BUSINESS OF JAZZ

Overview

Jazz is an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog and mixed-signal semiconductor devices. Jazz believes its specialty process technologies attract customers who seek to produce analog and mixed-signal semiconductor devices that are smaller and more highly integrated, power-efficient, feature-rich and cost-effective than those produced using standard process technologies. Jazz’s customers’ analog and mixed-signal semiconductor devices are designed for use in products such as cellular phones, wireless local area networking devices, digital TVs, set-top boxes, gaming devices, switches, routers and broadband modems. Jazz’s customers include Skyworks Solutions, Inc., Conexant Systems, Inc., Marvell Technology Group Ltd., RF Micro Devices, Inc., Freescale Semiconductor, Inc., Airoha Technology Corp., Xceive Corporation and Mindspeed Technologies, Inc.

Jazz’s Industry

Semiconductors are the building blocks of a broad range of electronic systems such as personal computers, telecommunications equipment, wireless devices, consumer electronics, automotive electronics and industrial electronics. Although global semiconductor sales have experienced significant cyclical variation in annual growth rates, they have increased significantly over the long term. As electronic systems have become more sophisticated and integrated, satisfying the demand for semiconductors used in these systems has required advances in semiconductor design, manufacturing and packaging technologies.

Desegregation of the Semiconductor Industry and the Success of Foundries

In the past, most semiconductor companies were vertically integrated. They internally designed, fabricated, packaged, tested and marketed their own semiconductors. These vertically integrated semiconductor companies are known as integrated device manufacturers, or IDMs. As the complexity of semiconductor designs has increased, semiconductors have become increasingly challenging to manufacture, requiring both sophisticated manufacturing expertise and significant investment in fabrication facilities, or fabs and the development of leading-edge process technologies.

As the cost and skills required for designing and manufacturing complex semiconductors have increased, the semiconductor industry has become increasingly disaggregated. This disaggregation has fueled the growth of three segments of the semiconductor industry, which together perform the significant functions of an IDM. These are:

fabless semiconductor companies that design and market semiconductors;

foundries that manufacture semiconductor wafers; and

packaging and test companies that encapsulate and test semiconductors.

Fabless semiconductor companies are gaining an increasing share of the semiconductor market. According to the Fabless Semiconductor Association, a trade organization, sales of semiconductors by fabless companies as a percentage of worldwide sales more than doubled from approximately 8% in 2000 to approximately 18% in 2005. At the same time, many IDMs have announced that they have reduced their investment in their existing and next-generation manufacturing facilities and process technologies as they seek to increase their flexibility to reallocate their resources and capital expenditures. Jazz believes that IDMs that have adopted this “fab-lite” strategy will continue to outsource an increasing percentage of their manufacturing requirements to foundry service providers. Jazz believes that utilizing foundry service providers allows fabless semiconductor companies and IDMs to reduce their manufacturing costs, more efficiently allocate capital, research and development and management resources, and gain access to manufacturing process technologies and production capacity they do not possess.

Independent foundries have traditionally focused on standard complementary metal oxide semiconductor, or CMOS, processes that are primarily used for digital semiconductor applications. The proliferation of fabless semiconductor companies and the increasing use of outsourcing by many IDMs for a portion of their production have driven the growth of the CMOS foundry industry, including the growth of global Foundry revenues derived from the manufacture of analog and mixed signal semiconductors. Jazz believes that many of these analog and mixed signal semiconductors are manufactured using specialty process technologies. In addition, according to estimates of Semico Research Corporation, a semiconductor marketing and consulting research company, the percentage of total semiconductor device revenues manufactured by third-party foundries has increased from 5.6% in 1995 to 14.1% in 2005, highlighting the increasing role foundries are playing in the semiconductor supply chain.

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Proliferation of Analog and Mixed-Signal Semiconductors and the Growing Need for Specialty Process Technologies

The two basic functional technologies for semiconductor products are digital and analog. Digital semiconductors perform arithmetic functions on data represented by a series of ones and zeroes. Digital semiconductors provide critical processing power and have helped enable many of the computing and communication advances of recent years. Analog semiconductors monitor and manipulate real world signals such as sound, light, pressure, motion, temperature, electrical current and radio waves, for use in a wide variety of electronic products such as personal computers, cellular handsets, telecommunications equipment, consumer electronics, automotive electronics and industrial electronics. There is a growing need for analog functionality to enable digital systems to interface with the real world. Analog-digital, or mixed-signal, semiconductors combine analog and digital devices on a single chip to process both analog and digital signals.

Integrating analog and digital components on a single, mixed-signal semiconductor enables smaller and more highly integrated, power-efficient, feature-rich and cost-effective semiconductor devices but presents significant design and manufacturing challenges. For example, combining high-speed digital circuits with sensitive analog circuits on a single, mixed-signal semiconductor can increase electromagnetic interference and power consumption, both of which cause a higher amount of heat to be dissipated and decrease the overall performance of the semiconductor. Challenges associated with the design and manufacture of mixed-signal semiconductors increase as the industry moves toward finer, more advanced process geometries. Standard electronic design automation, or EDA, tools used in the design of digital circuits have limited use in predicting the performance of certain analog and mixed-signal designs. As a result, analog and mixed-signal semiconductors can be complex to manufacture and typically require sophisticated design expertise and strong application specific experience and intellectual property. Analog and mixed-signal semiconductor engineers typically require several years of practical experience and application knowledge to become proficient in the design of complex analog and mixed-signal semiconductors. Manufacturers may also need to make a significant investment in specialty process technologies to manufacture these semiconductors.

Specialty process technologies enable greater analog content and can reduce the die size of an analog or mixed-signal semiconductor, thereby increasing the number of die that can be manufactured on a wafer and reducing final die cost. In addition, specialty process technologies can enable increased performance, superior noise reduction and improved power efficiency of analog and mixed-signal semiconductors compared to traditional standard CMOS processes. These specialty process technologies include advanced analog CMOS, radio frequency CMOS, or RF CMOS, high voltage CMOS, bipolar CMOS, or BiCMOS, silicon germanium BiCMOS, or SiGe BiCMOS, and bipolar CMOS double-diffused metal oxide semiconductor, or BCD.

For many applications in the wireless and high-speed wireline communications, consumer electronics, automotive and industrial end markets, the performance characteristics of specialty process technologies can lead customers to select them over digital CMOS process technologies. As semiconductor performance needs continue to increase in these end markets, Jazz believes the demand for specialty process technologies will also increase. For example, Semico Research Corporation estimates that silicon germanium bipolar complementary metal oxide semiconductor usage in wireless, wireline and consumer electronic products will grow at compound annual growth rates of 16%, 12% and 27%, respectively, from 2005 to 2010.

Emerging Trend to Outsource Specialty Process Manufacturing Requirements

Jazz believes that many of the factors and conditions that have driven growth in the outsourcing of manufacturing using standard process technologies will fuel continued growth in the outsourcing of manufacturing using specialty process technologies. There can be no assurance, however, that the factors and conditions that have fueled growth in the outsourcing of manufacturing using standard process technologies will also fuel growth in the outsourcing of manufacturing using specialty process technologies or that any future growth rate in global foundry revenues derived from specialty process technologies will be the same as the growth rate for global foundry revenues derived from standard process technologies. As many IDMs reduce their investment in their existing and next-generation standard CMOS process technologies and manufacturing facilities, it may become less cost-effective for these IDMs to develop, maintain and operate specialty process technology manufacturing lines. Jazz believes these IDMs will increasingly choose to also outsource their specialty process technologies. In addition, Jazz believes that fabless semiconductor companies are increasingly seeking access to specialty process technologies to produce analog and mixed-signal semiconductors.

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To date, most independent foundries have focused primarily on standard CMOS processes instead of specialty process technologies. While some IDMs have provided outsourced specialty process technologies, Jazz believes that competing IDMs and fabless design companies may be reluctant to work with and provide confidential information to IDMs that also manufacture products competitive with theirs. Consequently, Jazz believes that there is significant growth potential for independent foundries with a broad platform of specialty process technologies, advanced design and support capabilities and product application expertise that focus primarily on the specialty foundry opportunity.

Jazz’s Solution

Jazz is an independent semiconductor foundry, providing specialty process technologies, design solutions and application knowledge for the manufacture of analog and mixed-signal semiconductors. Key elements of its solution are as follows:

Jazz offers an independent and focused source for the manufacture of semiconductors using specialty process technologies. Most other independent foundries focus on standard process technologies, rather than specialty process technologies. Some IDMs offer specialty process foundry services but also manufacture their own semiconductor products, which may be competitive with the products of their potential customers who seek these services. Jazz combines the benefits of independence with a focus on specialty process technologies.

Jazz offers a specialized design platform for analog and mixed-signal semiconductors. Jazz’s design engineering support team assists its customers with their advanced designs by leveraging Jazz’s application knowledge and experience to help guide their technology selection and design implementation. Jazz’s sophisticated design tools and services are specifically tailored to meet analog and mixed-signal design needs, and include specialized device modeling and characterization features that allow simulation of a variety of real world situations, including different temperatures, power levels and speeds.

Jazz offers a broad range of specialty process technologies. Jazz’s specialty process technology portfolio includes advanced analog CMOS, RF CMOS, high voltage CMOS, BiCMOS and SiGe BiCMOS processes. In addition to these specialty process technologies, Jazz has recently begun to offer BCD processes optimized for analog semiconductors such as power management, high efficiency audio amplification, and optical driver integrated circuits. The breadth of Jazz’s portfolio allows it to offer its customers a wide range of solutions to address their high-performance, high-density, low-power and low-noise requirements for analog and mixed-signal semiconductors. These semiconductor devices are used in products such as cellular phones, digital TVs, set-top boxes, gaming devices, wireless local area networking devices, digital cameras, switches, routers and broadband modems. Jazz benefits from the development of specialty process technologies by Conexant and its predecessor, Rockwell Semiconductor Systems, over a period of 35 years.

Jazz is a leader in high-performance SiGe process technologies. Jazz offers high performance 150 GHz 0.18 micron SiGe BiCMOS technology, which Jazz believes is one of the most advanced SiGe process technologies in production today. In addition, Jazz recently announced the availability of 200 GHz 0.18 micron SiGe BiCMOS technology. Analog and mixed-signal semiconductors manufactured with SiGe BiCMOS process technologies can be smaller, require less power and provide higher performance than those manufactured with standard CMOS processes. Moreover, SiGe BiCMOS process technologies allow for higher levels of integration of analog and digital functions on the same mixed-signal semiconductor device.

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Jazz’s Strategy

Key elements of Jazz’s strategy are as follows:

Further strengthen Jazz’s position in specialty process technologies for the manufacture of analog and mixed-signal semiconductors. Jazz is continuing to invest in its portfolio of specialty process technologies to address the key product attributes that make its customers’ products more competitive.

Target large, growing and diversified end markets. Jazz targets end markets characterized by high growth and high performance for which it believes its specialty process technologies have a high value proposition, including the wireless and high-speed wireline communications, consumer electronics, automotive and industrial markets. For example, Jazz believes that its specialty process technologies can provide performance and cost advantages over current CMOS solutions in the integration of power amplifiers with RF transceivers for wireless local area networking applications.

Continue to diversify Jazz’s customer base. Since its formation in early 2002, Jazz has transitioned its business from a captive manufacturing facility within Conexant to an independent semiconductor foundry with 96 post-formation customers as of June 2006. Jazz intends to continue to grow and diversify its business through the acquisition of new customers. For example, under a technology transfer agreement Jazz entered into with Polar Semiconductor, Inc., or PolarFab, PolarFab agreed to help facilitate the transfer of certain of its third party customers that currently use its BCD process technologies. Jazz expects that PolarFab will transfer to it approximately 25 of its customers. Because Jazz’s post-formation customers primarily use its specialty process technologies, Jazz expects that its continued acquisition of new customers will result in a continuing increase in the percentage of its revenues that are derived from specialty process technologies.

Maintain capital efficiency by leveraging its capacity and manufacturing model. Jazz seeks to maximize the utilization of its Newport Beach, California manufacturing facility and leverage its manufacturing suppliers’ facilities in China to meet increased capacity requirements cost-effectively. Jazz can typically increase its specialty process technology capacity and meet its customer performance requirements using adapted semiconductor process equipment sets that are typically one or two generations behind leading-edge digital CMOS process equipment. This typically allows Jazz to acquire lower-cost semiconductor process equipment to operate its Newport Beach, California fab. Jazz is also able to access and adapt existing capacity cost-effectively through supply and licensing agreements, such as those with ASMC and HHNEC.

Process Technologies

Process technologies are the set of design rules, electrical specifications and process steps that Jazz implements for the manufacture of semiconductors on silicon wafers. In addition to offering standard process technologies, Jazz has a strong heritage of manufacturing analog and mixed-signal semiconductors using specialty process technologies, including advanced analog CMOS, RF CMOS, high voltage CMOS, BiCMOS and SiGe BiCMOS process technologies. These analog and mixed-signal semiconductors are used in products targeting the wireless and high-speed wireline communications, consumer electronics, automotive and industrial end markets. Jazz also now offers BCD process technologies optimized for analog semiconductors such as power management, high-efficiency audio amplification and optical driver integrated circuits.

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Jazz’s Standard Process Technologies

Jazz refers to its digital CMOS and standard analog CMOS process technologies as standard process technologies. Digital CMOS process technologies are the most widely used process technologies in the semiconductor industry because they require less power than other technologies for digital functions and allow for the dense placement of digital circuits onto a single semiconductor, such as a graphics or baseband processor. Jazz currently has digital CMOS processes in 0.5 micron, 0.35 micron, 0.25 micron and 0.18 micron and has announced availability of a 0.13 micron process. These digital CMOS process technologies form the baseline for Jazz’s standard analog CMOS processes.

Standard analog CMOS process technologies have more features than digital CMOS process technologies and are well suited for the design of low-frequency analog and mixed-signal semiconductors. These process technologies generally incorporate basic passive components, such as capacitors and resistors, into a digital CMOS process. Jazz currently has standard analog CMOS processes in 0.5 micron, 0.35 micron, 0.25 micron and 0.18 micron and has announced availability of a 0.13 micron process. These standard analog CMOS process technologies form the baseline for Jazz’s specialty process technologies.

While other foundries may offer standard analog processes, most do not offer specialty process technologies. Other foundries, however, offer standard analog processes at more advanced geometries than Jazz offers, such as 90 nanometer CMOS process technologies. In certain circumstances, such as when a large amount of digital content is required in a mixed-signal semiconductor and less analog content is required, a customer may choose to design a product in a standard analog CMOS process technology at an advanced geometry, such as 90 nanometer CMOS, instead of choosing a specialty process technology at a larger geometry.

Jazz’s Specialty Process Technologies

Jazz refers to its advanced analog CMOS, RF CMOS, high voltage CMOS, BiCMOS, SiGe BiCMOS and BCD process technologies, as specialty process technologies. Most of Jazz’s specialty process technologies are based on CMOS processes with added features to enable improved size, performance and cost characteristics for analog and mixed-signal semiconductors. Products made with Jazz’s specialty process technologies are typically more complex to manufacture than products made using standard process technologies employing similar line widths. Generally, customers who use Jazz’s specialty process technologies cannot easily move designs to another foundry because the analog characteristics of the design are dependent upon its implementation of the applicable process technology. The relatively small engineering community with specialty process know-how has also limited the number of foundries capable of offering specialty process technologies. In addition, the specialty process design infrastructure is complex and includes design kits and device models that are specific to the foundry in which the process is implemented and to the process technology itself.

Jazz’s advanced analog CMOS process technologies have more features than standard analog CMOS process technologies and are well suited for higher performance or more highly integrated analog and mixed-signal semiconductors, such as high-speed analog-to-digital or digital-to-analog converters and mixed-signal semiconductors with integrated data converters. These process technologies generally incorporate higher density passive components, such as capacitors and resistors, as well as improved active components, such as native or low voltage devices, and improved isolation techniques, into standard analog CMOS process technologies. Jazz currently has advanced analog CMOS process technologies in 0.5 micron, 0.35 micron, 0.25 micron and 0.18 micron and has announced the availability of a 0.13 micron process. These advanced analog CMOS processes form the baseline for Jazz’s other specialty process technologies.

Jazz’s RF CMOS process technologies have more features than advanced analog CMOS process technologies and are well suited for wireless semiconductors, such as highly integrated wireless transceivers, power amplifiers, and television tuners. These process technologies generally incorporate integrated inductors, high performance variable capacitors, or varactors, and RF laterally diffused metal oxide semiconductors into an advanced analog CMOS process technology. In addition to the process features, Jazz’s RF offering includes design kits with RF models, device simulation and physical layouts tailored specifically for RF performance. Jazz currently has RF CMOS process technologies in 0.25 micron and 0.18 micron and has announced availability of a 0.13 micron process. These RF CMOS process technologies form the baseline for Jazz’s other specialty process technologies.

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Jazz’s high voltage CMOS and BCD process technologies have more features than advanced analog CMOS processes and are well suited for power and driver semiconductors such as voltage regulators, battery chargers, power management products and audio amplifiers. These process technologies generally incorporate higher voltage CMOS devices such as 5V, 8V, 12V and 40V devices, and, in the case of BCD, bipolar devices, into an advanced analog CMOS process. Jazz currently has high voltage CMOS offerings in 0.5 micron, 0.35 micron, 0.25 micron and 0.18 micron, and BCD offerings in 0.5 micron. Jazz is working on extending the high voltage options to include a 0.35 micron BCD process technology and 60V and 120V capabilities in the future to enable higher levels of analog integration at voltage ranges that are suitable for automotive electronics and line power conditioning for consumer devices.

Jazz’s BiCMOS process technologies have more features than RF CMOS process technologies and are well suited for RF semiconductors such as wireless transceivers and television tuners. These process technologies generally incorporate high-speed bipolar transistors into an RF CMOS process. The equipment requirements for BiCMOS manufacturing are specialized and require enhanced tool capabilities to achieve high yield manufacturing. Jazz currently has BiCMOS process technologies in 0.35 micron.

Jazz’s SiGe BiCMOS process technologies have more features than BiCMOS processes and are well suited for more advanced RF semiconductors such as high-speed, low noise, highly integrated multi-band wireless transceivers, television tuners and power amplifiers. These process technologies generally incorporate a silicon germanium bipolar transistor, which is formed by the deposition of a thin layer of silicon germanium within a bipolar transistor, to achieve higher speed, lower noise, and more efficient power performance than a BiCMOS process technology. It is also possible to achieve speeds using SiGe BiCMOS process technologies equivalent to those demonstrated in standard CMOS processes that are two process generations smaller in line-width. For example, a 0.18 micron SiGe BiCMOS process is able to achieve speeds comparable to a 90 nanometer RF CMOS process. As a result, SiGe BiCMOS makes it possible to create analog products using a larger geometry process technology at a lower cost while achieving similar or superior performance to that achieved using a smaller geometry standard CMOS process technology. The equipment requirements for SiGe BiCMOS manufacturing are similar to the specialized equipment requirements for BiCMOS. Jazz has developed enhanced tool capabilities in conjunction with large semiconductor tool suppliers to achieve high yield SiGe manufacturing. Jazz believes this equipment and related process expertise makes Jazz one of the few silicon manufacturers with demonstrated ability to deliver SiGe BiCMOS products. Jazz currently has SiGe BiCMOS process technologies at 0.35 micron and 0.18 micron and is developing a 0.13 micron SiGe BiCMOS process.

Jazz continues to invest in technology that helps improve the performance, integration level and cost of analog and mixed-signal products. This includes improving the density of passive elements such as capacitors and inductors, improving the analog performance and voltage handling capability of active devices, and integrating advanced features in Jazz’s specialty CMOS processes that are currently not readily available. Examples of such features currently under development include technologies aimed at integrating micro-electro-mechanical devices with CMOS for higher quality passive elements, manufacturing tools that can increase the density of Jazz’s capacitors with improved dielectric films, and scaling the features Jazz offers today to the 0.13 micron process technology.

Manufacturing

Jazz has placed significant emphasis on achieving and maintaining a high standard of manufacturing quality. Jazz seeks to enhance its production capacity for its high-demand specialty process technologies and to design and implement manufacturing processes that produce consistently high manufacturing yields. Jazz’s production capacity in each of its specialty process technologies enables Jazz to provide its customers with volume production, flexibility and quick-to-market manufacturing services. All of Jazz’s process research and development is performed in its manufacturing facility in Newport Beach, California.

Capacity

Jazz currently has the capacity to commence the fabrication process for approximately 17,000 eight-inch wafers per month, depending on process technology mix, in its Newport Beach, California fab. Jazz’s fab generally operates 24 hours per day, seven days per week. Jazz provides a variety of services in Newport Beach, California from full scale production to small engineering qualification lot runs to probe services. Jazz has the ability to rapidly change the mix of production processes in use in order to respond to changing customer needs and maximize utilization of the fab. Jazz has made, and is continuing to make, capital investments in its Newport Beach, California fab to shift capacity from standard CMOS process technologies to specialty process technologies and to expand overall capacity.

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Jazz also plans to seek opportunities to add manufacturing capacity outside of this facility as needed by expanding its existing manufacturing supply relationships, entering into new relationships with other manufacturers or acquiring existing manufacturing facilities. Consistent with this strategy, Jazz has entered into supply agreements with each of ASMC and HHNEC, two of China’s leading silicon semiconductor foundries. These agreements are designed to provide Jazz with low-cost, scalable production capacity and multiple location sourcing for its customers. To date, Jazz has not utilized significant capacity from its manufacturing suppliers. While these suppliers have substantially met its requests for wafers to date, if Jazz had a sudden significant increase in demand for their services, it is unlikely that they would be able to satisfy its increased demand in the short term.

Equipment

Jazz’s policy is to qualify the vendors from which it purchases equipment to assure process consistency, expedite installation and production release, reduce consumable inventories, combine equipment support resources and maximize supplier leverage. The principal equipment Jazz uses to manufacture semiconductor wafers are scanners, steppers, track equipment, etchers, furnaces, automated wet stations, implanters and metal sputtering, chemical vapor deposition and chemical mechanical planarization equipment. Jazz can expand its specialty process manufacturing capacity by purchasing lower-cost equipment because it is able to meet its customers’ performance requirements using adapted digital CMOS equipment sets that are typically one or two generations behind leading-edge digital CMOS process equipment.

Jazz’s Newport Beach, California fab is organized into bays based on function with manufacturing operations performed in clean rooms in order to maintain the quality and integrity of wafers that it produces. Clean rooms have historically been rated on the number of 0.5 micron particles allowable within a cubic foot of air and Jazz generally refers to them as class-1, 10, 100, 1,000, 10,000, or 100,000 on that basis. A significant majority of Jazz’s current clean rooms operate at a class-10 level.

Raw Materials

Jazz’s manufacturing processes use highly specialized materials, including semiconductor wafers, chemicals, gases and photomasks. These raw materials are generally available from several suppliers. However, Jazz often selects one vendor to provide it with a particular type of material in order to obtain preferred pricing. In those cases, Jazz generally also seeks to identify, and in some cases qualify, alternative sources of supply.

Jazz generally maintains sufficient stock of principal raw material for two-weeks’ production based on historical usage at its Newport Beach, California fab. Jazz’s vendors also generally keep four to six weeks of pre-approved material at their local warehouse in order to support changes that may occur in Jazz’s requirements and to respond to quality issues. Although some of Jazz’s blanket purchase order contracts contain price and capacity commitments, these commitments tend to be short term in nature. However, Jazz has agreements with several key material suppliers under which they hold similar levels of inventory at Jazz’s warehouse and fab for its use. Jazz is not under any obligation under these agreements to purchase raw material inventory that is held by its vendors at its site until Jazz actually uses it, unless Jazz holds the inventory beyond specified time limits.

Some of Jazz’s material providers are its sole source for those materials. The most important raw material used in its production processes is silicon wafers, which is the basic raw material from which integrated circuits are made. The sole supplier of Jazz’s wafers is Wacker Siltronic Corporation. Siltronic supplies Jazz’s wafer requirements from three separate facilities, providing redundancy in the event a facility’s operations are interrupted. In addition, Siltronic maintains an approximately six week supply of inventory at Jazz’s fab. Through Conexant and Rockwell, Jazz has had a long-term supply relationship with Siltronic. Jazz believes that qualification of a second wafer supplier could take from six months to one year.

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Photronics, Inc. is the sole-source supplier of photomasks for use in Jazz’s Newport Beach, California fab. Jazz has entered into a supply agreement with Photronics that provides it with guaranteed pricing for photomasks through 2008, but allows Jazz to negotiate with Photronics annually to obtain reductions in the base price of the masks. Photronics maintains manufacturing facilities in the United States, Singapore and Taiwan. Jazz believes it would take between ten and 12 months to qualify a new supplier if Photronics was unable or unwilling to continue as a supplier.

Jazz receives one of its liquid chemicals, EKC 652, which is used in the etch process from E.I. du Pont de Nemours and Company. DuPont is the sole source supplier of this chemical and its chemistry is unique. Jazz believes that it would take between four and six months to replace this chemical in the event DuPont were unable or unwilling to continue as a supplier.

Jazz uses a large amount of water in its manufacturing process. Jazz obtains water supplies from the local municipality. Jazz also uses substantial amounts of electricity supplied by Southern California Edison in the manufacturing process. Jazz maintains back-up generators that are capable of providing adequate amounts of electricity to maintain vital life safety systems, such as toxic gas monitors, fire systems, exhaust systems and emergency lighting in case of power interruptions, which it has experienced from time to time.

Quality Control

Jazz seeks to attract and retain leading international and domestic semiconductor companies as customers by establishing and maintaining a reputation for high quality and reliable services and products. Jazz’s Newport Beach, California fab has achieved ISO9001:2000 certification and has also been certified as meeting the standards of ISO 14001 and ISO/IEC 27001:2005. ISO9001:2000 sets the criteria for developing a fundamental quality management system. This system focuses on continuous improvement, defect prevention and the reduction of variation and waste. ISO 14001 consists of a set of standards that provide guidance to the management of organizations to achieve an effective environmental management system. ISO/IEC 27001:2005 replaces the previous BS7799 standard, and is the new global certification that focuses on security information management activities associated with the reduction of security breaches.

Jazz’s policy is to implement quality control measures that are designed to ensure high yields at its facilities. Jazz tests and monitors raw materials and production at various stages in the manufacturing process before shipment to customers. Quality assurance also includes on-going production reliability audits and failure tracking for early identification of production problems.

Jazz also conducts routine quality audits of ASMC and HHNEC with respect to the manufacture of semiconductors for it. These quality audits involve Jazz’s engineers and management meeting with representatives of ASMC and HHNEC, reviewing and assessing their quality controls and procedures and implementing changes and enhancements designed to ensure that each entity has adopted quality control standards similar to Jazz’s.

Jazz’s Services

Jazz primarily manufactures semiconductor wafers for its customers. Jazz focuses on providing a high level of customer service in order to attract customers, secure production from them and maintain their continued loyalty. Jazz emphasizes responsiveness to customer needs, flexibility, on-time delivery, speed to market and accuracy. Jazz’s customer-oriented approach is evident in two prime functional areas of customer interaction: customer design development and manufacturing services. Throughout the customer engagement process, Jazz offers services designed to provide its customers with a streamlined, well-supported, easy to monitor product flow. Jazz believes that this process enables its customers to get their products to market quickly and efficiently.

Wafer manufacturing requires many distinct and intricate steps, each of which must be completed accurately in order for finished semiconductor devices to work as intended. After a design moves into volume production, Jazz continues to provide ongoing customer support through all phases of the manufacturing process.

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The processes required to take raw wafers and turn them into finished semiconductor devices are generally accomplished through five steps: circuit design, mask making, wafer fabrication, probe, and assembly and test. The services Jazz offers to its customers in each of the five steps are described below.

Circuit Design

Jazz interacts closely with customers throughout the design development and prototyping process to assist them in the development of high performance and low power consumption semiconductor designs and to lower their final die, or individual semiconductor, costs through die size reductions and integration. Jazz provides engineering support and services as well as manufacturing support in an effort to accelerate its customers’ design and qualification process so that they can achieve faster time to market. Jazz has entered into alliances with Cadence Design Systems, Inc., Synopsys, Inc. and Mentor Graphics Corp., leading suppliers of electronic design automation tools, and also licensed technology from ARM Holdings plc and Synopsys, Inc., leading providers of physical intellectual property components for the design and manufacture of semiconductors. Through these relationships, Jazz provides its customers with the ability to simulate the behavior of its processes in standard electronic design automation, or EDA, tools. To provide additional functionality in the design phase, Jazz offers its customers standard and proprietary models within design kits that it has developed. These design kits, which collectively comprise its design library, or design platform, allow Jazz’s customers quickly to simulate the performance of a semiconductor design in Jazz’s processes, enabling them to refine their product design before actually manufacturing the semiconductor.

The applications for which Jazz’s specialty process technologies are targeted present challenges that require an in-depth set of simulation models. Jazz provides these models as an integral part of its design platform. At the initial design stage, Jazz’s customers’ internal design teams use Jazz’s proprietary design kits to design semiconductors that can be successfully and cost-effectively manufactured using Jazz’s specialty process technologies. Jazz’s engineers, who typically have significant experience with analog and mixed-signal semiconductor design and production, work closely with Jazz’s customers’ design teams to provide design advice and help them optimize their designs for Jazz’s processes and their performance requirements. After the initial design phase, Jazz provides its customers with a multi-project wafer service to facilitate the early and rapid use of Jazz’s specialty process technologies, which allows them to gain early access to actual samples of their designs. Under this multi-project wafer service, Jazz schedules a bimonthly multi-project wafer run in which it manufactures several customers’ designs in a single mask set, providing its customers with an opportunity to reduce the cost and time required to test their designs. Jazz believes its circuit design expertise and its ability to accelerate its customers’ design cycle while reducing their design costs represents one of its competitive strengths.

Photomask Making

Jazz’s engineers generally assist its customers to design photomasks that are optimized for its specialty process technologies and equipment. Actual photomask production occurs at independent third parties that specialize in photomask making.

Wafer Fabrication

Jazz provides wafer fabrication services to its customers using specialty process technologies, including advanced analog CMOS, RF CMOS, high voltage CMOS, BiCMOS, SiGe BiCMOS and BCD processes, as well as using standard CMOS process technologies. During the wafer fabrication process, Jazz performs procedures in which a photosensitive material is deposited on the wafer and exposed to light through a mask to form transistors and other circuit elements comprising a semiconductor. The unwanted material is then etched away, leaving only the desired circuit pattern on the wafer. By using Jazz’s ebizz web site, customers are able to access their lot status and work-in-process information via the Internet.

Probe

After a visual inspection, individual die on a wafer are tested, or “probed,” electrically to identify die that fail to meet required standards. Die that fail this test are marked to be discarded. Jazz generally offers wafer probe services at the customer’s request and conduct those services internally in order more quickly to obtain accurate data on manufacturing yield rates. At times when wafers are ordered in excess of Jazz’s probe capacity in its Newport Beach, California fab, Jazz may offer to coordinate shipping of completed wafers to third-party vendors for probe services.

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Assembly and Test

Following wafer probe, wafers go through the assembly and test process to form finished semiconductor products. Jazz typically refers its customers to third-party providers of assembly and test services.

Sales and Marketing

Jazz seeks to establish and maintain relationships with its customers by providing a differentiated process technology portfolio, effective technical services and support and flexible manufacturing. Jazz’s sales process is a highly technical and lengthy process. The entire cycle from design win to volume production typically takes between eight and 26 months. During this cycle, Jazz’s customers typically dedicate anywhere from three to 12 engineers to support the design, prototype and evaluation phases of their products.

Jazz’s Sales Process

The following chart portrays Jazz’s sales process.

Design Win Acquisition Phase. Jazz’s sales personnel work closely with current and potential customers to identify opportunities for them to pursue product designs using Jazz’s process technologies. The customer’s decision to design a semiconductor product using one of Jazz’s process technologies is based upon several technical and economic factors, including choosing the optimal process technology to achieve a cost-effective solution for their semiconductor device.

The decision to use a specialty process technology also generally requires the customer to select Jazz’s specialty process foundry. Customers do not typically move a given design between foundries until the next generation of that design is evaluated because of the highly sensitive and variable nature of specialty process production. The same semiconductor design produced at different specialty process foundries, or even at different times in the same foundry, may have materially different performance characteristics. As a result, customers place significant value upon a given foundry’s ability to produce devices that consistently meet specifications, and may be reluctant to shift to another foundry once the process has been stabilized. Given the high switching costs associated with specialty process devices, the design decision process represents a significant commitment by the customer, consuming between one and 12 months and often involving the customer’s product architects, design engineers, purchasing personnel and executive management. Jazz’s customers will often install Jazz’s proprietary design platform, which runs on industry standard EDA tools. The customer will often design a test circuit for Jazz’s process in order to evaluate how the circuit performs in an actual silicon implementation. Jazz refers to a potential customer’s decision to design a specific semiconductor using one of its processes as a design win. As of any particular date, Jazz defines a customer as any party from whom it has recognized revenues in the prior twelve months. As of June 30, 2006, Jazz had approximately 240 design wins from over 95 customers. A design win commences the design phase.

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Design Phase. The design phase typically involves from three to 12 of Jazz’s customer’s design engineers and one of Jazz’s technical support engineers. This phase generally takes from four to 12 months, after which time the customer provides a circuit data file for which Jazz purchases mask reticles for the manufacture of the semiconductor and commence manufacturing of the customer’s design, which is considered a “tape-in,” at which point the prototype phase commences.

Prototype Phase. During the prototype phase, Jazz manufactures the customer’s prototype semiconductor and ship the silicon wafers to the customer for functional testing and verification. The customer may test the devices at the wafer or die level, or may package and test the prototype semiconductor devices. Once the customer tests its product design in an actual silicon implementation, the customer may need to make modifications to its design in order to increase performance, add features or correct a design error. The prototype phase typically requires two to 12 months, depending on the number of design modifications required. Once the customer determines that the semiconductors they have developed are ready to ship to its end-customers for evaluation, the evaluation phase commences.

Evaluation Phase. After the customer receives functioning semiconductors, it typically provides them to its own end-customers for evaluation. These semiconductors are generally application specific devices targeted for products such as cellular phones, digital TVs, set-top boxes, gaming devices, wireless local area networking devices, digital cameras, switches, routers and broadband modems. If Jazz’s customer successfully wins a sub-system or system level design with its customers, which typically takes from two months to 12 months, it in turn places orders with Jazz to satisfy its customer’s requirements, and production manufacturing commences. Once 100 wafers incorporating a particular design have been ordered, the evaluation phase is complete, the design is classified as being in volume production and it is removed from the design win total.

Of Jazz’s design wins as of June 30, 2006, approximately 23% are in the design phase, approximately 45% are in the prototype phase and approximately 32% are in the evaluation phase. If at any time during the process Jazz’s customer determines to abandon its design effort, Jazz considers the design a “lost design win” and no longer counts it towards its total number of design wins. Once the design cycle is complete and the customer has ordered 100 wafers based on the design, the design is reclassified as a design in volume production, and is no longer considered a design win.

Sales Contracts

Jazz’s major customers purchase services and products from it on a contract basis. Most other customers purchase from Jazz using purchase orders. Jazz prices its products for these customers on a per wafer or per die basis, taking into account the complexity of the technology, the prevailing market conditions, volume forecasts, the strength and history of its relationship with the customer and its current capacity utilization.

Most of its customers usually place their orders only two to four months before shipment; however its major customers are obligated to provide Jazz with longer forecasts of their wafer needs.

Marketing

Jazz advertises in trade journals, organizes technology seminars, publishes press releases, opinion editorials and whitepapers, performs presentations and speeches at industry conferences, participates in panel sessions, holds a variety of regional and international technology conferences, and attends and exhibits at a number of industry trade fairs to promote its products and services. Jazz discusses advances in its process technology portfolio and progress on specific relevant programs with its prospective and major customers as well as industry analysts and research analysts on a regular basis.

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Customers, Markets and Applications

Jazz’s customers use its processes to design and market a broad range of digital, analog and mixed-signal semiconductors for diverse end markets including wireless and high-speed wireline communications, consumer electronics, automotive and industrial. Jazz manufactures products that are used for high-performance applications such as transceivers and power management for cellular phones; transceivers and power amplifiers for wireless local area networking products; power management, audio amplifiers and driver integrated circuits for consumer electronics; tuners for digital televisions and set-top boxes; modem chipsets for broadband access devices and gaming devices; serializer/deserializers, or SerDes, for fiber optic transceivers; focal plan arrays for imaging applications; and wireline interfaces for switches and routers.

