10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 29, 2007
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-32832

Jazz Technologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-3320580
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4321 Jamboree Road Newport Beach, California	92660
(Address of principal executive offices)	(Zip Code)

(949) 435-8000

Registrant’s telephone number, including area code

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 x  No o

Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x

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

As of August 13, 2007, 23,544,112 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

JAZZ TECHNOLOGIES, INC.

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets at June 29, 2007 and December 31, 2006
	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 29, 2007 and June 30, 2006
	Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 29, 2007
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2007 and June 30, 2006
	Notes to Unaudited Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II – OTHER INFORMATION
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 4.	Submission of Matters to a Vote of Security Holders
SIGNATURES
Index to Exhibits

i

PART I – FINANCIAL INFORMATION

Item 1.                    Financial Statements

JAZZ TECHNOLOGIES, INC.

Unaudited Condensed Consolidated Balance Sheets

(in thousands)

	June 29, 2007			December 31, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	22,659		$	633
Cash and cash equivalents held in trust and escrow accounts	—			334,465
Short-term investments	9,800			—
Receivables, net of allowance for doubtful accounts of $861	33,662			—
Inventories	11,615			—
Purchase price-related receivable (due from escrow)	9,000			—
Deferred tax asset	5,236			—
Prepaid expenses and other current assets	1,896			827
Total current assets	93,868			335,925
Property, plant and equipment, net	140,033			—
Investments	19,300			—
Intangible assets, net	57,837			—
Other assets	6,726			8,180
Total assets	$	317,764		$	344,105
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,561		$	—
Accrued compensation and benefits	6,253			—
Deferred revenues	5,832			—
Accrued interest	7,078			445
Other current liabilities	16,319			12,136
Total current liabilities	49,043			12,581
Long term liabilities:
Convertible senior notes	166,750			166,750
Deferred tax liability	5,236			—
Accrued pension, retirement medical plan obligations and other long-term liabilities	21,437			—
Total liabilities	242,466			179,331
Common stock, subject to possible conversion, 5,750 shares at conversion value	—			33,512
Stockholders’ equity
Common stock	2			3
Additional paid-in capital	96,371			127,971
Other comprehensive income	3			—
Retained earnings (deficit)	(21,078		)	3,288
Total stockholders’ equity	75,298			131,262
Total liabilities and stockholders’ equity	$	317,764		$	344,105

See accompanying notes.

1

JAZZ TECHNOLOGIES, INC.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

	Three months ended						Six months ended
	June 29, 2007			June 30, 2006			June 29, 2007			June 30, 2006
Net revenues	$	52,360		$	—		$	74,883		$	—
Cost of revenues	52,955			—			74,896			—
Gross profit (loss)	(595		)	—			(13		)	—
Operating expenses:
Research and development	3,734			—			5,724			—
Selling, general and administrative	4,533			137			9,137			198
Amortization of intangible assets	378			—			553			—
Write off of in-process research and development	—			—			3,800			—
Total operating expenses	8,645			137			19,214			198
Loss from operations	(9,240		)	(137		)	(19,227		)	(198		)
Interest and other (expense) income, net	(3,294		)	1,451			(4,880		)	1,667
Net income (loss) before provision for income taxes	(12,534		)	1,314			(24,107		)	1,469
Provision for income taxes	151			97			259			99
Net income (loss)	$	(12,685	)	$	1,217		$	(24,366	)	$	1,370
Net income (loss) per share (basic and diluted)	$	(0.53	)	$	0.04		$	(0.90	)	$	0.06
Weighted average shares (basic and diluted)	23,869			34,457			27,005			22,330

The amounts included in the three and six months ended June 29, 2007 reflect the acquisition of Jazz Semiconductor, Inc. on February 16, 2007 and the results of operations for Jazz Semiconductor, Inc. following the date of acquisition.

See accompanying notes.

2

JAZZ TECHNOLOGIES, INC.

Unaudited Condensed Consolidated Statement of Stockholders’ Equity

(in thousands)

	Common Stock					Additional			Other  comprehensive		Retained earnings			Total Stockholders’
	Shares		Amount			paid-in capital			income		(deficit)			Equity
Balance at December 31, 2006	34,457		$	3		$	127,971		$	—	$	3,288		$	131,262
Reversal of common stock subject to possible conversion of 5,750 shares	—		—			33,512			—		—			33,512
Conversion of common stock into cash in connection with acquisition	(5,668	)	(1		)	(33,158		)	—		—			(33,159		)
Redemption of founder’s common stock	(1,874	)	—			(9		)	—		—			(9		)
Repurchase of common stock	(2,958	)	—			(14,363		)	—		—			(14,363		)
Repurchase of warrants	—		—			(14,915		)	—		—			(14,915		)
Repurchase of units	(500	)	—			(2,180		)	—		—			(2,180		)
Repurchase of unit purchase options	—		—			(735		)	—		—			(735		)
Issuance of restricted stock	87		—			—			—		—			—
Stock compensation expense	—		—			248			—		—			248
Comprehensive loss:
Foreign currency translation adjustment	—		—			—			3		—			3
Net loss	—		—			—			—		(24,366		)	(24,366		)
Total comprehensive loss														(24,363		)
Balance at June 29, 2007	23,544		$	2		$	96,371		$	3	$	(21,078	)	$	75,298

See accompanying notes.

3

JAZZ TECHNOLOGIES, INC.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Six months ended
	June 29, 2007			June 30, 2006
Operating activities:
Net income (loss)	$	(24,366	)	$	1,370
Adjustments to reconcile net income (loss) for the period to net cash provided (used) by operating activities:
Depreciation	11,996			—
Amortization of deferred financing costs	791			—
Provision for doubtful accounts	63			—
Loss on disposal of equipment	2			—
Amortization of purchased intangible assets	2,986			—
Write-off of in-process research and development	3,800			—
Stock compensation expense	248			—
Changes in operating assets and liabilities, net of effects from acquisition of Jazz Semiconductor, Inc.:
Receivables	(7,910		)	—
Inventories	7,479			—
Prepaid expenses and other current assets	1,923			(551		)
Restricted cash	2,681			—
Deferred tax assets	575			—
Accounts payable	(10,368		)	—
Accrued compensation, benefits and deferred revenues	(4,608		)	—
Accrued interest on convertible notes	6,633			—
Other current liabilities	(8,131		)	92
Deferred tax liability	(575		)	—
Other long-term liabilities	3,944			—
Net cash provided (used) by operating activities	(12,837		)	911
Investing activities:
Jazz Semiconductor, Inc. purchase price, net of cash acquired	(236,303		)	—
Purchases of property and equipment	(2,278		)	—
Net proceeds from sale of short-term investments	14,445			—
Release of funds from trust and escrow accounts	334,465			—
Net proceeds from issuance of common stock placed in trust account	—			(165,535		)
Net cash provided (used) by investing activities	110,329			(165,535		)
Financing activities:
Redemption of founder’s common stock	(9		)	—
Net proceeds from issuance of common stock	—			165,249
Repayment of note payable to stockholder	—			(275		)
Reimbursement of additional offering expenses	—			225
Conversion of common stock in connection with acquisition	(33,159		)	—
Repurchase of common stock	(14,363		)	—
Repurchase of warrants	(14,877		)	—
Repurchase of units	(2,180		)	—
Repurchase of unit purchase options	(735		)	—
Payment of debt and acquisition-related liabilities	(10,120		)	—
Net cash provided (used) by financing activities	(75,443		)	165,199
Effect of foreign currency on cash	(23		)	—
Net increase in cash and cash equivalents	22,026			575
Cash and cash equivalents at beginning of period	633			77
Cash and cash equivalents at end of period	$	22,659		$	652

See accompanying notes.

4

Jazz Technologies, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 29, 2007

1.ORGANIZATION

The Company

Jazz Technologies, Inc., formerly known as Acquicor Technology Inc. (the “Company”), was incorporated in Delaware on August 12, 2005.  The Company was formed to serve as a vehicle for the acquisition of one or more domestic and/or foreign operating businesses through a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination.

On February 16, 2007, the Company completed the acquisition of all of the outstanding capital stock of Jazz Semiconductor, Inc., a Delaware corporation (“Jazz”), for approximately $262.4 million in cash, and acquired as part of the assets of Jazz approximately $26.1 million in cash.  The accompanying unaudited condensed consolidated financial statements include the results of operations for Jazz following the date of acquisition.  The acquisition was accounted for under the purchase method of accounting in accordance with U.S. generally accepted accounting principles for accounting and financial reporting purposes.  Under this method, Jazz was treated as the “acquired” company.  In connection with the acquisition the Company adopted Jazz’s fiscal year.  In July 2007, the Company entered into an agreement with the former Jazz stockholders that reduced the purchase price by $9.0 million to $253.4 million.  The reduction has been reflected in the accompanying financial statements.

Unless specifically noted otherwise, as used throughout these notes to the unaudited condensed consolidated financial statements, “Company,” refers to the business of Jazz Technologies, Inc. and “Jazz” refers only to the business of Jazz Semiconductor, Inc.

Based in Newport Beach, California, the Company is an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog intensive mixed-signal semiconductor devices.  The Company’s specialty process technologies include advanced analog, radio frequency, high voltage, bipolar and silicon germanium bipolar complementary metal oxide (“SiGe”) semiconductor processes, for the manufacture of analog and mixed-signal semiconductors.  Its customer’s analog and mixed-signal semiconductor devices are used in cellular phones, wireless local area networking devices, digital TVs, set-top boxes, gaming devices, switches, routers and broadband modems.

Acquisition of Jazz Semiconductor, Inc.

On February 16, 2007, pursuant to the terms of a merger agreement signed on September 26, 2006, the Company acquired all of Jazz’s outstanding capital stock for approximately $262.4 million, funded with existing cash resources as well as proceeds from the convertible senior notes that were issued in the fourth quarter of fiscal 2006.  During July 2007, an agreement was reached with former Jazz stockholders that reduced the purchase price by $9.0 million to $253.4 million.  This reduction has been reflected in the accompanying unaudited condensed consolidated financial statements.

For accounting purposes, the purchase price for the Jazz acquisition was $253.4 million and reconciles to the payments made at closing as follows (in thousands):

Acquisition consideration (net of $9.0 million adjustment in July 2007)	$	251,000
Estimated working capital adjustment	4,500
Total acquisition consideration	255,500
Jazz terminated IPO and acquisition transaction costs	(6,591		)
Company transaction costs	4,474
Total purchase price	$	253,383

5

Jazz’s transaction costs primarily consist of fees for financial advisors, attorneys, accountants and other advisors incurred in connection with the acquisition and Jazz’s terminated initial public offering.  The Company’s transaction costs primarily consist of fees for financial advisors, attorneys, accountants and other advisors directly related to the acquisition of Jazz.

Payments made by the Company at the time of acquisition included a $4.5 million estimated working capital payment and a deduction for $6.6 million of transaction costs incurred by Jazz in connection with the acquisition and its terminated public offering. There was no change to the purchase price resulting from the final calculation of the closing working capital amount, as defined in the merger agreement, which was calculated based on the final closing balance sheet as of February 16, 2007, however, there was a $9.0 million reduction to the purchase price in July 2007 as part of an agreement with the former Jazz stockholders.

In connection with the acquisition of Jazz, the Company acquired an equity investment in Shanghai Hua Hong NEC Electronics Company, Ltd. (“HHNEC”).  Under the merger agreement relating to the acquisition of Jazz, the Company is obligated to pay additional amounts to former stockholders of Jazz if the Company realizes proceeds in excess of $10 million from its investment in HHNEC during the three-year period following the completion of the acquisition of Jazz. In that event, the Company will pay to Jazz’s former stockholders an amount equal to 50% of the amount (if any) of the proceeds received that exceed $10 million.

Adjusted Preliminary Purchase Price Allocation

The total adjusted purchase price of $253.4 million, including the Company’s transaction costs of approximately $4.5 million, and net of the recent reduction of $9.0 million in purchase price, has been allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair market values as of February 16, 2007, as follows (in thousands):

	February 16, 2007
Fair value of the net tangible assets acquired and liabilities assumed:
Cash and cash equivalents	$	26,080
Short-term investments	24,245
Restricted cash	3,154
Receivables	25,815
Inventories	19,094
Deferred tax asset	5,236
Other current assets	2,520
Property, plant and equipment	148,923
Investments	19,300
Other assets	521
Accounts payable	(23,087		)
Accrued compensation, benefits and other	(6,299		)
Deferred tax liability	(5,236		)
Deferred revenues	(10,394		)
Other current liabilities	(23,619		)
Accrued pension, retirement medical plan obligations and other long-term liabilities	(17,493		)
Total net tangible assets acquired and liabilities assumed				$	188,760
Fair value of identifiable intangible assets acquired:
Existing technology	1,877
Patents and other core technology rights	10,606
In-process research and development	3,800
Customer relationships	5,069
Customer backlog	2,722
Trade name	4,693
Facilities lease	35,856
Total identifiable intangible assets acquired				64,623
Total purchase price				$	253,383

6

The Company has engaged a third party appraiser to assist it in performing a valuation of all the assets and liabilities in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 141, “Business Combinations” (‘‘SFAS No. 141’’).  The fair values set forth above are based on preliminary valuation estimates of Jazz’s tangible and intangible assets. The final valuations, and any interim updated preliminary valuation estimates, may differ materially from these preliminary valuation estimates and, as a result, the final allocation of the purchase price may result in reclassifications of the allocated amounts that are materially different from the purchase price allocations reflected above.

The Company leases its headquarters and Newport Beach, California fabrication and probing facilities from Conexant Systems, Inc. under non-cancelable operating leases through March 2017.  The Company has the option to extend the terms of each of these leases for two consecutive five-year periods.  The Company’s rental payments under these leases consist solely of its pro rata share of the expenses incurred by Conexant in the ownership of these buildings.  The amount allocated to facilities leases represents the fair value of acquired leases calculated as the difference between market rates for similar facilities in the same geographical area and the rent the Company is estimated to pay over the life of the leases, discounted back over the life of the lease.  The future minimum costs under these leases have been estimated based on actual costs incurred during 2006 and applicable adjustments for increases in the consumer price index.

Pro Forma Results of Operations

The accompanying unaudited condensed consolidated statements of operations only reflect the operating results of Jazz following the date of acquisition and do not reflect the operating results of Jazz prior to the acquisition. The following pro forma unaudited information for the three and six months ended June 29, 2007 and June 30, 2006 assume the acquisition of Jazz occurred on January 1, 2006, (in thousands):

	Three months ended						Six months ended
	June 29, 2007			June 30, 2006			June 29, 2007			June 30, 2006
Net revenues	$	52,360		$	43,199		$	100,457		$	99,059
Net loss	$	(12,685	)	$	(21,835	)	$	(33,460	)	$	(32,991	)
Pro forma net loss per share – basic and diluted	$	(0.53	)	$	(0.63	)	$	(1.24	)	$	(1.48	)

7

The Company derived the pro forma information from (i) the unaudited consolidated financial statements of the Company for the six months ended June 29, 2007 and of Jazz for the period from January 1, 2007 to February 16, 2007 (the date of the Jazz acquisition), and (ii) the unaudited consolidated financial statements of the Company and Jazz for the six months ended June 30, 2006.  The pro forma results are not necessarily indicative of the results that may have actually occurred had the merger taken place on the dates noted, or the future financial position or operating results of the Company or Jazz.  The pro forma information excludes the write-off of in-process research and development, that was expensed in the six months ended June 29, 2007.  The pro forma adjustments are based upon available information and assumptions that the Company believes are reasonable. The pro forma adjustments include adjustments for interest expenses (relating primarily to interest on the $166.8 million principal amount of convertible senior notes issued in December 2006) and increased depreciation and amortization expense as a result of the application of the purchase method of accounting based on the fair values set forth above.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X.  They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  These financial statements should be read in conjunction of the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2006, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2007 and the Form 8-K filed with the SEC on February 16, 2007.

The condensed consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s consolidated financial position at June 29, 2007 and December 31, 2006, and the consolidated results of its operations and cash flow for the three and six months ended June 29, 2007 and June 30, 2006.

