.	Termination of Employment	Except as otherwise provided in Paragraph 8 of this Agreement, the right to issuance of Performance Units and the rights under any Granted Performance Units that have not become Vested Performance Units at the time your employment or service with the Company terminates for any reason will be forfeited without consideration as of the date of termination.

5.	Settlement of Granted Performance Units and Issuance of Shares	Each Vested Performance Unit will be settled by the delivery of one share of Common Stock (subject to adjustment under Section 3(c) of the Plan, a “Share”) to you or, in the event of your death, to your designated beneficiary, promptly following the Vesting Date with respect to such Shares, subject to your satisfaction of any tax withholding obligations as described in Paragraph 10 of this Agreement. You hereby authorize any brokerage service provider determined acceptable to the Company, to open a securities account for you to be used for the settlement of Vested Performance Units. The date on which Shares are issued may include a delay in order to provide the Company such time as it determines appropriate to address tax withholding and other administrative matters.

6.	Rights as Stockholder	Except as otherwise provided in this Agreement, you will not be entitled to any privileges of ownership of the shares of Common Stock underlying your Performance Units unless and until Shares are actually delivered to you under this Agreement.

7.	Dividends	From and after the date a number of Granted Performance Units are issued to you under Paragraph 2 or Paragraph 8, you will be credited with additional Performance Units having a value equal to declared dividends, if any, with record dates that occur prior to the settlement of any Granted Performance Units as if such Granted Performance Units had been actual shares of Common Stock, based on the Fair Market Value of a share of Common Stock on the applicable dividend payment date. Any such additional Performance Units shall be considered Granted Performance Units under this Agreement and shall also be credited with additional Performance Units as dividends, if any, are declared, and shall be subject to the same restrictions and conditions (including the risk of forfeiture under Paragraph 4) as Granted Performance Units with respect to which they were credited. Notwithstanding the foregoing, no such additional Performance Units will be credited with respect to any dividend in connection with which Granted Performance Units are adjusted pursuant to Section 3(c) of the Plan.

8.	Change in Control	Notwithstanding anything to the contrary in this Agreement, the Granted Performance Units shall be subject to acceleration of vesting upon a Change in Control as provided with respect to restricted stock under Section 11(a)(ii) of the Plan, and shall be settled as if pursuant to Paragraph 5 of this Agreement, provided that if a Change in Control occurs during the Performance Year, a number of Performance Units equal to 100% of the Target Number of Performance Units shall be issued to you (and become Granted Performance Units) immediately prior to the Change in Control.


9.	Transferability	(a)	Your Performance Units are not transferable, whether voluntarily or involuntarily, by operation of law or otherwise, except as provided in the Plan. Any assignment, pledge, transfer, or other disposition, voluntary or involuntary, of your Units made, or any attachment, execution, garnishment, or lien issued against or placed upon the Units, other than as so permitted, shall be void.

		(b)	You acknowledge that, from time to time, the Company may be in a “blackout period” and/or subject to applicable securities laws that could subject you to liability for engaging in any transaction involving the sale of the Company’s shares. You further acknowledge and agree that, prior to the sale of any Shares, it is your responsibility to determine whether or not such sale of Shares will subject you to liability under insider trading rules or other applicable securities laws.

10.	Taxes	(a)	General. You are ultimately liable and responsible for all taxes owed by you in connection with your Performance Units, regardless of any action the Company takes or any transaction pursuant to this Paragraph 10 with respect to any tax withholding obligations that arise in connection with the Performance Units. The Company makes no representation or undertaking regarding the treatment of any tax withholding in connection with the grant, issuance, vesting or settlement of the Performance Units or Granted Performance Units or the subsequent sale of any of the Shares underlying the Granted Performance Units that vest. The Company does not commit and is under no obligation to structure this Agreement to reduce or eliminate your tax liability.