Conexant and Skyworks were Jazz’s largest customers during 2005 and the first half of 2006, together accounting for approximately 60.5% and 41.0% of its revenues, respectively (which includes the effect of a charge against revenue from Conexant of $17.5 million during the second quarter of 2006 associated with the termination of the Conexant wafer supply agreement). Jazz is currently focused on developing and broadening its relationships with its other customers.

Jazz’s backlog, which represents the aggregate purchase price of orders received from customers, but not yet recognized as revenues, was approximately $41.1 million, $63.6 million and $101.1 million at December 31, 2004, December 30, 2005 and June 30, 2006, respectively. Jazz expects to fill a significant majority of orders in backlog at June 30, 2006, within the current fiscal year. All of Jazz’s orders, however, are subject to possible rescheduling by its customers. Rescheduling may relate to quantities or delivery dates, but sometimes relates to the specifications of the products it is shipping. Jazz’s supply contracts with its largest customers provide for penalties if firm orders are cancelled. Other customers do business with Jazz on a purchase order basis, and some of these orders may be cancelled by the customer without penalty. Jazz also may elect to permit cancellation of orders without penalty where management believes it is in its best interests to do so. Consequently, Jazz cannot be certain that orders on backlog will be shipped when expected or at all. For these reasons, as well as the cyclical nature of its industry, Jazz believes that its backlog at any given date is not a meaningful indicator of its future revenues.

Jazz’s Major Customers

Skyworks Solutions, Inc. is an industry leader in radio solutions and precision analog semiconductors servicing a diversified set of mobile communications customers. Skyworks was formed upon the spin-off of Conexant’s wireless communications division and subsequent merger with Alpha Industries, Inc. Jazz works closely with Skyworks to define the process technologies it requires to design certain of its next-generation products for its target markets. The products that Jazz manufactures for Skyworks include semiconductors used in RF transceivers and power control devices for cellular phone applications. Jazz has also entered into a wafer supply agreement with Skyworks.

Conexant Systems, Inc. is a leading semiconductor supplier providing system solutions that enable digital information and entertainment networks. Conexant’s product portfolio includes the building blocks required for bridging cable, satellite, and terrestrial data, digital video networks and wireless local area networks. Jazz continues to produce a significant percentage of Conexant’s wafer requirements. Conexant remains a large and important customer for it and Jazz continues to work closely with Conexant to capture its new design opportunities. The products that Jazz manufactures for Conexant include semiconductors used in analog, DSL and cable modems, personal computers, set-top boxes and gaming devices.

Marvell Technology Group Ltd. specializes in the design of high performance, mixed-signal and digital semiconductors aimed at the high-speed computer, storage, communications and multimedia markets. Marvell has designed semiconductors utilizing Jazz’s SiGe BiCMOS process technology for use in its wireless local area networking products for the portable and fixed gaming console markets, as well as the cellular handset market.

RF Micro Devices, Inc. designs, develops, manufactures and markets proprietary radio frequency integrated circuits, or RFICs, primarily for wireless communications products and applications such as cellular phones and base stations, wireless local area networking devices and cable modems. RF Micro Devices offers a broad array of products, including amplifiers, mixers, modulators/demodulators, and single-chip receivers, transmitters and transceivers that represent a substantial majority of the RFICs required in wireless handsets. RF Micro Devices formed a strategic relationship with Jazz in October 2002, which included a wafer supply agreement, a master development agreement and an equity investment in Jazz. As of June 30, 2006, Jazz’s strategic relationship with RF Micro Devices has resulted in 15 pre-volume production design wins and four designs in volume production. These design wins are for products including cellular transceivers, power controllers and wireless infrastructure components.

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Freescale Semiconductor, Inc. designs and manufactures embedded semiconductors for the automotive, consumer, industrial, network and wireless markets. In June 2005, Jazz entered into a wafer supply and foundry agreement with Freescale. The products that Jazz manufactures for Freescale under this agreement include RF transceivers for cellular products and ultra wideband transceivers.

Airoha Technology Corp. is a leading wireless communication integrated circuit design company in Taiwan, which produces highly integrated RF mixed-signal integrated circuits for wireless communication applications. Airoha has designed semiconductors using Jazz’s SiGe BiCMOS process technology for use in its wireless LAN and personal handy phone system products.

Xceive Corporation is a fabless semiconductor company that produces RF-to-baseband transceiver integrated circuits for TVs and set-top boxes. Xceive has designed semiconductors using Jazz’s 0.18 micron SiGe BiCMOS process technology for use in its personal computer and mobile television tuner products.

Mindspeed Technologies, Inc. designs, develops and sells semiconductor solutions for communications applications in enterprise, access, metropolitan and wide area networks. Mindspeed has designed semiconductors using Jazz’s analog CMOS, advanced analog CMOS, BiCMOS and SiGe BiCMOS process technologies for use in its high-speed networking integrated circuits and video products.

New Customer Development

Through Jazz’s focus on developing new customer relationships, at June 30, 2006, Jazz had secured approximately 229 design wins with over 95 post-formation customers across a broad range of end markets. In addition, at June 30, 2006, approximately 48 post-formation customer designs had moved to designs in volume production. Jazz believes its continuous focus on achieving design wins as well as on ramping up production volumes of its current design wins will allow it to continue to diversify and grow its revenue base. The following table provides a summary of end-user applications as well as representative products addressed by its design wins and designs in volume production:

Wireless Communications

Consumer Electronics

Wireline Communications

Other Markets

Representative end

Cellular phones

Digital TVs

Switches

Imaging products

market products

Wireless networking systems

DVD players

Optical transceivers

Military products

Cordless phones

Broadband modems

Automotive radar

Gaming devices

Analog modems

Sensors

Set-top boxes

Representative

GSM/GPRS/ EDGE

DSL and cable

SerDes for

Image sensors

semiconductors

transceivers

modem chipsets

transceiver modules

Power amplifiers

Digital and mobile TV tuners

Analog to digital converters

Focal plane arrays

WCDMA transceivers

DVD laser drivers

Ultra wideband transceivers

Power management

Representative publicly-

Airoha

Conexant

DRS Systems

announced customers

Freescale

Xceive

Mindspeed

Rockwell Scientific

Marvell Technology

Micro Linear

Texas Instruments

RF Micro Devices

RF Magic

Skyworks

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Jazz recently entered into a technology license agreement and a technology transfer agreement with PolarFab pursuant to which Jazz acquired, directly and by license, certain process technologies that it intends to incorporate into its BCD process technologies. PolarFab is obligated to cooperate with Jazz to transfer at least 50% of its foundry services, including its third-party customers utilizing the acquired technologies, to Jazz by June 2007, and 95% of these foundry services to Jazz by February 2008. Jazz will be required to make certain royalty payments based on a percentage of revenues from sales of devices manufactured for PolarFab’s customers, to pay fees based on certain thresholds of production volume of wafers Jazz manufactures using the acquired process technologies and to make payments based on certain milestones related to the qualification and production of wafers using the acquired processes. The technology license agreement restricts Jazz from manufacturing more than 250 wafers per quarter for certain current customers of PolarFab until May 2007. This restriction does not apply to the manufacture and sale of analog devices to current customers of either PolarFab or Jazz if such devices are of a type that have not been previously manufactured by PolarFab for the respective customer.

Competition

Jazz competes internationally and domestically with dedicated foundry service providers such as Taiwan Semiconductor Manufacturing Company, United Microelectronics Corporation, Semiconductor Manufacturing International Corporation and Chartered Semiconductor Manufacturing Ltd., which, in addition to providing leading edge complementary metal oxide semiconductor process technologies, also have capacity for some specialty process technologies. Jazz also competes with integrated device manufacturers that have internal semiconductor manufacturing capacity or foundry operations, such as IBM. In addition, several new dedicated foundries have commenced operations and may compete directly with Jazz. Many of Jazz’s competitors have higher capacity, longer operating history, longer or more established relationships with their customers, superior research and development capability and greater financial and marketing resources than Jazz. As a result, these companies may be able to compete more aggressively over a longer period of time than Jazz.

IBM competes in both the standard CMOS segment and in specialty process technologies. In addition, there are a number of smaller participants in the specialty process arena. Jazz believes that most of the large dedicated foundry service providers compete primarily in the standard CMOS segment, but they also have capacity for specialty process technologies. Prior to Jazz’s separation from Conexant, Conexant entered into a long-term licensing agreement with Taiwan Semiconductor Manufacturing Company under which Taiwan Semiconductor Manufacturing Company licensed from Conexant the right to manufacture semiconductors using Conexant’s then existing 0.18 micron or greater SiGe BiCMOS process technologies. Jazz does not believe that Taiwan Semiconductor Manufacturing Company has focused its business on the SiGe BiCMOS market to date. However, Taiwan Semiconductor Manufacturing Company publicly announced in 2001 that it planned to use the licensed technology to accelerate its own foundry processes for the networking and wireless communications markets. Since Jazz’s formation, it has continued to make improvements in its SiGe BiCMOS process technology. Jazz has not licensed any of these improvements to Taiwan Semiconductor Manufacturing Company. Jazz does not believe that the license of SiGe BiCMOS process technology by Taiwan Semiconductor Manufacturing Company has had any significant effect on its business or competitive position. In the event Taiwan Semiconductor Manufacturing Company determines to focus its business on the SiGe BiCMOS market, it may use and develop the technology licensed to it in 2001 to compete directly with Jazz in the specialty market, and such competition may harm Jazz’s business.

As Jazz’s competitors continue to increase their manufacturing capacity, there could be an increase in specialty semiconductor capacity during the next several years. As specialty capacity increases there may be more competition and pricing pressure on Jazz’s services, and underutilization of its capacity may result. Any significant increase in competition or pricing pressure may erode its profit margins, weaken Jazz’s earnings or increase its losses.

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Additionally, some semiconductor companies have advanced their complementary metal oxide semiconductor designs to 90 nanometer or smaller geometries. These smaller geometries may provide the customer with performance and integration features that may be comparable to, or exceed, features offered by Jazz’s specialty process technologies, and may be more cost-effective at higher production volumes for certain applications, such as when a large amount of digital content is required in a mixed-signal semiconductor and less analog content is required. Jazz’s specialty process technologies will therefore compete with these advanced CMOS processes for customers and some of its potential and existing customers could elect to design these advanced CMOS processes into their next generation products. Jazz is not currently capable, and does not currently plan to become capable, of providing CMOS processes at these smaller geometries. If Jazz’s existing customers or new customers choose to design their products using these CMOS processes Jazz’s business may suffer.

The principal elements of competition in the semiconductor foundry industry include:

technical competence;

production speed and cycle time;

time-to-market;

researchand development quality;

available capacity;

fab and manufacturing yields;

customer service;

price;

management expertise; and

strategic relationships.

There can be no assurance that Jazz will be able to compete effectively on the basis of all or any of these elements. Jazz’s ability to compete successfully may depend to some extent on factors outside of its control, including industry and general economic trends, import and export controls, exchange controls, exchange rate fluctuations, interest rate fluctuations and political developments. If Jazz cannot compete successfully in its industry, its business and results of operations will be harmed.

Research and Development

The semiconductor industry is characterized by rapid changes in technology. As a result, effective research and development is essential to Jazz’s success. Jazz invested approximately $22.8 million in 2003, $18.7 million in 2004, $19.7 million in 2005 and $10.3 million in the first half of 2006 in research and development, which represented 12.3%, 8.5%, 9.9% and 10.4% of its revenues in each period, respectively. Jazz plans to continue to invest significantly in research and development activities to develop advanced process technologies for new applications. As of June 30, 2006, Jazz employed 77 professionals in its research and development department, approximately 24 of whom hold Ph.D. degrees.

Jazz’s research and development activities seek to upgrade and integrate manufacturing technologies and processes. Although Jazz emphasizes firm-wide participation in the research and development process, it maintains a central research and development team primarily responsible for developing cost-effective technologies that can serve the manufacturing needs of its customers. A substantial portion of Jazz’s research and development activities are undertaken in cooperation with its customers and equipment vendors.

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Intellectual Property

Jazz’s success depends in part on its ability to obtain patents, licenses and other intellectual property rights covering and relating to wafer manufacturing and production processes, semiconductor structures and other structures fabricated on wafers. To that end, Jazz has acquired certain patents and patent licenses and intend to continue to seek patents covering and relating to wafer manufacturing and production processes, semiconductor structures and other structures fabricated on wafers. As of June 30, 2006, Jazz had 132 patents in force in the United States and 11 patents in force in foreign countries. Jazz also had 23 pending patent applications in the United States, 29 pending patent applications in foreign countries and four pending patent applications in the Patent Cooperation Treaty.

The Patent Cooperation Treaty permits Jazz to simultaneously seek protection for an invention in over one hundred member countries. Under this treaty, Jazz’s application is first subjected to a search for published documents that could affect the patentability of the invention. After the search, Jazz may request a preliminary examination on patentability, or submit an application in elected countries. Jazz may also request a preliminary examination that will result in a Patent Cooperation Treaty written opinion on patentability before it submits an application in elected countries. Upon submitting an application in elected countries, the search result or the written opinion on patentability will be used by each country to determine patentability of the invention. The Patent Cooperation Treaty process is an optional formal and preliminary process to reduce costs by centralizing the search and preliminary examination that each country would otherwise have to perform. Furthermore, the Patent Cooperation Treaty process permits Jazz to avoid translation costs and patent office costs associated with filing an application in a member country before making a preliminary examination of whether the patent application is likely to be accepted.

Jazz’s issued patents have expiration dates ranging from 2006 to 2024. Jazz considers its patent portfolio to be important to its business, but does not view any single patent as material in relation to its overall revenues. Jazz believes that its SiGe and BiCMOS portfolios are material to its business. Patents within its SiGe portfolio expire at various times from 2020 to 2024. Patents within its RF CMOS portfolio expire at various times from 2018 to 2024. Patents within its BiCMOS portfolio expire at various times from 2008 to 2024.

Jazz’s expired patents generally related to legacy technologies that were developed by its predecessors, namely Rockwell. Due to the rapid pace of technological changes and advancement in the field of semiconductor fabrication and processing, Jazz does not believe that the expiration of these patents materially affected its competitive position.

Jazz has entered into patent licenses. For example, Jazz entered into a technology license agreement under which it licensed to ASMC, without the right to sublicense, CMOS, RF CMOS, BiCMOS and SiGe BiCMOS process technologies and engineering assistance, for use in connection with its manufacture of wafers for Jazz. Jazz also licensed its process technologies, patents and know how relating to the production of certain CMOS and RF CMOS wafers to HHNEC for its own use and certain RF CMOS and SiGe BiCMOS process technologies for use solely in connection with the manufacture of wafers for Jazz, in each case without the right to sublicense.

Jazz has entered into a technology license agreement that grants to it worldwide perpetual license rights from PolarFab regarding certain process technologies that it intends to incorporate into its BCD process technologies for the manufacture of wafers by Jazz for its customers and customers of PolarFab. Jazz also entered into an associated technology transfer agreement for such processes. Jazz is able to adapt, prepare derivatives based on, or otherwise exploit the licensed technology, however, Jazz is restricted from using certain licensed BCD process technologies with respect to motor controllers for hard disk drives. Jazz is also able to sublicense the process technologies to ASMC, HHNEC and any of its future manufacturing suppliers to manufacture for Jazz and its customers.

During 2004, Jazz entered into a cross license and release agreement with an unrelated third party. The license includes technology developed by the third party related to Jazz’s manufacturing process. In exchange for the license and release, Jazz agreed to make certain payments through 2007. Jazz may choose to obtain additional patent licenses or enter into additional patent cross-licenses in the future. However, there can be no assurance as to whether future agreements will be reached or as to the terms of any agreement that is consummated.

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In connection with Jazz’s separation from Conexant, Conexant contributed to Jazz a substantial portion of its intellectual property, including software licenses, patents and intellectual property rights in know-how related to its business. Jazz agreed to license intellectual property rights relating to the owned intellectual property contributed to Jazz by Conexant back to Conexant and its affiliates. Conexant may use this license to have Conexant products produced by third-party manufacturers and to sell such products, but must obtain Jazz’s prior consent to sublicense these rights for the purpose of enabling that third party to provide semiconductor fabrication services to Conexant.

In connection with Jazz’s formation, Conexant granted to Jazz non-exclusive, royalty-free licenses:

in patents and process technology materials for use at its facilities in order to produce, sell, develop and improve semiconductor wafers and devices;

to use the design kits that Jazz offers to its customers; and

to certain other intellectual property used in Jazz’s business.

The agreement provides that in no event will Jazz’s or Conexant’s aggregate liability exceed $5.0 million, nor will Jazz or they be liable for consequential or incidental damages. Because the amount of Conexant’s indemnity obligation to Jazz is capped, it may not be sufficient to cover all damages Jazz might have to pay, or other costs Jazz may incur in connection with the agreement.

In September of 2006, Jazz and Conexant entered into a letter settlement agreement that provides for the settlement of a dispute that had arisen between them with respect to the indemnification obligations of Conexant owed to Jazz under the contribution agreement pursuant to which Jazz was formed. The contribution agreement requires Conexant to indemnify Jazz for up to 60% of any money paid by Jazz to a third party with respect to certain intellectual property contributed by Conexant to Jazz at its formation. Under the letter settlement agreement, Jazz and Conexant agreed that Conexant’s total indemnification obligation with respect to a certain license agreement entered into between Jazz and a certain third party related to such intellectual property would be satisfied in full through the offset of royalties otherwise payable by Jazz to Conexant for the sale of SiGe products of an aggregate amount equal to $2.6 million. The parties also acknowledged in the settlement letter agreement that, in connection with this dispute and in accordance with the terms of the contribution agreement, Jazz had previously withheld royalties owed to Conexant for the sale of SiGe products to parties other than Conexant and its spun-off entities in the amount of approximately $2,7 million. As such, Jazz agreed to refund the difference to Conexant and the parties released each other from all additional future claims related to the dispute.

Prior to Jazz’s separation from Conexant, Conexant entered into a long-term licensing agreement with Taiwan Semiconductor Manufacturing Company under which Taiwan Semiconductor Manufacturing Company licensed from Conexant the right to manufacture semiconductors using Conexant’s then existing 0.18 micron or greater SiGe BiCMOS process technologies.

Jazz’s ability to compete depends on its ability to operate without infringing the proprietary rights of others. The semiconductor industry is generally characterized by frequent litigation regarding patent and other intellectual property rights. As is the case with many companies in the semiconductor industry, Jazz has from time to time received communications from third parties asserting that their patents cover certain of its technologies or alleging infringement of their other intellectual property rights. Jazz expects that it will receive similar communications in the future. Irrespective of the validity or the successful assertion of such claims, Jazz could incur significant costs and devote significant management resources to the defense of these claims, which could seriously harm its company. There is no material litigation involving an infringement claim currently pending against Jazz.

In order to minimize its risks from claims based on its manufacture of semiconductor devices or end-use products whose designs infringe on others’ intellectual property rights, Jazz generally accepts orders only from companies that it believes have a satisfactory reputation and for products that are not identified as at risk for potential infringement claims.

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Environmental Matters

Semiconductor manufacturing processes generate solid, gaseous, liquid and other industrial wastes in various stages of the manufacturing process. Jazz has installed various types of pollution control equipment in its fab to reduce, treat and, where feasible, recycle the wastes generated in its manufacturing process. Jazz’s operations are subject to strict regulation and periodic monitoring by the United States Environmental Protection Agency along with several state and local environmental agencies.

Jazz has implemented an environmental management system that assists Jazz in identifying applicable environmental regulations, evaluating compliance status and establishing timely waste preventive measures. The systems Jazz implemented have been certified as meeting the ISO 14001 standard. ISO 14001 consists of a set of standards that provide guidance to the management of organizations to achieve an effective environmental management system.

Jazz believes that it has adopted pollution measures for the effective maintenance of environmental protection standards substantially consistent with U.S. federal, state and local environmental regulations. Jazz also believes that it is currently in material compliance with applicable environmental laws and regulations.

Litigation

Jazz is not currently involved in material litigation or other proceedings. As is the case with many companies in the semiconductor industry, Jazz has from time to time received notices alleging infringement of intellectual property rights of others and breach of warranties.

Employees

As of June 30, 2006, Jazz had 817 employees, which included 689 employees in manufacturing, 77 employees in research and development and 51 employees performing sales, marketing and administrative functions.

As of June 30, 2006, 350 of Jazz’s employees are covered by a collective bargaining agreement and are members of the International Brotherhood of Electrical Workers. Jazz believes that it has a good relationship with all of its employees.

Risk Management and Insurance

As part of its risk management program, Jazz surveyed its buildings and fab for resistance to potential earthquake damage. As a result of this survey, Jazz implemented additional measures to minimize its fab’s exposure to potential damage caused by future earthquakes and seismically qualified its fab for a high magnitude earthquake.

Jazz maintains industrial special risk insurance for its facilities, equipment and inventories that covers physical damage and consequential losses from natural disaster and certain other risks up to the policy limits and except for exclusions as defined in the policies. Jazz also maintains public liability insurance for losses to others arising from its business operations and carries insurance for business interruption resulting from such events and if its suppliers are unable to provide Jazz with supplies. While Jazz believes that its insurance coverage is adequate and consistent with industry practice, significant damage to any of its or its manufacturing suppliers’ production facilities, whether as a result of fire or other causes, could seriously harm its business and results of operations.

Properties

Jazz’s headquarters and manufacturing facilities are located in Newport Beach, California. Jazz leases the use of these facilities from Conexant under leases that expire March 12, 2017 and it has the option to extend each lease for two consecutive five-year periods after March 12, 2017. Pursuant to the merger agreement, Jazz and Conexant have executed amendments to the leases, which will be effective upon completion of the merger. Under the amendments, Jazz’s headquarters office may be relocated one time no earlier than 12 months from the completion of the merger to another building within one mile of its current location at Conexant’s option and expense, subject to certain conditions. Jazz also leases from third-parties warehouse facilities in Irvine, California and office facilities in Shanghai, China.

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The following table provides certain information as to Jazz’s principal general offices, manufacturing and warehouse facilities:

Property Location	Use	Floor Space
Newport Beach, California	Headquarters office	68,227 square feet
Newport Beach, California	Manufacturing facility	320,510 square feet
Irvine, California	Warehouse	10,064 square feet
Shanghai, China	Research and development facility	8,813 square feet

Jazz expects these office and warehouse facilities to be adequate for its business purposes through 2006 and Jazz expects additional space to be available to use on commercially reasonable terms at that time. Consistent with Jazz’s manufacturing strategy, Jazz plans to add manufacturing capacity as needed by expanding its existing manufacturing supply relationships, entering into new manufacturing supply relationships or acquiring existing manufacturing facilities.

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JAZZ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion and analysis of financial condition and results of operations in conjunction with Jazz’s selected consolidated financial information and its consolidated financial statements and the related notes included elsewhere in this proxy statement. In addition to historical information, the following discussion and analysis includes forward looking information that involves risks, uncertainties and assumptions. Jazz’s actual results and the timing of events could differ materially from those anticipated by these forward looking statements as a result of many factors, including those discussed under “Risk Factors—Risks Related to Business and Operations Following the Merger with Jazz” and elsewhere in this proxy statement. See “ Forward Looking Statements.”

General

Jazz is an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog and mixed-signal semiconductor devices. Jazz believes its specialty process technologies attract customers who seek to produce analog and mixed-signal semiconductor devices that are smaller and more highly integrated, power-efficient, feature-rich and cost-effective than those produced using standard process technologies. Jazz’s customers’ analog and mixed-signal semiconductor devices are designed for use in products such as cellular phones, wireless local area networking devices, digital TVs, set-top boxes, gaming devices, switches, routers and broadband modems. Jazz’s customers include Skyworks Solutions, Inc., Conexant Systems, Inc. (“Conexant”), Marvell Technology Group Ltd., RF Micro Devices, Inc., Freescale Semiconductor, Inc., Airoha Technology Corp., Xceive Corporation and Mindspeed Technologies, Inc.

Business Overview

Jazz’s Formation

Prior to Jazz’s inception on March 12, 2002, its business was the Newport Beach, California semiconductor fabrication, or fab, operations and related research and development activities of Conexant. Conexant and its predecessor, Rockwell International Corporation, developed these operations through an investment of approximately $1 billion in manufacturing assets since 1995 and the development of process technologies over more than 35 years. Following a decision by Conexant to outsource all of its manufacturing needs, Jazz were formed through a cash investment by affiliates of The Carlyle Group, one of the largest U.S. private equity funds, and a contribution by Conexant of:

its Newport Beach, California semiconductor fabrication and probing operations;

research and development and other support operations;

software licenses, patents and intellectual property rights;

other assets required to operate its business; and

a warrant to purchase 2,900,000 shares of Conexant’s common stock.

Conexant also granted Jazz a perpetual, non-exclusive, royalty-free license of intellectual property for the design, development and improvement of semiconductor wafers and devices. Jazz also agreed to pay to Conexant a percentage of its gross revenues derived from the sale of silicon germanium, or SiGe, products to parties other than Conexant and its spun-off entities during its first 10 years of operation. Jazz accounted for its formation using the purchase method of accounting.

In September of 2006, Jazz and Conexant entered into a letter settlement agreement that provides for the settlement of a dispute that had arisen between them with respect to the indemnification obligations of Conexant owed to Jazz under the contribution agreement pursuant to which Jazz was formed. The contribution agreement requires Conexant to indemnify Jazz for up to 60% of any money paid by Jazz to a third party with respect to certain intellectual property contributed by Conexant to Jazz at its formation. Under the letter settlement agreement, Jazz and Conexant agreed that Conexant’s total indemnification obligation with respect to a certain license agreement entered into between Jazz and a certain third party related to such intellectual property would be satisfied in full through the offset of royalties otherwise payable by Jazz to Conexant for the sale of SiGe products of an aggregate amount equal to $2.6 million. The parties also acknowledged in the settlement letter agreement that, in connection with this dispute and in accordance with the terms of the contribution agreement, Jazz had previously withheld royalties owed to Conexant for the sale of SiGe products to parties other than Conexant and its spun-off entities in the amount of approximately $2.7 million. As such, Jazz agreed to refund the difference to Conexant and the parties released each other from all additional future claims related to the dispute.

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Jazz leases its headquarters and the Newport Beach, California fab from Conexant. These leases expire on March 12, 2017 and Jazz has the option to extend the leases for two consecutive five-year terms. Jazz’s rent under these leases consists of its pro rata share of the expenses incurred by Conexant in the ownership of these buildings, including property taxes, building insurance, depreciation and common area maintenance. Jazz is not permitted to sublease space that is subject to these leases without Conexant’s prior consent. The equipment contained in these buildings generally is owned by Jazz and is not covered by the lease agreements. Pursuant to the merger agreement, Jazz and Conexant have executed amendments to the leases, which will be effective upon completion of the merger. Under the amendments, Jazz’s headquarters office may be relocated one time no earlier than 12 months from the completion of the merger to another building within one mile of its current location at Conexant’s option and expense, subject to certain conditions.

Prior to Jazz’s formation, its Newport Beach, California fab was a manufacturing cost center of Conexant and was not a segment, division or other separately identifiable line of business. The cost center did not sell or market its products. Rather, it manufactured products for use by Conexant based on Conexant’s demand requirements. The semiconductor wafers produced by the fab were only one component in the end semiconductor products sold by Conexant. Conexant did not provide a transfer pricing mechanism between its Newport Beach, California fab operations and its business units and did not allocate general functional expenses to the fab because it was only one of multiple elements of the cost of producing the products it sold to its customers. The fab participated in Conexant’s cash management system wherein all cash disbursements associated with fab activities were funded by Conexant. As a result, Jazz’s business did not have revenues prior to its separation from Conexant, and Jazz is unable to determine actual historical costs that would have been incurred by Jazz if services performed by Conexant had been purchased from independent third parties. For this reason, Jazz is unable to present historical financial information for periods prior to March 12, 2002, the inception of its business as a stand-alone entity, and it does not believe that such historical financial information would be useful or meaningful to potential investors in Jazz.

Factors Affecting Jazz’s Operating Results

Period to Period Fluctuations

Jazz manufactures semiconductor wafers that are used by its fabless and integrated device manufacturer customers to produce finished semiconductor products for electronics systems such as cellular phones, wireless local area networking devices, digital TVs, set-top boxes, gaming devices, switches, routers and broadband modems. Jazz believes demand for these electronics systems and the semiconductor products that comprise them will continue to grow significantly over the long-term but that its quarterly revenues will vary significantly. This fluctuation is due to several factors, but occurs primarily because Jazz’s customer base is highly concentrated and production volume from its largest customers, including its formation and key post-formation customers, tend to vary significantly based upon changes in end-user demand for the customer’s products, product obsolescence, new product development cycles and the particular customer’s inventory levels of electronics systems and semiconductors.

Formation Customers

Jazz refers to Conexant and Skyworks as its formation customers. In connection with Jazz’s formation, it entered into a wafer supply agreement with Conexant. The initial price for wafers under the agreement, up to the minimum annual volume commitment, was fixed at an amount equal to Conexant’s historical cost to manufacture wafers at Jazz’s Newport Beach, California fab, assuming the same levels of production immediately prior to Jazz’s formation. During each of the first three years of the agreement Conexant was obligated to purchase a declining minimum number of wafers. Conexant’s minimum purchase obligations, which expired in March 2005, were $33.8 million in 2004 and $6.8 million for the first quarter of 2005. Conexant’s actual purchases were $62.2 million and $12.5 million during 2004 and the first quarter of 2005, respectively. Jazz was permitted to increase the price for non-specialty wafers at incremental rates between April 2004 and April 2005, based on market conditions. Under the agreement, Jazz provided Conexant with $60.0 million of credits to be used during the term of the agreement to offset any increase in the contract price for each wafer purchased by Conexant through March 30, 2007. Due to market conditions during this time period, Jazz did not increase prices for non-specialty wafers and it reduced prices for some widely available process technologies to retain Conexant’s high volume products. Through the term of its supply agreement with Conexant, Jazz was required to adjust wafer prices every six months to the best price it provided to any customer for similar volumes and schedules or, if lower, the price offered by leading foundries for similar technologies, volumes and schedules. Conexant did not use any of the credits provided to it because Jazz did not increase the contract prices of wafers it sold to Conexant pursuant to the agreement. In addition, following the expiration of the agreement Conexant had the right to apply up to an aggregate of $20 million of credits to wafer purchases, limited in amount to $400 per wafer, regardless of price. The wafer supply agreement also provided Conexant with the right to assign its credits and pricing to entities that it spins-off; however, it did not do so with respect to the credits. These spun-off entities also had the right to enter into separate wafer supply agreements with Jazz on substantially the same terms as Jazz’s wafer supply agreement with Conexant. In June 2006, Jazz and Conexant agreed to terminate the wafer supply and services agreement. In connection with the termination, Jazz agreed to issue 7,583,501 shares of its common stock to Conexant and to forgive $1.2 million owed to Jazz by Conexant for reimbursement of property taxes previously paid by Jazz. In addition, Jazz agreed, under certain circumstances to issue additional shares of its common stock so that the aggregate value of the common stock received by Conexant equaled $16.3 million. This wafer supply termination agreement was subsequently amended in connection with the execution of the merger agreement to provide for the repurchase of such shares immediately prior to the completion of the merger and the termination of the obligation to issue additional shares for an aggregate consideration of $16.3 million in cash As a result of the termination of the wafer supply agreement, Conexant is no longer entitled to use any wafer credits provided to it under the agreement.

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In June 2002, Conexant spun-off and merged its wireless communications division with Alpha Industries, Inc., a manufacturer of radio frequency and microwave semiconductor products, primarily for wireless communications, to form Skyworks. In accordance with the terms of Jazz’s wafer supply agreement with Conexant regarding its spin-offs, Skyworks entered into a separate wafer supply agreement with Jazz. This agreement, as amended, is due to expire on March 30, 2007, and may be renewed for additional one-year terms upon agreement of both parties. Under its wafer supply agreement with Jazz, as amended, Skyworks must provide Jazz with rolling forecasts of its projected wafer requirements and must purchase a percentage of its forecast. In order to meet its manufacturing obligations to Skyworks, Jazz may utilize capacity at its Newport Beach, California fab or, subject to certain conditions, those of its manufacturing suppliers. Prior to November 2005, Jazz manufactured wafers incorporating specified product designs that were in production in May 2003 for Skyworks at set prices. Prior to November 2005, for all wafers incorporating product designs that were not in production in May 2003, and beginning in November 2005, for specified wafers incorporating product designs that were in production on that date, it is obligated to charge prices that are equal to the lower of listed contract prices or the best price Jazz provides to any customer for similar technologies and volumes, or, if lower, the price offered by leading foundries for similar technologies and volumes. Jazz reviews and update the prices offered by leading foundries quarterly. Jazz also agreed to certain probe yield guarantees and pricing adjustments to reflect variation in probe yield. Skyworks did not receive credits for the purchase of wafers under the wafer supply agreement. Skyworks was obligated to purchase a declining minimum number of wafers annually through March 2005. Skyworks’ minimum purchase obligation was approximately $30.6 million in 2004 and $6.1 million in the first quarter of 2005. Skyworks actual purchases were $101.3 million and $21.2 million in 2004 and the first quarter of 2005, respectively.

For the years ended December 26, 2003, December 31, 2004, and December 30, 2005 and the six months ended June 30, 2006, revenues from Jazz’s formation customers accounted for 90.3%, 74.5%, 60.5% and 41.0%, respectively, of its revenues, which includes the effect of a charge against revenue from Conexant of $17.5 million during the second quarter of 2006 associated with the termination of the wafer supply agreement with Conexant. Revenues from its formation customers for the six months ended June 30, 2006 accounted for 49.8% of its total revenues, including the effect of this reduction in revenue associated with the termination of the Conexant wafer supply agreement. Jazz expects revenues from these customers to continue to decline as a percent of its total revenues as it continues to add new customers and shift its product from standard complementary metal oxide semiconductor, or CMOS, process technologies to specialty process technologies. Jazz also expects actual revenues from its formation customers to continue to decline over the long term.

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Post-formation Customers

Using Jazz’s specialty process technologies, Jazz intends to continue to pursue aggressively business opportunities with new customers in order to continue to grow and diversify its customer base in the wireless and high-speed wireline communications, consumer electronics, automotive and industrial end markets. Jazz defines a customer as a person or business from whom it has recognized revenues in the twelve months preceding the date of determination.

Jazz’s sales personnel work closely with current and potential customers to identify opportunities for them to pursue product designs using its processes. Prior to selecting a foundry, a potential customer will evaluate various process technologies for the manufacture of its product. If the customer selects Jazz as its foundry and decides to design a specific product using one of its process technologies, Jazz refers to this customer decision as a “design win.” The entire cycle from design win to volume production typically takes eight to 26 months. At any time in this process, the customer may decide to abandon its design effort. If this occurs, Jazz considers the design a “lost design win” and removes it from its design win total. Obtaining a customer or achieving a design win does not necessarily mean that Jazz will realize any production revenues from a customer. Once the design cycle is complete and the customer has ordered 100 wafers based on the design, Jazz reclassifies the design as a “design in volume production,” and the design is no longer considered a design win.

Jazz’s relationships with its post-formation customers have progressed substantially since its inception and a significant portion of its design win pipeline now consists of designs from post-formation customers. At June 30, 2006, Jazz had 240 design wins, of which 229 were from post-formation customers. As its post-formation customers’ design wins continue to become designs in volume production, Jazz expects that its revenues from these customers will continue to grow commensurately. For the reasons described above, however, there can be no assurance that Jazz’s post-formation customers or their current designs will result in significant revenues, that it will retain these customers or that it will continue successfully attracting new customers.

The following table shows the growth in Jazz’s revenues from post-formation customers for the periods indicated (unaudited and in millions):

	Year Ended									Six Months Ended
	December 26, 2003			December 31, 2004			December 30, 2005			July 1, 2005			June 30, 2006
Revenues from post-formation customers	$	17.9		$	56.0		$	78.6		$	33.5		$	58.5
Percent of total revenues		9.7	%		25.5	%		39.5	%		34.4	%		59.0	%
Revenues from formation customers (1)	$	167.3		$	163.5		$	120.4		$	63.9		$	40.6
Percent of total revenues		90.3	%		74.5	%		60.5	%		65.6	%		41.0	%

(1)	Includes the effect of a charge against revenue from Conexant during the second quarter of 2006 of $17.5 million associated with the termination of the Conexant wafer supply agreement

Jazz expects that it will generally continue to be reliant upon a small number of large customers for a significant portion of its revenues, particularly its formation customers. Jazz expects revenues from its formation customers to continue to decline as its formation customers primarily utilize its standard process technologies and may transfer those products to other foundries as it continues to transition from standard process technologies to specialty process technologies.