8

Fiscal Year

Effective with the fiscal year beginning January 1, 2007, the Company adopted a 52- or 53- week fiscal year.  Each of the first three quarters of a fiscal year ends on the last Friday in each of March, June and September and the fourth quarter of a fiscal year ends on the Friday prior to December 31.  As a result, each fiscal quarter consists of 13 weeks during a 52-week fiscal year.  During a 53-week fiscal year, the first three quarters consist of 13 weeks and the fourth quarter consists of 14 weeks.  The Company previously maintained a calendar fiscal year.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses in the reporting period.  The Company regularly evaluates estimates and assumptions related to allowances for doubtful accounts, sales returns and allowances, inventory reserves, purchased intangible asset valuations, and deferred income tax asset valuation allowances.  The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.  The actual results experienced by the Company may differ materially and adversely from the Company’s estimates.  To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Revenue Recognition

The Company’s net revenues are generated principally by sales of semiconductor wafers.  The Company derives the remaining balance of its net revenues from the resale of photomasks and other engineering services.  The majority of the Company’s sales occur through the efforts of its direct sales force.

In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”), and SAB No. 104, “Revenue Recognition” (“SAB No. 104”), the Company recognizes product revenues when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured.  These criteria are usually met at the time of product shipment.  However, the Company does not recognize revenues until all customer acceptance requirements have been met, when applicable.  Determination of the criteria set forth in items three and four above is based on management’s judgment regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of those fees.  Should changes in conditions cause management to determine that these criteria are not met for certain future transactions, revenues recognized for any reporting period could be adversely affected.

The Company recognizes revenues from product sales when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable, and collection of the related receivable is reasonably assured, which is generally at the time of shipment. Revenues for engineering services are recognized ratably over the contract term or as services are performed. Revenues from contracts with multiple elements are recognized as each element is earned based on the relative fair value of each element and when there are no undelivered elements that are essential to the functionality of the delivered elements and when the amount is not contingent upon delivery of the undelivered elements. Advances received from customers towards future engineering services, product purchases and in some cases capacity reservation are deferred until products are shipped to the customer, services are rendered or the capacity reservation period ends.

The Company provides for sales returns and allowances as a reduction of revenues at the time of shipment based on historical experience and specific identification of events necessitating an allowance. Estimates for sales returns and allowances require a considerable amount of judgment on the part of management.

9

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. The carrying amounts of cash and cash equivalents approximate their fair values. The Company maintains cash and cash equivalents balances at certain financial institutions in excess of amounts insured by federal agencies. Management does not believe that as a result of this concentration it is subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships.

Short-term Investments

Short-term investments include auction rate securities issued by U.S. governmental agencies and municipal governments, auction rate preferred securities issued by corporations, and commercial paper that are not considered cash equivalents. All such securities are classified as available-for-sale and are reported at fair market value, which approximates cost, on the condensed consolidated balance sheets.

Inventories

Inventories consist of raw materials, work in process and finished goods and include the costs for freight-in, materials, labor and manufacturing overhead.  Inventories are stated at the lower of cost, calculated on a first-in, first-out basis, or market value. The Company establishes inventory reserves for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future demand and market conditions.  Inventories acquired as a result of the acquisition of Jazz were recorded based on fair value.  Shipping and handling costs are classified as a component of cost of revenues in the condensed consolidated statements of operations.

Inventories, net of reserves, consist of the following (in thousands):

	June 29, 2007
Raw material	$	343
Work in process	9,182
Finished goods	2,090
	$	11,615

Property, Plant and Equipment

 Property, plant and equipment assets acquired as a result of the acquisition of Jazz were recorded based on the fair value of such assets; all subsequent purchases are recorded based on cost. Prior to the acquisition of Jazz, the Company had no property, plant or equipment. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 12 years. Leasehold improvements are amortized over the life of the asset or term of the lease, whichever is shorter. Significant renewals and betterments are capitalized and any assets being replaced are written off. Maintenance and repairs are charged to expense as incurred. Upon the sale or retirement of assets, the cost and related accumulated depreciation are removed from the condensed consolidated balance sheet and the resulting gain or loss is reflected in the condensed consolidated statement of operations.

Property, plant and equipment consist of the following (in thousands):

	Useful life	June 29, 2007
	(In years)
Building improvements	7-12	$	43,422
Machinery and equipment	4-6	101,980
Furniture and equipment	3-5	1,808
Computer software	3	1,170
Construction in progress		3,601
		151,981
Accumulated depreciation		(11,948		)
		$	140,033

10

Construction in progress primarily consists of machinery being qualified for service in the Company’s Newport Beach, California foundry.

Investment

In connection with the acquisition of Jazz, the Company acquired an investment in HHNEC.  As of February 17, 2007, the investment represents a minority interest of approximately 10% in HHNEC. In accordance with the purchase method of accounting, this investment was recorded with a value of $19.3 million, which was the fair value of the investment on February 16, 2007.

Intangible Assets

Intangible assets consist of the following at June 29, 2007 (in thousands) (based on the preliminary valuations discussed above):

	Weighted AverageLife  (years)	Cost		Accumulated  Amortization		Net
Existing technology	7	$	1,877	$	104	$	1,773
Patents and other core technology rights	7	10,606		590		10,016
In-process research and development	—	3,800		3,800		—
Customer relationships	7	5,069		282		4,787
Customer backlog	<1	2,722		1,225		1,497
Trade name	7	4,693		261		4,432
Facilities lease	20	35,856		524		35,332
Total identifiable intangible assets		$	64,623	$	6,786	$	57,837

Based on the preliminary valuations discussed above, the Company expects future amortization expense to be as follows (in thousands):

	Charge to cost of revenues		Charge to operating  expenses		Total
Fiscal year ends:
Remainder of 2007	$	3,268	$	715	$	3,983
2008	3,540		1,431		4,971
2009	3,540		1,431		4,971
2010	3,540		1,431		4,971
2011	3,540		1,431		4,971
2012	3,540		1,431		4,971
Thereafter	26,944		2,055		28,999
Total expected future amortization expense	$	47,912	$	9,925	$	57,837

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Pension Plans

Prior to the acquisition, Jazz adopted SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans (an amendment of FASB (Financial Accounting Standards Board) Statements No. 87, 88, 106, and 132R)” (“SFAS No. 158”), for the 2006 fiscal year relating to its Retirement Plan for Hourly Employees and Postretirement Health and Life Benefits Plan. With the adoption of SFAS No. 158 in the prior fiscal year, Jazz was required to recognize all previously unrecognized obligations.  These amounts were presented on the Jazz’s balance sheet as Accumulated Other Comprehensive Income (AOCI) under Stockholders’ Equity.  Following the acquisition on February 16, 2007 and the application of SFAS No. 141, these liabilities were stated at their fair value. The pension and other post retirement benefit plans expense for the three and six months ended June 29, 2007 was $0.5 million and $0.8 million, respectively. The amounts for the corresponding periods in 2006 were zero.

Equity Incentive Plan

On October 11, 2006, the Company’s Board of Directors (the “Board”) approved the Company’s 2006 Equity Incentive Plan (the “Plan”).  The Plan was amended by the Board on February 8, 2007 and approved by the Company’s stockholders on February 15, 2007.  The Plan provides for grants of stock awards in the following forms: (i) Incentive Stock Options; (ii) Non-statutory Stock Options; (iii) Restricted Stock Awards; (iv) Restricted Stock Unit Awards; (v) Stock Appreciation Rights; (vi) Performance Stock Awards; (vii) Performance Cash Awards; and (viii) Other Stock Awards.

Stock Option Awards

During the quarter ended June 29, 2007, the Company awarded non-statutory stock options to purchase 2,531,515 shares of common stock that vest over a three-year period from the date of grant.  The first third of the stock option grants vests after the first year and the remaining two-thirds vest ratably over the next eight quarters. The exercise prices of the options awarded range from $3.10 - $3.28 per share.  The Company recorded $83,820 of compensation expense in the three months ended June 29, 2007 relating to the issuance of non-qualified stock options to employees and non-employee members of the Board.

Effective January 1, 2007, the Company adopted SFAS No. 123 (revised 2004),  “Share-Based Payment” (“SFAS No. 123R”), which requires all share-based payments to employees, including grants of employee stock options, and restricted stock awards, to be recognized in the financial statements based upon their respective grant date fair values and does not allow the previously permitted pro forma disclosure-only method as an alternative to financial statement recognition. SFAS No. 123R supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations and amends SFAS No. 95,  “Statement of Cash Flows.”  SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under previous literature. In March 2005 the SEC issued SAB No. 107,  “Share-Based Payment” (“SAB No. 107”), which provides guidance regarding the interaction of SFAS No. 123R and certain SEC rules and regulations. The Company has applied the provisions of SAB No. 107 in its adoption of SFAS No. 123R.

SFAS No. 123R requires companies to estimate the fair value of stock options on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods. The Company has estimated the fair value of stock options as of the date of grant using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes model considers, among other factors, the expected life of the award and the expected volatility of the Company’s stock price. Although the Black-Scholes model meets the requirements of SFAS No. 123R and SAB No. 107, the fair values generated by the model may not be indicative of the actual fair values of the Company’s equity awards, as it does not consider other factors important to those awards to employees, such as continued employment, periodic vesting requirements, and limited transferability.

The key assumptions used in the Black-Scholes model in determining the fair value of options granted during the quarter ended June 29, 2007 are as follows:

Expected life in years	6.00
Expected price volatility	34.7	%
Risk-free interest rate	4.9	%
Dividend yield	0.0	%

Restricted Stock

In May 2007, the Company granted restricted stock awards that vest on February 16, 2008 covering 86,655 shares of the Company’s common stock.  On the date of grant of a restricted stock award, the recipient of the award is granted shares of the Company’s common stock that are restricted as to transfer and are subject to a right of forfeiture in favor of the Company.  Upon vesting, the right of forfeiture lapses and the shares become transferable.  The Company recorded an expense of $163,877 related to the restricted stock awards.

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Net Income (Loss) Per Share

Net income (loss) per share (basic) is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period.  Net income (loss) per share (diluted) is calculated by adjusting the number of shares of common stock outstanding using the treasury stock method.  Under the treasury stock method, an increase in the fair market value of the Company’s common stock results in a greater dilutive effect from outstanding warrants, options, restricted stock awards and convertible securities (common stock equivalents).

Since the Company reported a net loss for the three and six months ended June 29, 2007, all common stock equivalents would be anti-dilutive and the basic and diluted weighted average shares outstanding are the same.

3.LOAN & SECURITY AGREEMENT

On February 28, 2007, the Company entered into an amended and restated loan and security agreement, as parent guarantor, with Wachovia Capital Markets, LLC, as lead arranger, bookrunner and syndication agent, and Wachovia Capital Finance Corporation (Western), as administrative agent (“Wachovia”), and Jazz and Newport Fab, LLC, as borrowers, with respect to a three-year senior secured asset-based revolving credit facility in an amount of up to $65 million. The borrowing availability varies according to the levels of the borrowers’ accounts receivable, eligible equipment and other terms and conditions described in the loan agreement. Up to $5 million of the facility will be available for the issuance of letters of credit. The maturity date of the facility is February 28, 2010, unless earlier terminated. Loans under the facility will bear interest at a floating rate equal to, at borrowers’ option, either the lender’s prime rate plus 0.75% or the adjusted Eurodollar rate (as defined in the loan agreement) plus 2.75% per annum.  The facility is secured by all of the assets of the Company and the borrowers.

The loan agreement contains customary affirmative and negative covenants and other restrictions. If the sum of excess availability plus qualified cash is at any time during any fiscal quarter less than $10.0 million, the borrowers will be subject to a minimum consolidated EBITDA financial covenant, such that the Company and its subsidiaries (other than any excluded subsidiaries) shall be required to earn, on a consolidated basis, consolidated EBITDA (as defined in the loan agreement) of not less than the applicable amounts set forth in the loan agreement.

In addition, the loan agreement contains customary events of default including the following: nonpayment of principal, interest or other amounts; violation of covenants; incorrectness of representations and warranties in any material respect; cross default; bankruptcy; material judgments; ERISA events; actual or asserted invalidity of guarantees or security documents; and change of control. If any event of default occurs, Wachovia may declare due immediately, all borrowings under the facility and foreclose on the collateral. Furthermore, an event of default under the loan agreement would result in an increase in the interest rate on any amounts outstanding.

Borrowing availability under the facility as of June 29, 2007, was $58.1 million.  As of June 29, 2007, the Company had zero borrowings outstanding and $1.3 million of the facility supporting outstanding letters of credits.

4.INCOME TAXES

The Company utilizes the liability method of accounting for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The likelihood of a material change in the Company’s expected realization of these assets depends on its ability to generate sufficient future taxable income.  The Company’s ability to generate enough taxable income to utilize its deferred tax assets depends on many factors, among which is the Company’s ability to deduct tax loss carry-forwards against future taxable income, the effectiveness of the Company’s tax planning strategies and reversing deferred tax liabilities.

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In June, 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109” (“FIN No. 48”).  FIN No. 48 establishes a single model to address accounting for uncertain tax positions. FIN No. 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.  FIN No. 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.  The Company adopted the provisions of FIN No. 48 on January 1, 2007.  Upon adoption, the Company recognized no adjustment in the amount of unrecognized tax benefits.  As of the date of adoption, the Company had no unrecognized tax benefits.  The Company’s policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense.

On the date of the acquisition, Jazz had unrecognized tax benefits of $0.4 million that, if recognized, would reduce the balance of non-current intangible assets.  As of June 29, 2007, the Company has accrued $23,000 of interest and penalties on unrecognized tax benefits. The Company does not expect any significant decreases to its unrecognized tax benefits within the next 12 months.  However, the reserve may increase pending the completion of the Section 382 analysis, described below.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions.  With few exceptions, the Company is no longer subject to U.S. federal income tax examinations for years before 2003; state and local income tax examinations before 2002; and foreign income tax examinations before 2004.  However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward amount.

The Company is not currently under Internal Revenue Service (“IRS”) tax examination. During the first quarter of 2007, the Texas tax authorities completed an examination of the 2002 – 2005 Jazz tax returns.  The adjustments were insignificant and will not have a material impact on the Company’s position or results of operations.  The Company is not currently under examination by any other state, local or foreign jurisdictions.

On the date of the acquisition, Jazz had federal and state net operating loss (“NOL”) carryforwards of approximately $104.7 million and $89.8 million, respectively.  The federal and state tax net operating loss carryforwards represent a significant component of the Company’s deferred tax assets.  Due to uncertainties surrounding the Company’s ability to generate sufficient future taxable income to realize these assets, a full valuation has been established to offset its net deferred tax asset. Additionally, the future utilization of the Company’s NOL carryforwards to offset future taxable income may be subject to a substantial annual limitation as a result of ownership changes that have occurred previously or that could occur in the future.  The acquisition resulted in an ownership change as defined by Section 382.  Until the Company has determined the amount of any such limitation, no amounts are being presented as an uncertain tax position in accordance with FIN No. 48.  The Company believes that the amount subject to limitation could be significant.

5.CONVERTIBLE SENIOR NOTES

On December 19, 2006 and December 21, 2006, the Company completed private placements of $166.8 million aggregate principal amount of 8% convertible senior notes due 2011 (the “Convertible Senior Notes”).  The gross proceeds from the Convertible Senior Notes were placed in escrow pending completion of the acquisition of Jazz.

On February 16, 2007, the conditions to release the escrowed proceeds of the Convertible Senior Notes were met and the proceeds, net of the debt issuance costs, were released to the Company.

The Convertible Senior Notes bear interest at a rate of 8% per annum payable semi-annually on each June 30 and December 31, beginning on June 30, 2007.  The Company may redeem the Convertible Senior Notes on or after December 31, 2009 at agreed upon redemption prices, plus accrued and unpaid interest.  The holders of the Convertible Senior Notes also have the option to convert the Convertible Senior Notes into shares of the Company’s common stock at an initial conversion rate of 136.426 shares per $1,000 principal amount of Convertible Senior

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Notes, subject to adjustment in certain circumstances, which is equivalent to an initial conversion price of about $7.33 per share.

6.STOCKHOLDERS’ EQUITY

Unit Purchase Options

In connection with the Company’s initial public offering, the Company issued to the underwriters in the initial public offering 1,250,000 unit purchase options.  Each unit purchase option grants the holder of the option, the right to purchase one unit at $7.50 per unit, with each unit consisting of one share of the Company’s common stock and two redeemable common stock warrants, each warrant to purchase one share of the Company’s common stock at $6.65 per share.  The unit purchase options and the underlying option expire on March 15, 2011.

As of June 29, 2007, the Company entered into an agreement with certain of the underwriters in the Company’s initial public offering to repurchase 437,500 unit purchase options that were awarded in connection with the initial public offering for a purchase price of $735,000.