		(b)	Taxes. You will be subject to federal and state income and other tax withholding requirements on a date (generally, the Vesting Date) determined by applicable law (any such date, the “Taxable Date”), based on the Fair Market Value of the Shares underlying the Granted Performance Units that vest. You will be solely responsible for the payment of all U.S. federal income and other taxes, including any state, local or non-U.S. income or employment tax obligation that may be related to the Shares, including any such taxes that are required to be withheld and paid over to the applicable tax authorities (the “Tax Withholding Obligation”). You will be responsible for the satisfaction of such Tax Withholding Obligation in a manner acceptable to the Company in its sole discretion, including through payroll withholding.

			(i) By Sale of Shares. Your acceptance of this Agreement constitutes your instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to sell on your behalf a whole number of shares from those Shares issuable to you as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the applicable Tax Withholding Obligation. Such shares will be sold on the Taxable Date or as soon thereafter as practicable. You will be responsible for all brokers’ fees and other costs of sale, which fees and costs may be deducted from the proceeds of the foregoing sale of Shares, and you agree to indemnify and hold the Company and any brokerage firm selling such Shares harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed your Tax Withholding Obligation, such excess cash will be deposited into the securities account established with the brokerage service provider for the settlement of your Vested Performance Units. Such Shares will be sold through the broker at market prices; however the price you receive will reflect a weighted average sales price based on the sales price of Shares on behalf of you and others for whom the designated broker may be selling shares on the relevant day(s), and you acknowledge that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy your Tax Withholding Obligation. Accordingly, you agree to pay to the Company as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of shares described above. Unless otherwise authorized by the Committee in its sole discretion, the sale of shares will be the primary method used by the Company to satisfy the applicable Tax Withholding Obligation, and accordingly you represent and warrant to the Company as follows:


11.	Data Privacy	As an essential term of this Agreement, you consent to the collection, use and transfer, in electronic or other form, of personal data as described in this Agreement for the exclusive purpose of implementing, administering and managing your participation in the Plan. By entering into this Agreement and accepting the Performance Units, you acknowledge that the Company holds certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, tax rates and amounts, nationality, job title, any shares of stock or directorships held in the Company, details of all awards or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding, for the purpose of implementing, administering and managing the Plan (“Data”). You acknowledge that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in jurisdictions that may have different data privacy laws and protections, and you authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom you or the Company may elect to deposit any shares of stock acquired under this Agreement. You acknowledges that Data may be held only as long as is necessary to implement, administer and manage your participation in the Plan as determined by the Company, and that you may request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, provided however, that refusing or withdrawing your consent may adversely affect your ability to participate in the Plan.

12.	Electronic Delivery	The Company may, in its sole discretion, decide to deliver any documents related to any awards granted under the Plan by electronic means or to request your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company, and such consent shall remain in effect throughout your term of employment or service with the Company and thereafter until withdrawn in writing by you.


13.	Miscellaneous	(a)	This Agreement shall not confer upon you any right to continue as an employee, or otherwise in the service of, the Company or any Affiliate, nor shall this Agreement interfere in any way with the Company’s or such Affiliate’s right to terminate your employment or service at any time.

		(b)	Without limiting the generality of Paragraph 13(a) above, this Agreement and the Plan may be amended without your consent to the extent provided in Section 14(b) of the Plan.

		(c)	This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges as may be required. The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by you or other subsequent transfers by you of any shares of Common Stock issued as a result of or under this Agreement, including without limitation (i) restrictions under an insider trading policy, (ii) restrictions that may be necessary in the absence of an effective registration statement under the Securities Act of 1933, as amended, covering the Performance Units and (iii) restrictions as to the use of a specified brokerage firm or other agent for such resales or other transfers. Any sale of shares of Common Stock issued pursuant to this Agreement must also comply with other applicable laws and regulations governing the sale of such shares.

		(d)	To the extent not preempted by U.S. federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.

		(e)	Any question concerning the interpretation of this Agreement or the Plan, any adjustments required to be made under the Plan, and any controversy that may arise under the Plan or this Agreement shall be determined by the Committee (including any person(s) to whom the Committee has delegated its authority) in its sole and absolute discretion. Such decision by the Committee shall be final and binding.