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Migration to Specialty Process Technologies

The price of wafers manufactured with different process technologies varies significantly depending on the complexity of the manufacturing process associated with the applicable process technology and the price Jazz is able to charge with respect to each step within that process. Jazz typically obtains higher average selling prices per wafer on its specialty process technologies as compared to its standard process technologies, particularly from post-formation customers. These higher prices, in part, reflect the additional complexity and manufacturing costs associated with specialty process technologies. To a lesser extent, the higher prices reflect the value provided by Jazz’s specialty process technologies, its expertise in the manufacture of wafers using specialty process technologies and less competition in foundry services for specialty processes as compared to competition in the manufacture of wafers using standard process technologies. Although Jazz does not calculate separate gross margins for standard and specialty process technologies, Jazz believes that, on the whole, its ability to charge higher prices for wafers manufactured using specialty process technologies exceeds the amount of its additional costs associated with using specialty process technologies, such that it generally achieves higher gross margins on its specialty process technology wafers. Accordingly, the percentage of wafers that Jazz produces using its specialty process technologies is one of the factors that affects its revenues and profitability. Jazz’s strategy is to continue to increase its revenues derived from wafers manufactured using its 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—as a percentage of its total revenues to diminish the share of revenues derived from wafers employing digital CMOS and standard analog process technologies, which are its standard process technologies. Most of Jazz’s post-formation customers design products using its specialty process technologies. Jazz believes that specialty process technologies will comprise a greater percentage of revenues if it is successful in continuing to diversify its customer base. Jazz believes its experience in the specialty process arena, particularly in SiGe BiCMOS process technology, provides it with a competitive advantage in its target markets. Each year since its inception through June 30, 2006, the percentage of Jazz’s revenues from specialty process technologies has increased, while the percentage of its revenues from standard process technologies has decreased. The following table shows the growth in Jazz’s revenues from its specialty process technologies and the decline in its revenues from standard process technologies for the periods indicated (unaudited and in millions):

	Year Ended									Six Months Ended
	December 26, 2003			December 31, 2004			December 30, 2005			July 1, 2005			June 30, 2006
Revenues from specialty process technologies	$	82.9		$	129.3		$	124.1		$	56.5		$	79.8
Percent of total revenues		44.8	%		58.9	%		62.3	%		58.0	%		80.5	%
Revenues from standard process technologies (1)	$	102.3		$	90.2		$	74.9		$	40.9		$	19.3
Percent of total revenues		55.2	%		41.1	%		37.7	%		42.0	%		19.5	%

(1)	Includes a reduction in revenue in the second quarter of 2006 of $17.5 million associated with the termination of the Conexant wafer supply agreement.

Capacity

Jazz currently has the capacity to commence the fabrication process for up to 17,000 eight-inch wafers per month, depending on process technology mix, in its Newport Beach, California fab. During the first half of 2006 Jazz invested $7.6 million at its Newport Beach, California fab to support its continued ramp of specialty process technologies. Jazz will also continue to seek opportunities to add capacity outside of this facility through relationships with other foundries to allow it to provide multiple fab sources for high volume production on a cost-effective basis. Consistent with this strategy, Jazz has entered into supply agreements with each of Advanced Semiconductor Manufacturing Corporation, or ASMC, and HHNEC, two of China’s leading silicon semiconductor foundries. These agreements are designed to provide Jazz with low-cost, scalable production capacity and multiple location sourcing for its customers. To date, Jazz has not utilized significant capacity from its manufacturing suppliers. While these suppliers have substantially met its requests for wafers to date, if Jazz had a sudden significant increase in demand for their services, it is unlikely that they would be able to satisfy its increased demand in the short term.

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Advanced Semiconductor Manufacturing Corporation, Limited. In September 2002, Jazz entered into a manufacturing supply agreement with ASMC. This relationship presently provides Jazz with access to additional production capacity for BiCMOS and SiGe BiCMOS wafers. Under this agreement, as amended, ASMC agreed to manufacture wafers for Jazz utilizing its process technologies at set contract prices. Jazz began to utilize volume production capacity at ASMC in the first quarter of 2004. While it is obligated to provide ASMC with rolling forecasts of its projected wafer requirements, Jazz does not have a minimum purchase obligation with ASMC. ASMC has agreed to exercise commercially reasonable efforts to decrease the set contract prices on an annual basis. Either party may, however, request to renegotiate pricing based on changing market conditions. ASMC manufactured approximately 16,260, 9,300 and 9,141 wafers for Jazz in 2004, 2005 and the first half of 2006, respectively. The variability during these periods is the result of Jazz’s varying needs for outsourcing due in part to its efforts to maximize utilization of its Newport Beach, California fab during these periods. Periodic declines could also result in part due to a decline in demand for a design being produced at ASMC’s facility.

Shanghai Hua Hong NEC Electronics Co., Ltd. In August 2003, Jazz entered into a manufacturing supply agreement with HHNEC, in which it has an approximate 10% ownership interest. This relationship provides Jazz with access to additional production capacity for CMOS, RF CMOS, BiCMOS and SiGe BiCMOS wafers. HHNEC manufactures wafers for Jazz utilizing its process technologies at commercially competitive prices, not to exceed set contract prices through the end of 2006. Either party may, however, request to renegotiate pricing based on changing market conditions. As of January 2006, HHNEC is obligated to manufacture all wafers ordered by Jazz upon advance notice for fixed six-month periods, provided that HHNEC is not obligated to manufacture at a rate that exceeds the average rate of wafers manufactured in the three-month period prior to the commencement of the relevant six-month period. In addition, it is required to purchase a minimum of 50% of the wafers determined by the rate of wafer manufacturing in the three-month period prior to the commencement of the relevant six-month period. HHNEC has also agreed to use its commercially best efforts to provide additional production capacity to Jazz provided Jazz commits to purchase 50% of the additional loading it requests. HHNEC has not yet manufactured a significant amount of wafers for Jazz in any time period and consequently does not currently have a significant capacity commitment to Jazz.

Capacity Utilization

Operating results, as they relate to Jazz’s Newport Beach, California fab, are characterized by relatively high fixed costs. Increases and decreases in Jazz’s utilization of available production capacity at the Newport Beach, California fab result in the allocation of fixed manufacturing costs over a larger or reduced number of wafers, which yields lower or higher per unit costs, respectively. As a result, Jazz’s capacity utilization in a quarter can significantly affect its gross margin in that and future quarters. For example, if Jazz has low utilization of its available production capacity at its Newport Beach, California fab in a particular quarter, the cost per wafer produced in that quarter will likely increase as compared to the cost per wafer produced in periods of higher utilization. If wafers produced in low utilization periods are not sold until subsequent periods, this may result in a decrease in gross margins for those subsequent periods. If Jazz increases the production capacity of its Newport Beach, California fab through capital expenditures or otherwise, it will experience lower capacity utilization rates in subsequent periods unless it increases production activity by at least a commensurate amount. However, despite such a decline in capacity utilization, gross margin may actually increase because the incremental revenue resulting from the increased production activity may be greater than any increased fixed cost of capacity. Factors affecting capacity utilization include the level of customer orders, the complexity and mix of wafers produced, changes in its available production capacity and disruption in fab operations, including mechanical failures, disruptions in the supply of power, scheduled facility or equipment maintenance and the relocation of equipment for production process adjustments.

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Beginning in 2005, Jazz early adopted Statement of Financial Accounting Standards No. 151, Inventory Costs, or SFAS No. 151. SFAS No. 151 provides that if factory utilization rates fall significantly below historical utilization levels, Jazz is required to recognize the abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) as current-period charges and not capitalize them into its inventory. This has the effect of negatively impacting gross margins in the current period and positively impacting gross margins in future periods. Jazz evaluates its utilization rates for purposes of SFAS No. 151 on a monthly basis and has made adjustments under SFAS No. 151 in three months of 2005, none of which had a significant effect on its quarterly or annual results in 2005.

Jazz determines its production capacity based on the capacity ratings given by manufacturers of the equipment used in the fab, adjusted for, among other factors, actual output during uninterrupted trial runs, expected down time due to set up for production runs and maintenance, expected product mix and other assumptions made by Jazz. Because these factors include subjective elements, Jazz’s measurement of factory utilization is unlikely to be comparable to those of its competitors. Jazz uses a consistent methodology to determine capacity utilization for all fiscal periods presented in order to allow for analysis of utilization trends.

Jazz seeks to move products to production with its manufacturing suppliers if its Newport Beach, California fab is operating at or near capacity. Jazz normally seeks to keep capacity in its Newport Beach, California fab at or near capacity prior to moving products to production with its manufacturing suppliers so that it spread its fixed operating costs over the greatest number of wafers possible. When it is operating at or near capacity in its Newport Beach, California fab, the cost to produce one additional wafer produced in that fab is generally lower than the cost to purchase a wafer from ASMC or HHNEC, even though the average cost over an extended period to purchase a wafer from ASMC or HHNEC is generally lower than the average cost over an extended period to produce a similar wafer at its Newport Beach fab. Other considerations for loading wafers at Jazz’s manufacturing suppliers’ fabs include the particular process technology, customer requirements, its capacity obligations to those suppliers and its assessment of the relative cost between manufacturing locations. Except for contractual minimum volume purchase commitments, if any, Jazz bears no responsibility for under-utilized, fixed costs of its production at ASMC or HHNEC. Costs associated with products delivered by Jazz’s manufacturing suppliers are therefore variable to Jazz.

Fab and Manufacturing Yield

Fab yield is defined as the number of wafers completed that meet certain acceptance criteria, expressed as a percentage of total wafer starts. Manufacturing yield is defined as the number of functioning die on a wafer, expressed as a percentage of total die per wafer. Jazz’s ability to achieve and maintain high levels of fab and manufacturing yields is a key requirement for its customers’ and its business operations.

Jazz expenses, to cost of revenues, defective inventory caused by fab yield loss or manufacturing yields that are below customer requirements. Recognition of these expenses can cause its gross margins to fluctuate. Future decreases in Jazz’s fab or manufacturing yields could result in delays in delivering products to its customers and could have a material adverse effect on its ability to attract or retain customers, which would significantly reduce Jazz’s revenues and decrease its gross margins.

Financial Operations Overview

Fiscal Year

Jazz maintains a 52- or 53-week fiscal year ending on the Friday on or preceding December 31. Each of the first three quarters of its fiscal year ends on the last Friday in each of March, June and September. 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 each and the fourth quarter consists of 14 weeks. Fiscal year 2003 consists of 52 weeks, fiscal year 2004 consists of 53 weeks and fiscal year 2005 and fiscal year 2006 each consist of 52 weeks.

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Revenues

Jazz generates revenues primarily from the manufacture and sale of semiconductor wafers. Jazz also derives a portion of its revenues from the resale of photomasks and engineering services. Jazz records revenues net of estimates of potential product returns, allowances and contractual wafer credits, if applicable.

Cost of Revenues

Cost of revenues for wafers manufactured at Jazz’s Newport Beach, California fab consists primarily of purchased manufacturing materials, including the cost of raw wafers, gases and chemicals, shipping costs, labor and manufacturing-related overhead associated with the engineering services, design and manufacture of products. Jazz’s cost of revenues for wafers manufactured by its manufacturing suppliers includes the purchase price and shipping costs that it pays for completed wafers. Cost of revenues also includes the purchase of photomasks and the provision of test services. Jazz expenses to cost of revenues defective inventory caused by fab and manufacturing yields as incurred. Jazz also reviews its inventories for indications of obsolescence or impairment and provides reserves as deemed necessary. Royalty payments Jazz makes in connection with certain of its process technologies are also included within the cost of revenues.

Research and Development

Research and development costs are expensed as incurred and primarily consist 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. As Jazz recognizes revenues in connection with certain engineering services, it reclassifies research and development expenses associated with obtaining those revenues to cost of revenues.

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of salaries and benefits for Jazz’s selling and administrative personnel, including the human resources, executive, finance and legal departments. Selling, general and administrative expenses also include fees for professional services and other administrative expenses.

Amortization of Intangibles

Amortization of intangible expenses includes amortization of intellectual property acquired upon Jazz’s formation and of technology cross-licenses rights acquired since its formation.

Stock Compensation Expense

Stock Appreciation Rights. At the time of Jazz’s separation from Conexant, the substantial majority of Conexant’s employees working in the Newport Beach, California fab became Jazz’s employees. In connection with their employment, Conexant had granted some of these employees options to purchase Conexant common stock. The terms of the options generally provided that they would expire within three months following an employee’s termination of employment by Conexant. Conexant and Jazz decided to provide employees transferred to Jazz that had held Conexant options with a continuing economic interest in Conexant common stock. Accordingly, Jazz issued stock appreciation rights to these employees that entitle the holders to receive, upon exercise, a cash settlement for the excess, if any, of the fair market value of a share of Conexant common stock over the reference price of the stock appreciation right. On March 12, 2002, Jazz granted 2,979,456 stock appreciation rights with a reference price of $13.05. The number of shares relating to, and the reference price of, the stock appreciation rights is subject to adjustment for, among other things, distributions of securities by Conexant to holders of its common stock. The stock appreciation rights vested at a rate of 25% at the end of each six-month period after the date of grant, such that the stock appreciation rights became fully vested on March 12, 2004. The unexercised stock appreciation rights were initially due to expire on December 31, 2004.

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To offset substantially the economic effect on Jazz of the stock appreciation rights, Conexant granted Jazz a warrant to purchase 2,900,000 shares of its common stock at an exercise price of $13.05 per share that was initially due to expire on January 20, 2005. The warrant is subject to adjustment for, among other things, subsequent distributions of securities by Conexant to holders of its common stock. The warrant is fully vested. Adjustments were made to the stock appreciation rights and the warrant in connection with Conexant’s spin-off of its wireless division and subsequent merger with Alpha Industries, Inc. to form Skyworks in June 2002, and Conexant’s spin-off of Mindspeed Technologies, Inc. in June 2003. The per share exercise price and the number of shares subject to the warrant granted to Jazz by Conexant were equitably adjusted to take into account the economic effect of each transaction. In connection with these transactions, Jazz also received warrants to purchase Mindspeed common stock and Skyworks common stock that expired on January 20, 2005. Jazz’s board of directors has extended the expiration of the term of the stock appreciation rights related to Conexant common stock to December 31, 2006. In connection with this action, Conexant extended expiration of the warrant to purchase Conexant common stock to January 20, 2007.

Upon a holder’s exercise of a stock appreciation right, Jazz exercises a corresponding portion of the applicable warrant and sell the underlying securities received upon exercise such that the transactions are cash neutral to Jazz. The number of stock appreciation rights outstanding has decreased through employee attrition and other forfeits prior to exercise such that Jazz now is able to acquire sufficient shares upon the exercise of warrants to offset fully cash payments it is required to make to holders of stock appreciation rights upon the exercise of such stock appreciation rights.

For the year ended December 26, 2003, approximately 178,000 and 194,000 stock appreciation rights were exercised for Conexant common stock and Mindspeed common stock, respectively, resulting in payments to employees of approximately $931,000. To offset the effect of the exercised underlying stock appreciation rights, Jazz exercised an equivalent number of warrants to purchase Conexant and Mindspeed common stock and sold the underlying shares of common stock of Conexant and Mindspeed for net proceeds of approximately $931,000. For the year ended December 31, 2004, approximately 369,000 and 843,000 stock appreciation rights were exercised for Conexant common stock and Mindspeed common stock, respectively, resulting in payments to employees of approximately $3,250,000. Concurrently, Jazz exercised an equivalent number of warrants to purchase Conexant and Mindspeed common stock and sold the underlying shares for net proceeds of approximately $3,250,000. As of December 31, 2004, all stock appreciation rights related to the Skyworks common stock expired and were cancelled and all stock appreciation rights related to Mindspeed common stock had been exercised. No stock appreciation rights or warrants for Skyworks common stock were exercised prior to their expiration. For the year ended December 30, 2005 and the six months ended June, 2006, no stock appreciation rights were exercised for Conexant common stock and Jazz did not exercise any warrants to purchase Conexant common stock.

The issued and outstanding warrant and stock appreciation rights as of June 30, 2006 were as follows:

Associated Common Stock		Warrant		Stock Appreciation Rights		Exercise/Reference Price Per Share
Conexant		2,309,604		2,101,441		$3.76

Upon Jazz’s separation from Conexant, Jazz recorded an asset equal to the fair value of the Conexant warrant and a liability equal to the fair value of the granted stock appreciation rights on its consolidated balance sheet. In addition, Jazz recorded on its consolidated balance sheet, as part of the purchase price allocation, deferred compensation for the fair value of the stock appreciation rights granted to employees. The stock appreciation right liability was offset by the deferred compensation, resulting in a net amount of zero for the stock appreciation right liability on its consolidated balance sheet as of March 12, 2002 (inception). The deferred compensation was amortized over the vesting period of the stock appreciation rights such that, as portions of the outstanding stock appreciation rights vested, a corresponding portion of the deferred compensation amount was recorded as a stock compensation expense in its consolidated statement of operations as a charge and the net difference between the remaining amount of deferred compensation and the stock appreciation right liability was reflected on the consolidated balance sheet.

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Jazz reflects subsequent adjustments as of each interim and annual reporting date in the fair value of the warrants as a gain or loss on investments in its consolidated statement of operations. Jazz reflects subsequent adjustments to the stock appreciation right liability and deferred compensation due to fluctuations in the fair value of the instruments and due to the amortization of the deferred compensation in compensation expense in its consolidated statement of operations. Jazz amortized deferred compensation on a straight-line basis over the vesting period of the stock appreciation rights, which ended on March 12, 2004. The full amount of the stock appreciation right liability is reflected as a liability on its consolidated balance sheet as of December 30, 2005. During the period from March 12, 2002 until their expiration, changes in the fair value of these instruments affect operating income but do not have a significant effect on net income or net loss. This is because any increase or decrease in stock compensation expense will substantially be offset by a corresponding change in the value of the warrants, which is accounted for as a gain or loss on investments. Jazz does not expect the warrants or stock appreciation rights to have a significant effect on net income or loss for any future period.

Stock Options. Through December 30, 2005, Jazz accounted for employee stock options using the intrinsic value method in accordance with Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees, or APB No. 25, and related interpretations and had adopted the disclosure only provisions of SFAS No. 123, Accounting for Stock-Based Compensation, or SFAS No. 123. Through December 30, 2005, Jazz also disclosed pro forma net loss and the related pro forma loss per share information that is required by SFAS No. 123 in Note 2 to Jazz’s consolidated financial statements. This pro forma net loss and related pro forma loss per share information has been determined as if Jazz had accounted for its employee stock options under the minimum value method of computing fair value under SFAS No. 123 and SFAS No. 148, Accounting for Stock Based Compensation Costs Transition and Disclosure, or SFAS No. 148.

In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 123 (revised 2004) Share Based Payment, or SFAS No. 123R, which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS No. 123R became effective for Jazz beginning December 31, 2005 and eliminates its ability to account for share based compensation using the intrinsic value based method under APB No. 25 for stock options granted on or after December 31, 2005. SFAS No. 123R requires Jazz to recognize in its financial statements equity based compensation expense for stock options granted to employees based on the fair value of the equity instrument on the date of grant for stock options granted on or after December 31, 2005.

As of December 31, 2005, Jazz adopted SFAS No. 123R using the prospective method. Under the prospective method, beginning December 31, 2005, compensation cost recognized includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 30, 2005, based on the intrinsic value in accordance with the provisions of APB No. 25 and (b) compensation cost for all share-based payments granted subsequent to December 30, 2005, based on the fair value on the date of grant estimated in accordance with the provisions of SFAS No. 123R. In accordance with SFAS No. 123R, Jazz will not continue to provide pro forma disclosures of net loss and net loss per share. Jazz is currently evaluating the impact of the provisions of this standard and believes the adoption of SFAS No. 123R did not have a significant effect on its consolidated results of operations and financial position during the six months ended June, 2006.

Under APB No. 25, stock-based compensation expense, which is a non-cash charge, results from stock option grants at exercise prices that, for financial reporting purposes, are deemed to be below the estimated fair value of the underlying common stock on the date of grant, such that Jazz does not recognize compensation expense when it issues stock options to employees unless the exercise price is below the fair market value of the underlying common stock on the date of grant.

During 2005 and the first half of 2006, Jazz granted options to employees to purchase a total of 1,378,085 and 1,036,892 shares of common stock, respectively, all at an exercise price of $2.50 per share. Jazz did not obtain contemporaneous valuations from an unrelated valuation specialist during 2005 but did obtain a valuation from an unrelated valuation specialist as of March 31, 2006. Jazz also relied on the compensation committee of its board of directors, the members of which have extensive experience in the semiconductor industry and are non-employee directors, to determine a reasonable estimate of the then current value of its common stock. Given the absence of an active market for its common stock, the compensation committee determined the fair value of its common stock on the date of grant based on several factors, including:

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its historical and forecasted operating results and cash flows;

the value of Jazz discussed by Jazz and its underwriters in its previous attempt to complete an initial public offering;

independent valuations of Jazz and the changes in its business since the date of those valuations;

that the grants involved illiquid securities in a private company;

that the options are subject to vesting ratably;

increases and decreases in its total net revenues and gross margins;

decreases in net revenues from formation customers and increases in net revenues from post-formation customers;

the likelihood of achieving a liquidity event for the shares of common stock, such as an initial public offering or sale of Jazz, given prevailing market conditions at the time of the grants; and

the market prices of various publicly held semiconductor companies and comparisons to the prices paid for publicly-held companies in merger and acquisition transactions.

During 2004 and 2003, Jazz issued stock options to employees with exercise prices below the deemed fair market value of its common stock at the date of grant, as subsequently determined by the compensation committee of its board of directors in connection with the preparation of its financial statements relating to its prior attempts to complete a public offering. In accordance with the requirements of APB No. 25, Jazz has recorded deferred stock-based compensation for the difference between the exercise price of the stock option and the deemed fair market value of its stock at date of grant. These stock options were immediately exercisable but provided Jazz with a right to repurchase shares received upon exercise that lapsed over the vesting period of the option, generally four years. The deferred stock-based compensation is amortized to expense on a straight-line basis over the period during which its right to repurchase the stock lapses or the options become vested. During 2003, 2004, and 2005 Jazz recorded deferred stock compensation related to these options in the amounts of $2.4 million, $0.2 million, $(0.5 million) and $(0.1 million), net of cancellations, respectively, of which $0.1 million, $0.7 million, $0.5 and $0.2 million has been amortized to expense during 2003, 2004, 2005 and the first half of 2006, respectively.

At June 30, 2006, the amount of unearned stock-based compensation currently estimated to be expensed in the remainder of 2006 through 2010 related to unvested share-based payment awards granted on or after December 31, 2005 was $0.6 million.

Jazz accounts for stock compensation arrangements with non-employees in accordance, with SFAS No. 123, as amended by SFAS No. 148, and Emerging Issues Task Force, or EITF, No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, using a fair value approach. To date, Jazz has issued a limited number of shares of common stock to non-employees and it has not issued stock options to non-employees.

Stock-based compensation expense is recognized over the period of expected service by the non-employee. As the service is performed, Jazz is required to update these assumptions and periodically revalue unvested options and make adjustments to the stock-based compensation expense using the new valuation. These adjustments may result in additional or less stock-based compensation expense than originally estimated or recorded, with a corresponding increase or decrease in compensation expense in the statement of operations. Ultimately, the final compensation charge for each option grant to non-employees is unknown until those options have vested or services have been completed or the performance of services is completed.

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The issuance of equity instruments to non-employees did not have a material impact on Jazz’s consolidated financial statements for 2003. The issuance of equity securities in 2004 to non-employees resulted in compensation expense of $53,000, $39,000 and zero in 2004, 2005 and the first half of 2006, respectively.

Deferred Tax Assets

Jazz determines deferred tax assets and liabilities at the balance sheet date based upon the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Jazz then assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, unless Jazz believes that recovery is more likely than not, it establishes a valuation allowance to reduce the deferred tax assets to the amounts expected to be realized. Jazz periodically reviews the adequacy of the valuation allowance and recognizes these benefits if a reassessment indicates that it is more likely than not that these benefits will be realized. In addition, Jazz evaluates its tax contingencies and recognizes a liability when it believes that it is probable that a liability exists.

Jazz’s formation and contribution of assets by Conexant and concurrent investment by Carlyle was accounted for as a purchase in accordance with the provisions of SFAS No. 141 Business Combinations, or SFAS No. 141. For tax purposes, Jazz’s formation was effected as a transaction under Section 351 of the Internal Revenue Code that was not subject to federal income tax under Section 351 of the Internal Revenue Code. Jazz received the tax bases of the assets contributed to it, which exceeded the book bases of those assets at its formation. Based on this difference, Jazz established net deferred tax assets of $58.2 million. Due to uncertainty as to its ability to realize the deferred tax assets, Jazz recorded a full valuation allowance. In addition, under SFAS No. 141, the value of the contributed assets and investment in connection with Jazz’s formation was allocated to the tangible and intangible assets based upon their relative fair values as of the date of its formation. As a result, $3.9 million was allocated to non-current intangible assets, which were amortized on a straight-line basis over 3 to 10 years, reducing these assets to $2.9 million and $2.2 million at December 26, 2003 and December 31, 2004, respectively.

As a result of its net losses from inception through 2004, the net deferred tax assets and valuation allowance increased to $65.0 million at December 31, 2004. Jazz continued to conclude that a full valuation allowance against the net deferred tax assets was appropriate as a result of its cumulative losses. Despite a $1.9 million net loss before tax for book purposes in 2004, Jazz recognized taxable income for that year of $9.0 million. The difference between book loss and tax income resulted from timing differences between the recognition and measurement of revenues and expense for book purposes and tax purposes. Jazz accordingly reduced both its deferred tax assets and the associated valuation allowance related to the contributed assets in an amount sufficient to offset the 2004 tax liability. SFAS No. 109, Accounting for Income Taxes, or SFAS No. 109, requires the benefit of this reduction to be applied first to reduce goodwill and then to reduce non-current intangible assets before the benefit can be applied to reduce income tax expense. As a result, Jazz reduced the remaining $2.2 million non-current intangibles to zero, and applied the balance of the benefit to offset the current tax expense, resulting in a tax provision of approximately $2.3 million in 2004.

At December 30, 2005 and June 30, 2006, its net losses had increased net deferred tax assets to $69.4 million and $75.8 million, respectively, and Jazz continued to apply a full valuation allowance at each of these dates. If or when recognized, the tax benefits resulting from the reversal of this valuation allowance will be accounted for as a $75.4 million reduction of income tax expense and $0.4 million increase in stockholders’ equity. The increase to stockholders’ equity primarily relates to tax deductions from employee stock options and unfunded pension liability included in other comprehensive income pursuant to SFAS No. 87, Employers Accounting for Pensions.

For income tax purposes, the utilization of its net operating losses and deferred tax assets may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code. This limitation will occur as a result of change in ownership in Jazz following this merger. Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examinations from various taxing authorities.

For additional information regarding Jazz’s deferred tax assets and determination of taxes payable, see “—Critical Accounting Policies—Accounting for Income Taxes” below.

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Annex A

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (“AGREEMENT”) is made and entered into as of September 26, 2006, by and among: ACQUICOR TECHNOLOGY INC., a Delaware corporation (“Parent”); JOY ACQUISITION CORP., a Delaware corporation and a wholly-owned Subsidiary of Parent (“Merger Sub”); JAZZ SEMICONDUCTOR, INC., a Delaware corporation (the “Company”); and TC Group, L.L.C. as the Stockholders’ Representative. Certain other capitalized terms used in this Agreement are defined in Exhibit A.

RECITALS

A. Parent, Merger Sub and the Company intend to effect a merger of Merger Sub into the Company (the “Merger”) in accordance with this Agreement and the Delaware General Corporation Law (the “DGCL”). Upon consummation of the Merger, Merger Sub will cease to exist, and the Company will become a wholly-owned Subsidiary of Parent.

B. This Agreement has been approved and declared advisable by the respective boards of directors of Parent, Merger Sub and the Company and such respective boards of directors have determined that the Merger is in the best interests of the stockholders of their respective companies.

C. In order to induce Parent to enter into this Agreement and to consummate the Merger, concurrently with the execution and delivery of this Agreement: (i) the Key Stockholders are executing a stockholder support agreement in favor of Parent (the “Stockholder Support Agreement”); (ii) the Key Stockholders are entering into General Releases in favor of the Company and Parent (the “General Releases”), to be effective as of the Closing; (iii) certain stockholders of the Company are executing Noncompetition and Non-Solicitation Agreements in favor of Parent (the “Noncompetition Agreements”); (iv) Conexant Systems, Inc. is entering into certain lease amendment agreements with Parent (the “Lease Amendment Agreements”); and (v) the Company and certain Key Stockholders are entering into an agreement terminating the agreements set forth on Schedule 6.10(d) (the “Termination Agreement”).

D. In order to induce the Company to enter into this Agreement and to consummate the Merger, concurrently with the execution and delivery of this Agreement, the Company is entering into employment agreements with certain key employees of the Company (the “Employment Agreements”).

AGREEMENT

The parties to this Agreement agree as follows:

SECTION 1. DESCRIPTION OF TRANSACTION

1.1 Merger of Merger Sub into the Company. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time (as defined in Section 1.3), Merger Sub shall be merged with and into the Company, and the separate existence of Merger Sub shall cease. The Company will continue as the surviving corporation in the Merger (the “Surviving Corporation”).

1.2 Effect of the Merger. The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the DGCL.

1.3 Closing; Effective Time. The consummation of the Merger and the other Contemplated Transactions (the “Closing”) shall take place at the offices of Cooley Godward Kronish llp, 3175 Hanover Street, Palo Alto, California, at 10:00 a.m., California time, on a date to be mutually agreed upon by Parent and the Company, which shall be no later than the fifth business day after the satisfaction or, to the extent permitted by Legal Requirements, waiver of the last to be satisfied or waived of the conditions set forth in Sections 6 and 7 (other than those conditions that by their nature are to be satisfied at the Closing and the condition set forth in Section 6.15, but subject to the satisfaction or waiver of such conditions). (The date on which the Closing actually takes place is referred to in this Agreement as the “Closing Date.”) Subject to the provisions of this Agreement, a certificate of merger in substantially the form attached hereto as Exhibit B (the “Certificate of Merger”) shall be duly executed by the Company and, concurrently with or as soon as practicable following the Closing, shall be delivered to the Secretary of State of the State of Delaware for filing. The Merger shall become effective at the time of the filing of such certificate of merger with the Secretary of State of the State of Delaware, or such later time as may be agreed upon by each of the parties hereto and specified in the Certificate of Merger (the time the Merger becomes effective being the “Effective Time”).

1.4 Certificate of Incorporation and Bylaws; Directors and Officers.

(a) The Certificate of Incorporation of the Surviving Corporation shall be amended in its entirety as of the Effective Time to conform to Exhibit C.

(b) The Bylaws of the Surviving Corporation shall be amended and restated as of the Effective Time to conform to the Bylaws of Merger Sub as in effect immediately prior to the Effective Time.

(c) The directors and officers of the Surviving Corporation immediately after the Effective Time shall be the individuals identified on Schedule 1.4.

1.5 Conversion of Shares.

(a) Subject to Section 1.10, at the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any Stockholder (as defined in Section 1.5(d)):

(i) each share of Company Capital Stock owned by Parent, Merger Sub, the Company or any direct or indirect wholly-owned Subsidiary of Parent, Merger Sub or the Company immediately prior to the Effective Time, if any, shall be canceled and retired without payment of any consideration with respect thereto;

(ii) each share of Company Preferred Stock outstanding immediately prior to the Effective Time (other than those referred to in Section 1.5(a)(i) and Dissenting Shares (as defined in Section 1.11)) shall be converted into the right to receive:

(A) an amount in cash equal to the sum of: (1) the Preference Per Share Amount (as defined in Section 1.5(b)); plus (2) the aggregate amount of accrued and unpaid dividends on such share of Company Preferred Stock calculated in accordance with the terms of the Company’s certificate of incorporation in effect on the date of this Agreement; plus (3) the Preferred Residual Per Share Amount (as defined in Section 1.5(b)); minus

(B) the product of (1) the Preferred Per Share Percentage (as defined in Section 1.5(b)) multiplied by (2) the Working Capital Adjustment Escrow Contribution Amount (as defined in Section 1.5(b)); minus

(C) the product of (1) the Aggregate Proceeds Contribution Fraction with respect to such share of Company Preferred Stock multiplied by (2) the Indemnity Escrow Contribution Amount (as defined in Section 1.5(b)); plus

(D) the product of (1) the Preferred Per Share Percentage multiplied by (2) the aggregate amount of any cash required to be released from the Working Capital Adjustment Escrow Fund to the Escrow Participants in accordance with Section 1.7 (as and when such cash is required to be released); plus

(E) the product of (1) the Aggregate Proceeds Contribution Fraction with respect to such share of Company Preferred Stock multiplied by (2) the aggregate amount of any cash required to be released from the Indemnity Escrow Fund to the Escrow Participants in accordance with Section 9.7 (as and when such cash is required to be released); plus

(F) the product of (1) the Preferred Per Share Percentage multiplied by (2) the aggregate amount of any cash required to be released from the Stockholders’ Representative Expense Fund to the Escrow Participants in accordance with Section 10.1(f) (as and when such cash is required to be released); plus

(G) the product of (1) the Preferred Per Share Percentage multiplied by (2) the aggregate amount of any payment required to be made by Parent in accordance with Section 1.7(d) (as and when such payment is required to be made); plus

(H) the product of (1) the Preferred Per Share Percentage multiplied by (2) the aggregate amount of any payment or other distribution required to be made by Parent in accordance with Section 1.8 (as and when such payment or other distribution is required to be made); and plus

(I) the product of (1) the Preferred Per Share Percentage multiplied by (2) the aggregate amount of any payment required to be made from the Company Retention Bonus Escrow Fund to the Stockholders’ Representative for distribution to Escrow Participants in accordance with Section 1.5(f) (as and when such payment or other distribution is required to be made).

(iii) each share of Company Common Stock outstanding immediately prior to the Effective Time (other than those referred to in Section 1.5(a)(i) and Dissenting Shares) shall be converted into the right to receive:

(A) an amount in cash equal to the Common Residual Per Share Amount (as defined in Section 1.5(b)); minus

(B) the product of (1) the Common Per Share Percentage multiplied by (2) the Working Capital Adjustment Escrow Contribution Amount; minus

(C) the product of (1) the Aggregate Proceeds Contribution Fraction with respect to such share of Company Common Stock multiplied by (2) the Indemnity Escrow Contribution Amount; plus

(D) the product of (1) the Common Per Share Percentage multiplied by (2) the aggregate amount of any cash required to be released from the Working Capital Adjustment Escrow Fund to the Escrow Participants in accordance with Section 1.7 (as and when such cash is required to be released); plus

(E) the product of (1) the Aggregate Proceeds Contribution Fraction with respect to such share of Company Common Stock multiplied by (2) the aggregate amount of any cash required to be released from the Indemnity Escrow Fund to the Escrow Participants in accordance with Section 9.7 (as and when such cash is required to be released); plus

(F) the product of (1) the Common Per Share Percentage multiplied by (2) the aggregate amount of any cash required to be released from the Stockholders’ Representative Expense Fund to the Escrow Participants in accordance with Section 10.1(f) (as and when such cash is required to be released); plus

(G) the product of (1) the Common Per Share Percentage multiplied by (2) the aggregate amount of any payment required to be made by Parent in accordance with Section 1.7 (as and when such payment is required to be made); plus

(H) the product of (1) the Common Per Share Percentage multiplied by (2) the aggregate amount of any payment or other distribution required to be made by Parent in accordance with Section 1.8 (as and when such payment or other distribution is required to be made); and plus

(I) the product of (1) the Common Per Share Percentage multiplied by (2) the aggregate amount of any payment required to be made from the Company Retention Bonus Escrow Fund to the Stockholders’ Representative for distribution to Escrow Participants in accordance with Section 1.5(f) (as and when such payment or other distribution is required to be made);

(iv) each share of the common stock, par value $0.001, of Merger Sub outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation.