Units and Warrants

Each unit issued in the Company’s March 2006 initial public offering and the private placement to the Company’s initial stockholders prior to the initial public offering included one share of common stock, $0.0001 par value, and two redeemable common stock purchase warrants.  Each warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $5.00 and expires on March 15, 2011.

As of June 29, 2007, the Company had repurchased 18,384,448 warrants (including warrants repurchased as part of the Company’s units).  The number of outstanding warrants at June 29, 2007 was 39,782,220.

Preferred Stock

The Company is authorized to issue up to 1,000,000 shares of preferred stock with such designations, voting rights and other rights and preferences as may be determined from time to time by the Board.

Common Stock

On February 16, 2007, the Company redeemed 1,873,738 common shares held by Acquicor Management LLC and the Company’s outside directors (founders) at a redemption price of $0.0047 per share.

On February 16, 2007, the Company amended its Certificate of Incorporation to increase the authorized shares of the Company’s common stock from 100,000,000 shares to 200,000,000 shares.

On February 16, 2007, 5,668,116 shares of the Company’s common stock issued in connection with its initial public offering were converted into cash at approximately $5.85 per share, or $33.2 million in the aggregate.  The stockholders owning these shares voted against the acquisition of Jazz and properly elected to convert their shares into a pro-rata portion of the Company’s trust account.

As of June 29, 2007, the Company had repurchased 3,457,761 shares of common stock (including shares repurchased as part of the Company’s units).  As of June 29, 2007, 23,544,112 shares of common stock were outstanding.

Stock Repurchase Plan

On January 11, 2007, the Company announced that the Board had authorized a stock and warrant repurchase program, under which the Company may repurchase up to $50 million of its common stock and warrants through July 15, 2007.  On July 18, 2007, the Company announced that the stock and warrant repurchase program has been extended through October 15, 2007.  Purchases under the stock and warrant repurchase program

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will be made from time to time at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors.  The program may be discontinued at any time.  As of June 29, 2007, the Company had repurchased securities with an aggregate value of $32.2 million under this program.

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

The following discussion and analysis should be read in conjunction with the financial statements and related notes contained elsewhere in this report.  See “Risk Factors” under Part II, Item 1A below regarding certain factors known to us that could cause reported financial information not to be necessarily indicative of future results.

FORWARD LOOKING STATEMENTS

This report on Form 10-Q may contain “forward-looking statements” within the meaning of the federal securities laws made pursuant to the safe harbor provisions of the Private Securities Litigation Report Act of 1995.  These statements, which represent our expectations or beliefs concerning various future events, may contain words such as “may,” “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or other words indicating future results.  Such statements may include but are not limited to statements concerning the following:

·anticipated trends in revenues;

·growth opportunities in domestic and international markets;

·new and enhanced channels of distribution;

·customer acceptance and satisfaction with our products;

·expected trends in operating and other expenses;

·purchase of raw materials at levels to meet forecasted demand;

·anticipated cash and intentions regarding usage of cash;

·changes in effective tax rates; and

·anticipated product enhancements or releases.

These forward-looking statements are subject to risks and uncertainties, including those risks and uncertainties described herein under Part II, Item 1A “Risk Factors,” that could cause actual results to differ materially from those anticipated as of the date of this report.  We assume no obligation to update any forward-looking statements to reflect events or circumstances arising after the date of this report.

OVERVIEW

We were formed on August 12, 2005, for the purpose of acquiring, through a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination, one or more domestic and/or foreign operating businesses in the technology, multimedia and networking sectors, focusing specifically on businesses that develop or provide technology-based products and services in the software, semiconductor, wired and wireless networking, consumer multimedia and information technology-enabled services segments.

On February 16, 2007, we completed the acquisition of all the outstanding shares of capital stock of Jazz for $262.4 million in cash.  During July 2007, an agreement was reached with former Jazz stockholders that reduced the purchase price by $9.0 million to $253.4 million.  This reduction has been reflected in the accompanying unaudited condensed consolidated financial statements.  The acquisition was accounted for under the purchase method of accounting in accordance with U.S. generally accepted accounting principles for accounting and financial reporting purposes. Under this method, Jazz was treated as the “acquired” company for financial reporting purposes. As a result, the accompanying unaudited condensed consolidated financial statements include the results of operations for Jazz from February 17, 2007 to June 29, 2007.

Based in Newport Beach, California, we have become an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog and mixed-signal semiconductor devices.  Our specialty process technologies include advanced analog, radio frequency, high voltage, bipolar and silicon germanium bipolar complementary metal oxide (“SiGe”) semiconductor processes, for the manufacture of analog

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and mixed-signal semiconductors.  Our customers use the analog and mixed-signal semiconductor devices in products they design that are used in cellular phones, wireless local area networking devices, digital TVs, set-top boxes, gaming devices, switches, routers and broadband modems.

The accompanying unaudited condensed consolidated statements of operations reflect the operating results of the acquired Jazz business since February 17, 2007.  However, in the results of operations section below we have also presented pro forma unaudited revenues, cost of revenues, gross margins and operating expenses assuming the acquisition of Jazz Semiconductor had occurred on January 1, 2006.  We present the pro forma information in order to provide a more meaningful comparison of our operating results with prior periods.

Critical Accounting Policies and Estimates

Estimates

Our discussion and analysis of our financial condition and results of operations is based on the accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.  As such, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  By their nature, these estimates and judgments are subject to an inherent degree of uncertainty.  Our management reviews its estimates on an on-going basis, including those related to sales allowances, the allowance for doubtful accounts, inventories and related reserves, long-lived assets, investments, pensions and other retirement obligations and income taxes.  We base our estimates and assumptions on historical experience, knowledge of current conditions and our understanding of what we believe to be reasonable that might occur in the future considering available information.  Actual results may differ from these estimates, and material effects on our operating results and financial position may result.  We believe the following critical accounting policies require significant judgments and estimates in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize product revenues in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”), as amended by SAB No. 101A, SAB No. 101B and SAB No. 104.  SAB No. 101 requires four basic criteria to be met before revenues can be recognized:

·persuasive evidence that an arrangement exists;

·delivery has occurred or services have been rendered;

·the fee is fixed and determinable; and

·collectibility is reasonably assured.

Determination of the criteria set forth in the third and fourth bullet points above is based on our judgment regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of those fees.  Should changes in conditions cause us to determine that these criteria are not met for certain future transactions, revenues recognized for any reporting period could be adversely affected.

We generate revenues primarily from the manufacture and sale of semiconductor wafers.  In addition, we also derive a portion of our revenues from the resale of photomasks and engineering services.

Recognition of revenues from product sales occurs when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable and collection of the related receivable is reasonably assured, generally at the time of shipment.  Accruals are established, with the related reduction to revenues, for allowances for discounts and product returns based on actual historical exposure at the time the related revenues are recognized.  Revenues for engineering services are recognized ratably over the contract term or as services are performed.  Revenues from contracts with multiple elements are recognized as each element is earned based on the relative fair value of each element and when there are no undelivered elements that are essential to the functionality of the delivered elements and when the amount is not contingent upon delivery of the undelivered elements. Advances received from customers towards future engineering services, product purchases and in some

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cases capacity reservation are deferred until products are shipped to the customer, services are rendered or the capacity reservation period ends.

We provide for sales returns and allowances as a reduction of revenues at the time of shipment based on historical experience and specific identification of an event necessitating an allowance.  Estimates for sales returns and allowances require a considerable amount of judgment on the part of management.

Accounts Receivable

We assess the collectibility of our accounts receivable based primarily upon the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history. We monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon historical experience, industry norms and specific customer collection issues that we have identified.  While our credit losses have historically been within our expectations and the allowance established, we may not continue to experience the same credit loss rates as we have in the past.  Our accounts receivable are concentrated among a relatively small number of customers.  Should there be a significant change in the liquidity or financial position of any one customer, resulting in an impairment of its ability to make payments, we may be required to increase the allowance for doubtful accounts, which could have a material adverse impact on our consolidated financial position, results of operations and cash flows.

Inventories

We initiate production of a majority of our wafers after we have received an order from a customer.  Generally we do not carry a significant inventory of finished goods except in response to specific customer requests or if we determine it appropriate to produce wafers in excess of orders because we forecast future demand in excess of capacity.  We seek to purchase and maintain raw materials at sufficient levels to meet lead times based on forecasted demand.  Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market. The total carrying value of our inventory is net of any reductions we have recorded to reflect the difference between cost and estimated market value of inventory that is determined to be obsolete or unmarketable based upon assumptions about future demand and market conditions. Reductions in carrying value are deemed to establish a new cost basis. Inventory is not written up if estimates of market value subsequently improve. We evaluate obsolescence by analyzing the inventory aging, order backlog and future customer demand on an individual product basis. If actual demand were to be substantially lower than what we have estimated, we may be required to write inventory down below the current carrying value. While our estimates require us to make significant judgments and assumptions about future events, we believe our relationships with our customers, combined with our understanding of the end-markets we serve, provide us with the ability to make reasonable estimates. The actual amount of obsolete or unmarketable inventory has been materially consistent with previously estimated write-downs we have recorded. We also evaluate the carrying value of inventory for lower-of-cost-or-market on an individual product basis, and these evaluations are intended to identify any difference between net realizable value and standard cost. Net realizable value is determined as the selling price of the product less the estimated cost of disposal. When necessary, we reduce the carrying value of inventory to net realizable value. If actual market conditions and resulting product sales were to be less favorable than what we have projected, additional inventory write-downs may be required.

Intangible Assets and Other Long-lived Assets

Intangible assets and other long-lived assets, including investments, are recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net intangible and other long-lived assets acquired. The amounts and useful lives assigned to intangible assets acquired, impact the amount and timing of future amortization, and the amount assigned to in-process research and development is expensed immediately. The value of our intangible assets could be impacted by future adverse changes such as: (i) any future declines in our operating results, (ii) a decline in the valuation of technology company stocks, including the valuation of our common stock, (iii) any significant slowdown in the worldwide economy or the semiconductor industry or (iv) any failure to meet the performance projections included in our forecasts of future operating results. We evaluate these assets, including purchased intangible assets deemed to have indefinite lives, on an annual basis

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in the fourth quarter, or more frequently if we believe indicators of impairment exist. In the process of our annual impairment review, we primarily use the income approach methodology of valuation, that includes the discounted cash flow method, as well as other generally accepted valuation methodologies to determine the fair value of our intangible assets. Significant management judgment is required in the forecasts of future operating results that are used in the discounted cash flow method of valuation. The estimates we have used are consistent with the plans and estimates that we use to manage our business. It is possible, however, that the plans and estimates used may be incorrect. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges.

In connection with the acquisition of Jazz, we determined the estimated fair value of certain assets and liabilities with the assistance of third party valuation specialists.  We engaged a third party appraiser to assist us in the valuation of all the assets and liabilities in accordance with FASB Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” (“SFAS No. 141”).

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected to result from their use and eventual disposition. Our long-lived assets subject to this evaluation include property, plant and equipment and amortizable intangible assets. Amortizable intangible assets subject to this evaluation include the valuation of our favorable real estate lease agreements, developed technology, customer backlog and trade name.

If and when an impairment evaluation of a long-lived asset is performed, estimated future undiscounted net cash flows expected to be generated by the asset over its remaining estimated useful life is determined. If the estimated future undiscounted net cash flows are insufficient to recover the carrying value of the asset over the remaining estimated useful life, we record an impairment loss in the amount by which the carrying value of the asset exceeds the fair value. We determine fair value based on discounted cash flows using a discount rate commensurate with the risk inherent in our current business model. Major factors that influence our cash flow analysis are our estimates for future revenues and expenses associated with the use of the asset. Different estimates could have a significant impact on the results of our evaluation. If, as a result of our analysis, we determine that our amortizable intangible assets or other long-lived assets have been impaired, we will recognize an impairment loss in the period in which the impairment is determined. Any such impairment charge could be significant and could have a material adverse effect on our financial position and results of operations.

Accounting for Income Taxes

Effective January 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN No. 48”).   We are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions.  We believe our tax return positions are fully supported, but tax authorities may challenge certain positions, which may not be fully sustained.  We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances, and information available at the reporting date. For uncertain tax positions where it is more likely than not that a tax benefit will be sustained, we record the greatest amount of tax benefit that has a greater than 50 percent probability of being realized upon effective settlement with a taxing authority that has full knowledge of all relevant information. For uncertain income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.  Our policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense.

We account for income taxes under the provisions of FASB Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes,” (“SFAS No. 109”). SFAS No. 109 requires that we recognize in our consolidated financial statements:

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·deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our consolidated financial statements or our tax returns; and

·the amount of taxes payable or refundable for the current year.

The tax consequences of most events recognized in the current year’s financial statements are included in determining income taxes currently payable. However, because tax laws and financial accounting standards differ in their recognition and measurement of assets, liabilities, equity, revenues, expenses and gains and losses, differences arise between the amount of taxable income and pretax financial income for a year and between the tax bases of assets or liabilities and their reported amounts in our financial statements. It is assumed that the reported amounts of assets and liabilities will be recovered and settled, respectively, in the future. Accordingly, a difference between the tax basis of an asset or a liability and its reported amount on the balance sheet will result in a taxable or a deductible amount in some future years when the related liabilities are settled or the reported amounts of the assets are recovered.

To determine the amount of taxes payable or refundable for the current year, we are required to estimate our income taxes. Our effective tax rate may be subject to fluctuations during the fiscal year as new information is obtained, which may affect the assumptions we use to estimate our annual effective tax rate, including factors such as valuation allowances against deferred tax assets, reserves for tax contingencies, utilization of tax credits and changes in or interpretation of tax laws in jurisdictions where we conduct operations

Utilization of net operating losses, credit carryforwards, and certain deductions may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar state provisions. The tax benefits related to future utilization of federal and state net operating losses, tax credit carryforwards, and other deferred tax assets may be limited or lost if cumulative changes in ownership exceed 50% within any three-year period. Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examinations from various tax authorities. We are not currently under examination.

Pension Plans

We maintain a defined benefit pension plan for our employees covered by a collective bargaining agreement. For financial reporting purposes, the calculation of net periodic pension costs is based upon a number of actuarial assumptions, including a discount rate for plan obligations, an assumed rate of return on pension plan assets and an assumed rate of compensation increase for employees covered by the plan. All of these assumptions are based upon management’s judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact future expense recognition and cash funding requirements of our retirement plans.

As previously discussed, the Jazz acquisition was accounted for under the purchase method of accounting.   For the Jazz Retirement Plan for Hourly Employees and Postretirement Health and Life Benefits Plan, the purchase method of accounting rules require the recognition of all previously unrecognized obligations as of the February 16, 2007 closing date.  With Jazz’s adoption of SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans (an amendment of FASB (Financial Accounting Standards Board) Statements No. 87, 88, 106, and 132R)” (“SFAS No. 158”), in the prior fiscal year, these amounts were included on Jazz’s balance sheet within Accumulated Other Comprehensive Income (AOCI) as a reconciling item to the historically accumulated accrued expense.  Subsequent to the acquisition, each plan’s funded status, i.e. obligations less assets, is still reflected on our balance sheet but, there is no longer any AOCI.

RESULTS OF OPERATIONS

For the three months ended June 29, 2007, we had a net loss of $12.7 million compared to a net profit of $1.2 million for the corresponding period in 2006.  Because we had no significant operations, the results for the three months ended June 29, 2007 reflect the results of operations for Jazz only.  Our primary source of income prior to the consummation of our initial business combination with Jazz was interest earned on the funds held in our trust account.

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For the six months ended June 29, 2007, we had a net loss of $24.4 million compared to net income of $1.4 million for the corresponding period in 2006. The results for the six months ended June 29, 2007 include the results of operations for Jazz only from February 17, 2007 through June 29, 2007. Our primary source of income prior to the consummation of our initial business combination with Jazz was interest earned on the funds held in a trust account.

Pro Forma Financial Information

The acquisition of Jazz is our first business combination and accordingly, we do not think a comparison of the results of operations and cash flows for the three and six months ended June 29, 2007 versus June 30, 2006 is very beneficial to our investors.  In order to assist investors in better understanding the changes in our business between the three and six months ended June 29, 2007 and June 30, 2006, we are presenting in the discussion below pro forma results for us and Jazz for the three and six months ended June 29, 2007 and June 30, 2006 as if the acquisition of Jazz occurred on January 1, 2006. We derived the pro forma results from (i) the unaudited condensed consolidated financial statements of Jazz for the period from January 1, 2007 to February 16, 2007 (the date of the Jazz acquisition) and the three and six months ended June 30, 2006, and (ii) our unaudited condensed consolidated financial statements for the three and six months ended June 29, 2007 and June 30, 2006.