14.		Signatures		By the signatures below, you and the authorized representative of the Company acknowledge agreement to this Performance Unit Award Agreement as of the Grant Date specified above.


		PARTICIPANT:				FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

		/s/ Kirk P. Pond				/s/ Paul D. Delva

		Kirk P. Pond				Paul D. Delva
						Vice President, General Counsel and Secretary

To accept your Performance Unit grant:

	(a)		Sign BOTH copies of this Performance Unit Award Agreement;

	(b)		Retain one copy of each for your records;

	(c)		Return one copy of each in the enclosed envelope by August 22, 2005.

EX-10.6 7 b57410fsexv10w6.htm EX-10.6 PERFORMANCE UNIT AWARD AGREEMENT (MARTIN) exv10w6

Exhibit 10.6

Fairchild Semiconductor Stock Plan

Performance Unit Award Agreement


PARTICIPANT: Joseph R. Martin		EMPLOYEE ID:		GLOBAL ID:


GRANT DATE:		July 18, 2005

TARGET NUMBER OF PERFORMANCE UNITS:		5,796

PERFORMANCE YEAR:		Fiscal Year Ending December 25, 2005


1. Application of Plan; Administration		This Agreement and your rights under this Agreement are subject to all the terms and conditions of the Plan, as it may be amended from time to time, as well as to such rules and regulations as the Committee may adopt. It is expressly understood that the Committee that administers the Plan is authorized to administer, construe and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon you to the extent permitted by the Plan. Any inconsistency between this Agreement and the Plan shall be resolved in favor of the Plan.

2. Performance Goal		The issuance of Performance Units pursuant to this Agreement shall be subject to the Company achieving earnings before interest and taxes, as determined by the Committee pursuant to the Plan, (“EBIT”) for the Performance Year set forth above equal to at least the 50% EBIT Target established by the Committee and set forth in the table below. If EBIT for the Performance Year does not equal or exceed the 50% EBIT Target threshold, the right to receive any Performance Units pursuant to this Agreement shall expire without consideration.

		Subject to the foregoing paragraph and provided that you have remained in the full time employment or service of the Company or an Affiliate from the Grant Date set forth above, the number of Performance Units issued to you under this Agreement (such units, the “Granted Performance Units”) shall be determined in accordance with the following schedule:


	EBIT Required to
Percentage EBIT	Achieve Percentage	Number of Granted
Target	EBIT Target	Performance Units If Percentage EBIT Goal Achieved
50% EBIT Target		0.50 x the Target Number of Performance Units
100% EBIT Target		1.00 x the Target Number of Performance Units
150% EBIT Target		1.50 x the Target Number of Performance Units
200% EBIT Target		2.00 x the Target Number of Performance Units

In the event that the Company’s EBIT for the Performance Year falls between two of the Percentage EBIT Targets listed in the table above, the number of Granted Performance Units shall be determined by linear interpolation. Notwithstanding anything herein to the contrary, in no event shall more that 2.00 times the Target Number of Performance Units be issued under this Agreement.


		Following the end of the Performance Year and the collection of relevant data necessary to determine the extent to which the performance goal set forth in this Paragraph 2 has been satisfied, the Committee will determine: (a) the extent to which the performance goal was achieved by the Company for the Performance Year; and (b) the percentage of the Target Number of Performance Units to be issued pursuant to the Performance Unit Award program for the Performance Year. The Committee shall make these determinations in its sole discretion. The number and kind of shares subject to or issued under the Performance Unit Award shall be subject to adjustment as provided for in Section 3(c) of the Plan. The achievement of the performance goal (or lack thereof) shall be evidenced by the Committee’s written certification. For the avoidance of doubt, the right to receive up to 200% of the Target Number of Performance Units shall expire without consideration to the extent that such units do not become Granted Performance Units.