(v) Notwithstanding anything to the contrary contained in this Agreement, at the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any Stockholder, the restrictions with respect to, and any right of repurchase of the Company of, any share of Company Common Stock that is issued and outstanding immediately prior to the Effective Time and subject to forfeiture or a right of repurchase by the Company, shall lapse and shall no longer be in effect.

(b) For purposes of this Agreement:

(i) The “Aggregate Closing Transaction Value” shall be equal to: (A) $260,000,000; minus (B) the Conexant Termination Payment Amount; minus (C) the Company Retention Bonus Amount; minus (D) the Company Stay Bonus Amount; minus (E) the Stockholders’ Representative Expense Amount; minus (F) the aggregate amount of all Transaction Expenses (including Transaction Expenses paid prior to the Effective Time and Transaction Expenses that are or will become payable at or after the Effective Time with respect to services performed or actions taken at or prior to the Effective Time); minus (G) the amount of any Closing Deficit Amount (as defined in Section 1.7(c)); and plus (H) the amount of any Closing Surplus Amount (as defined in Section 1.7(b)).

(ii) The “Aggregate In-the-Money Company Option Exercise Price” shall be the aggregate dollar amount payable to the Company as purchase price for the exercise in full of all In-the-Money Company Options (whether vested or unvested) that are outstanding and unexercised immediately prior to the Effective Time.

(iii) The “Aggregate Preference Amount” shall be the amount determined by multiplying the Preference Per Share Amount by the aggregate number of shares of Company Preferred Stock outstanding immediately prior to the Effective Time.

(iv) The “Aggregate Proceeds Contribution Fraction” means, with respect to each share of Company Capital Stock held by an Escrow Participant or each share of Company Common Stock subject to an In-the-Money Company Option held by an Escrow Participant, in each case that is outstanding immediately prior to the Effective Time, the fraction having a numerator equal to the applicable amount specified in Section 1.5(a)(ii)(A), Section 1.5(a)(iii)(A) or Section 1.6(a)(i), as the case may be, in respect of such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option, and having a denominator equal to the aggregate total of all amounts specified in Sections 1.5(a)(ii)(A), 1.5(a)(iii)(A) and 1.6(a)(i) in respect of all shares of Company Capital Stock held by the Escrow Participants and all shares of Company Common Stock subject to In-the-Money Company Options held by the Escrow Participants, in each case that are outstanding immediately prior to the Effective Time.

(v) The “Aggregate Residual Consideration Amount” shall be an amount equal to: (A) the Aggregate Closing Transaction Value; minus (B) the Aggregate Preference Amount; and minus (C) the aggregate amount of all accrued and unpaid dividends on the shares of Company Preferred Stock outstanding immediately prior to the Effective Time calculated in accordance with the terms of the Company’s certificate of incorporation in effect on the date of this Agreement.

(vi) The “Common Per Share Percentage” shall be the percentage (calculated to 15 decimal places) corresponding to the fraction having a numerator equal to 0.14 and having a denominator equal to the Fully Diluted Company Share Number.

(vii) The “Common Residual Per Share Amount” shall be the amount determined by multiplying (A) the Common Per Share Percentage by (B) the sum of the Aggregate Residual Consideration Amount plus the Aggregate In-the-Money Company Option Exercise Price.

(viii) The “Company Retention Bonus Amount” shall (A) be the maximum aggregate amount payable to participants in the Company Retention Bonus Plan and the Company Special Retention Bonus Plan at or after the Closing pursuant to, and in accordance with, the terms of the Company Retention Bonus Plan and the Company Special Retention Bonus Plan, as applicable, provided that such maximum aggregate amount shall not exceed $5,000,000 and (B) be specified in the Closing Payment Schedule.

(ix) The “Company Stay Bonus Amount” shall (A) be the maximum aggregate amount payable to Company employees who are parties to Company Stay Bonus Agreements pursuant to, and in accordance with, the terms of such Company Stay Bonus Agreements in connection with the Closing, provided that such maximum aggregate amount shall not exceed $1,750,000 and (B) be specified in the Closing Payment Schedule.

(x) The “Conexant Termination Payment Amount” means $16,300,000.

(xi) The “Fully Diluted Company Share Number” shall be the sum, without duplication, of: (A) the aggregate number of shares of Company Common Stock outstanding immediately prior to the Effective Time (including any such shares that are subject to a repurchase option and including any such shares subject to issuance pursuant to Company Options exercised prior to the Effective Time or pursuant to shares of Company Preferred Stock converted prior to the Effective Time); plus (B) the aggregate number of shares of Company Common Stock purchasable under or otherwise subject to In-the-Money Company Options (whether vested or unvested) that are outstanding and unexercised immediately prior to the Effective Time; plus (C) the aggregate number of shares of Company Common Stock purchasable under or otherwise subject to warrants and other rights (other than Company Options) to acquire shares of Company Common Stock (whether or not immediately exercisable) outstanding immediately prior to the Effective Time; and plus (D) the aggregate number of shares of Company Common Stock issuable upon the conversion of any securities of the Company convertible into Company Common Stock (other than shares of Company Preferred Stock) outstanding immediately prior to the Effective Time.

(xii) The “Indemnity Escrow Contribution Amount” means $20,000,000.

(xiii) The “Preference Per Share Amount” shall be, with respect to a share of Company Preferred Stock, the Face Amount (as defined in the Company’s certificate of incorporation in effect on the date of this Agreement) of such share in effect at the Effective Time, subject to adjustment to reflect any stock split, reverse stock split, stock dividend, recapitalization or other similar transaction effected or declared by the Company, or with respect to which a record date occurs, with respect to shares of Company Capital Stock after the execution of this Agreement and prior to the Effective Time.

(xiv) The “Preferred Per Share Percentage” shall be the percentage (calculated to 15 decimal places) corresponding to the fraction having a numerator equal to 0.86 and having a denominator equal to the aggregate number of shares of Company Preferred Stock outstanding immediately prior to the Effective Time.

(xv) The “Preferred Residual Per Share Amount” shall be equal to the amount determined by multiplying (A) the Preferred Per Share Percentage by (B) the sum of the Aggregate Residual Consideration Amount plus the Aggregate In-the-Money Company Option Exercise Price.

(xvi) The “Stockholders’ Representative Expense Amount” means $1,000,000.

(xvii) The “Working Capital Adjustment Escrow Contribution Amount” means (x) $4,000,000 minus (y) the Deferred Closing Surplus Amount (as defined in Section 1.7(i)).

(c) Immediately after the Closing but prior to the Effective Time, Parent shall cause to be delivered to the Escrow Agent by wire transfer of immediately available funds:

(i) as a contribution to the Indemnity Escrow Fund an amount in cash equal to the Indemnity Escrow Contribution Amount; and

(ii) as a contribution to the Working Capital Adjustment Escrow Fund an amount in cash equal to the Working Capital Adjustment Escrow Contribution Amount.

The Indemnity Escrow Fund and Working Capital Adjustment Escrow Fund: (A) shall be held by the Escrow Agent in accordance with the terms of this Agreement and the terms of the Escrow Agreement; and (B) shall be held and released solely for the purposes and in accordance with the terms of this Agreement and the Escrow Agreement.

(d) Immediately after the Closing but prior to the Effective Time, Parent shall fund the Stockholders’ Representative Expense Fund by causing the Stockholders’ Representative Expense Amount to be delivered to the Stockholders’ Representative by wire transfer of immediately available funds. The Stockholders’ Representative shall hold the Stockholders’ Representative Expense Fund in trust for the purpose of reimbursing the Stockholders’ Representative for Transaction Expenses and other expenses incurred by it on behalf of the Escrow Participants in accordance with Section 10.1, provided that the Stockholders’ Representative shall not be obligated to hold the Stockholders’ Representative Expense Fund in a separate account. The payment of the Stockholders’ Representative Expense Amount by Parent to the Stockholders’ Representative shall completely discharge Parent’s obligations with respect to such amount, and in no event shall Parent have any responsibility or liability whatsoever for the manner in which the Stockholders’ Representative administers the Stockholders’ Representative Expense Fund, or for causing or ensuring that all or any portion of the Stockholders’ Representative Expense Amount is ultimately paid or distributed to Escrow Participants.

(e) Immediately after the Closing but prior to the Effective Time, Parent shall pay (or cause the Company to pay) the Conexant Termination Payment Amount to Conexant by wire transfer of immediately available funds.

(f) Promptly following the Effective Time, (i) Parent shall pay (or cause the Company to pay) such amounts as are required to be paid pursuant to, and in accordance with the provisions of, the Company Retention Bonus Plan in connection with the Closing, (ii) to the extent that any portion of the Company Retention Bonus Amount payable to participants under the Company Retention Bonus Plan is not paid to participants in the Company Retention Bonus Plan in connection with the Closing, Parent shall fund (or shall cause the Company to fund) such portion of the Company Retention Bonus Amount not paid in connection with the Closing into the Company Retention Bonus Escrow Fund, and (iii) Parent shall fund the portion of the Company Retention Bonus Amount payable to participants under the Company Special Retention Bonus Plan into the Company Retention Bonus Escrow Fund. Following the Closing, Parent and the Stockholder Representative shall execute joint written instructions to the Escrow Agent, instructing the Escrow Agent to cause the payments required to be made to participants under the Company Retention Bonus Plan and the Company Special Retention Bonus Plan other than in connection with the Closing to be released from the Company Retention Bonus Escrow Fund and paid to such participants pursuant to, and in accordance with, the terms of the Company Retention Bonus Plan or the Company Special Retention Bonus Plan, as applicable. In the event that, following the Closing, one or more participants in the Company Retention Bonus Plan or the Company Special Retention Bonus Plan becomes ineligible to receive a payment otherwise allocable to such participant under the Company Retention Bonus Plan or the Company Special Retention Bonus Plan (a “Forfeited Payment”), then promptly following the event that results in such ineligibility, Parent shall notify the Stockholder Representative and Parent and the Stockholder Representative shall execute joint written instructions to the Escrow Agent, instructing the Escrow Agent to disburse the amount of the Forfeited Payment from the Company Retention Bonus Escrow Fund to the Stockholders’ Representative for distribution to each Escrow Participant with respect to each share of Company Capital Stock held by such Escrow Participant or each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time in accordance with Section 1.5(a)(ii)(I), 1.5(a)(iii)(I) or 1.6(a)(ix) as the case may be. The payment of any Forfeited Payment from the Company Retention Bonus Escrow Fund to the Stockholders’ Representative pursuant to the foregoing sentence shall completely discharge Parent’s obligations with respect to such Forfeited Payment, and in no event shall Parent have any responsibility or liability whatsoever for causing or ensuring that all or any portion of such Forfeited Payment is ultimately paid or distributed to Escrow Participants.

(g) Promptly following the Effective Time, Parent shall cause the Company to make the payments required to be made to each Company employee who is party to a Company Stay Bonus Agreement pursuant to, and in accordance with, the terms of the Company Stay Bonus Agreements.

(h) The Company shall deliver to Parent, on the Closing Date, a definitive schedule (the “Closing Payment Schedule”) setting forth: (A) the total of all Transaction Expenses paid and payable (including any Transaction Expenses that will become payable by an Acquired Company after the Effective Time with respect to services performed or actions taken prior to the Effective Time); (B) the portion of the Company Retention Bonus Amount payable to each participant in the Company Retention Bonus Plan in connection with the Closing and the maximum amount payable to each participant in the Company Retention Bonus Plan following the Closing; (C) the maximum amount payable to each participant in the Company Special Retention Bonus Plan following the Closing; (D) the portion of the Company Stay Bonus Amount payable to each Company employee who is a party to a Company Stay Bonus Agreement; (E) the name and, to the extent available to the Company, the address of each Person who is a stockholder of the Company immediately prior to the Effective Time (after giving effect to any exercises of Company Options prior to the Effective Time) (each, a “Stockholder”); (F) the number of shares of Company Capital Stock of each class and series held by each Stockholder immediately prior to the Effective Time; (G) the consideration specified in Section 1.5(a)(ii)(A) or Section 1.5(a)(iii)(A), respectively, with respect to the Capital Stock held by each Stockholder immediately prior to the Effective Time; (H) the amount to be contributed to the Indemnity Escrow Fund with respect to the shares of Company Capital Stock held by each Stockholder pursuant to Section 1.5(c)(i); (I) the amount to be contributed to the Working Capital Adjustment Escrow Fund with respect to the shares of Company Capital Stock held by each Stockholder pursuant to Section 1.5(c)(ii); (J) the name and, to the extent available to the Company, the address of each holder of, the exercise price per share of, and the number of shares of Company Common Stock subject to, each Company Option outstanding immediately prior to the Effective Time (after giving effect to any exercises of Company Options prior to the Effective Time) (each, an “Option Holder”); (K) the consideration specified in Section 1.6(a)(i) with respect to the shares of Company Common Stock subject to Company Options held by each Option Holder immediately prior to the Effective Time; (L) the amount, if any, to be contributed to the Indemnity Escrow Fund with respect to the shares of Company Common Stock subject to the Company Options held by each Option Holder pursuant to Section 1.5(c)(i); (M) the amount, if any, to be contributed to the Working Capital Adjustment Escrow Fund with respect to the shares of Company Common Stock subject to the Company Options held by each Option Holder pursuant to Section 1.5(c)(ii); and (N) the aggregate amount of withholding and other Taxes to be deducted pursuant to applicable Legal Requirements from any consideration payable to each Stockholder or Option Holder in the Merger, each participant in the Company Retention Bonus Plan in connection with the Closing, and each Company employee who is a party to a Company Stay Bonus Agreement in connection with the Closing.

1.6 Treatment of Company Options.

(a) The board of directors of the Company shall take such actions as are necessary or reasonably desirable to provide that each In-the-Money Company Option outstanding and unexercised immediately prior to the Effective Time, whether or not immediately exercisable, shall be cancelled, terminated and extinguished as of the Effective Time and, subject to Section 1.10, upon the cancellation thereof be converted into the right to receive, in respect of each share of Company Common Stock then subject to such In-the-Money Company Option:

(i) an amount in cash equal to the Common Residual Per Share Amount minus the exercise price per share of Company Common Stock subject to such In-the-Money Company Option; minus

(ii) the product of (1) the Common Per Share Percentage multiplied by (2) the Working Capital Adjustment Escrow Contribution Amount; minus

(iii) the product of (1) the Aggregate Proceeds Contribution Fraction with respect to such share of Company Common Stock multiplied by (2) the Indemnity Escrow Contribution Amount; plus

(iv) the product of (A) the Common Per Share Percentage multiplied by (B) the aggregate amount of any cash required to be released from the Working Capital Adjustment Escrow Fund to the Escrow Participants in accordance with Section 1.7 (as and when such cash is required to be released); plus

(v) the product of (A) the Aggregate Proceeds Contribution Fraction with respect to such share of Company Common Stock multiplied by (B) the aggregate amount of any cash required to be released from the Indemnity Escrow Fund to the Escrow Participants in accordance with Section 9.7 (as and when such cash is required to be released); plus

(vi) the product of (1) the Common Per Share Percentage multiplied by (2) the aggregate amount of any cash required to be released from the Stockholders’ Representative Expense Fund to the Escrow Participants in accordance with Section 10.1(f) (as and when such cash is required to be released); plus

(vii) the product of (A) the Common Per Share Percentage multiplied by (B) the aggregate amount of any payment required to be made by Parent in accordance with Section 1.7 (as and when such payment is required to be made); plus

(viii) the product of (A) the Common Per Share Percentage multiplied by (B) the aggregate amount of any payment or other distribution required to be made by Parent in accordance with Section 1.8 (as and when such payment or other distribution is required to be made); and plus

(ix) the product of (1) the Common Per Share Percentage multiplied by (2) the aggregate amount of any payment required to be made from the Company Retention Bonus Escrow Fund to the Stockholders’ Representative for distribution to Escrow Participants in accordance with Section 1.5(f) (as and when such payment or other distribution is required to be made).

Each holder of an In-the-Money Company Option cancelled as provided in this Section 1.6(a) shall cease to have any rights with respect thereto, except the right to receive the consideration specified in this Section 1.6(a), without interest, and such In-the-Money Company Option shall not be assumed by Parent.

(b) The board of directors of the Company shall take such actions as are necessary or desirable to provide that each Company Option outstanding immediately prior to the Effective Time that is not an In-the-Money Company Option, whether or not immediately exercisable, shall be cancelled, terminated and extinguished as of the Effective Time, and such Company Option shall not be assumed by Parent and no further consideration shall be payable hereunder with respect thereto.

1.7 Working Capital Adjustment.

(a) The Company shall provide Parent with a preliminary written and reasonably detailed calculation of the estimated Closing Working Capital Amount (as defined in Section 1.7(i)) (the “Estimated Closing Amount”), together with an estimated unaudited balance sheet of the Company and its consolidated Subsidiaries as of the Closing Date (the “Estimated Closing Date Balance Sheet”), not more than 10 nor fewer than three business days before the Closing Date, which Estimated Closing Date Balance Sheet (i) shall be prepared in good faith by the Company consistent with the provisions of Section 1.7(f) and (ii) shall be accompanied by a written certification to Parent, executed (if both of such positions are filled as of the Closing Date) by the CFO and the Controller of the Company, or (if one of such positions is vacant as of the Closing Date) by the CFO or the Controller of the Company and another senior executive officer of the Company, certifying that the Estimated Closing Date Balance Sheet was so prepared. Following the delivery of the Estimated Closing Date Balance Sheet to Parent, the Company shall provide Parent, its accountants and their representatives, at the reasonable request of Parent, with reasonable access during normal business hours to the books, records and relevant work papers of the Company as may reasonably be required for the review of the Estimated Closing Date Balance Sheet and shall provide Parent, its accountants and their representatives with access to the records and employees of the Company and its Subsidiaries (and cause the employees of the Company and its Subsidiaries to cooperate with Parent, its accountants and their representatives) to the extent reasonably necessary for Parent to review and evaluate the data and assumptions used to prepare the Estimated Closing Date Balance Sheet and to resolve disputes with respect thereto.

(b) If the Estimated Closing Amount is greater than the Upper Threshold, an amount equal to the lesser of (x) the Gross Closing Surplus Amount (as defined in Section 1.7(i)) or (y) the Surplus Cash Amount (as defined in Section 1.7(i)), shall be the “Closing Surplus Amount” for all purposes under this Agreement, including calculating the Aggregate Closing Transaction Value and determining whether the aggregate consideration payable in connection with the Merger shall be subject to adjustment pursuant to Section 1.7(d).

(c) If the Estimated Closing Amount is less than the Lower Threshold, an amount equal to the lesser of (x) $4,500,000, or (y) an amount equal to the excess of (1) the Target Amount over (2) the Estimated Closing Amount, shall be the “Closing Deficit Amount” for all purposes under this Agreement, including calculating the Aggregate Closing Transaction Value and determining whether the aggregate consideration payable in connection with the Merger shall be subject to adjustment pursuant to Section 1.7(d).

(d) Following the Closing, in addition to any adjustment to the aggregate consideration payable in connection with the Merger pursuant to Section 1.8, the aggregate consideration payable in connection with the Merger shall be subject to adjustment as set forth below in this Section 1.7(d):

(i) If the Final Closing Working Capital Amount (as defined in Section 1.7(i)) is greater than the Upper Threshold (as defined in Section 1.7(i)), and there was neither a Closing Deficit Amount nor a Closing Surplus Amount, or there was a Closing Surplus Amount equal to zero, then Parent shall become obligated to pay to the Stockholders’ Representative an amount equal to the sum of (x) the lesser of (A) $4,500,000 plus $50,000 per day for each day after March 31, 2007 through and including, the Closing Date, or (B) an amount equal to the excess of (1) the Final Closing Working Capital Amount over (2) the Target Amount (the lesser of such amounts in this clause (x), the “Post-Closing Positive Variance Amount”) plus (y) the Deferred Closing Surplus Amount plus (z) interest on the Deferred Closing Surplus Amount at a rate of six percent per annum from the Closing Date to the date on which the Post-Closing Positive Variance Amount and the Deferred Closing Surplus Amount are paid to the Stockholders’ Representative, for distribution to each Escrow Participant in the respective amounts provided in Sections 1.5(a)(ii)(G), 1.5(a)(iii)(G) and 1.6(a)(vii) (as the case may be).

(ii) If the Final Closing Working Capital Amount is greater than the Upper Threshold, and there was a Closing Deficit Amount, then Parent shall become obligated to pay an amount equal to the sum of (x) the Post-Closing Positive Variance Amount plus (y) the Closing Deficit Amount to the Stockholders’ Representative for distribution to each Escrow Participant in the respective amounts provided in Sections 1.5(a)(ii)(G), 1.5(a)(iii)(G) and 1.6(a)(vii) (as the case may be).

(iii) If the Final Closing Working Capital Amount is greater than the Upper Threshold, and there was a Closing Surplus Amount greater than zero, the following shall occur:

(A) if the Post-Closing Positive Variance Amount exceeds the Closing Surplus Amount, then Parent shall become obligated to pay to the Stockholders’ Representative an amount equal to the sum of (x) the amount of such excess plus (y) interest on the Deferred Closing Surplus Amount (if any) at a rate of six percent per annum from the Closing Date to the date on which such difference is paid to the Stockholders’ Representative, for distribution to each Escrow Participant in the respective amounts provided in Sections 1.5(a)(ii)(G), 1.5(a)(iii)(G) and 1.6(a)(vii) (as the case may be);

(B) if the Closing Surplus Amount exceeds the Post-Closing Positive Variance Amount, then Parent shall become entitled to recover an amount equal to the amount of such excess (x) first from the Working Capital Adjustment Escrow Fund (to the extent of the funds therein), and (y) second from the Indemnity Escrow Fund (to the extent of the remaining funds therein); and

(C) if the Closing Surplus Amount is equal to the Post-Closing Positive Variance Amount, then there shall be no adjustment in either direction to the aggregate consideration payable in connection with the Merger pursuant to this Section 1.7.

(iv) If the Final Closing Working Capital Amount is equal to or greater than the Lower Threshold and is less than or equal to the Upper Threshold, then the following shall occur:

(A) if there was a Closing Deficit Amount, then Parent shall become obligated to pay an amount equal to the Closing Deficit Amount to the Stockholders’ Representative for distribution to each Escrow Participant in the respective amounts provided in Sections 1.5(a)(ii)(G), 1.5(a)(iii)(G) and 1.6(a)(vii) (as the case may be);

(B) if there was a Closing Surplus Amount greater than zero, then Parent shall become entitled to recover an amount equal to the Closing Surplus Amount (x) first from the Working Capital Adjustment Escrow Fund (to the extent of the funds therein), and (y) second from the Indemnity Escrow Fund (to the extent of the remaining funds therein; and

(C) if there was neither a Closing Deficit Amount nor a Closing Surplus Amount, or there was a Closing Surplus Amount equal to zero, then there shall be no adjustment in either direction to the aggregate consideration payable in connection with the Merger pursuant to this Section 1.7(d).

(v) If the Final Closing Working Capital Amount is less than the Lower Threshold, and there was neither a Closing Deficit Amount nor a Closing Surplus Amount or there was a Closing Surplus Amount equal to zero, then Parent shall become entitled to recover an amount equal to the lesser of (x) $4,500,000, or (y) an amount equal to the excess of (1) the Target Amount over (2) the Final Closing Working Capital Amount (the lesser of such amounts, the “Post-Closing Negative Variance Amount”) (x) first from the Working Capital Adjustment Escrow Fund (to the extent of the funds therein), and (y) second from the Indemnity Escrow Fund (to the extent of the remaining funds therein).

(vi) If the Final Closing Working Capital Amount is less than the Lower Threshold, and there was a Closing Surplus Amount greater than zero, then Parent shall become entitled to recover an amount equal to the sum of (x) the Post-Closing Negative Variance Amount plus (y) the Closing Surplus Amount (x) first from the Working Capital Adjustment Escrow Fund (to the extent of the funds therein), and (y) second from the Indemnity Escrow Fund (to the extent of the remaining funds therein).

(vii) If the Final Closing Working Capital Amount is less than the Lower Threshold, and there was a Closing Deficit Amount, the following shall occur:

(A) if the Closing Deficit Amount exceeds the Post-Closing Negative Variance Amount, then Parent shall become obligated to pay an amount equal to the amount of such excess to the Stockholders’ Representative for distribution to each Escrow Participant in the respective amounts provided in Sections 1.5(a)(ii)(G), 1.5(a)(iii)(G) and 1.6(a)(vii) (as the case may be);

(B) if the Post-Closing Negative Variance Amount exceeds the Closing Deficit Amount, then Parent shall become entitled to recover an amount equal to the amount of such excess (x) first from the Working Capital Adjustment Escrow Fund (to the extent of the funds therein), and (y) second from the Indemnity Escrow Fund (to the extent of the remaining funds therein); and

(C) if the Closing Deficit Amount is equal to the Post-Closing Negative Variance Amount, then there shall be no adjustment in either direction to the aggregate consideration payable in connection with the Merger pursuant to this Section 1.7(d).

If Parent is obligated to pay any amount to the Stockholders’ Representative pursuant to any provision of this Section 1.7(d) (such amount, the “Post-Closing Surplus Amount”), Parent shall, within five business days after the Final Closing Date Balance Sheet (as defined in Section 1.7(h)) has been established in accordance with the procedures set forth in Section 1.7(h), (1) pay the Post-Closing Surplus Amount to the Stockholders’ Representative in immediately available funds, and such payment, when made, shall be deemed to have been paid in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(G), 1.5(a)(iii)(G) and 1.6(a)(vii), and (2) execute written instructions to the Escrow Agent, instructing the Escrow Agent to disburse all of the funds in the Working Capital Adjustment Escrow Fund to the Escrow Participants, with each Escrow Participant to receive the respective amounts set forth in Sections 1.5(a)(ii)(D), 1.5(a)(iii)(D) and 1.6(a)(iv), with respect to each share of Company Capital Stock and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time. If Parent is entitled to receive any amount from the Working Capital Adjustment Escrow Fund or Indemnity Escrow Fund pursuant to any provision of this Section 1.7(d) (such amount, the “Post-Closing Deficit Amount”), Parent and the Stockholders’ Representative shall, within five business days after the Final Closing Date Balance Sheet has been established in accordance with the procedures set forth in Section 1.7(h), execute joint written instructions to the Escrow Agent, instructing the Escrow Agent to disburse the Post-Closing Deficit Amount from the Working Capital Adjustment Escrow Fund and the Indemnity Escrow Fund (in the priority described above) to Parent, and immediately thereafter to disburse any amount remaining in the Working Capital Adjustment Escrow Fund to the Escrow Participants, with each Escrow Participant to receive the respective amounts set forth in Sections 1.5(a)(ii)(D), 1.5(a)(iii)(D) and 1.6(a)(iv), with respect to each share of Company Capital Stock and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time.

(e) As soon as practicable (and in any event within 90 days) after the Closing Date, Parent shall prepare and deliver to the Stockholders’ Representative an unaudited balance sheet of the Company and its consolidated Subsidiaries as of the Closing Date (the “Closing Date Balance Sheet”) in good faith and in accordance with the provisions of Section 1.7(f). The Closing Date Balance Sheet shall be accompanied by a reasonably detailed calculation of the Closing Working Capital Amount, a written statement setting forth deviations between the Closing Date Balance Sheet and the Estimated Closing Balance Sheet and a written statement of any Post-Closing Surplus Amount or Post-Closing Deficit Amount as determined by Parent resulting from the information set forth in the Closing Date Balance Sheet (the “Parent Proposed Adjustment”). Promptly following the delivery of the Closing Date Balance Sheet to the Stockholders’ Representative, Parent shall provide the Stockholders’ Representative, its accountants and their representatives, at the reasonable request of the Stockholders’ Representative, with reasonable access during normal business hours to the books, records and relevant work papers of the Surviving Corporation as may reasonably be required for the review of the Closing Date Balance Sheet and shall provide the Stockholders’ Representative, its accountants and their representatives with access to the records and employees of the Surviving Corporation and its Subsidiaries (and cause the employees of the Surviving Corporation and its Subsidiaries to cooperate with the Stockholders’ Representative, its accountants and their representatives) to the extent reasonably necessary for the Stockholders’ Representative to review and evaluate the data and assumptions used to prepare the Closing Date Balance Sheet and to resolve disputes with respect thereto. All fees, costs and expenses of the Stockholders’ Representative relating to the review of the Closing Date Balance Sheet shall be borne by the Escrow Participants and may be paid by the Stockholders’ Representative out of the Stockholders’ Representative Expense Fund to the extent of the funds remaining therein, with the remainder borne by the Escrow Participants and if paid by the Stockholders’ Representative, reimbursable to the Stockholders’ Representative in accordance with Section 10.1. The Stockholders’ Representative shall make available to Parent and its accountants, at the request of Parent, any relevant work papers of the Stockholders’ Representative and its accountants generated in connection with the review of the Closing Date Balance Sheet.

(f) The Closing Date Balance Sheet shall be prepared in accordance with GAAP applied on a basis consistent with the basis on which the Unaudited Interim Balance Sheet (as defined in Section 2.4(a)) was prepared, including the policies, procedures and practices used in preparing the Unaudited Interim Balance Sheet (to the extent in accordance with GAAP), except that:

(i) Apportionment of Taxes. In order to apportion appropriately any Taxes relating to any taxable year or period that includes an Interim Period (as defined in Section 1.7(i)), the portion of any such Tax that is allocable to the Interim Period shall be:

(A) in the case of Taxes not described in subparagraph “(B)”, below, deemed equal to the amount that would be payable if the taxable year or period ended on the Closing Date (except that, solely for purposes of determining the marginal tax rate applicable to income or receipts during such period in a jurisdiction in which such tax rate depends upon the level of income or receipts, annualized income or receipts may be taken into account, if appropriate, for an equitable sharing of such Taxes); and

(B) in the case of any property and ad valorem taxes deemed to be the amount of such Taxes for the entire period (or, in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period) multiplied by a fraction the numerator of which is the number of calendar days in the Interim Period and the denominator of which is the number of calendar days in the entire relevant Tax period.

(ii) Changes in GAAP. For all purposes under this Section 1.7, “GAAP” shall mean GAAP as in effect on the date of the Unaudited Interim Balance Sheet. Notwithstanding (A) any changes in GAAP after the date thereof, (B) any change by the Company in its application of GAAP between March 31, 2006 and the date of this Agreement, or (C) any change by the Company in its application of GAAP during the Pre-Closing Period (to the extent permitted by this Agreement), the Closing Date Balance Sheet shall be prepared on a basis consistent with the Unaudited Interim Balance Sheet. Without limiting the generality of the foregoing, to the extent the Company’s reserve for uncollectible accounts or unsaleable inventory are calculated based on a percentage of the aggregate accounts or inventory of a specified age or type, the same percentage (or in the case of inventory, the same methodology for determining the percentage) and type as was used for the purposes of calculating the amount of such reserves on the Unaudited Interim Balance Sheet shall be used to calculate the amount of such reserves on the Closing Date Balance Sheet, notwithstanding any change in the manner in which such reserves were calculated after the date of the Unaudited Interim Balance Sheet.

(iii) Gross Property, Plant and Equipment. Gross Property, Plant and Equipment shall not be decreased or increased from the amount of Gross Property, Plant and Equipment on the Unaudited Interim Balance Sheet as a result of any physical audit performed by Parent or the Acquired Companies after the Closing or otherwise, except as a result of any capital expenditures made by the Company after March 31, 2006 (including any such decrease as a result of a determination that property, plant or equipment reflected in the Company’s books and records or financial statements and not currently used in the business as currently conducted is no longer used by or in the possession of, the Company). In addition, Gross Property, Plant and Equipment shall not be reduced as a result of the disposal of obsolete equipment on or after April 1, 2006 in the ordinary course of business.

(g) If the Stockholders’ Representative has any objections to the Closing Date Balance Sheet or the Parent Proposed Adjustment, it shall deliver a statement describing its objections to Parent (the “Objection Notice”) within 45 days after the Stockholders’ Representative’s receipt of the Closing Date Balance Sheet and the Parent Proposed Adjustment. The Stockholders’ Representative shall include in the Objection Notice a reasonably detailed calculation of the Post-Closing Surplus Amount or Post-Closing Deficit Amount as determined by the Stockholders’ Representative (the “Stockholders’ Representative Proposed Adjustment”), accompanied by a reasonably detailed description of the bases for any variances between the Parent Proposed Adjustment and the Stockholders’ Representative Proposed Adjustment (the “Description of Variances”). If the Stockholders’ Representative fails to deliver an Objection Notice and a Description of Variances within 45 days after the Stockholders’ Representative’s receipt of the Closing Date Balance Sheet and the Parent Proposed Adjustment, then the Stockholders’ Representative shall be deemed for all purposes to have accepted and agreed to both the Closing Date Balance Sheet and the Parent Proposed Adjustment. If the Stockholders’ Representative delivers the Objection Notice and the Description of Variances to Parent within such 45-day period, and Parent disagrees with the Stockholders’ Representative’s objection, then Parent and the Stockholders’ Representative will, during the 30-day period following the date of the Objection Notice (the “Resolution Period”), use reasonable efforts to resolve any such objection themselves.

(h) If at the conclusion of the Resolution Period, the parties have not reached an agreement on the Stockholders’ Representative’s objections set forth in any valid Objection Notice, then all amounts and issues remaining in dispute may, at the election of either party, be submitted by the Stockholders’ Representative or Parent to Deloitte & Touche or another mutually agreeable nationally recognized firm of independent auditors that has not performed work for (other than as a neutral auditor), and is otherwise independent of, each of Parent, the Company, the Stockholders’ Representative and any Escrow Participant who owns greater than a 10% interest in the Working Capital Adjustment Escrow Fund (the “Neutral Auditor”). All fees and expenses relating to the work, if any, to be performed by the Neutral Auditor shall be allocated to Parent, on the one hand, and the Escrow Participants, on the other hand, with amounts owed by the Escrow Participants to be withdrawn first from the Working Capital Adjustment Escrow Fund and, to the extent the Working Capital Adjustment Escrow Fund is insufficient to cover such expenses, then from the Indemnity Escrow Fund, in the same proportion that the amount of disputed items so submitted to the Neutral Auditor that is unsuccessfully disputed by each such party (as finally determined by the Neutral Auditor) bears to the total amount of such remaining disputed items so submitted. Except as provided in the preceding sentence, all other costs and expenses incurred by the parties in connection with resolving any dispute hereunder before the Neutral Auditor shall be borne by the party incurring such cost and expense. The Neutral Auditor shall act as an arbitrator to determine only those issues still in dispute at the time of the election by either party to submit the objections to the Neutral Auditor, which shall be limited to whether the Closing Date Balance Sheet was prepared in accordance with the standards set forth in Section 1.7(f) and whether and to what extent (if any) there should be an adjustment to the aggregate consideration payable in connection with the Merger in accordance with Section 1.7(d). The Neutral Auditor’s determination shall be made within 45 days after its engagement (which engagement shall be made no later than five business days after the time of the election by either Parent or the Stockholders’ Representative to submit the objections to the Neutral Auditor), or as soon thereafter as possible, shall be set forth in a written statement delivered to Parent and the Stockholders’ Representative and shall be final, binding, conclusive and non-appealable for all purposes under this Agreement. The term “Final Closing Date Balance Sheet” shall mean (A) if the Stockholders’ Representative fails to deliver an Objection Notice and a Description of Variances within the 45-day period set forth in Section 1.7(g), the Closing Date Balance Sheet as prepared by Parent, and (B) if the Stockholders’ Representative delivers an Objection Notice within the 45-day period set forth in Section 1.7(g), the definitive Closing Date Balance Sheet agreed to by the Stockholders’ Representative and Parent in accordance with Section 1.7(g) or the definitive Closing Date Balance Sheet resulting from the determination made by the Neutral Auditor in accordance with this Section 1.7(h)) (which shall reflect those items theretofore agreed to by the Stockholders’ Representative and Parent during the Resolution Period or otherwise in accordance with Section 1.7(g)).