The pro forma results are not necessarily indicative of the results that may have actually occurred had the acquisition taken place on the dates noted, or the future financial position or operating results of us or Jazz.  The pro forma results exclude the write-off of in-process research and development, that was expensed in the six months ended June 29, 2007.  The pro forma adjustments are based upon available information and assumptions that we believe are reasonable. The pro forma adjustments include adjustments for interest expenses (relating primarily to interest on the $166.8 million principal amount of 8% convertible senior notes due 2011 issued in December 2006) and increased depreciation and amortization expense as a result of the application of the purchase method of accounting.

Under the purchase method of accounting, the total purchase price is allocated to the net tangible and intangible assets acquired and liabilities assumed, based on various estimates of their respective fair values. We have engaged a third party appraiser to assist us in performing a valuation of all the assets and liabilities in accordance with SFAS No. 141. The depreciation and amortization expense adjustments reflected in the pro forma results of operations are based on preliminary valuation estimates of Jazz’s tangible and intangible assets described in Note 1 to our unaudited condensed consolidated financial statements. The final valuations, and any interim updated preliminary valuation estimates, may differ materially from these preliminary valuation estimates, and as a result, the final allocation of the purchase price may result in reclassifications of the allocated amounts that are materially different from the purchase price allocations reflected below. Any material change in the valuation estimates and related allocation of the purchase price could materially impact our depreciation and amortization expenses and our actual and pro forma results of operations.

	Three months ended						Six months ended
	June 29, 2007			June 30, 2006			June 29, 2007			June 30, 2006
Net revenues	$	52,360		$	43,199		$	100,457		$	99,059
Cost of revenues	52,955			50,870			104,585			104,184
Gross profit (loss)	(595		)	(7,671		)	(4,128		)	(5,125		)
Operating expenses:
Research and development	3,734			5,455			8,713			10,677
Selling, general and administrative	4,533			5,356			14,772			10,785
Amortization of intangible assets	378			132			919			760
Total operating expenses	8,645			10,943			24,404			22,222
Loss from operations	(9,240		)	(18,614		)	(28,532		)	(27,347		)
Net interest expense	3,315			1,915			4,685			5,180
Other expenses	130			1,306			243			464
Net loss	$	(12,685	)	$	(21,835	)	$	(33,460	)	$	(32,991	)
Pro forma net loss per share – basic and diluted	$	(0.53	)	$	(0.63	)	$	(1.24	)	$	(1.48	)

Comparison of Three Months Ended June 29, 2007 and June 30, 2006

Revenues

Our revenues are generated principally from the sale of semiconductor wafers and in part from the sale of photomasks and other engineering services. Net revenues are net of provisions for returns and allowances.  Revenues are categorized by technology group into specialty process revenues and standard process revenues. Specialty process revenues include revenues from wafers manufactured using our specialty process technologies—advanced analog CMOS, radio frequency CMOS or RF CMOS, high voltage CMOS, bipolar CMOS or BiCMOS, SiGe BiCMOS, and bipolar CMOS double-diffused metal oxide semiconductor or BCD, processes. Standard process revenues are revenues derived from wafers employing digital CMOS and standard analog process technologies.

Prior to our acquisition of Jazz, we had no revenues.

Pro Forma Net Revenues

The following table presents pro forma net revenues for the three months ended June 29, 2007 and June 30, 2006:

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	Pro Forma Net Revenues (in thousands, except percentages)
	Three Months Ended June 29, 2007			Three Months Ended June 30, 2006
			% of Net				% of Net		Increase			%
	Amount		Revenues	Amount			Revenues		(Decrease)			Change
Specialty Process Revenues	$	40,493	77.3	$	43,427		100.5		$	(2,934	)	(6.8	)
Standard Process Revenues	11,867		22.7	(228		)	(0.5	)	12,095			—
Net Revenues	$	52,360	100.0	$	43,199		100.0		$	9,161		21.2

On a pro forma basis, we posted an increase in net revenues of $9.2 million or 21.2% from $43.2 million for the three months ended June 30, 2006, which includes a charge against revenues of $17.5 million in connection with the termination of the Conexant wafer supply agreement, to $52.4 million for the corresponding period in 2007.  This increase is the net result of a marginal decrease in specialty process revenues of $2.9 million or 6.8% from $43.4 million for the three months ended June 30, 2006 to $40.5 million for the corresponding period in 2007 and an increase in standard process revenues of $12.1 million from $(0.2) million for the three months ended June 30, 2006, to $11.9 million for the corresponding period in 2007.  The standard process revenues for the three months ended June 30, 2006 include a charge against revenues of $17.5 million in connection with the termination of the Conexant wafer supply agreement.  Excluding this charge, standard process revenues for the three months ended June 30, 2006 were $17.3 million compared to $11.9 million for the corresponding quarter in 2007, a decline of $5.4 million or 31.2%.

The decline in pro forma standard process revenues can be attributed to the semiconductor industry cycle in general and specifically to reduced business from a single customer, whose purchases of Jazz products have predominantly been standard process wafers. We believe the decline in revenues from Jazz’s standard process technologies over the past several quarters is attributable to our customers’ transitioning new standard process designs to foundries that focus on high volume and commodity oriented technologies and pricing.  We believe we will see standard process revenues stabilize or grow moderately quarter over quarter as the market strengthens.

The change in pro forma revenues mix of 77% specialty process revenues and 23% standard process revenues for the three months ended June 29, 2007 compared to 72% and 28%, respectively, for the corresponding period in 2006, not including the effect of the $17.5 million charge against revenues in connection with the termination of the Conexant wafer supply agreement, was mainly the result of a drop in standard process revenues primarily attributable to a single customer. While we intend to continue to offer full service solutions to our customer base, we believe our competitive advantage is to focus on specialty process revenues.

Cost of Revenues

Cost of revenues consists primarily of purchased manufactured materials, including the cost of raw wafers, gases and chemicals, shipping costs, labor and manufacturing-related engineering services.  Our cost of revenues for wafers manufactured by our manufacturing suppliers includes the purchase price and shipping costs that we pay for completed wafers.  Cost of revenues also includes the purchase of photomasks and the provision of test services.  We expense to cost of revenues defective inventory caused by fab and manufacturing yields as incurred.  We also review our inventories for indications of obsolescence or impairment and provide reserves as deemed necessary.  Royalty payments we make in connection with certain of our process technologies are also included within the cost of revenues.  Cost of revenues also includes depreciation and amortization expense on assets used in the manufacturing process.

Prior to our acquisition of Jazz, we had no cost of revenues.

Pro Forma Cost of Revenues

The following table presents pro forma cost of revenues for the three months ended June 29, 2007 and June 30, 2006:

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	Pro Forma Cost of Revenues (in thousands, except percentages)
	Three Months Ended June 29, 2007			Three Months Ended June 30, 2006
			% of Net			% of Net	Increase		%
	Amount		Revenues	Amount		Revenues	(Decrease)		Change
Cost of revenues (not including depreciation & amortization of intangible assets)	$	43,321	82.7	$	41,567	96.2	$	1,754	4.2
Cost of revenues – depreciation & amortization of intangible assets	9,634		18.4	9,303		21.5	331		3.6
Total cost of revenues	$	52,955	101.1	$	50,870	117.8	$	2,085	4.1

On a pro forma basis, cost of revenues increased by $2.1 million or 4.1% to $53.0 million for the three months ended June 29, 2007, compared to $50.9 million for the corresponding period in 2006. Though pro forma revenues increased 21.2%, the corresponding pro forma cost of revenues as a percentage of revenues actually decreased.  This decrease was primarily attributed to the $17.5 million charge against revenues and a $1.2 million credit to cost of revenues in the second quarter of 2006 related to the termination of the Conexant wafer supply agreement.  Discounting the effect of the net charge of $16.3 million associated with the termination of the Conexant wafer supply agreement, cost of revenues as a percentage of revenues increased to 101.1% for the three months ended June 29, 2007 compared to 85.7% for the corresponding period in 2006.  The increase in cost of revenues is in large part due to lower fabrication capacity utilization during the second quarter of 2007. The lower capacity utilization is the direct result of market conditions and a reduction in customer demand. Declining wafer volume fabrication during the last two quarters resulted in a greater allocation of fixed production costs to inventory resulting in increased cost per unit sold and correspondingly, increased cost of revenues.

The amortization of acquired technology, trade name and backlog has been allocated to cost of revenues and primarily relates to the developed technology acquired from the acquisition of Jazz on February 16, 2007.

Gross Profit (Loss)

Prior to our acquisition of Jazz, we had no gross profit.

Pro Forma Gross Profit (Loss)

The following table presents pro forma gross profit (loss) for the three months ended June 29, 2007 and June 30, 2006:

	Pro Forma Gross Profit (Loss) (in thousands, except percentages)
	Three Months Ended					Three Months Ended
	June 29, 2007					June 30, 2006
				% of Net					% of Net		Increase		%
	Amount			Revenues		Amount			Revenues		(Decrease)		Change
Gross profit (loss)	$	(595	)	(1.1	)	$	(7,671	)	(17.8	)	$	7,076	92.2

On a pro forma basis for the three months ended June 29, 2007, we incurred a gross loss of $0.6 million compared to a gross loss of $7.7 million for the corresponding period in 2006.  The increase in gross profit of $7.1 million is primarily attributed to the $17.5 million charge against revenues and a $1.2 million credit to cost of revenues in the second quarter of 2006 related to the termination of the Conexant wafer supply agreement.  Discounting the effect of the net charge of $16.3 million associated with the termination of the Conexant wafer supply agreement, gross profit as a percent of revenues decreased to negative 1.1% for the three months ended June 29, 2007 compared to positive 14.2% for the corresponding period in 2006.  The decrease is primarily attributable to lower revenues and higher cost of revenues associated with lower capacity utilization during the three months ended June 29, 2007.

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Operating Expenses

Operating expenses increased to $8.6 million for the three months ended June 29, 2007, compared to $0.1 million for the corresponding period in 2006.  The expense increase is attributed to the acquisition of Jazz on February 16, 2007.

Pro forma Operating Expenses

The following table presents pro forma operating expenses for the three months ended June 29, 2007 and June 30, 2006:

	Pro Forma Operating Expense (in thousands, except percentages)
	Three Months Ended			Three Months Ended
	June 29, 2007			June 30, 2006
			% of Net			% of Net	Increase			%
	Amount		Revenues	Amount		Revenues	(Decrease)			Change
Research and development	$	3,734	7.1	$	5,455	12.6	$	(1,721	)	(31.5	)
Selling, general and administrative	4,533		8.7	5,356		12.4	(823		)	(15.4	)
Amortization of intangible assets	378		0.7	132		0.3	246			186.4
Total operating expenses	$	8,645	16.5	$	10,943	25.3	$	(2,298	)	(21.0	)

On a pro forma basis, operating expenses decreased by $2.3 million to $8.6 million for the three months ended June 29, 2007, compared to $10.9 million for the corresponding period in 2006.  The expense decrease is mainly attributed to lower research and development expenses for the three months ended June 29, 2007.

Research and Development Expenses.  Research and development expenses consist primarily of salaries and wages for process and technology research and development activities, fees incurred in connection with the license of design libraries and the cost of wafers used for research and development purposes.  Pro forma research and development expenses decreased by $1.7 million to $3.7 million for the three months ended June 29, 2007, compared to $5.5 million for the corresponding period in 2006.  The decrease in expenses of $1.7 million is mainly attributed to:

·$0.7 million of lower engineering expenses related to the PolarFab process qualification in 2006;

·$0.2 million decrease in labor and benefits costs realized from the reduction in work force implemented in the first quarter of 2007 and lower bonus expense;

·$0.5 million lower spending on software licensing, outside services and engineering masks;

·$0.5 million lower depreciation expense; offset by,

·$0.2 million increase associated with the cancellation of the stock appreciation rights in the second quarter of 2006.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses consist primarily of salaries and benefits for selling and administrative personnel, including the human resources, executive, finance and legal departments. These expenses also include fees for professional services, legal services and other administrative expenses associated with being a publicly traded company. Pro forma selling, general and administrative expenses decreased by $0.8 million to $4.5 million for the three months ended June 29, 2007, compared to $5.4 million for the corresponding period in 2006.  The decrease in expenses of $0.8 million is mainly attributed to:

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·$0.7 million decrease in labor and benefits costs realized from the reduction in work force implemented in the first quarter of 2007 and lower bonus expenses;

·$0.5 million reduction in bad debt cost;

·$0.3 million in lower professional, legal and other miscellaneous costs; offset by

·$0.7 million increase in expenses associated with stock compensation expense and the cancellation of the stock appreciation rights.

The increase of amortization of intangible assets of $0.2 million reflects the change in pre-acquisition amortization expenses.

Interest and Other Income (Expense), Net

The following table presents interest and other income for the three months ended June 29, 2007 and June 30, 2006:

	Interest and Other Income (Expense), Net  (in thousands, except percentages)
	Three Months Ended				Three Months Ended
	June 29, 2007				June 30, 2006
				% of Net			% of Net	Increase			%
	Amount			Revenues	Amount		Revenues	(Decrease)			Change
Interest and other income	$	489		0.9	$	1,451	—	$	(962	)	(66.3	)
Interest expense	(3,783		)	7.2	—		—	3,783			—
Interest and other income (expense), net	$	(3,294	)	6.3	$	1,451	—	$	(4,745	)	(327.0	)

Interest and other income for the three months ended June 30, 2006 mainly represents interest earned on the net proceeds of our initial public offering held in trust until the consummation of our initial acquisition in February 2007. Interest expense for the three months ended June 29, 2007 mainly represents interest on our convertible senior notes issued in December 2006.

Comparison of Six Months Ended June 29, 2007 and June 30, 2006

Revenues

Prior to our acquisition of Jazz, we had no revenues.

Pro Forma Net Revenues

The following table presents pro forma net revenues for the six months ended June 29, 2007 and June 30, 2006:

	Pro Forma Net Revenues (in thousands, except percentages)
	Six Months Ended			Six Months Ended
	June 29, 2007			June 30, 2006
			% of Net			% of Net	Increase			%
	Amount		Revenues	Amount		Revenues	(Decrease)			Change
Specialty process revenues	$	78,952	78.6	$	79,728	80.5	$	(776	)	(1.0	)
Standard process revenues	21,505		21.4	19,331		19.5	2,174			11.2
Net revenues	$	100,457	100.0	$	99,059	100.0	$	1,398		1.4

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On a pro forma basis, we posted an increase in net revenues of $1.4 million or 1.4% from $99.1 million for the six months ended June 30, 2006, which includes a charge against revenues of $17.5 million in connection with the termination of the Conexant wafer supply agreement, to $100.5 million for the corresponding period in 2007. This increase is the net result of a marginal decrease in specialty process revenues of $0.8 million or 1.0% from $79.7 million for the six months ended June 30, 2006 to $79.0 million for the corresponding period in 2007 and an increase in standard process revenues of $2.2 million from $19.3 million for the six months ended June 30, 2006, to $21.5 million for the corresponding period in 2007.  The standard process revenues for the six months ended June 30, 2006 include a charge against revenues of $17.5 million in connection with the termination of the Conexant wafer supply agreement.  Excluding this charge, standard process revenues for the six months ended June 30, 2006 were $36.8 million compared to $21.5 million for the corresponding period in 2007, a decline of $15.3 million or 41.6%.

The declining trend in pro forma standard process revenues year over year can similarly be attributed to the semiconductor industry cycle in general and specifically to reduced business from a single customer, whose purchases of Jazz products have predominantly been standard process wafers. Given the relative economics of the industry and excess inventory levels at this customer, our standard process revenues were disproportionately impacted during the first half of this year. While revenues from Jazz’s standard process technologies have declined over the past several quarters as our customers transition new standard process designs to foundries that focus on high volume, commodity oriented technologies and pricing, we expect to see standard process revenues stabilize or grow moderately as the market strengthens and the semiconductor industry comes out of its cyclical correction.

The change in pro forma revenues mix of 79% specialty process revenues and 21% standard process revenues for the six months ended June 29, 2007 compared to 68% and 32%, respectively, for the corresponding period in 2006, not including the effect of the $17.5 million charge against revenues in connection with the termination of the Conexant wafer supply agreement, was mainly the result of a drop in standard process revenues which was primarily attributable to a single customer. While we intend to continue to offer full service solutions to our customer base, we believe our competitive advantage is to focus on specialty process revenues.