3. Vesting		The Granted Performance Units will vest in full (becoming “Vested Performance Units”) on February 15, 2006 (the “Vesting Date”) provided that you have remained in the full time employment or service of the Company or an Affiliate from the Grant Date set forth above until the Vesting Date, provided that in no case shall the units vest before the date of the Committee’s written certification of the performance goal achievement under Paragraph 2.

4. Termination of Employment		Except as otherwise provided in Paragraph 8 of this Agreement, the right to issuance of Performance Units and the rights under any Granted Performance Units that have not become Vested Performance Units at the time your employment or service with the Company terminates for any reason will be forfeited without consideration as of the date of termination.

5. Settlement of Granted Performance Units and Issuance of Shares		Each Vested Performance Unit will be settled by the delivery of one share of Common Stock (subject to adjustment under Section 3(c) of the Plan, a “Share”) to you or, in the event of your death, to your designated beneficiary, promptly following the Vesting Date with respect to such Shares, subject to your satisfaction of any tax withholding obligations as described in Paragraph 10 of this Agreement. You hereby authorize any brokerage service provider determined acceptable to the Company, to open a securities account for you to be used for the settlement of Vested Performance Units. The date on which Shares are issued may include a delay in order to provide the Company such time as it determines appropriate to address tax withholding and other administrative matters.

6. Rights as Stockholder		Except as otherwise provided in this Agreement, you will not be entitled to any privileges of ownership of the shares of Common Stock underlying your Performance Units unless and until Shares are actually delivered to you under this Agreement.

7. Dividends		From and after the date a number of Granted Performance Units are issued to you under Paragraph 2 or Paragraph 8, you will be credited with additional Performance Units having a value equal to declared dividends, if any, with record dates that occur prior to the settlement of any Granted Performance Units as if such Granted Performance Units had been actual shares of Common Stock, based on the Fair Market Value of a share of Common Stock on the applicable dividend payment date. Any such additional Performance Units shall be considered Granted Performance Units under this Agreement and shall also be credited with additional Performance Units as dividends, if any, are declared, and shall be subject to the same restrictions and conditions (including the risk of forfeiture under Paragraph 4) as Granted Performance Units with respect to which they were credited. Notwithstanding the foregoing, no such additional Performance Units will be credited with respect to any dividend in connection with which Granted Performance Units are adjusted pursuant to Section 3(c) of the Plan.

8. Change in Control		Notwithstanding anything to the contrary in this Agreement, the Granted Performance Units shall be subject to acceleration of vesting upon a Change in Control as provided with respect to restricted stock under Section 11(a)(ii) of the Plan, and shall be settled as if pursuant to Paragraph 5 of this Agreement, provided that if a Change in Control occurs during the Performance Year, a number of Performance Units equal to 100% of the Target Number of Performance Units shall be issued to you (and become Granted Performance Units) immediately prior to the Change in Control.


9. Transferability	(a)	Your Performance Units are not transferable, whether voluntarily or involuntarily, by operation of law or otherwise, except as provided in the Plan. Any assignment, pledge, transfer, or other disposition, voluntary or involuntary, of your Units made, or any attachment, execution, garnishment, or lien issued against or placed upon the Units, other than as so permitted, shall be void.

	(b)	You acknowledge that, from time to time, the Company may be in a “blackout period” and/or subject to applicable securities laws that could subject you to liability for engaging in any transaction involving the sale of the Company’s shares. You further acknowledge and agree that, prior to the sale of any Shares, it is your responsibility to determine whether or not such sale of Shares will subject you to liability under insider trading rules or other applicable securities laws.

10. Taxes	(a)	General. You are ultimately liable and responsible for all taxes owed by you in connection with your Performance Units, regardless of any action the Company takes or any transaction pursuant to this Paragraph 10 with respect to any tax withholding obligations that arise in connection with the Performance Units. The Company makes no representation or undertaking regarding the treatment of any tax withholding in connection with the grant, issuance, vesting or settlement of the Performance Units or Granted Performance Units or the subsequent sale of any of the Shares underlying the Granted Performance Units that vest. The Company does not commit and is under no obligation to structure this Agreement to reduce or eliminate your tax liability.