(i) For purposes of this Agreement:

(i) “Adjusted Cash Amount” shall mean the cash (excluding Long Term Restricted Cash) and short-term investments of the Company and its consolidated Subsidiaries as of the Closing Date, adjusted by adding thereto:

(A) the Company Retention Bonus Amount, to the extent that the payment thereof or the obligation to make such payment had the effect of reducing Current Assets;

(B) the Company Stay Bonus Amount, to the extent that the payment thereof or the obligation to make such payment had the effect of reducing Current Assets;

(C) the Conexant Termination Payment Amount, to the extent that the payment thereof or the obligation to make such payment had the effect of reducing Current Assets; and

(D) the aggregate amount of Transaction Expenses actually paid by the Company and its consolidated Subsidiaries on or prior to the Closing Date, to the extent that the payment thereof or the obligation to make such payment had the effect of reducing Current Assets.

(ii) “Closing Working Capital Amount” means: (A) the Current Assets; plus (B) to the extent not otherwise included in Current Assets, Gross Property, Plant and Equipment; less (C) Current Liabilities. In the event of any conflict between what would have been included in the foregoing components of the Closing Working Capital Amount or the Closing Date Balance Sheet under GAAP and the definitions set forth in this Section 1.7(i), the definitions set forth in this Section 1.7(i) shall control.

(iii) “Current Assets” means the current assets of the Company and its consolidated Subsidiaries (including cash (including Long Term Restricted Cash) and short-term investments) as of the Closing Date; provided, however, that notwithstanding anything herein to the contrary:

(A) cash received by the Company and its consolidated Subsidiaries since March 31, 2006 in exchange for the issuance by any of the Acquired Companies of credits for the future purchase of semiconductor wafers shall be deducted from Current Assets, except for any such cash received in exchange for any such credits that are used prior to the Closing Date;

(B) cash or other proceeds received by the Company and its consolidated Subsidiaries from the disposal of equipment in accordance with Section 1.7(f)(iii) shall be deducted from Current Assets;

(C) cash funded by Parent to the Company in connection with the Closing in respect of the Conexant Termination Payment Amount, the Company Retention Bonus Amount, the Company Stay Bonus Amount, the Stockholders’ Representative Expense Amount or any other matter shall be excluded from Current Assets;

(D) the aggregate amount of Transaction Expenses actually paid by the Company and its consolidated Subsidiaries on or prior to the Closing Date shall, to the extent such payment had the effect of reducing Current Assets, be added back to Current Assets; and

(E) Current Assets shall exclude any asset or receivable established in respect of California sales or use taxes receivable by the Company following the Closing Date in respect of transactions occurring after March 31, 2005 and on or prior to the Closing Date.

(iv) “Current Liabilities” means the current liabilities of the Company and its consolidated Subsidiaries as of the Closing Date; provided, however, that notwithstanding anything herein to the contrary:

(A) Current Liabilities shall include the following amounts: (1) all unpaid indebtedness of the Company and its consolidated Subsidiaries as of the Closing Date for borrowed money regardless of when due (other than indebtedness incurred by the Company or its consolidated Subsidiaries on the Closing Date in connection with the Merger or the other Contemplated Transactions); (2) to the extent the Transaction Expenses exceed the Transaction Expenses taken into account in calculating the Aggregate Closing Transaction Value, the amount of such excess Transaction Expenses; and (3) all unpaid employer Taxes attributable to payment of employee performance bonuses included in the Closing Quarter Bonus Accrual (as defined below) or other payments due as of the Closing;

(B) Current Liabilities shall exclude: (1) all undrawn letters of credit, (2) all credits issued for cash and outstanding as of the Closing for the future purchase of semiconductor wafers granted by the Company; and (3) any liability with respect to the Stock Appreciation Rights outstanding as of the date hereof;

(C) the “common stock subject to repurchase” current liability accrual shall be deducted from Current Liabilities;

(D) the Licensing Fee accruals pursuant to the Standard Cell Library Development & License Agreement between Synopsys, Inc. and Newport Fab LLC dated May 31, 2006 and the DROM Library Development & License Agreement between Synopsys, Inc. and Newport Fab LLC dated May 31, 2006 shall be deducted from Current Liabilities;

(E) no liability in respect of Transaction Expenses, the Company Retention Bonus Amount, the Company Stay Bonus Amount and the Conexant Termination Payment Amount, in each case to the extent taken into account in calculating the Aggregate Closing Transaction Value shall be taken into account in calculating Current Liabilities;

(F) the amount of any accrual with respect to the IBM License Agreement (as defined in Section 4.2(a)(vi)) shall be an amount equal to $1,500,000 multiplied by a fraction the numerator of which is the number of days from and after January 1, 2007 and through and including the Closing Date and the denominator of which is 365;

(G) Current Liabilities shall include an accrual (the “Closing Quarter Bonus Accrual”) calculated by multiplying the aggregate amount of employee performance bonuses that are ultimately payable pursuant to the Company’s performance bonus plan (as in effect as of the date hereof) for the calendar quarter in which the Closing Date occurs multiplied by a fraction, the numerator of which is the total earnings before interest, taxes, depreciation and amortization (“EBITDA”) of the Company and its consolidated Subsidiaries for the portion of such calendar quarter prior to the Closing (but excluding the amount of any such bonuses) and the denominator of which is the total EBITDA of the Company and its consolidated Subsidiaries for such calendar quarter (but excluding the amount of any such bonuses). Notwithstanding anything to the contrary in this Agreement (including Section 1.7(a)), the Estimated Closing Date Balance Sheet shall reflect the Company’s good faith estimate of the Closing Quarter Bonus Accrual, calculated in accordance with the provisions of this clause (G); and

(H) Current Liabilities shall exclude any liability, accrual or reserve established for the payment of California sales or use taxes that are payable by the Company following the Closing Date in respect of transactions occurring after March 31, 2005 and on or prior to the Closing Date.

(v) “Deferred Closing Surplus Amount” shall mean an amount equal to the excess, if any, of (x) the Gross Closing Surplus Amount over (y) the Surplus Cash Amount. If the Gross Closing Surplus Amount is not greater than the Surplus Cash Amount, the Deferred Closing Surplus Amount shall be zero. In addition, notwithstanding the foregoing, if the Estimated Closing Amount is not greater than the Upper Threshold, the Deferred Closing Surplus Amount shall also be zero.

(vi) “Final Closing Working Capital Amount” shall mean the Closing Working Capital Amount calculated on the basis of the Final Closing Date Balance Sheet.

(vii) “Gross Closing Surplus Amount” shall mean an amount equal to the lesser of (x) $4,500,000 plus $50,000 per day for each day after March 31, 2007 through and including, the Closing Date or (y) an amount equal to the excess, if any, of (1) the Estimated Closing Amount over (2) the Target Amount. If the Estimated Closing Amount is not greater than the Target Amount, the Gross Closing Surplus Amount shall be zero.

(viii) “Gross Property, Plant and Equipment” means the gross property, plant and equipment of the Company and its consolidated Subsidiaries as of the Closing Date.

(ix) “Interim Period” means, in the case of a taxable year that begins before the Closing Date and ends after the Closing Date, the period from the beginning of such taxable year up to and including the Closing Date.

(x) “Long Term Restricted Cash” means the long term restricted cash of the Company and its consolidated Subsidiaries as of the Closing Date.

(xi) “Lower Threshold” means $193,000,000.

(xii) “Surplus Cash Amount” means an amount equal to the excess, if any, of (1) the Adjusted Cash Amount over (2) $20,000,000. If the Adjusted Cash Amount does not exceed $20,000,000, the Surplus Cash Amount shall be zero.

(xiii) “Target Amount” means $195,500,000.

(xiv) “Upper Threshold” means $198,000,000.

1.8 Additional Purchase Price Adjustment.

(a) The parties agree that following the Closing, in addition to any adjustment to the aggregate consideration payable in connection with the Merger pursuant to Section 1.7, the aggregate consideration payable in connection with the Merger shall be subject to increase as follows: if: (A) one or more HHNEC Recognition Events (as defined in Section 1.8(c)(vi)) occurs with respect to Parent, the Surviving Corporation or any Affiliate of Parent or the Surviving Corporation (collectively, the “HHNEC Entities”); and (B) the aggregate amount of the HHNEC Proceeds (as defined in Section 1.8(c)(v)) recognized by the HHNEC Entities from all such HHNEC Recognition Events exceeds $10,000,000, Parent shall become obligated to pay (at the time or times set forth in Section 1.8(b)) cash in an amount equal to 50% of the excess of (1) the HHNEC Proceeds over (2) $10,000,000 (any such payment that Parent becomes so obligated to make, an “HHNEC Payment”) to the Stockholders’ Representative for distribution to the Escrow Participants as provided in Sections 1.5(a)(ii)(J), 1.5(a)(iii)(J) and 1.6(a)(x) (as the case may be). Notwithstanding the foregoing: (x) in the case of an HHNEC Recognition Event described in Section 1.8(c)(vi)(A) or Section 1.8(c)(vi)(B) or, to the extent Parent receives Freely-Tradable Securities (as defined in Section 1.8(c)(iii)) as a result thereof, Section 1.8(c)(vi)(C) or Section 1.8(c)(vi)(D) below, Parent may (at its sole option) make any HHNEC Payment required to be made hereunder as a result of such event by distributing Freely-Tradable Securities to the Stockholder Representative for distribution to the Escrow Participants, such Freely-Tradable Securities to be valued for such purpose based on their Fair Market Value (as defined in Section 1.8(c)(ii) determined (in accordance with Section 1.8(c)(ii)(B)) on the date that such Freely-Tradable Securities are delivered to the Stockholders’ Representative for distribution to the Escrow Participants; (y) in the case of an HHNEC Recognition Event described in Section 1.8(c)(vi)(A) below, Parent may (at its sole option) make any HHNEC Payment required to be made hereunder as a result of such event by distributing the consideration received by the HHNEC Entity with a Fair Market Value equal to the HHNEC Payments to be made in kind to the Stockholder Representative for distribution to the Escrow Participants or, at the Stockholder Representative’s election, sale thereof and distribution of the proceeds therefrom to the Escrow Participants; and (z) in the case of an event described in Section 1.8(c)(vi)(A) below, if the consideration described therein does not become Freely-Tradable Securities within one year after the date of such event, Parent shall within 10 business days after the expiration of such one-year period make any HHNEC Payment required to be made hereunder as a result of such event by distributing the consideration received by the HHNEC Entity with a Fair Market Value equal to the HHNEC Payment to be made in kind to the Stockholder Representative for distribution to the Escrow Participants or, at the Stockholder Representative’s election, sale thereof and distribution of the proceeds therefrom to the Escrow Participants. Notwithstanding any of the foregoing, if the aggregate amount of HHNEC Proceeds is less than or equal to $10,000,000, Parent shall have no payment obligation pursuant to this Section 1.8. Any payment of HHNEC Payments to the Stockholders’ Representative for distribution to the Escrow Participants pursuant to this Section 1.8 will be deemed to have been paid in full satisfaction of the rights of such Escrow Participants to receive such HHNEC Payments under Sections 1.5(a)(ii)(H), 1.5(a)(iii)(H) and 1.6(a)(viii), respectively.

(b) Parent shall become obligated to make any required HHNEC Payment arising from an HHNEC Recognition Event to the Escrow Participants as follows:

(i) if such HHNEC Recognition Event is the receipt of a cash distribution (other than a liquidating distribution) by an HHNEC Entity from HHNEC, Parent shall make any required HHNEC Payment arising from such HHNEC Recognition Event on the earlier of (A) the next anniversary of the Closing Date that occurs more than one month following such HHNEC Recognition Event, or (B) 10 business days following the date on which the unpaid amount of HHNEC Payments that Parent is obligated to pay with respect to all HHNEC Recognition Events described in this clause “(i)” equals or exceeds $500,000; and

(ii) except as provided in clause “(i)” above, Parent shall make any required HHNEC Payment arising from such HHNEC Recognition Event within 10 business days following the date of such HHNEC Recognition Event.

(c) For purposes of this Agreement:

(i) “Closing Price” means in the case of securities that are of a class that are traded on a national securities exchange or quoted on a recognized over-the-counter market on any date, the closing per share sale price (or, if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and average ask prices) on such date as is reported in composite transactions for such national securities exchange or reported for such over-the-counter market.

(ii) “Fair Market Value” means:

(A) with respect to notes or debt, the amount of such notes or debt at face value;

(B) with respect to securities that are of a class that are traded on a national securities exchange or quoted on a recognized over-the-counter market, or any security that is convertible by its terms into such securities, the Fair Market Value shall be determined based on the average Closing Price of such securities for the 20 consecutive Trading Days ending on the Trading Day immediately preceding the date of such determination, subject to adjustment to reflect any stock split, reverse stock split, stock dividend, recapitalization or other similar transaction effected or declared, or with respect to which a record date occurs, during such period; and

(C) with respect to all other securities, property or assets, an amount that a willing buyer would pay a willing seller for such securities (without regard to any restrictions on transfer imposed thereon and without application of any premium or discount as a result of control or lack thereof), property or assets, as reasonably agreed upon by Parent and the Stockholders’ Representative or, if no agreement can be reached, as determined by an independent appraiser.

(iii) “Freely-Tradable Securities” means equity interests of HHNEC that are listed for trading or quotation on any national stock market or quotation system or any international stock market or quotation system and for which a reasonably liquid market for trading exists and, upon acquisition by the Stockholders’ Representative, will not be, subject to (1) any contractual restrictions on transfer or (2) restrictions on transfer imposed by applicable Legal Requirements or stock exchange rule.

(iv) “HHNEC” means Shanghai Hua Hong NEC Electronics Co., Ltd.

(v) “HHNEC Proceeds” means:

(A) in the case of an HHNEC Recognition Event described in Section 1.8(c)(vi)(A) below, the product of the number of Freely-Tradable Securities described therein and the initial public offering price of common stock of HHNEC in the initial public offering described therein;

(B) in the case of an HHNEC Recognition Event described in Section 1.8(c)(vi)(B) below, the Fair Market Value of the Freely-Tradable Securities described therein on the date that such shares become Freely-Tradable Securities;

(C) in the case of an HHNEC Recognition Event described in Section 1.8(c)(vi)(C) or Section 1.8(c)(vi)(D) below, the Fair Market Value of proceeds described therein; and

(D) in the case of an HHNEC Recognition Event described in Section 1.8(c)(vi)(C) below, (x) if the HHNEC Recognition Event is the event described in Section 1.8(c)(vi)(C)(1), the Fair Market Value of the Freely-Tradable Securities described therein and (y) if the HHNEC Recognition Event is the event described in Section 1.8(c)(vi)(C)(2), the Fair Market Value of the consideration described therein.

(vi) “HHNEC Recognition Event” means any of the following:

(A) in the case of an initial public offering by HHNEC that closes during the three-year period following the Closing Date and in which some or all of the shares of common stock of HHNEC held by HHNEC Entities are Freely-Tradable Securities immediately following such closing, the closing of such initial public offering, but only with respect to such Freely-Tradable Securities (provided that solely for purposes of determining whether an HHNEC Recognition Event has occurred pursuant to this subsection (A), to the extent that shares of common stock of HHNEC held by an HHNEC Entity that are not otherwise Freely-Tradable Securities would have been Freely-Tradable Securities following the closing of an initial public offering by HHNEC that closes during the three-year period following the Closing Date, but for the fact that such HHNEC Entity has agreed to restrictions on transfer that are broader in scope than restrictions on transfer agreed to by a majority in interest of the other major equity holders of HHNEC, such shares shall be deemed to be Freely-Tradable Securities);

(B) in the case of an initial public offering by HHNEC that closes during the three-year period following the Closing Date and in which some or all of the shares of common stock of HHNEC held by HHNEC Entities are not Freely-Tradable Securities immediately following such closing, the date following such closing when any of such shares first become Freely-Tradable Securities (even if such date is after the expiration of the three-year period following the Closing Date), but only with respect to the shares that become Freely-Tradable Securities on such date (provided that solely for purposes of determining whether an HHNEC Recognition Event has occurred pursuant to this subsection (B), to the extent that shares of common stock of HHNEC held by an HHNEC Entity that are not otherwise Freely-Tradable Securities would have been Freely-Tradable Securities following the closing of an initial public offering by HHNEC that closes during the three-year period following the Closing Date, but for the fact that such HHNEC Entity has agreed to restrictions on transfer that are broader in scope than restrictions on transfer agreed to by a majority in interest of the other major equity holders of HHNEC, such shares shall be deemed to be Freely-Tradable Securities);

(C) the receipt of proceeds in the form of cash or Freely-Tradable Securities by an HHNEC Entity from a sale or other disposition by such HHNEC Entity of equity securities of HHNEC, whether by way of direct sale of such securities, a merger involving HHNEC or otherwise that closes during the three-year period following the Closing Date;

(D) the receipt of cash or Freely-Tradable Securities by an HHNEC Entity that holds equity securities of HHNEC as a dividend or distribution to such HHNEC Entity from HHNEC in respect of such HHNEC Entity’s ownership interest in HHNEC, but only where the record date for such dividend or distribution occurred during the three-year period following the Closing Date; and

(E) in the case of either (x) the sale or other disposition by an HHNEC Entity of equity securities of HHNEC for consideration other than cash or Freely-Tradable Securities, whether by way of direct sale of such securities, a merger involving HHNEC or otherwise, or (y) the receipt of consideration other than cash or Freely-Tradable Securities as a dividend or distribution to such HHNEC Entity from HHNEC in respect of such HHNEC Entity’s ownership interest in HHNEC, but only where the record date for such dividend or distribution occurred during the three-year period following the Closing Date, the earlier of (1) the date (if any) on which such consideration becomes Freely-Tradable Securities, or (2) the date one year from the date of such event.

(vii) “Market Disruption Event” means the occurrence or existence for more than one two-hour period in the aggregate on any scheduled Trading Day of any suspension or limitation imposed on trading of a security or in any options, contracts or future contracts relating to the such security, and such suspension or limitation occurs or exists at any time before three hours prior to the scheduled closing time for regular trading on such day.

(viii) “Trading Day” means any day on which (i) there is no Market Disruption Event and (ii) national securities exchange or over-the-counter market on which the a security is listed, admitted for trading or quoted, is open for trading. A “Trading Day” only includes those days that have a scheduled closing time of the then standard closing time for regular trading on the relevant trading system.

1.9 Closing of the Company’s Transfer Books. At the Effective Time, holders of certificates representing shares of Company Capital Stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company, and the stock transfer books of the Company shall be closed with respect to all shares of such Company Capital Stock outstanding immediately prior to the Effective Time. No further transfer of any such outstanding shares of Company Capital Stock shall be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any shares of Company Capital Stock (a “Company Stock Certificate”) is presented to the Payment Agent (as defined in Section 1.10), the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Section 1.10.

1.10 Exchange of Certificates.

(a) On or prior to the Closing Date, Parent shall select a reputable bank or trust company to act as payment agent in the Merger (the “Payment Agent”). Immediately after the Closing but prior to the Effective Time, Parent shall deposit with the Payment Agent cash sufficient to pay the cash consideration payable to Escrow Participants and former holders of In-the-Money Company Options pursuant to Sections 1.5(a)(ii)(A), 1.5(a)(iii)(A) and 1.6(a)(i), respectively (less the sum of the Working Capital Adjustment Escrow Contribution Amount and the Indemnity Escrow Contribution Amount). The cash amount so deposited with the Payment Agent is referred to as the “Payment Fund.” The Payment Agent will invest the funds included in the Payment Fund in the manner directed by Parent. Any interest or other income resulting from the investment of such funds shall be the property of, and will be paid promptly to, Parent.

(b) Upon deposit by Parent (i) with the Payment Agent of the amounts to be deposited into the Payment Fund pursuant to Section 1.10(a), (ii) with the Escrow Agent of the Indemnity Escrow Contribution Amount, (iii) with the Escrow Agent of the Working Capital Adjustment Escrow Contribution Amount and (iv) with the Stockholders’ Representative of the Stockholders’ Representative Expense Amount, Parent shall be deemed to have satisfied its obligations to make payments in respect of the Merger, other than (A) the obligation of Parent to make payments required by Sections 1.7 and 1.8 and (B) the obligation, if any, of Parent to make payments in respect of Dissenting Shares pursuant to Section 1.11 following the Effective Time.

(c) With respect to the Key Stockholders, within three business days prior to the Effective Time, and with respect to all other Stockholders, promptly after the Effective Time, Parent will deliver or cause the Payment Agent to deliver to the holders of Company Stock Certificates: (i) a letter of transmittal (a “Letter of Transmittal”) containing such provisions as Parent and the Payment Agent may reasonably specify (including a provision confirming that delivery of Company Stock Certificates shall be effected, and risk of loss and title to Company Stock Certificates shall pass, only upon delivery of such Company Stock Certificates to the Payment Agent and a provision providing for the consent of the holder of such Company Stock Certificate to the appointment of the Stockholders’ Representative as provided for in this Agreement; (ii) an IRS Form W-9 or Form W-8BEN; and (iii) instructions for use in effecting the surrender of Company Stock Certificates.

(d) As promptly as practicable following surrender of a Company Stock Certificate to the Payment Agent for exchange, together with a duly executed Letter of Transmittal and such other documents as may be reasonably required by Parent or the Payment Agent, the holder of such Company Stock Certificate shall be entitled to receive in exchange therefor the consideration that such holder has the right to receive pursuant to and subject to the provisions of this Section 1.5(a)(ii) or Section 1.5(a)(iii), as applicable, and the Company Stock Certificate so surrendered shall be canceled. To the extent the Payment Agent receives such documents executed by any such holder, together with the Company Stock Certificates held by such holder, Parent shall cause the Payment Agent to deliver the consideration that such holder has the right to receive pursuant to the provisions of Section 1.5(a)(ii) or Section 1.5(a)(iii), as applicable, on the day that includes the Effective Time or as soon as practicable thereafter, by wire transfer of cash in immediately available funds, to a bank account designated by such holder in such Letter of Transmittal. If any consideration is to be paid to a Person other than the Person in whose name the Company Stock Certificate surrendered is registered, it shall be a condition of such payment that the Company Stock Certificate so surrendered shall be properly endorsed (with such signature guarantees as may be required by the letter of transmittal) or otherwise in proper form for transfer, and that the Person requesting payment shall: (A) pay to the Payment Agent any transfer or other Taxes required by reason of such payment to a Person other than the registered holder of the Company Stock Certificate surrendered; or (B) establish to the satisfaction of Parent that such Tax has been paid or is not required to be paid. Until surrendered as contemplated by this Section 1.10, each Company Stock Certificate shall be deemed, from and after the Effective Time, to represent only the right to receive the consideration that the holder thereof has the right to receive pursuant to the provisions of this Section 1 upon such surrender. If any Company Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its discretion and as a condition precedent to the payment of any consideration with respect to the shares of Company Capital Stock previously represented by such Company Stock Certificate, require the owner of such lost, stolen or destroyed Company Stock Certificate to provide an appropriate affidavit and to deliver a bond (in such sum as Parent or the Payment Agent may reasonably direct) as indemnity against any claim that may be made against the Payment Agent, Parent, the Surviving Corporation or any affiliated party with respect to such Company Stock Certificate. No interest will be paid or will accrue on any consideration payable upon the surrender of any Company Stock Certificate.

(e) Promptly after the Effective Time, Parent shall cause the Payment Agent to mail to each holder of an In-the-Money Company Option that is outstanding and unexercised immediately prior to the Effective Time: (i) a Letter of Transmittal, including a provision providing for the consent of the holder of such In-the-Money Company Option to the appointment of the Stockholders’ Representative as provided for in this Agreement; (ii) an IRS Form W-9 or Form W-8BEN; and (iii) instructions for use in effecting the surrender of such In-the-Money Company Option in exchange for the consideration payable with respect to such In-the-Money Company Option set forth in Section 1.6. Upon surrender of an In-the-Money Company Option for cancellation to the Payment Agent, together with a duly executed Letter of Transmittal and such other documents as Parent or the Payment Agent may reasonably request, the holder of such In-the-Money Company Option shall be entitled to receive in exchange therefore the consideration payable with respect to such In-the-Money Company Option pursuant to and subject to Section 1.6, and such In-the-Money Company Option so surrendered shall forthwith be cancelled. No interest will be paid or will accrue on the consideration payable upon the surrender of any In-the-Money Company Option.

(f) The aggregate amount of cash that each Person is entitled to receive pursuant to this Section 1 for the shares of Company Capital Stock and shares of In-the-Money Company Common Stock subject to In-the-Money Company Options held by such Person shall be rounded to the nearest cent.

(g) Parent and the Surviving Corporation shall be entitled to deduct and withhold from any consideration payable pursuant to this Agreement to any holder or former holder of Company Capital Stock or In-the-Money Company Options such amounts as are required to be deducted or withheld therefrom under the Code or under any other Legal Requirement. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

(h) Any portion of the Payment Fund that remains undistributed to former holders of Company Capital Stock or In-the-Money Company Options as of the date 180 days after the Closing Date shall be delivered to Parent upon demand, and any holders of Company Stock Certificates or In-the-Money Company Options who have not theretofore surrendered their Company Stock Certificates or In-the-Money Company Options in accordance with this Section 1.10 shall thereafter look only to Parent for satisfaction of their claims for their portion of the Payment Fund, without any interest thereon.

(i) Notwithstanding anything in this Agreement to the contrary, neither Parent nor the Surviving Corporation shall have any liability to any holder or former holder of Company Capital Stock or In-the-Money Company Options or any other Person for any consideration delivered to any public official in good faith pursuant to any applicable abandoned property law, escheat law or similar Legal Requirement. Any amounts remaining unclaimed by former holders of Company Capital Stock or In-the-Money Company Options three years after the Effective Time (or such earlier date immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Body) shall, to the extent permitted by applicable Legal Requirements, become the property of Parent free and clear of any Encumbrance.

1.11 Dissenting Shares.

(a) Notwithstanding anything to the contrary contained in this Agreement, shares of Company Capital Stock held by a holder who has not voted in favor of or consented to the Merger and complies with Section 262 and all other provisions of the DGCL concerning the right of holders of shares of stock to require appraisal of their shares (“Dissenting Shares”) shall not be converted into or represent the right to receive any consideration in accordance with Section 1.5, but shall be entitled only to such rights as are granted by the DGCL to a holder of Dissenting Shares.

(b) If any Dissenting Shares shall lose their status as such (through failure to perfect or otherwise), then, as of the later of the Effective Time or the date of loss of such status, such shares of Company Capital Stock shall automatically be converted into and shall represent only the right to receive the consideration that the holder of such shares would have been entitled to receive pursuant to Section 1.5(a)(ii) or Section 1.5(a)(iii), as applicable (at the time or times that such consideration is required to be paid hereunder), in exchange for such shares in accordance with Section 1.5(a)(ii) or Section 1.5(a)(iii), as applicable, without interest thereon, upon surrender of the Company Stock Certificate representing such shares.

(c) The Company shall give Parent: (i) prompt notice of any written demand for appraisal received by the Company prior to the Effective Time pursuant to the DGCL, any withdrawal of any such demand and any other demand, notice or instrument delivered to the Company prior to the Effective Time pursuant to the DGCL; and (ii) the opportunity to participate in all negotiations and proceedings with respect to any such demand, notice or instrument.

1.12 Further Action. If, at any time after the Effective Time, any further action is reasonably determined by Parent to be necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation or Parent with full right, title and possession of and to all rights and property of Merger Sub and the Company, the officers and directors of the Surviving Corporation and Parent shall be fully authorized (in the name of Merger Sub, in the name of the Company and otherwise) to take such action.

SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants, to and for the benefit of the Indemnitees, that each statement set forth in each of the Sections (2.1 through 2.25) included in this Section 2 (each such statement being a “representation and warranty” of the Company) is accurate and complete, except as provided in the part of the Disclosure Schedule corresponding to the particular Section in this Section 2 in which such representation and warranty appears (provided that a listing in one part of the Disclosure Schedule shall be deemed to be a listing under another part of the Disclosure Schedule to the extent it is reasonably apparent from a reading of such disclosure item that it would also qualify or apply to such other part).

2.1 Subsidiaries; Due Organization; Etc.

(a) The Company has no Subsidiaries, except for the Entities identified in Part 2.1(a)(i) of the Disclosure Schedule; and neither the Company nor any of the Subsidiaries identified in Part 2.1(a)(i) of the Disclosure Schedule owns, beneficially or otherwise, any capital stock or other securities of, or any direct or indirect equity interest of any nature in, any other Entity, other than the Entities identified in Part 2.1(a)(ii) of the Disclosure Schedule. None of the Acquired Companies has agreed or is obligated to make, or is a party to any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity. Except as set forth in Part 2.1(a)(iii) of the Disclosure Schedule, none of the Acquired Companies has, at any time, been a general partner of, or has been responsible or liable for any of the debts or other obligations of, any Entity other than another Acquired Company.

(b) Each of the Acquired Companies is a corporation or limited liability company, as applicable, duly organized, validly existing and in good standing (with respect to jurisdictions that recognize such concept) under the laws of the jurisdiction of its organization (which jurisdiction is set forth in Part 2.1(b) of the Disclosure Schedule). Each of the Acquired Companies has all necessary power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Acquired Company Contracts.

(c) None of the Acquired Companies is required to be qualified, authorized, registered or licensed to do business as a foreign corporation in any jurisdiction other than the jurisdictions identified in Part 2.1(c) of the Disclosure Schedule, except for those U.S. jurisdictions where the failure to be so qualified, authorized, registered or licensed, individually or in the aggregate, would not have a Material Adverse Effect. Each Acquired Company is in good standing as foreign corporations or limited liability companies, as applicable, in each of the jurisdictions identified with respect to such Acquired Company in Part 2.1(c) of the Disclosure Schedule.

(d) Except as set forth in Part 2.1(d) of the Disclosure Schedule, none of the Acquired Companies has conducted any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, trade name or other name, other than the name “Jazz Semiconductor” and the names set forth in Part 2.1(a)(i) of the Disclosure Schedule.

2.2 Organizational Documents; Records. The Company has delivered or made available to Parent or its Representatives accurate and complete copies of: (a) the certificate of incorporation and bylaws or certificate of formation and limited liability company operating agreement, as applicable, and other charter and organizational documents of each Acquired Company, including all amendments thereto (with respect to each Acquired Company, such Acquired Company’s “Organizational Documents”); (b) the stock or other equity records of each Acquired Company; and (c) except as set forth in Part 2.2 of the Disclosure Schedule, the minutes and other records of the meetings at which formal actions were taken or any actions taken by written consent without a meeting of the stockholders or members, as applicable, of each Acquired Company, the board of directors or similar governing body of each Acquired Company and all committees of the board of directors or similar governing body of each Acquired Company, it being understood and agreed that such minutes and other records may not include all matters discussed at such meeting or relate to all meetings at which no formal action was taken. Except as set forth in Part 2.2 of the Disclosure Schedule, the stock or other equity records of the Acquired Companies are accurate, up-to-date and complete in all material respects.

2.3 Capitalization, Etc.

(a) The authorized capital stock of the Company consists of: (i) 55,000,000 shares of Class A Common Stock, of which no shares have been issued and are outstanding as of the date of this Agreement; (ii) 200,000,000 shares of Class B Common Stock, of which 12,357,574 shares have been issued and are outstanding as of the date of this Agreement; and (iii) 200,000,000 shares of Company Preferred Stock, of which 55,000,000 are designated as Series A Preferred Stock, all of which have been issued and are outstanding as of the date of this Agreement, and 58,071,888 are designated as Series B Preferred Stock, of which 57,981,888 shares have been issued and are outstanding as of the date of this Agreement. Part 2.3(a)(i) of the Disclosure Schedule identifies, as of the date of this Agreement, each Stockholder and the number of shares of each class of Company Capital Stock held by such Stockholder. All of the outstanding shares of Company Capital Stock have been duly authorized and validly issued, and are fully paid and nonassessable. Except as set forth in Part 2.3(a)(ii) of the Disclosure Schedule: (i) none of the outstanding shares of Company Capital Stock is entitled or subject to any preemptive right or right of participation; (ii) none of the outstanding shares of Company Capital Stock is subject to any right of first refusal or similar right in favor of the Company; and (iii) there is no Acquired Company Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any shares of Company Capital Stock. Part 2.3(a)(iii) of the Disclosure Schedule provides an accurate and complete description of the terms of each repurchase option which is held by the Company and to which any of the outstanding shares of Company Capital Stock outstanding as of the date of this Agreement is subject.

(b) As of the date of this Agreement, the Company has reserved 17,647,000 shares of Company Common Stock for issuance under the Company Option Plan, of which 10,618,663 shares of Company Common Stock are subject to issuance pursuant to outstanding Company Options, 4,544,046 shares of the Company Common Stock have been issued and not repurchased by the Company pursuant to Company Options, and 2,554,291 shares of Company Common Stock are available for future issuance. Part 2.3(b)(i) of the Disclosure Schedule accurately sets forth with respect to each Company Option outstanding as of the date of this Agreement: (i) the name of the holder, (ii) the exercise price per share of Company Common Stock purchasable under such Company Option, and (iii) the total number of Company Common Shares subject to such Company Option. Except as set forth in Part 2.3(b)(ii) of the Disclosure Schedule, no Company Option is held by a Person residing or domiciled outside of the United States. All outstanding Company Options were granted pursuant to the terms of the Company Option Plan.

(c) As of the date of this Agreement, 2,036,846 Stock Appreciation Rights are outstanding, all of which are vested. Part 2.3(c)(i) of the Disclosure Schedule accurately sets forth with respect to each Stock Appreciation Right outstanding as of the date of this Agreement: (i) the name of the holder, (ii) the reference price, (iii) the expiration date and (iv) the security and number of shares underlying such Stock Appreciation Right. Except as set forth in Part 2.3(c)(ii) of the Disclosure Schedule, no Stock Appreciation Right is held by a Person residing or domiciled outside of the United States. All outstanding Stock Appreciation Rights were granted pursuant to the terms of the Company Stock Appreciation Rights Plan.

(d) Except as set forth in Parts 2.3(b) and (c) of the Disclosure Schedule, there is no: (i) outstanding subscription, option, call, warrant or stock appreciation right or other right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of any of the Acquired Companies; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of any of the Acquired Companies; (iii) Contract under which any of the Acquired Companies is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities; or (iv) to the Knowledge of the Company, condition or circumstance that may give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any Company Capital Stock or other securities of the Company.

(e) All outstanding membership interests, shares of capital stock, options, warrants, stock appreciation rights and other securities or equity interests of the Acquired Companies have been issued and granted in compliance in all material respects with all applicable securities laws and other applicable Legal Requirements.

(f) All of the outstanding membership interests or other equity interests of each of the Company’s Subsidiaries: (i) have been duly authorized and validly issued, (ii) are nonassessable and free of preemptive rights, with no obligation to contribute additional capital, and (iii) except as set forth in Part 2.3(f) of the Disclosure Schedule, are owned beneficially and of record by the Company, free and clear of any Encumbrances (other than Permitted Encumbrances).

(g) Except as set forth in Part 2.3(g) of the Disclosure Schedule, none of the Acquired Companies has ever repurchased, redeemed or otherwise reacquired any shares of Company Capital Stock or other securities of any Acquired Company, other than (i) the forfeiture of Company Options by Acquired Company Employees in connection with the termination of an Acquired Company Employee’s employment with an Acquired Company or (ii) the repurchase of unvested Company Common Stock issued pursuant to early exercise of a Company Option in connection with the termination of an Acquired Company Employee’s employment with an Acquired Company. All securities so reacquired by the Company or any other Acquired Company were reacquired in compliance with (i) all applicable Legal Requirements, and (ii) all requirements set forth in applicable restricted stock purchase agreements and other applicable Contracts.

(h) Notwithstanding anything to the contrary set forth in this Section 2.3, Parent acknowledges and agrees that no inaccuracy in any of the statements set forth in this Section 2.3 shall constitute an inaccuracy or breach of the representations or warranties set forth in this Section 2.3 as of the date of this Agreement to the extent that such inaccuracy arises solely out of the exercise of a Company Stock Option or Stock Appreciation Right or the conversion of Company Preferred Stock into Company Common Stock during the five-day period ending on the date of this Agreement.

2.4 Financial Statements; Financial Controls.

(a) The Company has delivered to Parent or its Representatives the following financial statements and notes (collectively, the “Company Financial Statements”): (i) the audited consolidated balance sheets of the Company and its consolidated Subsidiaries as of December 26, 2003, December 31, 2004 and December 30, 2005, and the related audited consolidated statements of income, statements of stockholders’ equity and statements of cash flows of the Company and its consolidated Subsidiaries for the years then ended, together with the notes thereto and the reports and opinions of Ernst & Young LLP relating thereto; and (ii) the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as of March 31, 2006 (the “Unaudited Interim Balance Sheet”), and the related unaudited consolidated statement of income, statement of stockholders’ equity and statement of cash flows of the Company and its consolidated Subsidiaries for the three months then ended, together with the notes thereto.