Cost of Revenues

Prior to our acquisition of Jazz, we had no cost of revenues.

Pro Forma Cost of Revenues

The following table presents pro forma cost of revenues for the six months ended June 29, 2007 and June 30, 2006:

	Pro Forma Cost of Revenues (in thousands, except percentages)
	Six Months Ended			Six Months Ended
	June 29, 2007			June 30, 2006
			% of Net			% of Net	Increase			%
	Amount		Revenues	Amount		Revenues	(Decrease)			Change
Cost of revenues (not including depreciation a& amortization of intangible assets)	$	85,894	85.5	$	86,618	87.5	$	(724	)	(0.8	)
Cost of revenues – depreciation & amortization of intangible assets	18,691		18.6	17,566		17.7	1,125			6.4
Net cost of revenues	$	104,585	104.1	$	104,184	105.2	$	401		0.4

On a pro forma basis, cost of revenues increased by $0.4 million or 0.4% to $104.6 million for the six months ended June 29, 2007, compared to $104.2 million for the corresponding period in 2006. As a percentage of revenues, pro forma cost of revenues for the six months ended June 29, 2007 marginally declined compared to the corresponding period last year.  This decrease was primarily attributed to the $17.5 million charge against revenues and a $1.2 million credit to cost of revenues in the second quarter of 2006 related to the termination of the Conexant wafer supply agreement.  Discounting the effect of the net charge of $16.3 million associated with the termination of the Conexant wafer supply agreement, cost of revenues as a percent of revenues increased to 104.1% for the six

26

months ended June 29, 2007 compared to 90.4% for the corresponding period in 2006.  The increase in cost of revenues is mainly due to lower fabrication capacity utilization during the first half of 2007. The lower capacity utilization is the direct result of market conditions and reduction in customer demand. Declining wafer volume fabrication during the last three quarters resulted in a greater allocation of fixed production costs to inventory resulting in increased cost per unit sold and correspondingly, increased cost of revenues.

The amortization of acquired technology, trade name and backlog has been allocated to cost of revenues and primarily relates to the developed technology acquired from the acquisition of Jazz on February 16, 2007.  Net depreciation expense also increased by $1.1 million due to additional capital expenditures associated with the expansion of the Newport Beach fabrication capacity in 2006.

Gross Profit (Loss)

Prior to our acquisition of Jazz, we had no gross profit.

Pro Forma Gross Profit (Loss)

The following table presents pro forma gross profit (loss) for the six months ended June 29, 2007 and June 30, 2006:

	Pro Forma Gross Profit (Loss) (in thousands, except percentages)
	Six Months Ended					Six Months Ended
	June 29, 2007					June 30, 2006
				% of Net					% of Net		Increase		%
	Amount			Revenues		Amount			Revenues		(Decrease)		Change
Gross profit (loss)	$	(4,128	)	(4.1	)	$	(5,125	)	(5.2	)	$	997	19.5

On a pro forma basis for the six months ended June 29, 2007, we incurred a gross loss of $4.1 million compared to a gross loss of $5.1 million for the corresponding period in 2006.  The increase in gross profit of $1.0 million is primarily attributed to the $17.5 million charge against revenues and a $1.2 million credit to cost of revenues in the second quarter of 2006 related to the termination of the Conexant wafer supply agreement.  Discounting the effect of the net charge of $16.3 million associated with the termination of the Conexant wafer supply agreement, gross profit as a percent of revenues decreased to negative 4.1% for the six months ended June 29, 2007 compared to positive 9.6% for the corresponding period in 2006.  The decrease is primarily attributable to lower revenues and higher cost of revenues associated with lower capacity utilization during the six months ended June 29, 2007.

Operating Expenses

Operating expenses increased to $19.2 million for the six months ended June 29, 2007, compared to $0.2 million for the corresponding period in 2006.  The increase in expenses is attributed to the acquisition of Jazz on February 16, 2007.

Pro forma Operating Expenses

The following table presents pro forma operating expenses for the six months ended June 29, 2007 and June 30, 2006:

27

	Pro Forma Gross Profit (Loss) (in thousands, except percentages)
	Six Months Ended			Six Months Ended
	June 29, 2007			June 30, 2006
			% of Net			% of Net	Increase			%
	Amount		Revenues	Amount		Revenues	(Decrease)			Change
Research and development	$	8,713	8.7	$	10,677	10.7	$	(1,964	)	(18.4	)
Selling, general & administrative	14,772		14.7	10,785		10.9	3,987			37.0
Amortization of intangible assets	919		0.9	760		0.8	159			20.9
Total operating expenses	$	24,404	24.3	$	22,222	22.4	$	2,182		9.8

On a pro forma basis, operating expenses increased by $2.2 million to $24.4 million for the six months ended June 29, 2007, compared to $22.2 million for the corresponding period in 2006.  The increase was mainly attributed to increased selling, general and administrative expenses offset by lower research and development expenses.

Research and Development Expenses.  Pro forma research and development expenses decreased by $2.0 million to $8.7 million for the six months ended June 29, 2007, compared to $10.7 million for the corresponding period in 2006.  The decrease in expenses of $2.0 million is mainly attributed to:

·$1.1 million of lower engineering expense related to the PolarFab process qualification in 2006;

·$0.6 million lower spending on software licensing and other miscellaneous outside services;

·$0.9 million lower depreciation expenses; and

·$0.3 million lower spending on engineering masks; offset by

·$0.5 million increase in other research and development expenditures as lower costs were allocated to cost of revenues associated with billable engineering services during the six months ended June 30, 2007 compared to the corresponding period in 2006; and

·$0.4 million increase in costs of wafers used in research and development.

Selling, General and Administrative Expenses.  Pro forma selling, general and administrative expenses increased by $4.0 million to $14.8 million for the six months ended June 29, 2007, compared to $10.8 million for the corresponding period in 2006.  The expense increase of $4.0 million is mainly attributed to

·$3.0 million increase in acquisition-related expenses incurred by Jazz prior to the acquisition; and

·$1.3 million increase in additional expenses associated with the reduction in personnel and the departure of former chief executive office of Jazz announced earlier this year; offset by

·$0.3 million reduction in bad debt expense.

The increase of amortization of intangible assets of $0.2 million reflects the change in pre-acquisition amortization expense.

Interest and Other Income (Expense), Net

The following table presents interest and other income for the six months ended June 29, 2007 and June 30, 2006:

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	Interest and Other Income (Expense), Net  (in thousands, except percentages)
	Six Months Ended					Six Months Ended
	June 29, 2007					June 30, 2006
				% of Net					% of Net	Increase			%
	Amount			Revenues		Amount			Revenues	(Decrease)			Change
Interest and other income	$	2,618		3.5		$	1,669		—	$	949		56.9
Interest expense	(7,498		)	(10.0	)	(2		)	—	7,496			—
Interest and other income (expense), net	$	(4,880	)	(6.5	)	$	1,667		—	$	(6,547	)	(392.7	)

Interest and other income for the six months ended June 29, 2007 mainly represents interest earned on the net proceeds of our initial public offering and the private placement of our convertible senior notes for the period from January 1, 2007 through the date of the acquisition. Interest expense for the six months ended June 29, 2007 mainly represents interest on our convertible senior notes issued in December 2006. Interest and other income for the six months ended June 30, 2006 mainly represents interest earned on the net proceeds of our initial public offering held in trust until the consummation of our initial acquisition in February 2007.

Changes in Financial Condition

Liquidity and Capital Resources

As of June 29, 2007, we had cash and cash equivalents of $22.7 million and short-term investments in marketable securities of $9.8 million.  Additionally, as of June 29, 2007, we had $58.1 million of availability on our line of credit with Wachovia.  As of December 31, 2006, prior to the merger with Jazz, we had cash and cash equivalents of $0.6 million and cash held in trust and escrow accounts of $334.5 million.

Net cash used by operating activities was $12.8 million during the first six months of 2007.  The primary categories of operating activities for the six months ended June 29, 2007 include our net loss of $24.4 million, non-cash operating expenses of $19.9 million and the net use of funds from the changes in operating assets and liabilities of $8.3 million. Net cash provided by operating activities for the corresponding period in 2006 was $0.9 million and reflected the result of net changes in operating assets and liabilities.

Net cash provided by investing activities was $110.3 million for the first six months of 2007 and primarily represented the acquisition of Jazz.  On February 16, 2007, we completed the acquisition of all of the outstanding capital stock of Jazz for a net adjusted purchase price of $236.3 million in cash (net of $26.1 million of cash that was acquired) which was paid for by the release of $334.5 million held in trust and escrow accounts that represented the proceed of our initial public offering and the convertible note private placement in December 2006.  Capital purchases of equipment were $2.3 million for the first six months of 2007.  We also received net proceeds of $14.4 million from the sale of short term investments, net of purchases, during the first six months of 2007. Net cash used by investing activities for the corresponding period in 2006 was $165.5 million and represented investment of the proceeds of our initial public offering into a trust account.

Net cash used by financing activities was $75.4 million for the first six months of 2007 and represents a combination of $33.2 million of payments to common stockholders who elected to convert their shares into cash in connection with our initial public offering and $32.2 million of funds used to repurchase common stock, warrants, units and unit purchase options during the first half of 2007.  In addition, funds were also used for the payment of fees of $10.1 million associated with the acquisition and the debt offering. Net cash provided by financing activities for the corresponding period in 2006 was $165.2 million and primarily represented the proceeds of our initial public offering.

On January 11, 2007, we announced that the Board authorized a stock and warrant repurchase program under which we may purchase up to $50 million of our common stock and warrants through July 15, 2007. On July 17, 2007, this program was extended until October 15, 2007.  Repurchases may be made from time to time on the open market at prevailing market prices or in privately negotiated transactions.  Depending on market conditions and other factors, purchases under this program may be commenced or suspended at any time, or from time to time, without prior notice.  As of June 29, 2007, we had repurchased 3,457,761 shares of our common stock (including shares repurchased as part of our units), 18,384,448 of our warrants (including warrants repurchased as part of our units) and 437,500 unit purchase options under this program for an aggregate of $32.2 million.

As of June 29, 2007 and June 30, 2006, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or

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limited purposes.  As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

We believe, based on our current plans and current levels of operations, that our cash from operations, together with cash and cash equivalents, short-term investments and available line of credit, will be sufficient to fund our operations for at least the next 12 months.  Poor financial results, unanticipated expenses, acquisitions of technologies or businesses or strategic investments could give rise to additional financing requirements sooner than we would expect.  We may elect to raise funds for these purposes through debt or equity transactions as appropriate.  There can be no assurances that equity or debt financing will be available when needed or, if available, that the financing will be on terms satisfactory to us and not dilutive to our then current stockholders. We intend to continue to invest our cash in excess of current operating requirements in interest-bearing, investment-grade securities. 

Lease of Facilities

We lease our headquarters and Newport Beach, California fabrication and probing facilities from Conexant Systems, Inc. under non-cancelable operating leases through March 2017.  We have the option to extend the terms of each of these leases for two consecutive five-year periods.  Our rental payments under these leases consist solely of our pro rata share of the expenses incurred by Conexant in the ownership of these buildings.  We have estimated future minimum costs under these leases based on actual costs incurred during 2006 and applicable adjustments for increases in the consumer price index.  We are not permitted to sublease space that is subject to these leases without Conexant’s prior approval.

Convertible Senior Notes

On December 19, 2006 and December 21, 2006, we completed private placements of $166.8 million aggregate principal amount of 8% convertible senior notes due 2011 (the “Convertible Senior Notes”).  The Convertible Senior Notes bear interest at a rate of 8% per annum payable semi-annually on each June 30 and December 31, beginning on June 30, 2007.  We may redeem the Convertible Senior Notes on or after December 31, 2009 at agreed upon redemption prices, plus accrued and unpaid interest.  The holders of the Convertible Senior Notes have the option to convert the Convertible Senior Notes into shares of our common stock at an initial conversion rate of 136.426 shares per $1,000 principal amount of Convertible Senior Notes, subject to adjustment in certain circumstances, which is equivalent to an initial conversion price of $7.33 per share.

Wachovia Line of Credit

On February 28, 2007, we entered into an amended and restated loan and security agreement, as parent guarantor, with Wachovia Capital Markets, LLC, as lead arranger, bookrunner and syndication agent, and Wachovia Capital Finance Corporation (Western), as administrative agent (“Wachovia”), and Jazz and Newport Fab, LLC, as borrowers, with respect to a three-year senior secured asset-based revolving credit facility in an amount of up to $65 million. The maturity date of the facility is February 28, 2010, unless earlier terminated. Borrowing availability under the facility as of June 29, 2007 was $58.1 million.  As of June 29, 2007, we had zero borrowings outstanding and $1.3 million in letters of credit committed under the facility.

Acquisition Contingent Payments

As part of the acquisition of Jazz, we acquired a 10% interest in HHNEC (Shanghai Hau Hong NEC Electronics Company, Ltd.). The investment is carried at $19.3 million which is the fair value based upon the application of the purchase method of accounting.  We are obligated to pay additional amounts to former stockholders of Jazz if we realize proceeds in excess of $10 million from a liquidity event during the three year period following the completion of the acquisition of Jazz. In that event, we will pay the former Jazz stockholders an amount equal to 50% of the proceeds over $10 million.

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Royalty Obligations

We have agreed to pay to Conexant Systems, Inc. a percentage of our gross revenues derived from the sale of SiGe products to parties other than Conexant and its spun-off entities through March 2012.  Under our technology license agreement with Polar Semiconductor, Inc., or PolarFab, we have also agreed to pay PolarFab certain royalty payments based on a decreasing percentage of revenues from sales of devices manufactured for PolarFab’s former customers.

Leases

We also have commitments consisting of software leases and facility and equipment licensing arrangements.

Future minimum payments under non-cancelable operating leases as of June 29, 2007 are as follows:

	Payment Obligations by Year
	Remainder of 2007		2008		2009		2010		Thereafter		Total
	(in thousands)
Operating leases	$	1,304	$	2,520	$	2,375	$	2,300	$	14,259	$	22,758

Item 3.                    Quantitative and Qualitative Disclosures About Market Risk.

Our market risk exposures are related to our cash, cash equivalents and investments in marketable securities.  We invest our excess cash in highly liquid short-term investments, municipal securities, commercial paper and corporate bonds.  These investments are not held for trading or other speculative purposes.  Changes in interest rates affect the investment income we earn on our investments and therefore impact our cash flows and results of operations. 

Item 4.                    Controls and Procedures.

Disclosure Controls and Procedures

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this report.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and our chief executive officer and our chief financial officer have concluded that these controls and procedures are effective at the “reasonable assurance” level. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes In Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II — OTHER INFORMATION

Item 1A. Risk Factors.

In addition to the other information contained in this Form 10-Q, and risk factors set forth in our most recent SEC filings, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. Additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations.

The risk factors included herein include any material changes to the risk factors associated with our business previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and Item 1A to Part II of our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2007 and should be considered in conjunction with the additional risk factors disclosed in those Reports filed with the Securities and Exchange Commission.

Risks Related to Our Business and Industry

If we are unable to obtain raw materials in a timely manner, our production schedules could be delayed and we may lose customers.

We depend on our suppliers of raw materials. To maintain competitive manufacturing operations, we must obtain from our suppliers, in a timely manner, sufficient quantities of materials at acceptable prices.  We attempt to maintain approximately a six week supply of silicon wafer inventory at our fab, but the specific mix of silicon wafers that we maintain in inventory may not be consistent with the mix of silicon wafers that we need to fulfill specific customer orders at any given time.  Significant increases in demand for polysilicon from manufacturers of wafers for use in solar energy cells has led to increases in silicon wafer market prices, and we believe upward pricing pressure due to further increases in demand is likely to continue. As a result, we may experience difficulties in sourcing our silicon wafer needs or experience significant increases in silicon wafer costs in the future.

Although we source most of our raw materials from several suppliers, we rely on single-source suppliers for photomasks and certain photoresists used in our processes. For example, Photronics Inc. is the sole-service supplier of our photomasks. We believe it would take between ten and twelve months to qualify a new supplier if Photronics was unable or unwilling to continue as a supplier. We receive EKC 652, a chemical used in the etch process, from E.I. du Pont de Nemours and Company. DuPont is the sole producer of this chemical, and its chemistry is unique. We believe that it would take between five and six months to replace this chemical if DuPont was unable or unwilling to continue as a supplier. We do not have long-term contracts with most of our suppliers. From time to time, vendors have extended lead times or limited the supply of required materials to us because of capacity constraints. Consequently, we have experienced difficulty in obtaining the quantities of raw materials we need on a timely basis.