	(b)	Taxes. You will be subject to federal and state income and other tax withholding requirements on a date (generally, the Vesting Date) determined by applicable law (any such date, the “Taxable Date”), based on the Fair Market Value of the Shares underlying the Granted Performance Units that vest. You will be solely responsible for the payment of all U.S. federal income and other taxes, including any state, local or non-U.S. income or employment tax obligation that may be related to the Shares, including any such taxes that are required to be withheld and paid over to the applicable tax authorities (the “Tax Withholding Obligation”). You will be responsible for the satisfaction of such Tax Withholding Obligation in a manner acceptable to the Company in its sole discretion, including through payroll withholding. (i) By Sale of Shares. Your acceptance of this Agreement constitutes your instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to sell on your behalf a whole number of shares from those Shares issuable to you as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the applicable Tax Withholding Obligation. Such shares will be sold on the Taxable Date or as soon thereafter as practicable. You will be responsible for all brokers’ fees and other costs of sale, which fees and costs may be deducted from the proceeds of the foregoing sale of Shares, and you agree to indemnify and hold the Company and any brokerage firm selling such Shares harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed your Tax Withholding Obligation, such excess cash will be deposited into the securities account established with the brokerage service provider for the settlement of your Vested Performance Units. Such Shares will be sold through the broker at market prices; however the price you receive will reflect a weighted average sales price based on the sales price of Shares on behalf of you and others for whom the designated broker may be selling shares on the relevant day(s), and you acknowledge that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy your Tax Withholding Obligation. Accordingly, you agree to pay to the Company as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of shares described above. Unless otherwise authorized by the Committee in its sole discretion, the sale of shares will be the primary method used by the Company to satisfy the applicable Tax Withholding Obligation, and accordingly you represent and warrant to the Company as follows:


		A.		You are accepting this Agreement during a permitted trading period, and at the time of accepting this Agreement you are not aware of any Material Nonpublic Information (as defined in the Company’s Corporate Legal Insider Trading and Tipping Policy) concerning the Company.

		B.		You will not exercise any subsequent influence over the amount of Shares to be sold hereunder to generate funds for the Tax Withholding Obligation or the price, date or time of such sale.

		C.		You are entering into this Agreement in good faith and have a bona fide intention to carry out the terms of this Agreement, and you will not enter into or alter a corresponding or


				hedging transaction or position with respect to the Shares.

				(ii) By Share Withholding. If so elected in the sole discretion of the Committee, then in lieu of a market sale pursuant to Paragraph 10(b)(i) you authorize the Company to withhold from the Shares issuable to you the whole number of shares with a value equal to the Fair Market Value of the Shares on the Taxable Date or the first trading day before the Taxable Date, sufficient to satisfy the applicable Tax Withholding Obligation. You acknowledge that the withheld shares may not be sufficient to satisfy your Tax Withholding Obligation. Accordingly, you agree to pay to the Company as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the withholding of Shares described above.


11. Data Privacy		As an essential term of this Agreement, you consent to the collection, use and transfer, in electronic or other form, of personal data as described in this Agreement for the exclusive purpose of implementing, administering and managing your participation in the Plan. By entering into this Agreement and accepting the Performance Units, you acknowledge that the Company holds certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, tax rates and amounts, nationality, job title, any shares of stock or directorships held in the Company, details of all awards or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding, for the purpose of implementing, administering and managing the Plan (“Data”). You acknowledge that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in jurisdictions that may have different data privacy laws and protections, and you authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom you or the Company may elect to deposit any shares of stock acquired under this Agreement. You acknowledges that Data may be held only as long as is necessary to implement, administer and manage your participation in the Plan as determined by the Company, and that you may request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, provided however, that refusing or withdrawing your consent may adversely affect your ability to participate in the Plan.

12. Electronic Delivery		The Company may, in its sole discretion, decide to deliver any documents related to any awards granted under the Plan by electronic means or to request your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company, and such consent shall remain in effect throughout your term of employment or service with the Company and thereafter until withdrawn in writing by you.