(b) The Company Financial Statements present fairly in all material respects the financial position of the Company and its consolidated Subsidiaries as of the respective dates thereof and the results of operations and cash flows of the Company and its consolidated Subsidiaries for the periods covered thereby. The Company Financial Statements have been prepared in accordance with GAAP consistently applied throughout the periods covered (except as otherwise stated in the applicable footnotes or report of Ernst & Young and except that the financial statements referred to in Section 2.4(a)(ii) are subject to normal and recurring year-end audit adjustments, which will not individually or in the aggregate, be material in magnitude and such financial statements will lack footnotes and other presentation items).

(c) The financial statements to be delivered pursuant to Section 4.1(c)(ii) and that are included in the definitive Proxy Statement or any preliminary draft thereof that is filed with the SEC will present fairly in all material respects the financial position of the Company and its consolidated Subsidiaries as of the respective dates thereof and the results of operations and cash flows of the Company and its consolidated Subsidiaries for the periods covered thereby, and will be prepared in accordance with GAAP consistently applied throughout the periods covered (except that, in the case of unaudited financial statements, such financial statements are subject to normal and recurring year-end audit adjustments, which will not individually or in the aggregate, be material in magnitude and, in the case of unaudited financial statements, such financial statements will lack footnotes and other presentation items).

(d) None of the Acquired Companies has ever effected or maintained any “off-balance sheet arrangement” (as defined in Item 303(c) of Regulation S-K of the SEC).

(e) Each of the Acquired Companies maintains adequate internal accounting controls that are reasonably designed to ensure that: (i) transactions are executed with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of the consolidated financial statements of the Company and its consolidated Subsidiaries and to maintain accountability for the assets of the Acquired Companies; (iii) access to the assets of the Acquired Companies is permitted only in accordance with management's general or specific authorization; and (iv) accounts, notes and other receivables are recorded accurately and appropriate action is taken with respect to any differences.

2.5 Absence of Changes. Except as set forth in Part 2.5 of the Disclosure Schedule, from March 31, 2006 to the date of this Agreement:

(a) there has not been any Material Adverse Effect;

(b) there has not been any material loss, damage or destruction to, or any material interruption in the use of, any of the fixed assets of any of the Acquired Companies (whether or not covered by insurance);

(c) the Company has not declared, accrued, set aside or paid any dividend or made any other distribution in respect of any shares of Company Capital Stock, and has not repurchased, redeemed or otherwise reacquired any shares of Company Capital Stock or other securities, except upon the exercise of a repurchase right in favor of the Company arising under a Company Stock Option that was previously exercised;

(d) there has been no amendment to any of the Acquired Companies’ Organizational Documents, and no Acquired Company has effected or been a party to (other than as a stockholder) any recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction;

(e) none of the Acquired Companies has acquired any equity interest or voting interest in any Entity (other than a Subsidiary disclosed in Part 2.1(a)(1) of the Disclosure Schedule);

(f) none of the Acquired Companies has made any capital expenditure which, when added to all other capital expenditures made on behalf of the Acquired Companies since April 1, 2006, exceeds an aggregate of $6.7 million through June 30, 2006, and $26.8 million through September 29, 2006;

(g) none of the Acquired Companies has (i) acquired any asset for a purchase price exceeding $250,000 or assets for an aggregate purchase price exceeding $1,000,000 (other than the acquisition of raw materials or supplies in the ordinary course of business consistent with past practice and the acquisition of capital assets subject to subclause (h) above), (ii) sold or otherwise disposed of any asset (other than the sale of finished goods inventory in the ordinary course of business, scrapped inventory and the disposal of obsolete equipment consistent with past practice), or (iii) entered into a license or lease for any asset involving the payment by an Acquired Company of, or the receipt by an Acquired Company of, payments greater than $100,000 in any twelve month period or $250,000 over the term of the license or lease (other than the Lease Agreements disclosed in Part 2.8(b) of the Disclosure Schedule);

(h) none of the Acquired Companies has written off as uncollectible, or established any extraordinary reserve with respect to, any account receivable or other indebtedness in an amount that is individually greater than $50,000 or in the aggregate greater than $250,000;

(i) except as set forth in Part 2.5(i) of the Disclosure Schedule, none of the Acquired Companies has made any pledge of any of its assets or otherwise permitted any of its assets to become subject to any Encumbrance, except for Permitted Encumbrances;

(j) none of the Acquired Companies has (i) lent money to any Person (other than advances made to employees, directors or agents for business expenses and loans made to employees to acquire Company Common Stock upon exercise of Company Options, each in the ordinary course of business and consistent with past practice), or (ii) incurred or guaranteed any indebtedness for borrowed money involving more than $500,000 in the aggregate, that has not been repaid, except for borrowings and/or issuances of letters of credit under the Loan and Security Agreement with Wachovia Capital Finance Corporation (Western);

(k) none of the Acquired Companies has (i) established or adopted any Acquired Company Employee Plan or Acquired Company Pension Plan, (ii) paid any bonus or made any profit sharing or similar payment to, or increased the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, officers or employees (other than payments or increases required pursuant to the Labor Agreement, any Acquired Company Employee Benefit Plan or any Acquired Company Employment Agreement as in effect on the date hereof and salary increases and bonus payments for non-executive employees in the ordinary course of business consistent with past practice both in terms of timing and amount), or (iii) hired any new officer or any new employee whose annual base compensation is greater than $100,000;

(l) none of the Acquired Companies has changed any of its methods of accounting or accounting practices in any material respect, except as required by GAAP;

(m) none of the Acquired Companies has made any material Tax election;

(n) none of the Acquired Companies has commenced or settled any Legal Proceeding (i) involving damages for greater than $250,000, (ii) involving the payment of more than $250,000, or (iii) seeking specific performance or injunctive relief; and

(o) the Company has not agreed or committed to take any of the actions referred to in clauses “(c)” through “(n)” above.

2.6 Assets. Except as set forth on Part 2.6 of the Disclosure Schedule, the Acquired Companies own and have good, valid and marketable title to, or in the case of assets purported to be leased by the Acquired Companies, lease and have valid leasehold interests in, all material assets necessary for the conduct of the business of the Acquired Companies as it is currently conducted. Without limiting the generality of the foregoing, except as set forth on Part 2.6 of the Disclosure Schedule or permitted by Section 4.2(b)(x), the Acquired Companies own (i) all of the assets listed in Section II of that certain valuation report and appraisal, having an effective date as of March 1, 2006 and performed for the Company by Emerald Technology Valuations LLC (the “Valuation Report”) and (ii) all assets of a type that would have been included in the Valuation Report if it had an effective date as of the date hereof that were acquired by any Acquired Companies after the effective date of the Valuation Report. Except as set forth in Part 2.6 of the Disclosure Schedule, all of the material assets owned or leased by an Acquired Company are owned or leased by such Acquired Company free and clear of any Encumbrances, except for Permitted Encumbrances.

2.7 Bank Accounts; Receivables; Customers and Suppliers.

(a) Part 2.7(a) of the Disclosure Schedule sets forth, as of the date of this Agreement, the name of the bank or financial institution and the number of each account maintained at such bank or financial institution of each bank or similar account maintained by or for the benefit of the Acquired Companies.

(b) Part 2.7(b) of the Disclosure Schedule provides a list and aging of all accounts and notes receivable of the Acquired Companies as of August 31, 2006. All such existing accounts receivable of the Acquired Companies (including those accounts receivable reflected on the Unaudited Interim Balance Sheet that have not yet been collected and those accounts receivable that have arisen since March 31, 2006 and have not yet been collected) (i) represent valid obligations of customers of the Acquired Companies arising from bona fide transactions entered into in the ordinary course of business and (ii) are current and, to the Knowledge of the Company, will be collected in full, without any counterclaim or set off (net of an allowance for doubtful accounts of $1.2 million).

(c) Part 2.7(c) of the Disclosure Schedule provides a list as of the date of this Agreement of all outstanding loans and advances made by any of the Acquired Companies to any Key Stockholder, employee, director, consultant or independent contractor, other than advances made to employees, directors, consultants or independent contractors for business expenses in the ordinary course of business consistent with past practice.

(d) Part 2.7(d) of the Disclosure Schedule accurately identifies, and provides an accurate and complete breakdown of the revenues received from, each customer or other Person that accounted for (i) more than $750,000 of the consolidated gross revenues of the Acquired Companies in 2005, or (ii) more than $375,000 of the consolidated gross revenues of the Acquired Companies for the six months ended June 30, 2006. Part 2.7(d) of the Disclosure Schedule contains a list of forecasts received from the customers identified in Part 2.7(d) of the Disclosure Schedule as of the date of this Agreement. To the extent provided to the Acquired Companies by such customers, the Company has provided to Parent or its Representatives a copy of the current purchasing forecast of each such customer.

(e) Part 2.7(e) of the Disclosure Schedule accurately identifies, and provides an accurate and complete breakdown of amounts paid to, each supplier that received (i) more than $250,000 from the Acquired Companies in 2005, or (ii) more than $125,000 from the Acquired Companies during the six months ended June 30, 2006 and lists the amounts paid by the Acquired Companies to each such supplier during such period. As of the date of this Agreement, none of the Acquired Companies has received any written notice from any such supplier indicating that any such supplier identified on Part 2.7(d) of the Disclosure Schedule plans to cease dealing with any of the Acquired Companies or may otherwise materially reduce the volume of business transacted by such supplier with any of the Acquired Companies below historical levels.

2.8 Equipment; Leasehold.

(a) All material items of equipment and other tangible assets owned by or leased to the Acquired Companies are, taken as a whole, adequate for the uses to which they are being put, are in good condition and repair (ordinary wear and tear excepted).

(b) No Acquired Company owns any real property or any interest in real property, except for the leaseholds created under the Lease Agreements identified in Part 2.8 of the Disclosure Schedule and the fixtures appurtenant thereto.

(c) No Lease Agreement has been assigned or is subject to any sublease, and no Person (other than an Acquired Company) is in possession of any portion of the Leased Properties other than the Acquired Companies to the extent subject to the Lease Agreements. All improvements constructed by any Acquired Company within the Leased Properties were constructed in compliance in all material respects with all building codes, zoning ordinances and all other applicable Legal Requirements.

(d) As of the date of this Agreement, none of the Acquired Companies has received written notice of any condemnation or eminent domain proceeding pending or threatened against the Leased Properties or any part thereof.

(e) There is no Legal Proceeding pending or, to the Knowledge of the Company, threatened against any Acquired Companies concerning the Leased Properties which would reasonably be expected to have a material adverse effect on the ability of the Acquired Companies to operate their businesses as currently conducted. As of the date of this Agreement, none of the Acquired Companies has received any written notice from any Governmental Body that any condition on or improvements located on any of the Leased Properties are in violation of any applicable building codes, zoning or land use laws, or other law, order, ordinance, rule or regulation affecting the property.

2.9 Intellectual Property.

(a) Part 2.9(a) of the Disclosure Schedule accurately identifies:

(i) in Part 2.9(a)(i) of the Disclosure Schedule: (A) each item of Registered IP in which any of the Acquired Companies has an ownership interest of any nature (whether exclusively or jointly with another Person); (B) the jurisdiction in which such item of Registered IP has been registered or filed and the applicable registration or serial number; and (C) any other Person that, to the Knowledge of the Company, has an ownership interest in such item of Registered IP and the nature of such ownership interest;

(ii) in Part 2.9(a)(ii) of the Disclosure Schedule: (A) all Intellectual Property Rights or Intellectual Property licensed to each of the Acquired Companies (other than any non-customized software (including shrink-wrap, off-the-shelf or commercially available software) that: (1) is so licensed solely in executable or object code form pursuant to a nonexclusive, internal use software license, (2) is used by the Acquired Companies solely for administrative, financial, or other non-operational purposes; and (3) is generally available on standard terms for less than $10,000 per month or less than $120,000 per year); and (B) the corresponding Acquired Company Contract or Acquired Company Contracts pursuant to which such Intellectual Property Rights or Intellectual Property is licensed to such Acquired Company;

(iii) in Part 2.9(a)(iii) of the Disclosure Schedule, each Acquired Company Contract pursuant to which any Person other than an Acquired Company has received or been granted a license or other right (other than an ownership interest) in or to any of the Acquired Company IP, including process licenses, covenants-not-to-sue, cross-licenses and development licenses, but not including any design kit licenses provided by the Acquired Companies to customers in the ordinary course of business, in the Acquired Companies’ standard form thereof (an accurate copy of which has been provided to Parent); provided, however, that with respect to any of the aforementioned Acquired Company Contracts entered into prior to March 12, 2002, the foregoing disclosure is made only as to the Knowledge of the Company; and

(iv) in Part 2.9(a)(iv) of the Disclosure Schedule, each Acquired Company Contract pursuant to which any Intellectual Property was developed by an Acquired Company or by a third party, where the terms of such Acquired Company Contract expressly contemplate (A) the development of any Acquired Company IP by such third party, where the Acquired Company exclusively owns the Acquired Company IP (excluding employee proprietary inventions and assignment agreements and any agreements pursuant to which a individual consultant or independent contractor performed services on a full-time basis on behalf of such Acquired Company while onsite at the Acquired Company’s facilities); (B) the development of any Intellectual Property by the Acquired Company on behalf of such third party, where the third party exclusively or jointly owns the resulting Intellectual Property; or (C) the collaborative development of Intellectual Property by the Acquired Company and such third party, such as (1) development to allow such third party to offer their design IP commercially, (2) customer support process or design modifications or (3) education research development, other than those agreements already disclosed in response to (a) or (b) above.

(b) Except for any licenses and rights granted in the Acquired Company Contracts expressly identified in Part 2.9(a)(iii) of the Disclosure Schedule and except for any Permitted Encumbrances, none of the Acquired Companies is bound by, and no Acquired Company IP is subject to, any Acquired Company Contract containing any covenant or other provision that in any material way limits or restricts the ability of any of the Acquired Companies to use, exploit, assert, or enforce any Acquired Company IP material to the operation of the business as currently conducted anywhere in the world, provided that with respect to Acquired Company Contracts entered into by a third party and to which an Acquired Company is not a party but is otherwise bound, the representation made in this Section 2.9(b) is only provided to the Knowledge of the Company.

(c) Except as set forth in Part 2.9(c) of the Disclosure Schedule, the Acquired Companies exclusively own all right, title and interest to and in the Acquired Company IP (other than (A) Intellectual Property Rights or Intellectual Property identified in Part 2.9(a)(ii) and Part 2.9(c)(vii) of the Disclosure Schedule as being licensed to the Acquired Companies, and (B) Registered IP identified in Part 2.9(a)(i) of the Disclosure Schedule as being subject to the ownership interest of another Person) free and clear of any Encumbrances (other than licenses granted pursuant to the Acquired Company Contracts listed in Part 2.9(a)(iii) of the Disclosure Schedule and Permitted Encumbrances). Without limiting the generality of the foregoing, except as set forth in Part 2.9(c) of the Disclosure Schedule:

(i) since March 12, 2002, each Person who is or was an employee, consultant or independent contractor of any of the Acquired Companies and who is or was involved in the creation or development of any Acquired Company IP, or who is or was named as an inventor on any patent application filed or owned by any Acquired Company, has signed one or more valid and enforceable agreements containing an irrevocable assignment of that Person’s Intellectual Property Rights to the Acquired Company for which such Person is or was an employee, consultant or independent contractor, and confidentiality provisions protecting the Acquired Company IP;

(ii) no Acquired Company Employee has any claim, right (whether or not currently exercisable) or interest to or in any Acquired Company IP;

(iii) to the Knowledge of the Company, no employee, consultant, or independent contractor who has performed services onsite at the Acquired Companies’ facilities for any of the Acquired Companies is in breach of any Contract with any former employer or other Person concerning Intellectual Property Rights or confidentiality, where the cause or nature of the breach arises out of the performance of any services related to the development of any Acquired Company IP by such employee, consultant, or independent contractor on behalf of any Acquired Company;

(iv) since March 12, 2002, no funding, facilities or personnel of any Governmental Body or any university or other educational institution were used to develop or create, in whole or in part, any Acquired Company IP;

(v) each of the Acquired Companies has taken reasonable steps to maintain the confidentiality of and otherwise protect and enforce its rights in all proprietary information held or purported to be held by any of the Acquired Companies as a trade secret of an Acquired Company;

(vi) since two (2) years prior to the date of this Agreement, none of the Acquired Companies has assigned or otherwise transferred ownership of, or agreed to assign or otherwise transfer ownership of, any Intellectual Property Right that is material to the business of the Acquired Companies to any other Person other than an Acquired Company; and

(vii) except for any Process Technology expressly identified as being licensed from third parties in Part 2.9(c)(vii) of the Disclosure Schedule, the Acquired Companies exclusively own all right, title, and interest in and to all Process Technology used in the conduct of the business of the Acquired Companies as currently conducted.

(d) All Intellectual Property Rights sufficient to conduct the business of the Acquired Companies as currently conducted are either (A) owned by the Acquired Companies or (B) licensed to the Acquired Companies pursuant to the Acquired Company Contracts listed in Part 2.9(a)(ii) of the Disclosure Schedule. The parties acknowledge and agree that the foregoing statement does not constitute a representation or warranty as to, and is not intended to apply to, any potential, actual or suspected infringement, misappropriation or violation of any Intellectual Property Right of any other Person by any of the Acquired Companies.

(e) Except as set forth in Part 2.9(e) of the Disclosure Schedule, (A) all Acquired Company IP that is material Registered IP is valid, subsisting and enforceable in all material respects (except that no representation or warranty is made as to the validity or enforceability of any pending application for Registered IP); and (B) all Acquired Company IP that consists of a material copyright (whether registered or unregistered) is valid, subsisting, and enforceable in all material respects. Without limiting the generality of the foregoing:

(i) no registered trademark owned by any Acquired Company, and no other trademark currently being used by any Acquired Company in connection with the sale or marketing of its products or services (collectively, “Acquired Company Trademarks”), conflicts with any registered trademark (and, solely in the case of the “JAZZ SEMICONDUCTOR” mark, with any registered or unregistered trademark) owned, used or applied for by any other Person in any jurisdiction where any Acquired Company currently markets or promotes (directly or through any Person who is not currently an Acquired Company Employee), through the use of the Acquired Company Trademarks, any of the Acquired Companies’ products or services, where as a result of such conflict and without any resolution thereof, the Acquired Companies would not be able to use such Acquired Company Trademarks in such jurisdiction;

(ii) except for any Registered IP, including any applications therefor, which an Acquired Company has elected to abandon or discontinue prior to the date of this Agreement, each item of material Acquired Company IP that is Registered IP is in compliance with all Legal Requirements, and all filings, payments and other actions required to be made or taken to maintain each item of material Acquired Company IP that is Registered IP in full force and effect have been made by the applicable deadline;

(iii) the Company has made available to Parent complete and accurate copies of all applications, material correspondence and other material documents related to each such item of Registered IP referenced in subsection (e)(ii) above; and

(iv) no interference, opposition, reissue, reexamination or other Legal Proceeding of any nature is pending or, to the Knowledge of the Company, threatened, in which the scope, validity or enforceability of any Acquired Company IP is being, has been or would reasonably be expected to be contested or challenged.

(f) Except as set forth on Part 2.9(f) of the Disclosure Schedule, to the Knowledge of the Company, neither the execution, delivery or performance of this Agreement or any of the Ancillary Agreements nor the consummation of any of the Contemplated Transactions will, with or without notice or the lapse of time, result in or give any other Person the right or option to cause: (i) a loss of, or Encumbrance on, any Acquired Company IP; (ii) the release, disclosure or delivery of any Acquired Company IP by any escrow agent or to any other Person; or (iii) the grant, assignment or transfer to any other Person of any license or other material right or interest, such as an ownership interest or covenant-not-to-sue, under, in or to any of the Acquired Company IP.

(g) To the Knowledge of the Company, (i) since March 12, 2002 no Person has infringed, misappropriated, or otherwise violated, and (ii) no Person is currently infringing, misappropriating or otherwise violating, any Acquired Company IP.

(h) Except as set forth in Part 2.9(h) of the Disclosure Schedule, (A) since March 12, 2002, none of the Acquired Companies, and none of the Acquired Company IP, has infringed (directly, contributorily, by inducement or otherwise), misappropriated or otherwise violated any Intellectual Property Right (excluding patent rights) of any other Person; and (B) to the Knowledge of the Company, none of the Acquired Companies, and none of the Acquired Company IP, has infringed (directly, contributorily, by inducement or otherwise), misappropriated or otherwise violated any Intellectual Property Right (including patent rights) of any other Person. Without limiting the generality of the foregoing, except as set forth in Part 2.9(h) of the Disclosure Schedule:

(i) no infringement, misappropriation or similar claim or Legal Proceeding is pending or, to the Knowledge of the Company, threatened against any of the Acquired Companies with respect to Intellectual Property or Intellectual Property Rights used or exploited by the Acquired Companies, and, to the Knowledge of the Company, no infringement, misappropriation or similar claim or Legal Proceeding relating to the Intellectual Property or Intellectual Property Rights used or exploited by the Acquired Companies is pending or threatened against any licensee, customer, vendor or supplier of an Acquired Company who may be entitled to be indemnified, defended, held harmless or reimbursed by any of the Acquired Companies with respect to such claim or Legal Proceeding;

(ii) since March 12, 2002 none of the Acquired Companies has received any written notice relating to any actual, alleged or suspected infringement, misappropriation or violation of any Intellectual Property Right of another Person by any of the Acquired Companies or any of the Acquired Companies’ employees, consultants, or independent contractors who have performed services onsite at the Acquired Companies’ facilities for any of the Acquired Companies, where the cause or nature of the alleged infringement, misappropriation, or violation arises out of the performance of any services performed by such employee, consultant, or independent contractor on behalf of any Acquired Company;

(iii) none of the Acquired Companies is bound by any Acquired Company Contract to indemnify, hold harmless or reimburse any other Person with respect to, or has assumed, pursuant to any Acquired Company Contract, any existing or potential liability of another Person for, any intellectual property infringement, misappropriation or similar claim (other than any obligation entered into by an Acquired Company in the ordinary course of business that (A) requires such Acquired Company to indemnify a wafer fabrication customer against third-party claims alleging that the Acquired Company Process Technology infringes a third-party Intellectual Property Right, and (B) is limited to an aggregate liability that does not exceed the total consideration paid or payable by such customer to such Acquired Company, and other than pursuant to any express indemnification provisions in Acquired Company Contracts identified in Part 2.9 of the Disclosure Schedule); and

(iv) to the Knowledge of the Company, no claim or Legal Proceeding involving any Intellectual Property or Intellectual Property Right identified in Part 2.9(a)(ii) of the Disclosure Schedule as being licensed to any of the Acquired Companies (A) has been threatened against any of the Acquired Companies in writing and such writing has been received by an Acquired Company; or (B) is pending against any Person, except for any such claim or Legal Proceeding that, if adversely determined, would not materially and adversely affect the use or exploitation of such Intellectual Property or Intellectual Property Right by any of the Acquired Companies.

(i) Except as described in Part 2.9(i) of the Disclosure Schedule, no source code for any Acquired Company Software has been delivered, licensed or made available to any escrow agent or other third party, and none of the Acquired Companies has any duty or obligation (whether present, contingent or otherwise) to deliver, license or make available the source code for any Acquired Company Software to any escrow agent or other third party. No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or would reasonably be expected to, result in the delivery or disclosure of any source code for any Acquired Company Software (by any escrow agent or other third party or by any Acquired Company) to any other Person who is not, as of the date of this Agreement, an employee, consultant or independent contractor of one of the Acquired Companies (except for obligations to deliver or disclose source code for any Acquired Company Software to third parties pursuant to Acquired Company Contracts entered into in the ordinary course of business, where such obligations are not contingent upon the occurrence of any event or circumstance).

(j) The Company has paid in full, on or before the due date, all amounts owed pursuant to the cross-license agreements listed in Part 2.9(a)(ii) and 2.9(a)(iii) of the Disclosure Schedule, other than payments that are not yet due.

Notwithstanding subsections (a) through (j) above, at any time during the Pre-Closing Period (as defined in Section 4.1(a)), an Acquired Company may enter into an Acquired Company Contract that would have been required to be disclosed in Part 2.9(a)(ii), Part 2.9(a)(iii) or Part 2.9(a)(iv) of the Disclosure Schedule in compliance with Section 4.2(b)(x); provided that the Company shall deliver an update to Part 2.9(a)(ii), Part 2.9(a)(iii) or Part 2.9(a)(iv) of the Disclosure Schedule (as applicable) to Parent on a monthly basis and further provided that the Company shall provide to Parent or its Representatives accurate and complete copies of all such Acquired Company Contracts, including all amendments thereto, within twenty business days of the execution of such Acquired Company Contract. For the avoidance of doubt, the entering into of any Acquired Company Contract in compliance with Section 4.2(b)(x) and in compliance with the preceding sentence shall not be deemed to be a breach by the Company of this Section 2.9.

2.10 Contracts.

(a) Part 2.10(a) of the Disclosure Schedule identifies each of the following Acquired Company Contracts that is in effect or has material remaining obligations (including indemnity obligations and obligations for prior breaches) to be performed, as of the date of this Agreement:

(i) each Acquired Company Employee Agreement and any other Acquired Company Contract (A) relating to the employment of, or the performance of services by, any employee, consultant or independent contractor providing for a base annual compensation for any such Person greater than $100,000 other than Acquired Company Employment Agreements that may be terminated at will by the Acquired Company party thereto without payment of severance or other similar obligations (other than in accordance with the Acquired Company’s general severance policy), (B) pursuant to which any of the Acquired Companies is or may become obligated to make any severance, termination or similar payment to any current or former employee or director, or (C) pursuant to which any of the Acquired Companies is or may become obligated to make any bonus or similar payment (whether in the form of cash, stock or other securities, excluding payments constituting base salary and sales commissions) in excess of $75,000 to any current or former employee or director;

(ii) each Acquired Company Contract that provides for indemnification of any officer, director, employee or agent;

(iii) each Acquired Company Contract that expressly imposes, or expressly purports to impose, any restriction on the right or ability of any Acquired Company (A) to compete with, or solicit any customer of, any other Person, (B) to acquire any product or other asset or any services from any other Person, (C) to develop, sell, supply, distribute, offer, support or service any product or any technology or other asset to or for any other Person (other than Contracts that obligate the Acquired Companies to use a customer’s Intellectual Property or Intellectual Property Rights for the sole benefit of such customer), or (D) to perform services for any other Person (other than Contracts that prohibit the Acquired Companies from using a customer’s Intellectual Property or Intellectual Property Rights to manufacture products for a Person other than such customer);

(iv) each Acquired Company Contract (other than Contracts evidencing Company Options or Stock Appreciation Rights) (A) relating to the acquisition, issuance, voting, registration, sale or transfer of any securities, (B) providing any Person with any preemptive right, right of participation, right of maintenance or similar right with respect to any securities, or (C) providing any of the Acquired Companies with any right of first refusal with respect to, or right to repurchase or redeem, any securities;

(v) each Acquired Company Contract relating to the creation of any Encumbrance (other than Permitted Encumbrances) with respect to any asset of any of the Acquired Companies;

(vi) any Acquired Company Contract relating to the acquisition, development, sale or disposition of any business unit or product line of any of the Acquired Companies;

(vii) any Acquired Company Contract creating a manufacturing supply arrangement pursuant to which an Acquired Company may require a third party to manufacture completed semiconductor wafers or pursuant to which an Acquired Company is required to purchase completed semiconductor wafers from a third-party;

(viii) any Acquired Company Contract (other than purchase orders issued in the ordinary course of business) with sole-source or single-source suppliers of products or services where procuring a replacement supplier would reasonably be expected to result in a material increase in costs;

(ix) each Acquired Company Contract relating to any currency or interest rate hedging;

(x) any Acquired Company Contract creating, amending or otherwise evidencing any joint venture (that is identified as a joint venture in such Contract) or any partnership or otherwise providing for the sharing of revenues, profits, losses, costs or liabilities (other than the payment of liabilities of a third party by an Acquired Company pursuant to warranty or indemnity obligations of such Acquired Company entered into in the ordinary course of business consistent with past practice);

(xi) each Lease Agreement involving aggregate annual payments in excess of $100,000;

(xii) each Acquired Company Contract (A) containing “standstill” or similar provisions relating to transactions involving the acquisition, disposition or other transfer of assets or securities of an Entity, or (B) imposing any right of first negotiation, right of first refusal or similar right on an Acquired Company;

(xiii) each Acquired Company Contract relating to the purchase or sale of any product or other asset by or to, or the performance of any services by or for, any Related Party (as defined in Section 2.18) other than purchase or sales of products on arms length terms in the ordinary course of business;

(xiv) each Acquired Company Contract under which an Acquired Company has supplier invoices posted or customer revenue accrued of $350,000 in 2005 or $200,000 in the six months ended June 30, 2006, or that provides by its terms for the future payment or receipt in any twelve month period of, cash or other consideration in an amount or having a value in excess of $350,000 in the aggregate;

(xv) each Acquired Company Contract creating or involving any agency relationship, distribution arrangement or franchise relationship; and

(xvi) any other Acquired Company Contract, if a breach of such Acquired Company Contract or the termination of such Contract would reasonably be expected to have or result in a Material Adverse Effect.

(Contracts in the respective categories described in clauses (i) through (xvi) above, as well as Contracts identified or required to be identified in Part 2.9(a)(ii), Part 2.9(a)(iii) or Part 2.9(a)(iv) of the Disclosure Schedule, are referred to in this Agreement as “Material Contracts”).

(b) The Company has made available to Parent or its Representatives accurate and complete copies of all Material Contracts identified in Part 2.9(a)(ii), Part 2.9(a)(iii), Part 2.9(a)(iv) or Part 2.10(a) of the Disclosure Schedule, including all amendments thereto. Each Material Contract is valid, has not been terminated as of the date of this Agreement and, except as permitted under Section 4.2(b)(ix) will not be terminated during the Pre-Closing Period, and is enforceable against the Acquired Company that is a party thereto and, to the Knowledge of the Company, the other parties thereto, in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency, reorganization, moratorium and the enforcement of creditors’ rights generally, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.

(c) Except as set forth in Part 2.10(c) of the Disclosure Schedule: (i) none of the Acquired Companies has materially violated or breached, or committed any material default under, any Material Contract, and, to the Knowledge of the Company, no other party to a Material Contract has materially violated or breached, or committed any material default under, any Material Contract; (ii) to the Knowledge of the Company, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or would reasonably be expected to, (A) result in a material violation or material breach of any of the provisions of any Material Contract, (B) give any party to a Material Contract the right to accelerate the maturity or performance of any Material Contract, or (C) give any party to a material contract the right to cancel, terminate or materially modify any Material Contract; (iii) none of the Acquired Companies has received any written notice regarding any unresolved issue that would constitute a material violation or material breach of, or default under, any Material Contract; and (iv) none of the Acquired Companies has knowingly waived any of its material rights under any Material Contract except in the ordinary course of business.

(d) Except as set forth in Part 2.10(d) of the Disclosure Schedule:

(i) none of the Acquired Companies has received any determination of noncompliance, entered into any consent order or undertaken any internal investigation relating directly or indirectly to any Government Contract or Government Bid;

(ii) the Acquired Companies have complied with all applicable Legal Requirements with respect to all Government Contracts and Government Bids;

(iii) the Acquired Companies have not, in obtaining or performing any Government Contract, violated, to the extent applicable, (A) the Truth in Negotiations Act of 1962, as amended, (B) the Service Contract Act of 1963, as amended, (C) the Contract Disputes Act of 1978, as amended, (D) the Office of Federal Procurement Policy Act, as amended, (E) the Federal Acquisition Regulations (the “FAR”) or any applicable agency supplement thereto, (F) the Cost Accounting Standards, (G) the Defense Industrial Security Manual (DOD5220.22-M), (H) the Defense Industrial Security Regulation (DOD5220.22-R) or any related security regulations or (I) any other applicable procurement law or regulation or other Legal Requirement;

(iv) all facts set forth in or acknowledged by any of the Acquired Companies in any certification, representation or disclosure statement submitted by any of the Acquired Companies with respect to any Government Contract or Government Bid were current, accurate and complete as of the date indicated in such submission or as of such other date as required by the Government Contract and Government Bid;

(v) none of the Acquired Companies, and, to the Knowledge of the Company, no current Acquired Company Employee, has been debarred or suspended from doing business with any Governmental Body, and, to the Knowledge of the Company, no circumstances exist that would warrant the institution of debarment or suspension proceedings against one or more of the Acquired Companies or any current Acquired Company Employee;

(vi) no negative determination of responsibility has been issued against and provided to any of the Acquired Companies in connection with any Government Contract or Government Bid;

(vii) there is not and has not been any (A) administrative, civil, criminal or other investigation, audit, Legal Proceeding, or indictment involving any of the Acquired Companies arising under or relating to the award or performance of any Government Contract, (B) outstanding material claim against any of the Acquired Companies by, or dispute involving any of the Acquired Companies with, any prime contractor, subcontractor, vendor or other Person arising under or relating to the award or performance of any Government Contract, (C) fact Known by the Company upon which any such claim would reasonably be expected to be based or which may give rise to any such dispute, or (D) final decision of any Governmental Body against any of the Acquired Companies;

(viii) no payment has been made by any Acquired Company or by any Person acting on the behalf of any Acquired Company to any Person (other than to any bona fide employee or agent (as defined in subpart 3.4 of the FAR) of such Acquired Company) which is or was contingent upon the award of any Government Contract or which would otherwise be in violation of any applicable procurement law or regulation or any other Legal Requirement;

(ix) none of the Acquired Companies has made any disclosure since March 12, 2002 to any Governmental Body with respect to any Government Contract or Government Bid pursuant to any voluntary disclosure agreement; and

(x) in each case in which any of the Acquired Companies has delivered or otherwise provided any technical data, computer software or other Intellectual Property to any Governmental Body in connection with any Government Contract, such Acquired Company has provided such technical data, computer software and other Intellectual Property solely as a “commercial item” pursuant to the Acquired Companies’ commercial terms and conditions.

Notwithstanding subsections (a) through (d) above, at any time during the Pre-Closing Period, an Acquired Company may enter into a Material Contract in compliance with Section 4.2(b)(ix); provided that the Company shall deliver an update to Part 2.10(a) of the Disclosure Schedule to Parent on a monthly basis and further provided that the Company shall provide to Parent or its Representatives accurate and complete copies of all such Material Contracts, including all amendments thereto, within twenty business days of the execution of such Material Contract. For the avoidance of doubt, the entering into of any Material Contract in compliance with Section 4.2(b)(ix) and in compliance with the preceding sentence shall not be deemed to be a breach by the Company of this Section 2.10.

2.11 Liabilities. None of the Acquired Companies has any accrued, contingent or other liabilities of any nature, either matured or unmatured (of the type that would be required to be reflected on a consolidated balance sheet of the Company and its Subsidiaries prepared as of the date hereof or as of the Closing Date in accordance with GAAP), except for: (a) liabilities identified as such in the “liabilities” column of the Unaudited Interim Balance Sheet; (b) liabilities that have been incurred by the Acquired Companies since June 30, 2006 in the ordinary course of business and consistent with past practices; (c) liabilities that will be accrued as current liabilities on the Closing Date Balance Sheet; (d) liabilities arising as a result of the Contemplated Transactions; (e) liabilities described in Part 2.11 of the Disclosure Schedule; and (f) liabilities to the extent such liabilities were incurred with Parent’s consent or arise out of actions or events permitted by Section 4.2(b) (in either case other than any action or event taken or occurring in a manner (or the consequences of the taking or occurrence of such action in such manner) that would constitute a breach of any provision of this Agreement other than Section 4.2).

2.12 Compliance with Legal Requirements; Governmental Authorizations.

(a) Except as set forth in Part 2.12 of the Disclosure Schedule, each of the Acquired Companies is, and has at all times since March 12, 2002 been, in compliance in all material respects with all applicable Legal Requirements. Except as set forth in Part 2.12(a) of the Disclosure Schedule, since March 12, 2002, none of the Acquired Companies has (i) received any written notice from any Governmental Body or other Person regarding any actual or possible violation of, or failure to comply with any material provision of, any Legal Requirement or (ii) filed or otherwise provided any written notice to any Governmental Body or other Person regarding any actual or possible material violation of, or failure to comply with any material provision of, any Legal Requirement.