From time to time we may reject materials that do not meet our specifications, resulting in a decline in manufacturing or fab yields. We cannot assure you that we will be able to obtain sufficient quantities of raw materials and other supplies in a timely manner. If the supply of materials is substantially diminished or if there are significant increases in the costs of raw materials, we may not be able to obtain raw materials at all or we may be forced to incur additional costs to acquire sufficient quantities of raw materials to sustain our operations, which may increase our marginal costs, reduce profitability and lead to a loss of customers.

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

Repurchases of Equity Securities

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ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Securities Purchased	Average Price Paid per Security	Total Number of Securities Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value  of Shares that May Yet Be Purchased Under the Program as of the End of the Specified Period
3/31/07 - 4/27/07	Warrants 4,580,100	Warrants $0.80	Shares 2,334,761 Warrants 16,533,359	$21.2 million
4/28/07 - 5/25/07	Warrants 173,000	Warrants $0.48	Shares 2,334,761 Warrants 16,706,359	$21.1 million
5/26/07 - 6/29/07	Warrants 678,089 Units* 500,000 UPO** 437,500	Warrants $0.62 Units* $4.36 UPO** $1.68	Shares 2,334,761 Warrants 17,384,448 Units* 500,000 UPO** 437,500	$17.8 million
Total	Warrants 5,431,139 Units* 500,000 UPO** 437,500	Warrants $0.77 Units* $4.36 UPO** $1.68	Shares 2,957,761 Warrants 17,384,448 Units* 500,000 UPO** 437,500	$17.8 million

* Each unit issued includes one share of common stock and two redeemable common stock purchase warrants.

** Each UPO consists of an option to purchase one share of common stock and two redeemable common stock purchase warrants.

Item 4.                    Submission of Matters to a Vote of Security Holders.

We held our Annual Meeting of Stockholders on June 13, 2007.  At the meeting, stockholders re-elected current directors Jon C. Madonna and Harold L. Clark, Ed.D.  Stockholders also ratified the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the current fiscal year.  As certified by the duly appointed and sworn inspector of elections:

There were present at said meeting, in person or by proxy, stockholders holding 20,411,604 shares of common stock, equal to 85.20% of all such shares outstanding and entitled to vote, which constituted a quorum for the conduct of business at the meeting.

The vote on the election of the two nominees to serve as members of the Board until the 2010 Annual Meeting of Stockholders and until their successors have been duly elected and qualified was:

	For	Withheld
Harold L. Clark	20,391,271	20,333
Jon C. Madonna	20,076,304	335,300

The vote on the ratification of the appointment of Ernst & Young, LLP, as the Company’s independent registered public accounting firm for the Company’s fiscal year ending December 28, 2007 was 20,406,304 votes for to 5,100 votes against with 200 votes abstaining.

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Item 6.                    Exhibits.

Number	Description
10.1	Form of Change of Control Agreement between the Registrant and certain of its executive officers.
10.2	Form of Indemnity Agreement between the Registrant and each of its directors and executive officers.
10.3	Form of Restricted Stock Bonus Award Agreement.
31.1	Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	JAZZ TECHNOLOGIES, INC.
Date: August 13, 2007	By:	/s/ Gilbert F. Amelio
		Gilbert F. Amelio Chairman and Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Paul A. Pittman
		Paul A. Pittman Executive Vice President and, Chief Financial and Administrative Officer (Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS

Number	Description
10.1	Form of Change of Control Agreement between the Registrant and certain of its executive officers.
10.2	Form of Indemnity Agreement between the Registrant and each of its directors and executive officers.
10.3	Form of Restricted Stock Bonus Award Agreement.
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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EX-10.1

Exhibit 10.1

CHANGE OF CONTROL AGREEMENT

This Change of Control Agreement (the “Agreement”) is made and entered into by and between Jazz Technologies, Inc., a Delaware corporation (the “Company”) and                            (the “Executive”), effective as of the      day of              , 2007 (“Date of this Agreement”).

The Board of Directors of the Company (the “Board”), has determined that it is in the best interests of the Company and its shareholders to enter into this Change of Control Agreement to induce the Executive to remain in the employ of the Company and to diminish the distraction of the Executive by virtue of the personal uncertainties and risks created by a pending, potential or threatened Change of Control (as defined below).  The Board desires to encourage the Executive’s full attention and dedication to the Company currently and in the event of any potential, threatened or pending Change of Control. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1.  Definitions

1.1  Change of Control. A “Change of Control” means the occurrence of any of the following events:

(a)  The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more (the “Triggering Percentage”) of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not be counted in calculating whether a Change of Control has occurred: (i) any acquisition directly from the Company, including any acquisition by virtue of a conversion privilege where the security being so converted was itself acquired directly from the Company exercising the conversion privilege (provided, however, that an acquisition by virtue of a conversion privilege where the security being so converted was acquired by the Person exercising the conversion privilege other than directly from the Company shall be counted in calculating whether a Change of Control has occurred), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 1.1; and further provided that, for purposes of this subsection (a),  if a Person acquires beneficial ownership of the Triggering Percentage and subsequently disposes of sufficient ownership that such Person no longer has beneficial ownership of the Triggering Percentage, then from and after the date of such subsequent disposition, a Change of Control shall no longer be deemed to have occurred with respect to the initial acquisition by such Person of beneficial ownership of the Triggering Percentage; or

(b)  A change in the composition of the Board such that the individuals who, as of the date of this Agreement, constitute the Board (such Board shall be hereinafter referred to as the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that for purposes of this definition, any individual who becomes a member of the Board subsequent to the date of this Agreement whose election, or nomination for election by the Company’s stockholders, was approved by a

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vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this provision) shall be considered as though such individual were a member of the Incumbent Board; and provided further, however, that any such individual whose initial assumption of office occurs as a result of or in connection with either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or

(c)  Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or of such corporation resulting from such Business combination) beneficially owns, directly or indirectly, 20% or more, of, respectively, the then outstanding share of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(d)  Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

1.2  “Cause” to terminate Executive’s employment shall mean any of the following: (i)  Executive’s conviction of, or guilty plea with respect to, or a plea of nolo contendere to, a charge that Executive has committed a felony under the laws of the United States or of any state; (ii) willful and material breach of Executive’s obligations under any written agreement between Executive and the Company; (iii) Executive’s willful misconduct, material failure or refusal to perform his job duties, or gross neglect of his duties, provided that such unsatisfactory performance, if reasonably susceptible of cure, has not been cured within thirty (30) days following Executive’s receipt of written notice from the Company specifying the particulars of the conduct constituting Cause; and (iv) Executive’s engagement in any activity that constitutes a material conflict of interest with the Company or any of its affiliated entities.  Termination of Executive’s employment because of Executive’s death or certified disability (which disability renders Executive unable to perform the essential duties of his position with or without reasonable accommodation for sixty (60) consecutive days or a total of one hundred and twenty (120) days in any twelve (12) month period) shall not constitute “Cause” for termination.  No act, nor failure to act, on the Executive’s part, shall be considered “willful” unless Executive has acted or failed to act, with an absence of good faith

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and without a reasonable belief that Executive’s action or failure to take action was in the best interests of the Company.

1.3  “Good Reason” means:

(i) the assignment to Executive of any duties inconsistent in any respect with Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities, as in effect immediately prior to a Change-in-Control, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive;

(ii) any reduction in Executive’s annual base salary as in effect immediately before the Change-in-Control,

(iii) the failure to pay Executive incentive compensation to which Executive is otherwise entitled at the time at which such awards are usually paid or as soon thereafter as administratively feasible, unless the failure to pay the incentive compensation is because of failure to meet objectives based on quantitative performance;

(iv) the provision to Executive of an opportunity to earn a target annual bonus or a target performance award substantially less in amount than Executive’s target opportunities in effect immediately before the Change-in-Control for the then current fiscal year of the Company;

(v) the failure by the Company to continue in effect any equity incentive plan in which Executive participated immediately prior to the Change-in-Control, unless a substantially equivalent alternative compensation arrangement (embodied in an ongoing substitute or alternative plan) has been provided to Executive, or the failure by the Company to continue Executive’s participation in any such equity incentive plan on substantially the same basis, both in terms of the amount of benefits provided and the level of Executive’s participation relative to other participants, as existed immediately prior to the Change-in-Control;

(vi) Except as required by law, the failure by the Company to continue to provide to Executive employee benefits substantially equivalent, in the aggregate, to those enjoyed by Executive under the qualified and nonqualified employee benefit and welfare plans of the Company, including, without limitation, the 401(k), life insurance, medical, dental, health and accident, disability, retirement and savings plans, in which Executive was eligible to participate immediately prior to the Change-in-Control, or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled under the Company’s vacation policy immediately prior to the Change-in-Control.

(vii) the Company’s requiring Executive to be based at any office or location other than the principal place of Executive’s employment in effect immediately prior to the Change-in-Control or that is more than 35 miles distant from the location of such principal place of employment, or the Company’s requiring Executive to travel on Company business to a substantially greater extent than required immediately prior to the Change-in-Control;

(viii)  any failure by the Company to comply with Section 8, Successors.

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2.  Entitlement to Benefits

If Executive’s employment with the Company is terminated during the one-year period beginning on the date of a Change in Control either (a) by the Company for any reason or no reason, other than for Cause; or (b) by Executive, due to Good Reason, Executive will be entitled to receive the benefits described in Section 3 (the “Change of Control Benefits”), provided Executive executes within forty-five (45) days following termination (and does not subsequently revoke) a release of all employment-related claims against the Company and its subsidiaries and affiliates existing as of the date of execution, in the then current reasonable standard form used by the Company without material modification, addition or deletion. If Executive dies after becoming entitled to the Change of Control Benefits but before receiving payment, the Change of Control Benefits will be paid to Executive’s estate or beneficiary(ies), as applicable.

3.  Change of Control Benefits

Change of Control Benefits consist of the following:

(a)  Separation Pay.  A lump sum payment of __ times the amount of Executive’s annual base pay in effect on the date of termination of employment, or the date of the Change-in-Control if higher, paid within 60 days after termination of employment.

(b) Incentive Pay. A lump sum payment equal to __ times any target annual cash bonus, target cash performance award or target equivalent cash bonus program in effect for the calendar year in which termination of employment occurred, paid within 60 days after termination of employment.

(c)  Vesting.  Immediate and accelerated vesting upon termination of employment of all stock options and other equity arrangements subject to vesting, and release of any repurchase options or restrictions on shares of restricted stock and/or equity interests, in each case only to the extent that such equity awards would otherwise be regularly scheduled to vest or be released from repurchase options or restrictions within forty-eight (48) months following termination of employment.

(d)  COBRA.  To the extent provided by the federal COBRA law or, if applicable, state insurance laws (collectively, “COBRA”) and by the Company’s then-current group health insurance policies, provided Executive timely elects continued health insurance coverage pursuant to the governing COBRA laws and the terms of the applicable health insurance plans, as a further severance benefit, the Company will pay directly to the applicable insurance carrier all COBRA premiums necessary to continue Executive’s health insurance coverage as of date of termination of employment (including dependent coverage, if applicable) in effect for up to eighteen (18) months after the date of termination of employment (or such earlier date on which Executive is no longer eligible for COBRA coverage (the “COBRA Reimbursement”).

In all cases, to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other accrued but unpaid wages and vested benefits that are due to Executive by the Company or its affiliates promptly following termination of employment.

4.  Non-exclusivity of Rights.

Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, shall anything herein limit

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or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to termination of employment shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

5.  Full Settlement.

Any severance benefits that are payable to Executive under this Agreement in connection with Executive’s termination of employment shall be deemed paid in satisfaction of, and shall offset any obligations by the Company pursuant to, any applicable legal requirement, including, without limitation, the Worker Adjustment and Retraining Notification Act, the California Plant Closing Act, or any other similar state law.  In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and, except with respect to COBRA Reimbursement, such amounts shall not be reduced whether or not the Executive obtains other employment.

6. Limitation on Payments.

In the event that the benefits provided for in this Agreement or otherwise payable to the Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then the Change of Control Benefits shall be payable either:

(a) in full, or

(b) as to such lesser amount which would result in no portion of such benefits being subject to excise tax u nder Section 4999 of the Code,

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Executive on an after-tax basis, of the greatest amount of Change of Control Benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. Unless the Company and the Executive otherwise agree in writing, any determination required under this Section 6 shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes. For purposes of making the calculations required by this Section 6, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on rea sonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 6.

7.  Section 409A.

The Company believes that the terms of this Agreement satisfy the provisions of Treasury Regulation 1.409A-1(b)(4) and (9)(v) and therefore no delay in payment of the severance is required pursuant to Treasury Regulation 1.409A-1(c)(3)(v).  However, Executive acknowledges and agrees that the Company has not provided Executive with any tax advice

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regarding this Agreement, that Executive is not relying on the Company for any such tax advice, and that Executive has been advised to consult with his own tax, financial planning and legal counsel regarding this Agreement.

8.  Successors.

(a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b)  This Agreement shall inure to the benefit of and be binding upon the Company and its successors and/or assigns.

(c)  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets by operation of law, or otherwise, including without limitation any successor as aforesaid which the Company is required to have assume and agree to perform this Agreement.

 9.  Dispute Resolution.

To ensure the rapid and economical resolution of disputes that may arise in connection with this Agreement, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to the enforcement, breach, performance, execution or interpretation of this Change of Control Agreement shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration conducted in Newport Beach, California by a single arbitrator with JAMS (formerly known as “Judicial Arbitration and Mediation Services”), or its successor, under the then-applicable JAMS’ arbitration rules.  Executive acknowledges that by agreeing to this arbitration procedure, both Executive and the Company are waiving the right to resolve any such dispute through a trial by jury or judge or administrative proceeding.  The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award.  The arbitrator shall be authorized to determine if an issue is subject to this arbitration obligation, and to award any or all remedies that Executive or the Company would be entitled to seek in a court of law.  The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof.  The Company shall pay all JAMS’ arbitration fees.

10.  At-Will Employment

Nothing contained in this Agreement shall (a) confer upon Executive any right to continue in the Company’s employ; (b) constitute a contract or agreement of employment between Company and Executive; or (c) interfere with or change in any manner the nature of Executive’s at-will employment with the Company.

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11.  Miscellaneous.

(a)  Notices.  Any notices provided hereunder must be in writing and shall be deemed to be received upon the earlier of personal delivery (including, personal delivery by facsimile transmission), delivery by express delivery service (e.g. Federal Express), or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at the most current home address as listed on the Company payroll (which address may be changed by written notice).

(b)  Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but such invalid, illegal or unenforceable provision will be reformed, construed and enforced in such jurisdiction so as to render it valid, legal, and enforceable consistent with the intent of the parties insofar as possible.

(c)  Waiver.  Any waiver of any right hereunder must be in evidenced in a writing signed by the waiving party to be effective, and any such waiver shall not be construed to be a waiver of any preceding or succeeding breach of the same or any other provision of this Agreement.

(d)  Entire Agreement.  This Agreement constitutes the entire agreement between Executive and the Company regarding the subject matter hereof and it supersedes any and all prior agreements, promises, representations or understandings, written or otherwise, between Executive and the Company with regard to this subject matter.  This Agreement is entered into without reliance on any agreement, or promise, or representation, other than those expressly contained or incorporated herein, and it cannot be modified or amended except in a writing signed by Executive and a duly authorized representative of the Board.

(e)  Headings and Construction.  The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof or to affect the meaning thereof.  Any ambiguities in this Agreement shall not be construed against either Party as the drafter.

(f)  Governing Law.  All questions concerning the construction, validity and interpretation of this Agreement shall be governed by the law of the State of California as applied to contracts made and to be performed entirely within California.

Counterparts.

(g)  Counterparts.  This Agreement may be executed in separate counterparts, which shall be taken together and shall constitute one agreement.  Facsimile and PDF signatures shall be as effective as originals.

(h)  The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

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IN WITNESS WHEREOF, the parties hereby enter into this Agreement as of the Date of this Agreement.

JAZZ TECHNOLOGIES, INC.