13. Miscellaneous	(a)	This Agreement shall not confer upon you any right to continue as an employee, or otherwise in the service of, the Company or any Affiliate, nor shall this Agreement interfere in any way with the Company’s or such Affiliate’s right to terminate your employment or service at any time.

	(b)	Without limiting the generality of Paragraph 13(a) above, this Agreement and the Plan may be amended without your consent to the extent provided in Section 14(b) of the Plan.

	(c)	This Agreement will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges as may be required. The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by you or other subsequent transfers by you of any shares of Common Stock issued as a result of or under this Agreement, including without limitation (i) restrictions under an insider trading policy, (ii) restrictions that may be necessary in the absence of an effective registration statement under the Securities Act of 1933, as amended, covering the Performance Units and (iii) restrictions as to the use of a specified brokerage firm or other agent for such resales or other transfers. Any sale of shares of Common Stock issued pursuant to this Agreement must also comply with other applicable laws and regulations governing the sale of such shares.

	(d)	To the extent not preempted by U.S. federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.

	(e)	Any question concerning the interpretation of this Agreement or the Plan, any adjustments required to be made under the Plan, and any controversy that may arise under the Plan or this Agreement shall be determined by the Committee (including any person(s) to whom the Committee has delegated its authority) in its sole and absolute discretion. Such decision by the Committee shall be final and binding.


14. Signatures		By the signatures below, you and the authorized representative of the Company acknowledge agreement to this Performance Unit Award Agreement as of the Grant Date specified above.


	PARTICIPANT:		FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

	/s/ Joseph R. Martin		/s/ Paul D. Delva

	Joseph R. Martin		Paul D. Delva
			Vice President, General Counsel and Secretary

To accept your Performance Unit grant:

	(a)		Sign BOTH copies of this Performance Unit Award Agreement;

	(b)		Retain one copy of each for your records;

	(c)		Return one copy of each in the enclosed envelope by August 22, 2005.

EX-31.1 8 b57410fsexv31w1.htm EX-31.1 SECTION 302 CERTIFICATION OF C.E.O. exv31w1

Exhibit 31.1

CERTIFICATION

I, Mark S. Thompson, certify that:

	1.		I have reviewed this quarterly report on Form 10-Q of Fairchild Semiconductor International, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.


Date: November 4, 2005	By:	/s/ Mark S. Thompson

	Mark S. Thompson
	President and Chief Executive Officer

EX-31.2 9 b57410fsexv31w2.htm EX-31.2 SECTION 302 CERTIFICATION OF INTERIM PRINCIPAL FINANCIAL OFFICER exv31w2

Exhibit 31.2

CERTIFICATION

I, Robin A. Sawyer, certify that:

	1.		I have reviewed this quarterly report on Form 10-Q of Fairchild Semiconductor International, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.


Date: November 4, 2005	By:	/s/ Robin A. Sawyer

	Robin A. Sawyer
	Vice President, Corporate Controller
	Interim Principal Financial Officer

EX-32.1 10 b57410fsexv32w1.htm EX-32.1 SECTION 906 CERTIFICATION OF C.E.O. exv32w1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Fairchild Semiconductor International, Inc. (the “company”) on Form 10-Q for the period ended September 25, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark S. Thompson, Chief Executive Officer of the company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

	(1)		The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the company.


/s/ Mark S. Thompson

Mark S. Thompson
Chief Executive Officer
November 4, 2005

EX-32.2 11 b57410fsexv32w2.htm EX-32.2 SECTION 906 CERTIFICATION OF INTERIM PRINCIPAL FINANCIAL OFFICER exv32w2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Fairchild Semiconductor International, Inc. (the “company”) on Form 10-Q for the period ended September 25, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robin A. Sawyer, Interim Principal Financial Officer of the company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

	(1)		The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the company.


/s/ Robin A. Sawyer

Robin A. Sawyer
Vice President, Corporate Controller
Interim Principal Financial Officer
November 4, 2005

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