(b) Part 2.12(b) of the Disclosure Schedule identifies each Governmental Authorization material to the operation of the business of the Acquired Companies as currently conducted that is held by any of the Acquired Companies, and the Company has made available to Parent accurate and complete copies of all such Governmental Authorizations. The Governmental Authorizations identified in Part 2.12(b) of the Disclosure Schedule are valid and in full force and effect, and collectively constitute all Governmental Authorizations necessary to enable the Acquired Companies to conduct their respective businesses in all material respects in the manner in which such businesses are currently being conducted. Each Acquired Company is, and at all times since March 12, 2002 has been, in substantial compliance with the terms and requirements of the Governmental Authorizations identified in Part 2.12(b) of the Disclosure Schedule. Since January 1, 2003, none of the Acquired Companies has received any written notice from any Governmental Body regarding (a) any actual or possible violation of or failure to comply with any term or requirement of any Governmental Authorization, or (b) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any Governmental Authorization. To the Knowledge of the Company, no Governmental Body is, as of the date of this Agreement, challenging the right of any of the Acquired Companies to design, manufacture, license, offer or sell any of its products or services.

(c) Except as set forth in Part 2.12(c) of the Disclosure Schedule, each of the Acquired Companies is, and has at all times since March 12, 2002 been, in compliance in all material respects with applicable provisions of United States export and import control laws and regulations related to the export or transfer of commodities, software and technology, including the Export Administration Regulations (15 C.F.R. §§ 730-774); the International Traffic in Arms Regulations (22 C.F.R. §§ 120-130); the Foreign Assets Control Regulations (31 C.F.R. §§ 500-598); and the Customs Regulations (19 C.F.R. §§ 1-357).

2.13 Certain Business Practices. Except as set forth in Part 2.13 of the Disclosure Schedule, none of the Acquired Companies, and (to the Knowledge of the Company) no director, officer, agent or employee of any of the Acquired Companies, has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii) taken any action that would constitute a violation of the Foreign Corrupt Practices Act of 1977, as amended, if the Company were publicly held.

2.14 Tax Matters.

(a) Except as set forth in Part 2.14(a) of the Disclosure Schedule, each of the Tax Returns required to be filed by or on behalf of the respective Acquired Companies with any Governmental Body with respect to any taxable period ending on or before the Closing Date (the “Acquired Company Returns”) (i) has been or will be filed on or before the applicable due date (including any extensions of such due date), and (ii) was, or will be when filed, complete and accurate and prepared in all material respects in compliance with all applicable Legal Requirements. All amounts shown on the Acquired Company Returns to be due on or before the Closing Date have been or will be paid on or before the Closing Date. The Company has made available to Parent accurate and complete copies of all Acquired Company Returns relating to income taxes and all other material Acquired Company Returns.

(b) Each Acquired Company has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.

(c) The Company Financial Statements fully accrue all actual and contingent liabilities for Taxes with respect to all periods through the dates thereof in accordance with GAAP. Each Acquired Company will establish, in the ordinary course of business and consistent with its past practices, reserves adequate for the payment of all Taxes for the period from June 30, 2006 through the Closing Date.

(d) No Acquired Company Return for a taxable period the statue of limitations with respect to which remains open has been examined or audited by any Governmental Body. Except as set forth in Part 2.14(d) of the Disclosure Schedule, no extension or waiver of the limitation period applicable to any of the Acquired Company Returns has been granted (by the Company or any other Person) that remains in effect, and no such extension or waiver that remains in effect has been requested from any Acquired Company.

(e) Except as set forth in Part 2.14(e) of the Disclosure Schedule, no claim or Legal Proceeding is pending or, to the Knowledge of the Company, has been threatened against or with respect to any Acquired Company in respect of any Tax. There are no unsatisfied liabilities for Taxes (including liabilities for interest, additions to tax and penalties thereon and related expenses) with respect to any notice of deficiency or similar document received by any Acquired Company with respect to any Tax (other than liabilities for Taxes asserted under any such notice of deficiency or similar document which are being contested in good faith by the Acquired Companies and with respect to which adequate reserves for payment have been established on the Unaudited Interim Balance Sheet). None of the Acquired Companies has been, and none of the Acquired Companies will be, required to include any adjustment in taxable income for any tax period (or portion thereof) after the Closing pursuant to Section 481 of the Code (or any comparable provision of any Tax law, rule or regulation) as a result of transactions or events occurring, or accounting methods employed, prior to the Closing. None of the Acquired Companies has made any distribution of stock of any controlled corporation, as that term is defined in Section 355(a)(1) of the Code or had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Sections 355 and 361 of the Code. None of the Acquired Companies (i) has been a member of an affiliated group within the meaning of Section 1504 of the Code, other than an affiliated group of which the Company was the common parent, or (ii) filed or been included in a combined, consolidated or unitary income Tax Return, other than any such Tax Return filed by the Company. None of the Acquired Companies has any liability for the Taxes of any Person under Section 1.1502-6 of the Treasury Regulations under the Code (or any similar Legal Requirement) as a transferee or successor, by Contract or otherwise.

(f) Each of the Acquired Companies has overtly disclosed in its Acquired Company Returns any Tax reporting position taken in any Acquired Company Return which could result in the imposition of penalties under Section 6662 of the Code or any comparable Legal Requirement.

(g) None of the Acquired Companies has consummated or participated in, or is currently participating in, any transaction that was or is a “listed transaction” or to the Knowledge of the Company, a “reportable transaction” within the meaning of Treasury Regulations Section 1.6011-4(b) or similar transaction under any corresponding or similar Legal Requirement.

(h) The Company has provided Parent with all material documentation relating to any temporary exemption from Tax, Tax rate reduction, Tax credit, Tax incentive or other special concession for the computation of Tax made available by any Governmental Body to any Acquired Company.

(i) Except as set forth in Part 2.14(i) of the Disclosure Schedule, none of the Acquired Companies holds stock or any other equity interest in any legal entity which is treated as a partnership for federal, state, local or foreign income Tax purposes.

(j) None of the Acquired Companies is a party to or bound by any tax indemnity agreement, tax sharing agreement, tax allocation agreement or similar Contract (other than (x) any such customary agreements with customers, vendors, lessors or the like entered into in the ordinary course of business consistent with past practices and (y) agreements that address property Taxes payable with respect to properties leased to the Acquired Companies).

(k) None of the Acquired Companies has filed a consent under section 341(f) of the Code concerning collapsible corporations. Except as set forth in Part 2.14(k) of the Disclosure Schedule, none of the Acquired Companies is a party to any Contract or has adopted any plan that, in connection with the Contemplated Transactions, would reasonably be expected to result, separately or in the aggregate, in the payment of (i) any “excess parachute payment” within the meaning of section 280G of the Code (or any corresponding provisions of state, local or foreign Tax law) and (ii) any amount that will note be fully deductible as a result of section 162(m) of the Code (or any corresponding provisions of state, local or foreign Tax law). None of the Acquired Companies has been a United States real property holding corporation within the meaning of section 897(c)(2) of the Code during the applicable period specified in section 897(c)(1)(A)(ii) of the Code.

(l) None of the Acquired Companies will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion there) ending after the Closing Date as a result of any: (A) “closing agreement” as described in section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date; or (B) installment sale or open transaction disposition made on or prior to the Closing Date.

2.15 Employee and Labor Matters; Benefit Plans.

(a) The Company has provided Parent with a report which accurately sets forth in all material respects, as of September 18, 2006, with respect to each employee of the Acquired Companies as of such date (including any such employee who is on a leave of absence):

(i) the name of such employee;

(ii) such employee’s title; and

(iii) such employee’s annualized base salary.

(b) Part 2.15(b) of the Disclosure Schedule accurately identifies each former employee of any of the Acquired Companies who is receiving or is currently scheduled to receive any severance benefits (whether from any of the Acquired Companies or otherwise) relating to such former employee’s employment with any of the Acquired Companies.

(c) Except as set forth in Part 2.15(c) of the Disclosure Schedule, the employment of each of the Acquired Companies’ employees is terminable by the applicable Acquired Company at will, without payment of severance or other termination benefits. The Company has made available to Parent accurate and complete copies of all current employee manuals and handbooks relating to the employment of current employees of each of the Acquired Companies.

(d) As of the date of this Agreement, to the actual knowledge of the Chief Executive Officer and Vice President, Human Resources of the Company, no employee at the level of director or above of any of the Acquired Companies: (i) has disclosed an intention to terminate his or her employment with any Acquired Company to any individual (other than himself or herself) included in the definition of “Knowledge of the Company” in this Agreement; or (ii) is, to the Knowledge of the Company, a party to or is bound by any confidentiality agreement, noncompetition agreement or other Contract (with any Person) that may have a material adverse effect on: (A) the performance by such employee of any of his duties or responsibilities as an employee of such Acquired Company; or (B) the business or operations of any Acquired Company.

(e) Except as would not reasonably be expected to result in material liability to the Acquired Companies: (i) no current or former independent contractors of any of the Acquired Companies would reasonably be deemed to be a misclassified employee; (ii) no independent contractor (A) has provided services to any of the Acquired Companies for a period of six consecutive months or longer or (B) would reasonably be deemed eligible to participate in any Company Employee Plan; and (iii) no Acquired Company has ever had any temporary or leased employees that were not treated and accounted for in all respects as employees of such Acquired Company (including coverage under each Acquired Company Employee Plan).

(f) Except as set forth in Part 2.15(f) of the Disclosure Schedule, none of the Acquired Companies is a party to or bound by any employment agreement and no employment agreement is being negotiated by any Acquired Company or Acquired Company Affiliate.

(g) Except as set forth in Part 2.15(g) of the Disclosure Schedule, none of the Acquired Companies is a party to any collective bargaining agreement or other Contract with a labor organization, trade or labor union, employees’ association or similar organization representing any of its employees (collectively, “Labor Agreements”), nor is any such Labor Agreement presently being negotiated, nor is there any current duty on the part of any Acquired Company to bargain with any labor organization or representative, and there are no labor organizations representing or, to the Knowledge of the Company, purporting to represent or seeking to represent any employees of any of the Acquired Companies. The Company has provided to Parent or its Representatives complete and accurate copies of (i) each Labor Agreement and all amendments, addenda or supplements thereto; (ii) all material correspondence and all charges, complaints, notices or orders received by any Acquired Company from the National Labor Relations Board or any labor organization during the period from the date four (4) years prior to the date hereof; and (iii) all arbitration opinions interpreting and enforcing any Labor Agreement to which any Acquired Company is a party, or by which any Acquired Company is bound. None of the Acquired Companies during the past two (2) years had a National Labor Relations Board unfair labor practice charge, or representation petition, filed against it. None of the Acquired Companies has had any strike, slowdown, work stoppage, boycott, picketing, lockout, job action, union labor dispute in the past two (2) years (other than routine contract negotiations) or, to the Knowledge of the Company, threat of any of the foregoing. To the Knowledge of the Company, no event has occurred, and no condition or circumstance exists, that might directly or indirectly give rise to or provide a basis for the commencement of any such strike, slowdown, work stoppage, boycott, picketing, lockout, job action, labor dispute, union organizing activity (of unrepresented employees), question concerning representation, or any similar activity or dispute. Except as would not reasonably be expected to result in material liability to the Acquired Companies, to the Knowledge of the Company, there is no Legal Proceeding, claim (other than routine claims for benefits), labor dispute, collective bargaining, or grievance pending, or to the Knowledge of the Company, threatened or reasonably anticipated, either by or against any Acquired Company, relating to any employment contract, collective bargaining obligation or agreement, wages and hours, leave of absence, plant closing notification, employment statute or regulation, privacy right, labor dispute, workers’ compensation policy, retaliation, immigration or discrimination matter involving any Acquired Company Employee.

(h) Part 2.15(h) of the Disclosure Schedule contains an accurate and complete list as of the date hereof of each Acquired Company Employee Plan and each Acquired Company Employee Agreement. The Company Option Plan and the Company Stock Appreciation Rights Plan were duly adopted by the board of directors of the Company. None of the Acquired Companies intends or has agreed or committed to (i) establish or enter into any new Acquired Company Employee Plan or Acquired Company Employee Agreement, or (ii) modify any Acquired Company Employee Plan or Acquired Company Employee Agreement (except to conform any such Acquired Company Employee Plan or Acquired Company Employee Agreement to the requirements of any applicable Legal Requirements, in each case as previously disclosed to Parent in writing or as contemplated by this Agreement).

(i) Other than the Company Stock Appreciation Rights Plan and the Stock Appreciation Rights, the Company has adopted no other stock appreciation plan and has granted no other stock appreciation rights, and no other stock appreciation rights are outstanding.

(j) Except as set forth on Part 2.15(j) of the Disclosure Letter, since December 31, 2005, there has not been any material change in any actuarial or other assumption used to calculate funding obligations with respect to any Acquired Company Employee Plan, or any material change in the manner in which contributions to any Acquired Company Employee Plan are made or the basis on which contributions are to be determined.

(k) The Company has made available to Parent or its Representatives accurate and complete copies of: (i) all plan documents setting forth the terms of each Acquired Company Employee Plan and each Acquired Company Employee Agreement, including all material amendments thereto and all related trust documents; (ii) the three most recent annual reports (Form Series 5500 and all schedules and financial statements attached thereto), if any, required in connection with each Acquired Company Employee Plan; (iii) for each Acquired Company Employee Plan that is subject to the minimum funding standards of Section 302 of ERISA, the most recent annual and periodic accounting of Acquired Company Employee Plan assets; (iv) the most recent summary plan description together with the summaries of material modifications thereto, if any, required with respect to each Acquired Company Employee Plan; (v) all material written Contracts relating to each Acquired Company Employee Plan, including administrative service agreements and group insurance contracts; (vi) all material written materials provided to any Acquired Company Employee relating to any Acquired Company Employee Plan and any proposed Acquired Company Employee Plan, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events that would result in any material liability to any of the Acquired Companies or any Acquired Company Affiliate except for such written materials incorporated into the applicable plan documents; (vi) all correspondence to or from any Governmental Body relating to any Acquired Company Employee Plan, except for the correspondence that does not reflect or relate to any actual or potential material liability of the Acquired Companies; (vii) all discrimination tests required under the Code for each Acquired Company Employee Plan intended to be qualified under Section 401(a) of the Code for the three most recent plan years; (viii) a sample COBRA form and related notices (ix) all insurance policies in the possession of any of the Acquired Companies or any Acquired Company Affiliate pertaining to fiduciary liability insurance covering the fiduciaries for each Acquired Company Employee Plan; and (x) the most recent IRS determination or opinion letter issued with respect to each Acquired Company Employee Plan intended to be qualified under Section 401(a) of the Code.

(l) Each of the Acquired Companies and Acquired Company Affiliates has performed, in all material respects, all obligations required to be performed by it under each Acquired Company Employee Plan, and, to the Knowledge of the Company, there has been no material default or violation by any other party of the terms of any Acquired Company Employee Plan. Except as set forth in Part 2.15(l) of the Disclosure Schedule, each Acquired Company Employee Plan has been established and maintained in all material respects in accordance with its terms and in material compliance with all applicable Legal Requirements, including ERISA, the Code, and all applicable collective bargaining agreements. Any Acquired Company Employee Plan intended to be qualified under Section 401(a) of the Code (and any related trust intended to be exempt from tax under Section 501(a) of the Code) (i) has received a favorable determination or opinion letter from the IRS that it is so qualified (and its related trust so exempt); (ii) has filed an application for a determination or opinion letter with the IRS within 12 months prior to the date of this Agreement and is awaiting a response to such application or (iii) if such plan is not permitted to apply for a determination letter, is being operated, in all material respects, in accordance with applicable Legal Requirements. No fact or event has occurred since the date of any determination or opinion letter from the IRS that is reasonably likely to materially and adversely affect the qualified status of any such Acquired Company Employee Plan or the exempt status of any such trust. Except as would not reasonably be expected to result in material liability to the Acquired Companies, no “prohibited transaction,” within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, that is not otherwise exempt under Section 408 of ERISA or Section 4975 of the Code, has occurred with respect to any Acquired Company Employee Plan. Except as would not reasonably be expected to result in material liability to the Acquired Companies, there are no claims or Legal Proceedings pending, or, to the Knowledge of the Company, threatened or reasonably anticipated (other than routine claims for benefits), against any Acquired Company Employee Plan or against the assets of any Acquired Company Employee Plan. Each Acquired Company Employee Plan (other than any Acquired Company Employee Plan to be terminated prior to the Closing in accordance with this Agreement) may be amended, terminated or otherwise discontinued after the Closing in accordance with its terms, without material liability to Parent, any of the Acquired Companies or any Acquired Company Affiliate (other than ordinary administration expenses and accrued benefits), subject to applicable Legal Requirements. There are no audits, inquiries or Legal Proceedings pending or, to the Knowledge of the Company, threatened by the IRS, the DOL, or any other Governmental Body with respect to any Acquired Company Employee Plan. No Acquired Company, and no Acquired Company Affiliate, has in the last three years incurred any material penalty or tax with respect to any Acquired Company Employee Plan under Section 502(i) of ERISA, under Sections 4975 through 4980 of the Code or under any other applicable Legal Requirement. Each of the Acquired Companies has timely made all contributions and other payments required by and due under the terms of each Acquired Company Employee Plan and all applicable collective bargaining agreements, except for such failures as would not reasonably be expected to result in material liability to the Acquired Companies.

(m) Except as set forth in Part 2.15(m) of the Disclosure Schedule, no Acquired Company, and no Acquired Company Affiliate, has ever maintained, established, sponsored, participated in, or contributed to any: (i) Acquired Company Pension Plan subject to Title IV of ERISA; (ii) “multiemployer plan” within the meaning of Section (3)(37) of ERISA or (iii) Acquired Company Pension Plan in which stock of any of the Acquired Companies or any Acquired Company Affiliate is or was held as a plan asset. The fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance, or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide in full for the accrued benefit obligations with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to determine employer contributions to and obligations under such Foreign Plan, and no Contemplated Transaction shall cause any such assets or insurance obligations to be less than such benefit obligations, except as would not reasonably be expected to result in material liability to the Acquired Companies.

(n) Except as set forth in Part 2.15(n) of the Disclosure Schedule, no Acquired Company, and no Acquired Company Affiliate, has incurred any penalties, excise taxes or interest under Title IV of ERISA and no condition exists that presents a risk now or in the future to any Acquired Company or any Acquired Company Affiliate of incurring any such liability (other than liability for benefits or premiums to the Pension Benefit Guaranty Corporation arising in the ordinary course) in each case as would reasonably be expected to result in, or has resulted in, any material liability to the Acquired Companies. No Acquired Company Pension Plan has an “accumulated funding deficiency” (within the meaning of Section 301 of ERISA or Section 412 of the Code) whether or not waived. Except as set forth in Part 2.15(n) of the Disclosure Schedule, with respect to each Acquired Company Pension Plan that is a defined benefit plan (as defined in Section 3(35) of ERISA), the assets of such plan equal or exceed the “benefit liabilities” (as defined in Section 4001(a)(16) of ERISA) and valued on the basis of the continuation, and not the termination, of such Acquired Company Pension Plan. In the past three years, no “reportable event” within the meaning of Section 4043(c)(1), (4), (5), (6) or (13) of ERISA has occurred with respect to any Acquired Company Pension Plan that is a defined benefit plan (as defined in Section 3(35) of ERISA). With respect to any Acquired Company Pension Plan that is a “multiemployer plan” within the meaning of Section 3(37) of ERISA, the total potential withdrawal liability, within the meaning of Section 4201 of ERISA, if the Acquired Company or Acquired Company Affiliates were to withdraw from one or more of such Acquired Company Pension Plans would not be expected to have an adverse effect on, or result in a material liability to, any Acquired Company.

(o) Except as set forth in Part 2.15(o) of the Disclosure Schedule, no Acquired Company Employee Plan provides (except at no cost to the Acquired Companies), retiree life insurance, retiree health benefits or other retiree employee welfare benefits to any Person for any reason, except as may be required by COBRA or other applicable Legal Requirements. Other than commitments made that involve no future costs to any of the Acquired Companies or any Acquired Company Affiliate, no Acquired Company, and no Acquired Company Affiliate, has to the Knowledge of the Company ever promised or contracted (whether in oral or written form) to any Acquired Company Employee (either individually or to Acquired Company Employees as a group) or any other Person that any such Acquired Company Employee or other Person would be provided with retiree life insurance, retiree health benefits or other retiree employee welfare benefits, except to the extent required by applicable Legal Requirements.

(p) Except as set forth in Part 2.15(p) of the Disclosure Schedule, and except as expressly required or provided by this Agreement, neither the execution or delivery of this Agreement nor the consummation of any of the Contemplated Transactions will (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Acquired Company Employee Plan, Acquired Company Employee Agreement, trust or loan that will or may result (either alone or in connection with any other circumstance or event) in any payment (whether of severance pay or otherwise), acceleration of any right, obligation or benefit, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Acquired Company Employee.

(q) Except as set forth in Part 2.15(q) of the Disclosure Schedule each of the Acquired Companies (i) is, and at all times has been, in material compliance with all applicable Legal Requirements and with any order, ruling, decree, judgment or arbitration award of any arbitrator or any court or other Governmental Body respecting employment, employment practices, terms and conditions of employment, wages, employee benefits, hours or other labor-related matters, including Legal Requirements relating to discrimination, wages and hours, labor relations, leave of absence requirements, occupational health and safety, privacy, harassment, retaliation, immigration, wrongful discharge or violation of the personal rights of Acquired Company Employees; (ii) has withheld and reported in all material respects all amounts required by any Legal Requirement or Acquired Company Contract to be withheld and reported with respect to wages, salaries and other payments to any Acquired Company Employee; (iii) has no material liability for any arrears of wages or any Taxes or any penalty for failure to comply with any of the foregoing; and (iv) has no material liability for any payment to any trust or other fund governed by or maintained by or on behalf of any Governmental Body with respect to unemployment compensation benefits, social security or other benefits or obligations for any Acquired Company Employee (other than routine payments to be made in the normal course of business and consistent with past practice). Since June 30, 2005, none of the Acquired Companies has effectuated a “mass layoff,” “plant closing,” partial “plant closing,” “relocation” or “termination” (each as defined in the Worker Adjustment and Retraining Notification Act (the “WARN Act”) or any similar Legal Requirement) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of any of the Acquired Companies.

(r) Each Acquired Company Employee Plan, Acquired Company Employment Agreement, or other contract, plan, program, agreement, or arrangement that is a “nonqualified deferred compensation plan” (within the meaning of Section 409A(d)(1) of the Code) has been operated in good faith compliance with Section 409A of the Code and the applicable provisions of IRS Notice 2005-1, proposed Treasury Regulation §§ 1.409A-1 through 1.409A-6, and any subsequent guidance relating thereto; and no additional tax under Section 409A(a)(1)(B) of the Code has been or is reasonably expected to be incurred by a participant in any such Acquired Company Employee Plan, Acquired Company Employment Agreement, or other contract, plan, program, agreement, or arrangement.

(s) To the Knowledge of the Company, there are no facts indicating that the consummation of any of the Contemplated Transactions will have a material adverse effect on the labor relations of any of the Acquired Companies.

(t) Part 2.15(t) of the Disclosure Schedule accurately identifies as of the date hereof the number of employees of any of the Acquired Companies who are not fully available to perform work because of long-term disability or other long-term leave.

2.16 Environmental Matters. Notwithstanding the breadth or potential application of any other representation or warranty of the Company set forth in this Agreement, this Section 2.16 together with Section 2.5(a) and Section 2.12(b) contain the Company’s sole and exclusive representations and warranties regarding environmental, health and safety matters. Except as set forth in Part 2.16 of the Disclosure Schedule:

(a) Since March 12, 2002, each Acquired Company has been and presently is in compliance with all applicable Environmental Laws in all material respects, which compliance includes the possession by each of the Acquired Companies of all Governmental Authorizations materially necessary under applicable Environmental Laws, and each of the Acquired Companies is in compliance with the terms thereof. None of the Acquired Companies has received any written notice since March 12, 2002 from any Governmental Body or other Person that any of the Acquired Companies is not in material compliance with any Environmental Law or any such Governmental Authorization.

(b) There are no pending or, to the Knowledge of the Company, threatened material claims of any kind against any of the Acquired Companies resulting from any applicable Environmental, Health, and Safety Liabilities or arising under or pursuant to any Environmental Law, with respect to or affecting any of the Facilities or any other properties or assets based on events occurring or facts and circumstances arising after March 12, 2002.

(c) There are no material Environmental, Health, and Safety Liabilities, arising out of actions taken by any of the Acquired Companies since March 12, 2002 with respect to the Facilities or with respect to any other properties or assets in which any of the Acquired Companies, has or had an interest.

(d) All hazardous materials stored, used, transported, disposed of and handled by any of the Acquired Companies have been stored, used, transported, disposed of and handled in material compliance with all Environmental Laws.

(e) Since March 12, 2002, there has been no material Release or material Threat of Release of any hazardous materials at or from the Facilities or at any other locations where any hazardous materials were generated, manufactured, refined, transferred, stored, produced, imported, used, processed from or disposed of by the Acquired Companies and, in each case, for which the Acquired Companies have or may have any material Environmental Health and Safety Liability.

(f) The Company has made available to the Parent true and complete copies and results of any Phase I or Phase II environmental site assessments in the Company’s possession with respect to the facilities.

2.17 Insurance. Part 2.17 of the Disclosure Schedule identifies each insurance policy currently maintained by, at the expense of or for the benefit of any of the Acquired Companies and identifies any claims over $50,000 (including any workers’ compensation claims) made thereunder as of August 31, 2006 and the Company has delivered to Parent or its Representatives accurate and complete copies of the insurance policies identified in Part 2.17 of the Disclosure Schedule. Each of the insurance policies identified in Part 2.17 of the Disclosure Schedule is in full force and effect or has been replaced with a policy that provides equivalent coverage in all material respects. Since March 12, 2002, none of the Acquired Companies has received any written notice regarding any (a) cancellation or invalidation of any insurance policy identified or required to be identified in Part 2.17 of the Disclosure Schedule, (b) refusal of any coverage or rejection of any claim under any such insurance policy (other than standard reservation of rights letters), or (c) material increase in the amount of the premiums currently payable with respect to any such insurance policy.

2.18 Related Party Transactions. Except as set forth in Part 2.18 of the Disclosure Schedule: (a) no Related Party has, and no Related Party has at any time since January 1, 2005 had, any direct or indirect interest in any material asset used in or otherwise relating to the business of any of the Acquired Companies (other than as a result of its ownership interest in Company Capital Stock); (b) no Related Party is, or has at any time since January 1, 2005 been, indebted to any of the Acquired Companies for any amount in excess of $50,000; and (c) since January 1, 2005, no Related Party has entered into, or has had any direct or indirect financial interest in, any Material Contract, transaction or business dealing involving any of the Acquired Companies (other than as a result of its ownership interest in Company Capital Stock). For purposes of this Section 2.18, each of the following shall be deemed to be a “Related Party”: (i) each of the Key Stockholders; (ii) each individual who is, or who was since March 12, 2002 at the time of the entry into the transaction or the creation of the interest in question an officer or director of the Company; (iii) each member of the immediate family of each of the Persons referred to in clause “(ii)” above; (iv) each Person that is, or that was at any time since March 12, 2002 at the time of the entry into the transaction or the creation of the interest in question an affiliate of any Key Stockholder (other than any portfolio company or limited partner of such Key Stockholder); and (v) any trust or other Entity (other than the Company) in which, to the Knowledge of the Company, any one of the Persons referred to in clauses “(i)”, “(ii),” “(iii)” and “(iv)” above holds (or in which more than one of such Persons collectively hold), beneficially or otherwise, at least ten percent (10%) of the voting, proprietary or equity interest.

2.19 Legal Proceedings; Orders.

(a) Except as set forth in Part 2.19 of the Disclosure Schedule, as of the date of this Agreement (x) there is no pending Legal Proceeding, and (y), to the Knowledge of the Company, no Person has since January 1, 2005 threatened to commence any Legal Proceeding that, in either case: (i) involves any of the Acquired Companies or any of the assets owned or used by any of the Acquired Companies; or (ii) challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Merger or any of the other Contemplated Transactions. Except as set forth in Part 2.19 of the Disclosure Schedule, to the Knowledge of the Company as of the date of this Agreement there is no claim or dispute that would reasonably be expected to give rise to the commencement of any Legal Proceeding with an amount in dispute in excess of $250,000. No claim, dispute or Legal Proceeding disclosed in Part 2.19 of the Disclosure Schedule would, if determined adversely to the Acquired Company party thereto, reasonably be expected to have or result in a Material Adverse Effect.

(b) There is no Order to which any of the Acquired Companies, or any of the assets owned or used by any of the Acquired Companies, is subject. To the Knowledge of the Company, none of the Key Stockholders is subject to any Order that relates to the business of any Acquired Company or to any of the assets owned or used by any Acquired Company. To the Knowledge of the Company, no officer or key employee of any of the Acquired Companies is subject to any Order that prohibits such officer or employee from engaging in or continuing any conduct, activity or practice relating to the business of any of the Acquired Companies as currently conducted or currently proposed to be conducted.

2.20 Authority; Binding Nature of Agreement. The Company has the right, power and authority to enter into and to perform its obligations under this Agreement; and the execution, delivery and performance by the Company of this Agreement have been duly authorized by all necessary action on the part of the Company and its board of directors. The board of directors of the Company (at a meeting duly called and held) has (a) determined that the Certificate Amendment (as defined in Section 5.15) and the Merger are advisable and fair and in the best interests of the Company and its stockholders, (b) authorized and approved the execution, delivery and performance of this Agreement by the Company and unanimously approved the Merger, (c) authorized and approved the Certificate Amendment, and (d) recommended the adoption of this Agreement and the approval of the Certificate Amendment by the holders of Company Capital Stock and directed that this Agreement, the Merger and the Certificate Amendment be submitted for consideration by the Company’s stockholders. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the other parties hereto, constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and the enforcement of creditors’ rights generally and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.

2.21 Non-Contravention; Consents. Except as set forth in Part 2.21 of the Disclosure Schedule, neither (1) the execution, delivery or performance of this Agreement or any of the Ancillary Agreements, nor (2) the consummation of the Merger or any of the other Contemplated Transactions will directly or indirectly (with or without notice or lapse of time):

(a) assuming the Required Amended Stockholder Votes and Required Merger Stockholder Votes are obtained and the filing of the Merger certificate in accordance with the DGCL, contravene, conflict with or result in a violation of (i) any of the provisions of the Organizational Documents of any of the Acquired Companies, or (ii) any resolution adopted by the stockholders or members, as applicable, the board of directors or similar governing body, as applicable, or any committee thereof, of any of the Acquired Companies;

(b) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge the Merger or any of the other Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which any of the Acquired Companies, or any material asset owned or leased by any of the Acquired Companies, is subject, except (i) under the HSR Act and other applicable Antitrust Laws (as defined in Section 5.1), and (ii) for conflicts or violations which would not, individually or in the aggregate, reasonably be expected to have or result in a material adverse effect on the Company’s ability to consummate the Merger;

(c) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by any of the Acquired Companies or that otherwise relates to the business of any of the Acquired Companies or to any material assets owned or leased by any of the Acquired Companies;

(d) contravene, conflict with or result in a violation in any material respect or breach of, or result in a default in any material respect under, any provision of any Material Contract, or give any Person the right to (i) declare a default or exercise any remedy under any Material Contract, (ii) a rebate, chargeback, penalty or change in delivery schedule under any Material Contract, (iii) accelerate the maturity or performance in any material respect of any obligation under any Material Contract, or (iv) cancel, terminate or modify any material term of any Material Contract;

(e) result in the imposition or creation of any Encumbrance upon or with respect to any asset owned or used by any of the Acquired Companies (except for Permitted Encumbrances); or

(f) result in the transfer of any material asset of any of the Acquired Companies to any Person.

Except as may be required by the DGCL, the HSR Act or applicable federal and state securities laws and as set forth in Part 2.21 of the Disclosure Schedule, none of the Acquired Companies was, is or will be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement or any of the Ancillary Agreements executed, delivered or entered into in connection with the Contemplated Transactions, or (y) the consummation of the Merger or any of the other Contemplated Transactions.

2.22 Vote Required.

(a) The affirmative votes of the holders of (i) a majority of the shares of Company Capital Stock outstanding, voting together on an as-if converted to common stock basis and adjusted pursuant to the Company’s Organizational Documents as a single class, (ii) a majority of the shares of Company Preferred Stock outstanding, voting as a class, and (iii) a majority of the shares of Company Common Stock outstanding, voting as a class (the votes referred to in clauses “(i),” “(ii)” and “(iii)” of this sentence being referred to collectively as the “Required Amendment Stockholder Votes”) are the only votes of the holders of any class or series of the Company’s capital stock necessary to approve the Certificate Amendment.

(b) The affirmative votes of the holders of (i) a majority of the voting power of the Company Common Stock and Company Preferred Stock outstanding, voting together as a single class on an as-if converted to Company Common Stock basis (and taking account of the adjusted voting power provided in the Company’s certificate of incorporation (the “Required Merger Stockholder Votes”) are the only votes of the holders of any class or series of the Company’s capital stock necessary to adopt this Agreement and approve the Merger and the other Contemplated Transactions (other than the Certificate Amendment).

(c) The Key Stockholders collectively own of record a sufficient number of shares of Company Capital Stock to obtain the Required Merger Stockholder Votes.

2.23 Financial Advisor. Except as disclosed in Part 2.23 of the Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Merger or any of the other Contemplated Transactions based upon arrangements made by or on behalf of any of the Acquired Companies.

2.24 Transaction Expenses. Part 2.24 of the Disclosure Schedule provides a reasonable, good faith estimate as of the date hereof of all Transaction Expenses incurred on or prior to the date of this Agreement, and all Transaction Expenses that are or will become payable with respect to services performed on or prior to the date of this Agreement.

2.25 Proxy Information. The information supplied by or on behalf of the Company for inclusion in the Proxy Statement related to the Acquired Companies will not, as of the date of the Proxy Statement, the time the Proxy Statement is mailed to the stockholders of Parent or as of the date of the Parent Stockholders’ Meeting (as defined in Section 5.4) (or any adjournment or postponement thereof), inaccurately state a material fact.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub represent and warrant to the Company as follows:

3.1 Authority; Binding Nature of Agreement. Parent and Merger Sub have the corporate power and authority to enter into and to perform their obligations under this Agreement; and the execution, delivery and performance by Parent and Merger Sub of this Agreement have been duly authorized by all necessary action on the part of Parent and Merger Sub and their respective boards of directors. This Agreement has been duly executed and delivered and, assuming the due authorization, execution and delivery by the other parties hereto, constitutes the legal, valid and binding obligation of Parent and Merger Sub, enforceable against them in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency, reorganization, moratorium and the enforcement of creditors’ rights generally, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. Prior to the Effective Time, Parent, as the sole stockholder of Merger Sub, will vote the shares of Merger Sub stock in favor of the approval of this Agreement, as and to the extent required by applicable Legal Requirements, including the DGCL.

3.2 Valid Existence. Each of Parent and Merger Sub is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Merger Sub was formed solely for the purpose of engaging in the Contemplated Transactions, has engaged in no other business activities and has conducted its operations only as contemplated by this Agreement. As of the date hereof, all of the outstanding capital stock of Merger Sub is owned beneficially and of record by Parent, free and clear of all encumbrances (other than those created by this Agreement and the Contemplated Transactions hereby).

3.3 Non-Contravention; Consents. Neither (1) the execution, delivery or performance of this Agreement or any of the Ancillary Agreements, nor (2) the consummation of the Merger or any of the other Contemplated Transactions, will directly or indirectly (with or without notice or lapse of time):

(a) assuming the Required Parent Merger Stockholder Vote is obtained and the filing of the Merger certificate in accordance with the DGCL, contravene, conflict with or result in a violation of (i) any of the provisions of the articles of incorporation or bylaws of Parent, or (ii) any resolution adopted by the stockholders, the board of directors or any committee of the board of directors of Parent since Parent’s inception; or

(b) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge the Merger or any of the other Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which Parent, or any of the material assets owned or used by Parent, is subject, except (i) under the HSR Act and other applicable Antitrust Laws (as defined in Section 5.1), and (ii) for conflicts or violations which would not, individually or in the aggregate, reasonably be expected to have or result in a material adverse effect on Parent’s ability to consummate the Merger.