By:

Title:

Executive

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EX-10.2

Exhibit 10.2

INDEMNITY AGREEMENT

This Indemnity Agreement (“Agreement”) is made as of                        , 2007 by and between Jazz Technologies, Inc., a Delaware corporation (the “Company”), and                            (“Indemnitee”).

RECITALS

WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities.  Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions.  At the same time, directors, officers and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself.  The Certificate of Incorporation (the “Charter”) and the Bylaws of the Company require indemnification of the officers and directors of the Company.  Indemnitee may also be entitled to indemnification pursuant to applicable provisions of the Delaware General Corporation Law (“DGCL”).  The Charter, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

WHEREAS, this Agreement is a supplement to and in furtherance of the Charter, the Bylaws of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and

WHEREAS, Indemnitee does not regard the protection available under the Company’s Charter, Bylaws and insurance as adequate in the present circumstances, and may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity.  Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified;

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

1.Services to the Company.  Indemnitee will serve or continue to serve as an officer, director or key employee of the Company for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his resignation.

2.Definitions.  As used in this Agreement:

(a)References to “agent” shall mean any person who is or was a director, officer, or employee of the Company or a subsidiary of the Company or other person authorized by the Company to act for the Company, to include such person serving in such capacity as a director, officer, employee, fiduciary or other official of another corporation, partnership, limited liability company, joint venture, trust or other enterprise at the request of, for the convenience of, or to represent the interests of the Company or a subsidiary of the Company.

(b)The terms “Beneficial Owner” and “Beneficial Ownership” shall have the meanings set forth in
Rule 13d-3 promulgated under the Exchange Act (as defined below) as in effect on the date hereof.

(c)A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(i)Acquisition of Stock by Third Party.  Any  Person (as defined below) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors, unless (1) the change in the relative Beneficial Ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors, or (2) such acquisition was approved in advance by the Continuing Directors (as defined below) and such acquisition would not constitute a Change in Control under part (iii) of this definition;

(ii)Change in Board of Directors.  Individuals who, as of the date hereof,  constitute the Board, and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two thirds of the directors then still in office who were directors on the date hereof or whose election for nomination for election was previously so approved (collectively, the “Continuing Directors”), cease for any reason to constitute at least a majority of the members of the Board;

(iii)Corporate Transactions.  The effective date of a reorganization, merger or consolidation of the Company (a “Business Combination”), in each case, unless, following such Business Combination:  (1) all or substantially all of the individuals and entities who were the Beneficial Owners of securities entitled to vote generally in the election of directors immediately prior to such Business Combination beneficially own, directly or indirectly, more than 51% of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more Subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the securities entitled to vote generally in the election of directors; (2) no Person (excluding any corporation resulting from such Business Combination) is the Beneficial Owner, directly or indirectly, of 15% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation except to the extent that such ownership existed prior to the Business Combination; and (3) at least a majority of the Board of Directors of the corporation resulting from such Business Combination were Continuing Directors at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination;

(iv)Liquidation.  The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than factoring the Company’s current receivables or escrows due (or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions); or

(v)Other Events.  There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.

(d)“Corporate Status” describes the status of a person who is or was a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of the Company or of any other Enterprise (as defined below) which such person is or was serving at the request of the Company.

(e)“Delaware Court” shall mean the Court of Chancery of the State of Delaware.

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(f)“Disinterested Director” shall mean a director of the Company who is not and was not a party to the Proceeding (as defined below) in respect of which indemnification is sought by Indemnitee.

(g)“Enterprise” shall mean the Company and any other corporation, constituent  corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which the Company (or any of its wholly owned subsidiaries) is a party, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent.

(h)“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(i)“Expenses” shall include attorneys’ fees and costs, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding (as defined below).  Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding (as defined below), including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent.  Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(j)“Independent Counsel” shall mean a law firm or a member of a law firm that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent:  (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements); or (ii) any other party to the Proceeding (as defined below) giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

(k)References to “fines” shall include any excise tax assessed on Indemnitee with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

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(l)The term “Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act as in effect on the date hereof; provided, however, that “Person” shall exclude:  (i) the Company; (ii) any Subsidiaries (as defined below) of the Company; (iii) any employment benefit plan of the Company or of a Subsidiary (as defined below) of the Company or of any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company; and (iv) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Subsidiary (as defined below) of the Company or of a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(m)A “Potential Change in Control” shall be deemed to have occurred if:  (i) the Company enters into an agreement or arrangement, the consummation of which would result in the occurrence of a Change in Control; (ii) any Person or the Company publicly announces an intention to take or consider taking actions which if consummated would constitute a Change in Control; (iii) any Person who becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors increases his Beneficial Ownership of such securities by 5% or more over the percentage so owned by such Person on the date hereof; or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

(n)The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil (including intentional or unintentional tort claims), criminal, administrative or investigative nature, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action (or failure to act) taken by him or of any action (or failure to act) on his part while acting as a director or officer of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of any other Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses can be provided under this Agreement.

(o)The term “Subsidiary,” with respect to any Person, shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that Person.

3.Indemnity in Third-Party Proceedings.  The Company shall indemnify and hold harmless Indemnitee in accordance with the provisions of this Section 3 if Indemnitee was, is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses,

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judgments, liabilities, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal Proceeding, had no reasonable cause to believe that his conduct was unlawful.

4.Indemnity in Proceedings by or in the Right of the Company.  The Company shall indemnify and hold harmless Indemnitee in accordance with the provisions of this Section 4 if Indemnitee was, is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company.  No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that any court in which the Proceeding was brought or the Delaware Court shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

5.Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify and hold harmless Indemnitee against all Expenses actually and reasonably incurred by him in connection therewith.  If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify and hold harmless Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter.  If the Indemnitee is not wholly successful in such Proceeding, the Company also shall indemnify and hold harmless Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or matter related to any claim, issue, or matter on which the Indemnitee was successful.  For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

6.Indemnification For Expenses of a Witness.  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified and held harmless against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

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7.Additional Indemnification.

(a)Notwithstanding any limitation in Sections 3, 4, or 5, the Company shall indemnify and hold harmless Indemnitee if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding.  No indemnity shall be made under this Section 7(a) on account of Indemnitee’s conduct which constitutes a breach of Indemnitee’s duty of loyalty to the Company or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.

(b)Notwithstanding any limitation in Sections 3, 4, 5 or 7(a), the Company shall indemnify and hold harmless Indemnitee if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding.

8.Contribution in the Event of Joint Liability.

(a)To the fullest extent permissible under applicable law, if the indemnification and hold harmless rights provided for in this Agreement are unavailable to Indemnitee in whole or in part for any reason whatsoever, the Company, in lieu of indemnifying and holding harmless Indemnitee, shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for judgments, liabilities, fines, penalties, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have at any time against Indemnitee.

(b)The Company shall not enter into any settlement of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

(c)The Company hereby agrees to fully indemnify and hold harmless Indemnitee from any claims for contribution which may be brought by officers, directors or employees of the Company other than Indemnitee who may be jointly liable with Indemnitee.

9.Exclusions.  Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

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(a)for which payment has actually been received by or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount actually received under any insurance policy, contract, agreement, other indemnity provision or otherwise;

(b)for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or

(c)except as otherwise provided in Sections 14(e)-(f) hereof, prior to a Change in Control, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

10.Advances of Expenses; Defense of Claim.

(a)Notwithstanding any provision of this Agreement to the contrary, and to the fullest extent permitted by applicable law, the Company shall advance the Expenses incurred by Indemnitee (or reasonably expected by Indemnitee to be incurred by Indemnitee within three months) in connection with any Proceeding within ten (10) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding.  Advances shall be unsecured and interest free.  Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement.  Advances shall include any and all reasonable Expenses incurred pursuing a Proceeding to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed.  The Indemnitee shall qualify for advances, to the fullest extent permitted by applicable law, solely upon the execution and delivery to the Company of an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Charter, the Bylaws of the Company, applicable law or otherwise.  This Section 10(a) shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 9.

(b)The Company will be entitled to participate in the Proceeding at its own expense.

(c)The Company shall not settle any action, claim or Proceeding (in whole or in part) which would impose any Expense, judgment, fine, penalty or limitation on the Indemnitee without the Indemnitee’s prior written consent.

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11.Procedure for Notification and Application for Indemnification.

(a)Indemnitee agrees to notify promptly the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder.  The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement, or otherwise.

(b)Indemnitee may deliver to the Company a written application to indemnify and hold harmless Indemnitee in accordance with this Agreement.  Such application(s) may be delivered from time to time and at such time(s) as Indemnitee deems appropriate in his or her sole discretion.  Following such a written application for indemnification by Indemnitee, the Indemnitee’s entitlement to indemnification shall be determined according to Section 12(a) of this Agreement.

12.Procedure Upon Application for Indemnification.

(a)A determination, if required by applicable law, with respect to Indemnitee’s entitlement to indemnification shall be made in the specific case by one of the following methods, which shall be at the election of Indemnitee: (i) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board or (ii) by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee.  The Company promptly will advise Indemnitee in writing with respect to any determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied.  If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination.  Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any costs or Expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b)In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) hereof, the Independent Counsel shall be selected as provided in this Section 12(b).  The Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected and certifying that the Independent Counsel so selected meets the requirements of “Independent Counsel” as defined in Section 2 of this Agreement.  If the Independent Counsel is selected by the Board, the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected and certifying that the Independent Counsel so selected meets the requirements of “Independent Counsel” as defined in Section 2 of this Agreement.  In either event, Indemnitee or the Company, as the case

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may be, may, within ten (10) days after such written notice of selection shall have been received, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion.  Absent a proper and timely objection, the person so selected shall act as Independent Counsel.  If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit.  If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 11(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Delaware Court for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Delaware Court, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 12(a) hereof.  Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

(c)The Company agrees to pay the reasonable fees and expenses of Independent Counsel and to fully indemnify and hold harmless such Independent Counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

13.Presumptions and Effect of Certain Proceedings.

(a)In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 11(b) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.  Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

(b)If the person, persons or entity empowered or selected under Section 12 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within thirty (30) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have

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been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a final judicial determination that any or all such indemnification is expressly prohibited under applicable law; provided, however, that such 30-day period may be extended for a reasonable time, not to exceed an additional fifteen (15) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto.

(c)The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

(d)For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected by the Enterprise.  The provisions of this Section 13(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.

(e)The knowledge and/or actions, or failure to act, of any other director, officer, trustee, partner, managing member, fiduciary, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

14.Remedies of Indemnitee.

(a)In the event that (i) a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses, to the fullest extent permitted by applicable law, is not timely made pursuant to Section 10 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 12(a) of this Agreement within thirty (30) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5, 6, 7 or the last sentence of Section 12(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) a contribution payment is not made in a timely manner pursuant to Section 8 of this Agreement, or (vi) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee

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shall be entitled to an adjudication by the Delaware Court to such indemnification, contribution or advancement of Expenses.  Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association.  Except as set forth herein, the provisions of Delaware law (without regard to its conflict of laws rules) shall apply to any such arbitration.  The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b)In the event that a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 14 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination.  In any judicial proceeding or arbitration commenced pursuant to this Section 14, Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 12(a) of this Agreement adverse to Indemnitee for any purpose.  If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 14, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 10 until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).

(c)If a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 14, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d)The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(e)The Company shall indemnify and hold harmless Indemnitee to the fullest extent permitted by law against all Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company’s receipt of such written request) advance to Indemnitee, to the fullest extent permitted by applicable law, such Expenses which are incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee (i) to enforce his rights under, or to recover damages for breach of, this Agreement or any other indemnification, advancement or contribution agreement or provision of the Charter, or the Company’s Bylaws now or hereafter in effect; or (ii) for recovery or advances under any insurance policy maintained by any person for the benefit of Indemnitee, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance, contribution or insurance recovery, as the case may be.

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(f)Interest shall be paid by the Company to Indemnitee at the legal rate under Delaware law for amounts which the Company indemnifies or is obliged to indemnify for the period commencing with the date on which Indemnitee requests indemnification, contribution,  reimbursement or advancement of any Expenses and ending with the date on which such payment is made to Indemnitee by the Company.

15.Establishment of Trust.  In the event of a Potential Change in Control, the Company shall, upon written request by Indemnitee, create a “Trust” for the benefit of Indemnitee and from time to time upon written request of Indemnitee shall fund such Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, participating in or defending any Proceedings, and any and all judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such judgments, fines penalties and amounts paid in settlement) in connection with any and all Proceedings from time to time actually paid or claimed, reasonably anticipated or proposed to be paid.  The trustee of the Trust (the “Trustee”) shall be a bank or trust company or other individual or entity chosen by the Indemnitee and reasonably acceptable to the Company.  Nothing in this Section 15 shall relieve the Company of any of its obligations under this Agreement.  The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by mutual agreement of the Indemnitee and the Company or, if the Company and the Indemnitee are unable to reach such an agreement, by Independent Counsel selected in accordance with Section 12(b) of this Agreement. The terms of the Trust shall provide that, except upon the consent of both the Indemnitee and the Company, upon a Change in Control:  (a) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee; (b) the Trustee shall advance, to the fullest extent permitted by applicable law, within two (2) business days of a request by the Indemnitee and upon the execution and delivery to the Company of an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, any and all Expenses to the Indemnitee; (c) the Trust shall continue to be funded by the Company in accordance with the funding obligations set forth above; (d) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise; and (e) all unexpended funds in such Trust shall revert to the Company upon mutual agreement by the Indemnitee and the Company or, if the Indemnitee and the Company are unable to reach such an agreement, by Independent Counsel selected in accordance with Section 12(b) of this Agreement, that the Indemnitee has been fully indemnified under the terms of this Agreement.  The Trust shall be governed by Delaware law (without regard to its conflicts of laws rules) and the Trustee shall consent to the exclusive jurisdiction of the Delaware Court in accordance with Section 23 of this Agreement.

16.Security.  Notwithstanding anything herein to the contrary, to the extent requested by the Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to the Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral.  Any such security, once provided to the Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.

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17.Non-Exclusivity; Survival of Rights; Insurance; Subrogation.

(a)The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Company’s Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.  To the extent that a change in applicable law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Charter, the Company’s Bylaws or this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b)The DGCL, the Charter and the Company’s Bylaws permit the Company to purchase and maintain insurance or furnish similar protection or make other arrangements including, but not limited to, providing a trust fund, letter of credit, or surety bond (“Indemnification Arrangements”) on behalf of Indemnitee against any liability asserted against him or incurred by or on behalf of him or in such capacity as a director, officer, employee or agent of the Company, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Agreement or under the DGCL, as it may then be in effect.  The purchase, establishment, and maintenance of any such Indemnification Arrangement shall not in any way limit or affect the rights and obligations of the Company or of the Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and the Indemnitee shall not in any way limit or affect the rights and obligations of the Company or the other party or parties thereto under any such Indemnification Arrangement.

(c)To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, trustees, partners, managing members, fiduciaries, employees, or agents of the Company or of any other Enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, trustee, partner, managing member, fiduciary, employee or agent under such policy or policies.  If, at the time the Company receives notice from any source of a Proceeding as to which Indemnitee is a party or a participant (as a witness or otherwise), the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies.  The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance

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with the terms of such policies.

(d)In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(e)The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such Enterprise.

18.Duration of Agreement.  All agreements and obligations of the Company contained herein shall continue during the period Indemnitee serves as a director or officer of the Company or as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other Enterprise which Indemnitee serves at the request of the Company and shall continue thereafter so long as Indemnitee shall be subject to any possible Proceeding (including any rights of appeal thereto and any Proceeding commenced by Indemnitee pursuant to Section 14 of this Agreement) by reason of his Corporate Status, whether or not he is acting in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement.

19.Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

20.Enforcement and Binding Effect.

(a)The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director, officer or key employee of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer or key employee of the Company.

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(b)Without limiting any of the rights of Indemnitee under the Charter or Bylaws of the Company as they may be amended from time to time, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

(c)The indemnification and advancement of expenses provided by or granted pursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise at the Company’s request, and shall inure to the benefit of Indemnitee and his or her spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(d)The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to the Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

(e)The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm.  Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which he may be entitled.  The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith.  The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the Court, and the Company hereby waives any such requirement of such a bond or undertaking.

21.Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

22.Notices.  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (i) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third (3rd)

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business day after the date on which it is so mailed:

(a)If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

(b)If to the Company, to:

Jazz Technologies, Inc.

4321 Jamboree Road

Newport Beach, CA 92660

Attention: Chief Legal Officer

or to any other address as may have been furnished to Indemnitee in writing by the Company.

23.Applicable Law and Consent to Jurisdiction.  This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules.  Except with respect to any arbitration commenced by Indemnitee pursuant to Section 14(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally:  (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court and not in any other state or federal court in the United States of America or any court in any other country; (b) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement; (c) appoint irrevocably, to the extent such party is not a resident of the State of Delaware, The Corporation Trust Company, 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware 19801 as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware; (d) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court; and (e) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum, or is subject (in whole or in part) to a jury trial.

24.Identical Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

25.Miscellaneous.  Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

Jazz Technologies, Inc.	INDEMNITEE
By:
	Name:

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EX-10.3

Exhibit 10.3

JAZZ TECHNOLOGIES, INC.
RESTRICTED STOCK BONUS AWARD GRANT NOTICE
(2006 EQUITY INCENTIVE PLAN)

Jazz Technologies, Inc. (the “Company”), pursuant to Section 7(a) of the Company’s 2006 Equity Incentive Plan (the “Plan”), hereby awards to Participant the right to acquire that number of shares of the Company’s Common Stock set forth below (the “Award”).  This Award shall be evidenced by a Restricted Stock Bonus Award Agreement (the “Award Agreement”).  This Award is subject to all of the terms and conditions as set forth herein and in the applicable Award Agreement and the Plan, each of which are attached hereto and incorporated herein in their entirety.

Participant:

Date of Grant:

Vesting Commencement Date:

Number of Shares Subject to Award:

Payment for Common Stock:                                              Participant’s past or future services           

Vesting Schedule:  Subject to the Participant’s Continuous Service through such time, the shares subject to the Award shall vest in full on                               (the “Vesting Date”).

Additional Terms/Acknowledgements:  Participant acknowledges receipt of, and understands and agrees to, this Restricted Stock Bonus Award Grant Notice, the Award Agreement, and the Plan.  Participant further acknowledges that as of the Date of Grant, this Restricted Stock Bonus Award Grant Notice, the Award Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the acquisition of the Common Stock pursuant to the Award specified above and supersede all prior oral and written agreements on that subject with the exception of (i) Awards previously granted and delivered to Participant under the Plan, and (ii) the following agreements only:

OTHER AGREEMENTS:[                                                  ]

Jazz Technologies, Inc.	Participant
By:
Signature	Signature
Title:	Date:
Date:

JAZZ TECHNOLOGIES, INC.

2006 EQUITY INCENTIVE PLAN

RESTRICTED STOCK BONUS AWARD AGREEMENT

Pursuant to the Restricted Stock Bonus Award Grant Notice (“Grant Notice”) and this Restricted Stock Bonus Award Agreement (“Agreement”), Jazz Technologies, Inc. (the “Company”) has awarded you (“Participant”) the right to acquire shares of Common Stock from the Company pursuant to Section 7(a) of the Company’s 2006 Equity Incentive Plan (the “Plan”) for the number of shares indicated in the Grant Notice (collectively, the “Award”).  The Award is granted in exchange for past or future services to be rendered by you to the Company or an Affiliate.  In the event additional consideration is required by law so that the Common Stock acquired under this Agreement is deemed fully paid and nonassessable, the Board shall determine the amount and character of such additional consideration to be paid.  Capitalized terms not explicitly defined in this Agreement or the Grant Notice but defined in the Plan shall have the same definitions as in the Plan.

The details of your Award, in addition to those set forth in the Grant Notice, are as follows.

1.             ACQUISITION OF SHARES.  By signing the Grant Notice, you hereby agree to acquire from the Company, and the Company hereby agrees to issue to you, the aggregate number of shares of Common Stock specified in your Grant Notice for the consideration set forth in Section 3 and subject to all of the terms and conditions of the Award and the Plan.  You may not acquire less than the aggregate number of shares specified in the Grant Notice.

2.             CLOSING.  Your acquisition of the shares shall be consummated as follows:

(a)           You will acquire beneficial ownership of the shares by delivering your Grant Notice, executed by you in the manner required by the Company, to the Corporate Secretary of the Company, or to such other person as the Company may designate, during regular business hours, on the date that you have executed the Grant Notice (or at such other time and place as you and the Company may mutually agree upon in writing not later than sixty (60) days following the Date of Grant) (the “Closing Date”) along with any consideration, other than your past or future services, required to be delivered by you by law on the Closing Date and such additional documents as the Company may then require.

(b)           The shares under the Award shall be maintained by the Company’s transfer agent in restricted book entry form.  From time to time the Company may provide written instructions to its transfer agent to release such shares from restricted book entry form.   You agree that certificates representing shares under the Award cannot be issued for any of such shares that are Unvested Shares.  The Company shall instruct the transfer agent to release Vested Shares from restricted book entry form upon the vesting of such shares, and to transfer such Vested Shares electronically to your broker, subject to your having made adequate provisions for any sums required to satisfy the Withholding Taxes (as defined in Section 15 below).  You will provide written notice to us identifying your broker upon the Company’s request, and Vested Shares will not be transferred pursuant to the immediately preceding sentence until you have

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provided such written notice.  For the avoidance of doubt, the release of the Vested Shares shall occur, and the withholding obligations shall be satisfied, not later than the last day of the “short-term deferral” period, as identified pursuant to Treasury Regulation 1.409A-1(b)(4)(i).

3.             CONSIDERATION.  Unless otherwise required by law, the shares of Common Stock to be acquired by you on the Closing Date shall be deemed paid, in whole or in part in exchange for past and future services to be rendered to the Company or an Affiliate in the amounts and to the extent required by law.

4.             VESTING.  The shares will vest as provided in the Vesting Schedule set forth in your Grant Notice, provided that vesting shall cease upon the termination of your Continuous Service.  “Vested Shares” shall mean shares that have vested in accordance with the Vesting Schedule, and “Unvested Shares” shall mean shares that have not vested in accordance with the Vesting Schedule.

5.             RIGHT OF REACQUISITION.  The Company shall simultaneously with the termination of your Continuous Service reacquire (the “Reacquisition Right”) for no consideration all of the Unvested Shares, unless the Company agrees to waive its Reacquisition Right as to some or all of the Unvested Shares.  Any such waiver shall be exercised by the Company by written notice to you or your representative within ninety (90) days after the termination of your Continuous Service, and the Company will in such case also instruct its transfer agent to release to you the number of Unvested Shares not being reacquired by the Company, subject to the satisfaction of the Withholding Taxes.  If the Company does not waive its reacquisition right as to all of the Unvested Shares, then effective as of the termination of your Continuous Service, the transfer agent shall, upon the instruction of the Company, transfer to the Company the number of Unvested Shares the Company is reacquiring.  The Reacquisition Right shall expire when all of the shares have become Vested Shares.

6.             CAPITALIZATION CHANGES.  The number of shares of Common Stock subject to your Award and referenced in your Grant Notice may be adjusted from time to time for changes in capitalization pursuant to Section 10(a) of the Plan.

7.             CERTAIN CORPORATE TRANSACTIONS.  In the event of a Corporate Transaction as defined in the Plan, the Reacquisition Right may be assigned by the Company to the successor of the Company (or such successor’s parent corporation), if any, in connection with such transaction.  To the extent the Reacquisition Right remains in effect following such transaction, it shall apply to the new capital stock or other property received in exchange for the Common Stock in consummation of the transaction, but only to the extent the Common Stock was at the time covered by such right.

8.             SECURITIES LAW COMPLIANCE.  You may not be issued any Common Stock under your Award unless the shares of Common Stock are either (i) then registered under the Securities Act, or (ii) the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act.  Your Award must also comply with other applicable laws and regulations governing the Award, and you shall not receive such Common Stock if the Company determines that such receipt would not be in material compliance with such laws and regulations.

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9.             EXECUTION OF DOCUMENTS.  You hereby acknowledge and agree that the manner selected by the Company by which you indicate your consent to your Grant Notice is also deemed to be your execution of your Grant Notice and of this Agreement.  You further agree that such manner of indicating consent may be relied upon as your signature for establishing your execution of any documents to be executed in the future in connection with your Award.

10.          RIGHTS AS STOCKHOLDER.  Subject to the provisions of this Agreement, you shall have all rights and privileges of a stockholder of the Company with respect to the Unvested Shares.  You shall be deemed to be the holder of such shares for purposes of receiving any dividends that may be paid with respect to such shares and for purposes of exercising any voting rights relating to such shares, even if some or all of the shares are Unvested Shares; provided, however, that any dividends or other distributions paid with respect to the Unvested Shares shall be subject to all of the terms and conditions applicable under this Award Agreement to the same extent as the Unvested Shares.

11.          TRANSFER RESTRICTIONS.  In addition to any other limitation on transfer created by applicable securities laws, you shall not sell, assign, hypothecate, donate, encumber, or otherwise dispose of any interest in the Common Stock while such shares of Common Stock are Unvested Shares or continue to be held by the Company’s transfer agent in restricted book entry form; provided, however, that an interest in such shares may be transferred pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended.  After any Common Stock has been released to you from restricted book entry form, you shall not sell, assign, hypothecate, donate, encumber, or otherwise dispose of any interest in the Common Stock except in compliance with the provisions herein, applicable securities laws and the Company’s policies, including its policies on trading on insider information.  Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to receive any distribution of Common Stock pursuant to this Agreement.

12.          NON-TRANSFERABILITY OF THE AWARD.  Your Award (except for Vested Shares issued pursuant thereto) is not transferable except by will or by the laws of descent and distribution.

13.          RESTRICTIVE LEGENDS.  The Common Stock issued under your Award shall be endorsed with appropriate legends, if any, as determined by the Company.

14.          AWARD NOT A SERVICE CONTRACT.  Your Award is not an employment or service contract, and nothing in your Award shall be deemed to create in any way whatsoever any obligation on your part to continue in the service of the Company or any Affiliate, or on the part of the Company or any Affiliate to continue such service.  In addition, nothing in your Award shall obligate the Company or any Affiliate, their respective stockholders, boards of directors, or employees to continue any relationship that you might have as an Employee or Consultant of the Company or any Affiliate.

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15.          WITHHOLDING OBLIGATIONS.  At the time your Award is granted, on the Vesting Date, or at any other time as determined necessary or appropriate by the Company under applicable law, you hereby authorize withholding from any amounts payable to you, and otherwise agree to make adequate provision in cash for, any sums required to satisfy any federal, state, local and foreign tax withholding obligations of the Company or any Affiliate which arise in connection with your Award (the “Withholding Taxes”).  The Company, at its sole discretion and subject to any limitations under applicable law, shall satisfy such Withholding Taxes by (a) permitting you to enter into a “same day sale” commitment with a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD Dealer”) whereby you irrevocably elect to sell a portion of the shares of Common Stock to be delivered under the Award to satisfy the Withholding Taxes and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the proceeds necessary to satisfy the Withholding Taxes directly to the Company, (b) withholding shares of Common Stock that are otherwise to be released by the transfer agent from restricted book entry form on the Vesting Date in satisfaction of the Withholding Taxes; provided, however, that the amount of the shares so withheld shall not exceed the amount necessary to satisfy the Withholding Taxes using the minimum statutory withholding rates that are applicable to this kind of income, (c) withholding for the Withholding Taxes from wages and other cash compensation payable to you, or (d) causing you to tender a cash payment to the Company.  The Company shall elect alternative (d) if, and to the extent that, the Company determines in good faith at the time the Withholding Taxes arise that withholding pursuant to alternatives (a) - (c) would not be sufficient to cover the Withholding Taxes, would cause you or the Company to violate applicable laws, including but not limited to the Exchange Act or The Sarbanes-Oxley Act of 2002, and/or would not be in the best interests of the Company or its stockholders.  The Company and you agree that if you have entered into a valid and binding automatic trading plan designed to comply with the requirements of Rule 10b5-1(c)(1)(i)(B) of the Exchange Act and whereby shares of Common Stock subject to the Award would be sold under the plan to satisfy the Withholding Taxes (pursuant to alternative (a) above) at the time the Withholding Taxes are due, the Withholding Taxes shall be satisfied first, and to the greatest extent possible, pursuant to such plan.

16.          TAX CONSEQUENCES.  You agree to review with your own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement.  You shall rely solely on such advisors and not on any statements or representations of the Company or any of its agents.  You understand that you (and not the Company) shall be responsible for your own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.  You understand that Section 83 of the Code taxes as ordinary income to you the fair market value of the shares of Common Stock as of the date any restrictions on the shares lapse (that is, as of the date on which part or all of the shares vest).  In this context, “restriction” includes the right of the Company to reacquire the shares pursuant to its Reacquisition Right.  You understand that you may elect to be taxed on the fair market value of the shares at the time the shares are acquired rather than when and as the Company’s Reacquisition Right expires by filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30) days after the Date of Grant of your Award.  YOU ACKNOWLEDGE THAT IT IS YOUR SOLE RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF

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YOU REQUEST THE COMPANY OR ITS REPRESENTATIVES TO MAKE THE FILING ON YOUR BEHALF.  You further acknowledge that you are aware that should you file an election under Section 83(b) of the Code and then subsequently forfeit the shares, you will not be able to report as a loss the value of any shares forfeited and will not get a refund of any of the tax paid.

17.    NOTICES.  Any notice or request required or permitted hereunder shall be given in writing to each of the other parties hereto and shall be deemed effectively given on the earlier of (i) the date of personal delivery, including delivery by express courier, or (ii) the date that is five (5) days after deposit in the United States Post Office (whether or not actually received by the addressee), by registered or certified mail with postage and fees prepaid, addressed at the following addresses, or at such other address(es) as a party may designate by ten (10) days’ advance written notice to each of the other parties hereto:

Company:	Jazz Technologies, Inc.
	Attn: Stock Administrator
	4321 Jamboree Road
	Newport Beach, CA 92660
Participant:	Your address as on file with the Company at the time notice is given

18.          HEADINGS.  The headings of the Sections in this Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Agreement or to affect the meaning of this Agreement.

19.          MISCELLANEOUS.

(a)           The rights and obligations of the Company under your Award shall be transferable by the Company to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by, the Company’s successors and assigns.

(b)           You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award.

(c)           You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award and fully understand all provisions of your Award.

(d)           This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

(e)           All obligations of the Company under the Plan and this Agreement shall be binding on any successor to the Company, whether the existence of such successor is the

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result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

20.          GOVERNING PLAN DOCUMENT.  Your Award is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan.  In the event of any conflict between the provisions of your Award and those of the Plan, the provisions of the Plan shall control.

21.          EFFECT ON OTHER EMPLOYEE BENEFIT PLANS.  The value of the Award subject to this Agreement shall not be included as compensation, earnings, salaries, or other similar terms used when calculating benefits under any employee benefit plan (other than the Plan) sponsored by the Company or any Affiliate except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or terminate any or all of the employee benefit plans of the Company or any Affiliate.

22.          CHOICE OF LAW.  The interpretation, performance and enforcement of this Agreement shall be governed by the law of the state of California without regard to that state’s conflicts of laws rules.

23.          SEVERABILITY.  If all or any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.

* * * * *

This Agreement shall be deemed to be signed by the Company and the Participant upon the signing by the Participant of the Grant Notice to which it is attached.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Gilbert F. Amelio, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 29, 2007 of Jazz Technologies, 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)) 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;

(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 affect, the registrant’s internal control over financial reporting; and

5.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 registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal controls 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 control over financial reporting.

Date: August 13, 2007

/s/ Gilbert F. Amelio
	Gilbert F. Amelio
Chairman and Chief Executive Officer
(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Paul A. Pittman, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 29, 2007 of Jazz Technologies, 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)) 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;

(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 affect, the registrant’s internal control over financial reporting; and

5.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 registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal controls 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 control over financial reporting.

Date: August 13, 2007

	/s/ Paul A. Pittman
		Paul A. Pittman
Executive Vice President  and, Chief Financial and Administrative Officer
(Principal Financial and Accounting Officer)

EX-32

Exhibit 32

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.§ 1350, as adopted), Gilbert F. Amelio, Chief Executive Officer of Jazz Technologies, Inc. (the “Company”), and Paul A. Pittman, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended June 29, 2007, to which this Certification is attached as Exhibit 32.1 (the “Quarterly Report”), fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and

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

In Witness Whereof, the undersigned have set their hands hereto as of August 13, 2007.

/s/ Gilbert F. Amelio	/s/ Paul A. Pittman
Gilbert F. Amelio	Paul A. Pittman
Chief Executive Officer	Chief Financial Officer

This certification accompanies this Quarterly Report to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.