Except (a) as may be required by the DGCL or by the HSR Act and other applicable Antitrust Laws; (b) for the Required Parent Merger Stockholder Vote, and (c) for filings (i) required under the Exchange Act and the rules and regulations promulgated thereunder, (ii) required by the American Stock Exchange with respect to the Merger and the Contemplated Transactions, and (iii) as otherwise may be required in order for Parent to comply with applicable federal and state securities laws, Parent was not, is not and will not be required to make any filing with or give any notice to, or to obtain any Consent from, any Person prior to the Effective Time in connection with (A) the execution, delivery or performance of this Agreement or any of the Contemplated Transactions, and (B) the consummation of the Merger or any of the Contemplated Transactions, except where the failure to make or obtain any such filing, notice or Consent would not reasonably be expected to materially impair or delay the ability of Parent to consummate the Merger.

3.4 Vote Required. The Required Parent Merger Stockholder Vote is the only vote of the holders of any class or series of the Company’s capital stock necessary to approve Merger and the other Contemplated Transactions.

3.5 Financial Advisor. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission from any of the Key Stockholders in connection with the Merger or any of the other Contemplated Transactions based upon arrangements made by or on behalf of Parent or Merger Sub.

3.6 Financing Letters. Parent has provided to the Company a true, correct and complete copy of the commitment letter, dated as of September 26, 2006 (together with the related fee letter, the “Wachovia Financing Commitment”) from Wachovia Capital Finance Corporation (Western) (together with its affiliates, “Wachovia”), which evidences Wachovia’s commitments to structure, arrange and syndicate a senior secured revolving loan facility in an amount up to $65 million on the terms and subject to the conditions set forth therein.

SECTION 4. CERTAIN COVENANTS OF THE COMPANY

4.1 Access and Investigation.

(a) During the period from the date of this Agreement through the earlier of the Effective Time or the valid termination of this Agreement in accordance with Section 8 (the “Pre-Closing Period”), the Company shall, and shall cause each of the Acquired Companies to: (a) provide Parent and Parent’s Representatives with reasonable access during normal business hours, in such a manner as to not interfere unreasonably with the operations of the Acquired Companies, to the senior management, personnel and assets of the Acquired Companies and to all existing books, records, Tax Returns, work papers, Acquired Company Contracts and other documents and information relating to the Acquired Companies; and (b) provide Parent and Parent’s Representatives (at Parent’s sole cost and expense) with copies of such existing books, records, Tax Returns, work papers, Acquired Company Contracts and other documents and information relating to the Acquired Companies, and with such additional financial, operating and other data and information regarding the Acquired Companies, as Parent may reasonably request; provided, however, access to any work papers prepared by the Acquired Companies’ independent auditor may be subject to the execution by Parent of a customary “hold harmless” letter reasonably satisfactory to such independent auditors.

(b) Without limiting the generality of the previous sentence, during the Pre-Closing Period, the Company shall, and shall cause the Representatives of each of the Acquired Companies to, permit Parent's senior officers to meet with the Controller of the Company and other officers of the Acquired Companies responsible for the Company’s financial statements, the internal controls of the Acquired Companies and the disclosure controls and procedures of the Acquired Companies to discuss such matters as Parent may reasonably deem necessary or appropriate for Parent to satisfy its obligations under the Sarbanes-Oxley Act of 2002 and the rules and regulations relating thereto.

(c) During the Pre-Closing Period:

(i) within 25 days after the end of each calendar month during the Pre-Closing Period that is not the last month of a fiscal quarter, the Company shall deliver to Parent (A) a consolidated balance sheet of the Company and its consolidated Subsidiaries as of the last day of such calendar month, and (B) consolidated statements of income and to the extent reasonably requested by Parent (on behalf of lenders to, and/or equity investors in, Parent) cash flows for such calendar month; and

(ii) within 45 days after the end of each fiscal quarter during the Pre-Closing Period, the Company shall deliver to Parent (A) a consolidated balance sheet of the Company and its consolidated Subsidiaries as of the last day of such fiscal quarter, and (B) consolidated statements of income, stockholders’ equity and cash flows for such fiscal quarter.

(d) During the Pre-Closing Period, the Company shall cooperate with, and provide reasonable assistance to, Parent and Parent’s Representatives in the preparation of projections including forecasted consolidated and consolidating balance sheets and statements of income and cash flows for the Acquired Companies, together with explanations of the assumptions on which such forecasts are based as reasonably requested by Parent for the purpose of providing such information to potential lenders to, and/or equity investors in, Parent or the Surviving Corporation. Notwithstanding the foregoing, but without limiting any representation or warranty of the Company expressly set forth in this Agreement, Parent acknowledges and agrees that the Company makes no representations with respect to such projections, that there can be no guarantee of the future operating results of the Company, and in no event shall any Parent Indemnitee have any claim for indemnification hereunder as a result of such projections or the failure to achieve the projected operating results set forth therein.

(e) The Company shall promptly notify Parent in the event that any error is identified in the financial statements of the Company or other information included in the definitive Proxy Statement mailed to Parent’s stockholders which would require Parent to mail a supplement or amendment to the Proxy Statement to Parent’s stockholders. The Company shall bear or pay prior to the Closing all costs associated with any additional mailings referenced in the preceding sentence required as a result of such error.

(f) During the Pre-Closing Period, the Company shall provide to Parent any new or revised forecasts given to an Acquired Company by any of the customers identified in Part 2.7(d) of the Disclosure Schedule that would have been required to be included in Part 2.7(d) of the Disclosure Schedule if such forecasts had been the last forecasts received from each such customer prior to the date hereof. Such new or revised forecasts shall be delivered to Parent on a monthly basis or to the extent not previously required to be provided, no fewer than two (2) business days prior to the Closing Date. The Company shall make the employees of the Acquired Companies available to Parent upon reasonable notice and during normal business hours in connection with inquiries relating to such forecasts.

4.2 Operation of the Company’s Business. During the Pre-Closing Period:

(a) the Company shall ensure that it and each of the other Acquired Companies:

(i) conducts its business and operations in the ordinary course, in substantially the same manner as such business and operations have been conducted prior to the date of this Agreement;

(ii) conducts its business and operations consistent with the Company’s 2006 balance sheet and cash flow projections as of June 20, 2006 delivered by the Company to Parent prior to the date hereof (the “2006 Street Case”) and the Company’s income statement forecasts for 2006, 2007 and 2008 delivered by the Company to Parent prior to the date hereof (the “Three Year Projections”); provided, however, that failure by the Company to meet the 2006 Street Case and Three Year Projections shall not, in and of itself, be conclusive evidence that the Company conducted its business and operations in a manner inconsistent with such projections and forecasts;

(iii) uses reasonable efforts to, as a whole, preserve intact its current business organization, keep available the services of its current officers and employees and maintain its relations and good will with suppliers, customers, landlords, creditors, employees, labor organizations, Governmental Bodies, and other Persons having business relationships with the Acquired Companies;

(iv) keeps in full force all insurance policies identified in Part 2.17 of the Disclosure Schedule (except for replacement of insurance policies providing substantially similar levels of coverage);

(v) promptly notifies Parent of (A) any notice or other written communication from any Person alleging that the Consent of such Person is or may be required in connection with any of the Contemplated Transactions, or (B) any Legal Proceeding commenced, or, to the Knowledge of the Company, overtly threatened in writing against any of the Acquired Companies; and

(vi) (A) pays (in a timely manner) any amounts due and owing to International Business Machines Corporation (“IBM”) under the License Agreement dated July 1, 2004, by and between the Company and IBM (the “IBM License Agreement”) and (B) shall not exercise the option, under the IBM License Agreement, to designate a third “have-made sublicensee” without Parent’s prior written consent, not to be unreasonably withheld;

(b) the Company shall not, and shall not permit any of the other Acquired Companies to, except as consented to by Parent (which consent may not except in the cases of clauses (i) through (iii), (v) through (viii), (xi) and (xii) below and clause (xv) below (to the extent clause (xv) relates to any matter set forth in any of clauses (i) through (iii), (v) through (viii), (xi) or (xii) below) be unreasonably withheld, conditioned or delayed) or as set forth in Part 4.2(b) of the Disclosure Schedule:

(i) declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, and shall not repurchase, redeem or otherwise reacquire any shares of capital stock or other securities (except upon the exercise of a repurchase right in favor of the Company arising under a Company Stock Option that was previously exercised or as provided in the Conexant Supply Termination Agreement Amendment);

(ii) sell, issue or authorize the issuance of (i) any capital stock or other security, (ii) any option or right to acquire any capital stock or other security, or (iii) any instrument convertible into or exchangeable for any capital stock or other security (except that the Company shall be permitted (x) to grant stock options to employees in accordance with its past practices, (y) to issue Company Common Stock to employees upon the exercise of outstanding Company Options, and (z) issue Company Common Stock upon conversion of Company Preferred Stock);

(iii) amend or waive any of its rights under, or permit the acceleration of vesting under, (A) any provision of the Company Stock Appreciation Rights Plan, or (B) any provision of any agreement evidencing any outstanding Stock Appreciation Rights;

(iv) (A) establish, adopt or materially amend any Acquired Company Employee Benefit Plan, Acquired Company Employment Agreement or Acquired Company Pension Plan (except that the Company will enter into the Employment Agreements and except as required to comply with applicable Legal Requirements and with prior notice to Parent), (B) pay any bonus or make any profit sharing payment, cash incentive payment or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, officers or employees (other than payments or increases required pursuant to the Labor Agreement, any Acquired Company Employee Benefit Plan or any Acquired Company Employment Agreement as in effect on the date hereof and salary increases and bonuses for non-executive employees in the ordinary course of business consistent with past practice), (C) hire any new officer or any new employee whose annual base compensation is greater than $100,000, or (D) terminate any existing officers or employees at the level of director or above of any of the Acquired Companies;

(v) decrease quarterly contributions to the Acquired Company Pension Plan below (A) $260,000 per quarter for the quarter ended September 30, 2006 and December 31, 2006 and (B) thereafter actuarially determined amounts;

(vi) amend its Organizational Documents, or effect or become a party to (other than as a stockholder) any Acquisition Transaction, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction;

(vii) form any Subsidiary or acquire any equity interest or other interest in any other Entity;

(viii) make any capital expenditure, except for capital expenditures that, when added to all other capital expenditures made by or on behalf of the Acquired Companies since July 1, 2006, do not exceed, in the aggregate: (A) $20.2 million through September 29, 2006, (B) $30.2 million through March 31, 2007; provided, however, that Parent shall not unreasonably withhold its consent to any proposal by the Company to increase the amount of permitted capital expenditures for the period from December 31, 2006 through March 31, 2007 by an amount not in excess of $1.75 million or (C) $33.45 million through May 31, 2007, provided, however that Parent shall not unreasonably withhold its consent to any proposal by the Company to increase the permitted amount of capital expenditures for the period from March 31, 2007 to May 31, 2007 by an amount not in excess of $1.75 million;

(ix) enter into any Contract that is or would constitute a Material Contract, or amend, renew or prematurely terminate, or (except in the ordinary course of business) knowingly waive any material right or remedy under, any Material Contract (except for: (r) any amendment to the Alliance Program Attachment to Customer Agreement MA4747, dated June 3, 2002, between the Company and Mentor Graphics Corporation, the sole effect of which is to expand the definition of “AP Products” under such agreement to include additional products and to establish corresponding pricing for such additional products, but which does not otherwise alter the terms and conditions of the agreement; (s) any amendment (including amendments implementing new “Product Quotations”) to the Fixed-Term License Agreement FTLA-02JAZZ0816, dated August 16, 2002, between Newport Fab, LLC and Cadence Design Systems, the sole effect of which is to expand the definition of “Licensed Programs” under such agreement to include additional products and to establish corresponding pricing for such additional products, but which does not otherwise alter the terms and conditions of the agreement; (t) any amendment (including amendments to the relevant Statement of Work attachments) to the Standard Cell Library Development & License Agreement dated May 31, 2006, between the Company and Synopsys, Inc. or the Drom Library Development & License Agreement dated May 31, 2006, between the Company and Synopsys, Inc., to expand the definition of “Licensed Libraries” under such agreements to include additional products and to establish corresponding pricing for such additional products, but which does not otherwise alter the terms and conditions of the agreement (u) any purchase order accepted by an Acquired Company from a customer; (v) any agreement with a customer that is consistent in all material respects with the terms and conditions of the Company’s standard form of wafer purchase agreement (rev. 0704) (other than modifications negotiated at arms’ length with a customer that are not material to the operation of the Acquired Companies’ business), which contains no obligations of the Company to reserve any fabrication capacity for such customer except to the extent that the Company has accepted a binding purchase order from such customer and contains no obligations of exclusivity binding upon the Company; (w) any agreement with a supplier for the purchase of equipment, raw materials, services or supplies; (x) any Employment Agreements not prohibited by subsection (iv) above; (y) any Contract for capital expenditures permitted by subsection (viii) above; and (z) any Contract for licenses permitted by subsection (xi) below; provided, however, that each of (r) through (z) above shall be in the ordinary course of business of the Company);

(x) (i) acquire any asset for a purchase price exceeding $250,000 or assets for an aggregate purchase price exceeding $1 million (other than the acquisition of raw materials or supplies in the ordinary course of business consistent with past practice and licenses of the type required to be disclosed on Part 2.9 of the Disclosure Schedule and the acquisition of capital assets subject to subclause (viii) above); (ii) sell or otherwise dispose of any asset other than the sale of finished goods inventory in the ordinary course of business consistent with past practice, scrapped inventory and the disposal of obsolete equipment consistent with past practice; (iii) enter into a license or lease for any asset involving the payment by an Acquired Company of, or the receipt by an Acquired Company of payments, greater than $100,000 in any twelve month period or $250,000 over the term of the lease or license; or (iv) knowingly waive or relinquish any material rights outside of the ordinary course of business;

(xi) lend money to any Person (except that the Acquired Companies may make advances to employees, officers, directors or independent contractors for business expenses and the Company may allow employees to acquire Company Common Stock in exchange for promissory notes upon exercise of Company Options, in each case in the ordinary course of business consistent with past practice), or incur or guarantee any indebtedness for borrowed money (except for (1) the issuance of letters of credit in the ordinary course of business, (2) borrowings under the Loan and Security Agreement with Wachovia Capital Finance Corporation (Western) or (3) borrowings from any Key Stockholders (not to exceed $15 million in the aggregate) that are repaid at or prior to the Closing);

(xii) change any of its methods of accounting or accounting practices in any material respect, except as required by GAAP;

(xiii) make any material Tax election;

(xiv) commence any Legal Proceeding seeking amounts in excess of $100,000 or seeking any non-monetary relief or settle any material Legal Proceeding except for settlements involving solely monetary consideration; or

(xv) agree or commit to take any of the actions described in this clause (b).

4.3 Notification; Updates to Disclosure Schedule.

(a) During the Pre-Closing Period, each party shall promptly notify the other party in writing of: (i) the discovery by the first party of any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a material inaccuracy in or breach of any representation or warranty of the first party contained in this Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute a material inaccuracy in or breach of any representation or warranty of the first party contained in this Agreement if (A) such representation or warranty had been made as of the time of the occurrence, existence or discovery of such event, condition, fact or circumstance, or (B) such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement; and (iii) any material breach of any covenant or obligation of the first party. In addition, during the Pre-Closing Period, each of the Company and Parent shall promptly notify the other in writing of any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions set forth in Section 6 or Section 7 impossible or unlikely or that has had or would reasonably be expected to have or result in a Material Adverse Effect.

(b) If any event, condition, fact or circumstance that is required to be disclosed pursuant to Section 4.3(a) requires any change in the Disclosure Schedule, or if any such event, condition, fact or circumstance would require such a change assuming the Disclosure Schedule were dated as of the date of the occurrence, existence or discovery of such event, condition, fact or circumstance, then the Company may deliver to Parent an update to the Disclosure Schedule specifying such change. No such update other than any update to Part 2.9 or Part 2.10 of the Disclosure Schedule permitted hereby shall be deemed to supplement or amend the Disclosure Schedule for the purposes of: (i) determining the accuracy of any of the representations and warranties in this Agreement or in any certificate or other Acquired Company Contract referred to in this Agreement; (ii) determining whether any condition set forth in Section 6 has been satisfied; or (iii) determining compliance with any covenant set forth in this Agreement; provided, however, that any update to Part 2.9 or Part 2.10 of the Disclosure Schedule permitted hereby for the purpose of adding to Part 2.9 or Part 2.10 of the Disclosure Schedule a list of any Material Contracts or licenses of Intellectual Property entered into after the execution of this Agreement of the type described in Section 4.2(b)(ix) or 4.2(b)(x) shall be deemed to supplement the Disclosure Schedule, but solely for the purposes of determining whether the representations and warranties of the Company set forth in this Agreement are inaccurate or have been breached as of the Closing Date (as if such representations and warranties had been made on and as of the Closing Date) as a result of the matters described in this proviso.

4.4 No Negotiation. During the Pre-Closing Period, (i) neither the Company nor any of the other Acquired Companies shall, (ii) the Company shall ensure that no officer, director, employee or partner of the Company or any other Acquired Company shall, and (iii) the Company shall use commercially reasonable efforts to ensure that no other Representative of the Company or any other Acquired Company shall, directly or indirectly: (a) solicit, knowingly facilitate or knowingly encourage the initiation of any inquiry, proposal or offer from any Person (other than Parent or its Representatives acting on behalf of Parent) relating to a possible Acquisition Transaction; (b) participate in any discussions or negotiations or enter into any agreement with, or provide any non-public information to, any Person (other than Parent or its Representatives acting on behalf of Parent) relating to or in connection with a possible Acquisition Transaction; or (c) consider, entertain or accept any proposal or offer from any Person (other than Parent or its Representatives acting on behalf of Parent) relating to a possible Acquisition Transaction; provided, however, that nothing contained in this Section 4.4 shall prohibit the Company from having discussions with any potential joint venture partner or otherwise considering any strategic acquisition so long as (x) the potential joint venture or acquisition transaction does not contemplate the sale or issuance of any securities of any Acquired Company (unless otherwise disclosed to Parent prior to the date hereof) and would be intended primarily to address the needs of the Acquired Companies to find alternative sources of production of wafers for customers of the Acquired Companies during periods where the Acquired Companies lack the manufacturing capacity to fulfill their customers’ orders or forecasted orders for wafers, and (y) the Company does not enter into any letter of intent or other binding agreement with respect to any of the foregoing without the prior written consent of Parent, not to be unreasonably withheld. The Company shall promptly (and in any event within 48 hours of receipt thereof) notify Parent in writing of any inquiry, proposal or offer relating to a possible Acquisition Transaction (including the identity of the Person making or submitting such inquiry, proposal or offer, and the terms thereof) that is received by the Company, any other Acquired Company, any officer, director, employee or partner of the Company or any other Acquired Company or (to the Knowledge of the Company) any other Representative of any Acquired Company during the Pre-Closing Period (in each case excluding any such notification and information regarding any inquiry, request or proposal made on or prior to the date hereof, provided that no additional actions or communication regarding such prior proposals occur after the date hereof).

4.5 Termination of Public Offering. The Company shall, and shall cause its Representatives to, immediately cease any and all activities in connection with the Company’s initial public offering. As promptly as practicable (and in no event more than two business days) following the date of this Agreement, the Company shall withdraw its Registration Statement on Form S-1 filed with the SEC prior to the date of this Agreement and all amendments thereto.

SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES

5.1 Regulatory Approvals. Each party shall use commercially reasonable efforts to file, as soon as practicable after the date of this Agreement, all notices, reports and other documents required to be filed by such party with any Governmental Body or the American Stock Exchange with respect to the Merger and the other Contemplated Transactions, and to submit promptly any additional information requested by any such Governmental Body or the American Stock Exchange. Without limiting the generality of the foregoing, the Company and Parent shall, promptly after the date of this Agreement, prepare and file the notifications required under the HSR Act and any applicable foreign antitrust Legal Requirements or regulations (collectively, the “Antitrust Laws”) in connection with the Merger. Subject to Section 5.8(b), the Company and Parent shall: (a) respond as promptly as practicable to: (i) any inquiries or requests received from the Federal Trade Commission or the Department of Justice for additional information or documentation; and (ii) any inquiries or requests received from any state attorney general, foreign antitrust authority or other Governmental Body in connection with antitrust or related matters; (b) use commercially reasonable efforts to take all other actions necessary to cause the expiration or termination of the applicable waiting periods under the Antitrust Laws as soon as practicable; and (c) use commercially reasonable efforts to resolve any objections which may be asserted by any Governmental Body with respect to the Merger under the Antitrust Laws. Subject to Section 5.8(b), in the event any Legal Proceeding is threatened or instituted by any Governmental Body challenging the Merger as violative of Antitrust Laws, each of Parent and the Company shall use commercially reasonable efforts to avoid the institution of, or to resist or resolve, such Legal Proceeding. At the request of Parent, the Company shall agree to divest, sell, dispose of, hold separate or otherwise take or commit to take any action relating to the business, product lines or assets of any Acquired Company, provided that any such action is: (A) determined by Parent in good faith to facilitate compliance with any Legal Requirement or any request by any Governmental Body; and (B) conditioned upon the consummation of the Merger.

5.2 Written Consents; Information Statement. Immediately following the execution of this Agreement, the Company shall ensure that each Key Stockholder executes and delivers to the Company a written consent approving the Merger, adopting this Agreement and approving the Certificate Amendment (a “Written Consent”). As soon as reasonably practicable (but in any event within five business days) following the date on which the Proxy Statement is mailed to Parent’s stockholders, the Company shall (a) complete the preparation of an information statement accurately describing this Agreement, the Merger, the other Contemplated Transactions and the provisions of Section 262 of the DGCL (the “Information Statement”), and (b) deliver the Information Statement to those of its stockholders who did not execute Written Consents for the purpose of informing them of the approval of the Merger, the adoption of this Agreement and the approval of the Certificate Amendment. The Information Statement shall include, subject to the fiduciary duties of the board of directors of the Company, a statement to the effect that the board of directors of the Company recommends that the Company’s stockholders that have not been deemed to have executed Written Consents approving the Merger, adopt this Agreement and approve the Certificate Amendment.

5.3 Proxy Statement. As promptly as reasonably practicable after Parent’s receipt from the Company of all of the information regarding the Acquired Companies that Parent may reasonably request in good faith in connection with the preparation thereof, Parent shall prepare and cause the Proxy Statement to be filed with the SEC. Parent shall use commercially reasonable efforts to cause the Proxy Statement to comply with the rules and regulations promulgated by the SEC, to respond promptly to any comments of the SEC or its staff. Parent shall cause the Proxy Statement to be mailed to Parent’s stockholders as promptly as reasonably practicable after the SEC notifies Parent that it has no further comments on the preliminary Proxy Statement. The Company shall promptly furnish to Parent all information concerning the Acquired Companies as may be required or reasonably requested in connection with any action contemplated by this Section 5.3. If any event relating to any of the Acquired Companies occurs, or if the Company becomes aware of any information, that should be disclosed in an amendment or supplement to the Proxy Statement, then the Company shall promptly inform Parent thereof and shall cooperate with Parent in filing such amendment or supplement with the SEC.

5.4 Parent Stockholders’ Meeting.

(a) Parent shall take all action necessary to call, give notice of and hold a meeting of Parent’s stockholders to approve the Merger (the “Parent Stockholders’ Meeting”). The Parent Stockholders’ Meeting will be held as promptly as reasonably practicable after the date on which the Proxy Statement is mailed to the stockholders of Parent, consistent with applicable Legal Requirements.

(b) Subject to Section 5.4(c): (i) the Proxy Statement shall include a statement to the effect that the board of directors of Parent recommends that Parent’s stockholders vote to approve the Merger (the recommendation of Parent’s board of directors that Parent’s stockholders vote to approve the Merger being referred to as the “Parent Board Recommendation”); and (ii) the Parent Board Recommendation shall not be withdrawn or adversely modified, and no resolution by the board of directors of Parent or any committee thereof to withdraw or adversely modify the Parent Board Recommendation shall be adopted or proposed. Parent shall use reasonable best efforts to obtain the Required Parent Merger Stockholder Vote.

(c) Notwithstanding anything to the contrary contained in Section 5.4(b), at any time prior to the approval of the Merger by the Required Parent Merger Stockholder Vote, the Parent Board Recommendation may be withdrawn or adversely modified, but only if the fairness opinion or the valuation opinion obtained by Parent in connection with the Contemplated Transactions is rescinded, withdrawn or adversely modified. None of Parent, its officers or its directors shall instruct or request any Person delivering a fairness opinion or valuation opinion to Parent’s board of directors in connection with the Contemplated Transactions to rescind or withdraw such fairness opinion or valuation opinion; provided, however, that nothing contained in this Section 5.4(c) or elsewhere in this Agreement shall restrict Parent or its board of directors from requesting that Parent’s financial advisors reaffirm, bring down or update any fairness opinion or valuation opinion given in connection with the Contemplated Transactions after Parent’s board of directors shall have consulted with outside legal counsel with respect to the advisability of such a request. In such event Parent shall promptly notify the Company that it has made such request, and Parent shall provide a copy of any such updated valuation or fairness opinion immediately upon receipt thereof. Notwithstanding anything to the contrary contained in this Agreement, nothing shall in any way limit the right of Parent and its board of directors to comply with its obligations under the Exchange Act or other applicable Legal Requirements; provided, however, that the foregoing shall not be construed as granting to Parent any right to terminate this Agreement other than in accordance with the terms of Section 8.

5.5 Standstill. During the Pre-Closing Period, Parent shall: (a) cease all ongoing discussions and negotiations concerning any Business Combination (as such term is defined in Parent’s Amended and Restated Certificate of Incorporation in effect as of the date of this Agreement); (b) cease all ongoing substantive negotiations concerning any Tack-On Transaction (as defined below); and (c) terminate any letter of intent or term sheet contemplating any Tack-On Transaction or Business Combination that is in effect as of the date of this Agreement. During the Pre-Closing Period, Parent shall not and shall not permit its Representatives to: (i) enter into any letter of intent, term sheet or definitive acquisition or merger agreement with any Person contemplating a possible Business Combination or Tack-On Transaction; (ii) engage in any discussions or negotiations concerning any letter of intent, term sheet or definitive acquisition or merger agreement contemplating a Business Combination or Tack-On Transaction; or (iii) engage in any substantive due diligence review of non-public information of any Person in contemplation of a Business Combination or Tack-On Transaction. Notwithstanding any of the foregoing provisions of this Section 5.5, during the Pre-Closing Period, Parent may do any one or more of the following: (w) engage in discussions or negotiations and enter into any letter of intent or term sheet with any Person contemplating any Eligible Tack-On Transaction if such action would not require that the Proxy Statement be amended or supplemented to describe such Eligible Tack-On Transaction, (x) upon the Company’s prior written consent, not to be unreasonably withheld, conditioned or delayed, engage in discussions or negotiations and enter into any letter of intent or term sheet with any Person contemplating any Eligible Tack-On Transaction if such action would require that the Proxy Statement be amended or supplemented to describe such Eligible Tack-On Transaction, (y) upon the Company’s prior written consent, which may be withheld or conditioned in the Company’s sole discretion, engage in discussions or negotiations and enter into any letter of intent or term sheet with any Person contemplating any Tack-On Transaction that is not an Eligible Tack-On Transaction, and (z) upon the Company’s prior written consent, which may be withheld or conditioned in the Company’s sole discretion, enter into any definitive acquisition or merger agreement with any Person contemplating any Tack-On Transaction. For purposes of this Agreement, (A) a “Tack-On Transaction” shall mean a proposed acquisition by Parent or any Affiliate of Parent of a business or businesses (other than those of the Acquired Companies) that does not constitute a Business Combination, and (B) an “Eligible Tack-On Transaction” shall mean a Tack-On Transaction determined in good faith by Parent to be complementary to the businesses of the Acquired Companies and having a purchase price, including the assumption or acquisition of debt, of $50,000,000 or less.

5.6 280G Payments. As promptly as practicable after the execution of this Agreement, the Company shall submit to the stockholders of the Company (in a manner satisfactory to Parent) for approval by such number of stockholders of the Company as is required by the terms of Section 280G(b)(5)(B) of the Code a written consent in favor of a single proposal to render the parachute payment provisions of Section 280G of the Code and the Treasury Regulations thereunder (collectively, “Section 280G”) inapplicable to any and all payments and/or benefits provided pursuant to Acquired Company Employee Plans, Acquired Company Employee Agreements or other Acquired Company Contracts (including payments pursuant to the Severance Agreements or any employee bonus plan adopted in connection with the Contemplated Transactions) that might result, separately or in the aggregate, in the payment of any amount and/or the provision of any benefit that would not be deductible by reason of Section 280G or that would be subject to an excise tax under Section 4999 of the Code (together, the “Section 280G Payments”). Any such stockholder approval shall be obtained in a manner which satisfies all applicable requirements of Section 280G(b)(5)(B) of the Code and the Treasury Regulations thereunder, including Q-7 of Section 1.280G-1 of such Treasury Regulations. The Company agrees that: (i) in the absence of such stockholder approval, no Section 280G Payments shall be made; and (ii) promptly after execution of this Agreement, the Company shall deliver to Parent waivers duly executed by each Person who might receive any Section 280G Payment. The form and substance of all stockholder approval documents contemplated by this Section 5.6, including the waivers, shall be subject to the review and approval of Parent.

5.7 Public Announcements. Except as required by applicable Legal Requirements and in the case of Parent, except for any filings required to be made with the SEC or other actions that Parent in good faith deems to be necessary or appropriate in connection with seeking to obtain the Required Parent Merger Stockholder Vote (including in connection with the Proxy Statement), during the Pre-Closing Period, Parent and the Company shall not (and the Company shall not permit any of the Acquired Companies or any Representative of any of the Acquired Companies to) issue any press release or make any public statement regarding this Agreement, the Merger or any of the other Contemplated Transactions without the prior written consent of the other party; provided, however, that nothing in this Section 5.7 shall preclude (i) the Company from complying with its obligation under Section 228 of the DGCL to notify those of its stockholders who did not execute Written Consents of the adoption of this Agreement by the Written Consents executed by the Key Stockholders, (ii) the board of directors of the Company from exercising its fiduciary duties in communications with stockholders of the Company or (iii) the board of directors of Parent from exercising its fiduciary duties in communications with stockholders of Parent.

5.8 Additional Agreements.

(a) Subject to Section 5.8(b), Parent, Merger Sub and the Company shall use commercially reasonable efforts to take, or cause to be taken, all actions necessary to consummate the Merger and make effective the other Contemplated Transactions. Without limiting the generality of the foregoing, but subject to Section 5.8(b), each party to this Agreement (i) shall make all filings (if any) and give all notices (if any) required to be made and given by such party in connection with the Merger and the other Contemplated Transactions, and (ii) shall use commercially reasonable efforts to obtain each Consent (if any) required to be obtained (pursuant to any applicable Legal Requirement or Acquired Company Contract, or otherwise) by such party in connection with the Merger or any of the other Contemplated Transactions. The Company shall promptly deliver to Parent a copy of each such filing made, each such notice given and each such Consent obtained by the Company during the Pre-Closing Period.

(b) Notwithstanding anything to the contrary contained in this Agreement, Parent shall not have any obligation under this Agreement or otherwise: (i) to dispose of or transfer any assets, or to commit to cause any of the Acquired Companies to dispose of or transfer any assets; (ii) to discontinue offering any product or service, or to commit to cause any of the Acquired Companies to discontinue offering any product or service; (iii) to license or otherwise make available to any Person, any technology, software or other Intellectual Property or Intellectual Property Right, or to commit to cause any of the Acquired Companies to license or otherwise make available to any Person any technology, software or other Intellectual Property or Intellectual Property Right; (iv) to hold separate any assets or operations (either before or after the Closing Date), or to commit to cause any of the Acquired Companies to hold separate any assets or operations; or (v) to make any commitment (to any Governmental Body or otherwise) regarding its future operations or the future operations of any of the Acquired Companies.

5.9 Financing.

(a) Parent shall use commercially reasonable efforts to arrange and consummate the transactions contemplated by the Wachovia Commitment Letter and such additional debt and/or equity financing transactions (collectively, the “Financing Transactions” and the Wachovia Commitment Letter together with any commitment letter or any similar agreement with respect to the Financing Transactions, the “Financing Commitments”) such that, at the Closing, Parent would have sufficient funds available to pay all amounts payable at or promptly following the Closing by Parent, Merger Sub or the Surviving Corporation pursuant to Sections 1.5, 1.6 and 1.7 and all of the related fees and expenses payable by Parent or Merger Sub in connection with the Merger and other Contemplated Transactions. Without limiting the generality of the foregoing, Parent shall use its commercially reasonable efforts: (i) to the extent within its control, to satisfy all conditions precedent in any Financing Commitments then in effect and in any definitive agreements relating to the Financing Transactions, (ii) to negotiate in good faith definitive agreements respecting the Financing Transactions, and (iii) if any material portion of the financing to be provided at the Closing contemplated by the Wachovia Financing Letter has become unavailable, regardless of the reason therefor, to obtain alternative financing from the same or other sources subject to substantially similar conditions precedent to funding to those set forth in the Wachovia Commitment Letter. Parent shall give the Company prompt notice of any termination, revocation or amendment of the Wachovia Commitment Letter or any other Financing Commitments and provide the Company with copies of any written correspondence with respect thereto, shall provide copies of any documentation (including drafts thereof) with respect to any Financing Commitments or any definitive documentation with respect to the Financing Transactions, as and when requested by the Company, and shall otherwise keep the Company reasonably informed as to the status of its efforts to arrange the Financing Transactions. Parent shall not permit any material amendment or modification to be made to the conditions precedent to funding or any other material provision set forth in the Wachovia Financing Commitment (or any other Financing Commitment entered into after the date hereof that replaces the Wachovia Financing Commitment) that could reasonably result in a material reduction in the amount of financing available at the Closing thereunder without the prior written consent of the Company (such consent not to be unreasonably withheld).

(b) In the event that (x) Wachovia or one or more other third parties provides at least $35 million of debt or equity financing to Parent at the Closing (other than amounts funded from the Trust Account) and (y) the proceeds at Closing from the Financing Transactions, together with the proceeds available to the Company from the Trust Account (as defined in Section 5.18) is less than the aggregate amount payable at, or immediately following, the Closing by Parent, Merger Sub or the Surviving Corporation pursuant to Sections 1.5, 1.6 and 1.7 (after using all cash (as determined in accordance with GAAP consistent with past practices and excluding restricted cash) on the Company’s balance sheet immediately prior to the Closing in excess of $20,000,000 to pay such amounts and borrowing the maximum amount permitted to be borrowed under the terms of any Financing Transaction being entered into at the Closing) (such shortfall, if any, the “Funding Shortfall”) and such Funding Shortfall does not exceed $80 million in the aggregate, then an amount equal to the Funding Shortfall (the “Stockholder Loan Amount”) that would have otherwise been payable to the Escrow Participants in cash pursuant to Sections 1.5, 1.6 and 1.7 shall instead be paid by Parent by the delivery of one or more promissory notes (the “Stockholder Loans”) having an aggregate initial principal amount equal to the Stockholder Loan Amount, which promissory notes shall be payable to the Escrow Participants pro rata in accordance with the amount of cash proceeds that would otherwise be payable to them at the Closing in respect of the shares of Company Capital Stock and shares of Company Common Stock subject to In-The-Money Company Options pursuant to Section 1.5(a)(ii)(A), Section 1.5(a)(iii)(A) and Section 1.6(a)(i) (calculated using the Estimated Closing Amount). In the event that any Stockholder Loan is made in connection with the Closing, Parent shall not enter into any other Financing Transaction at the Closing or, so long as any Stockholder Loan remains outstanding, incur any indebtedness that does not permit any Stockholder Loan to be refinanced by Parent and its Subsidiaries with the proceeds of any equity financing or any debt financing on terms that, in the aggregate, are not worse for the Parent and its other lenders than the terms of the Stockholder Loan being refinanced.

(c) In the event that the aggregate amount of Stockholder Loans at Closing is equal to or less than $40 million, the Stockholder Loans shall be “Stockholder Mezzanine Loans” having the terms set forth in clause (ii) below. In the event that the aggregate amount of the Stockholder Loans at Closing are greater than $40 million, $30 million of such Stockholder Loans shall be “Stockholder Mezzanine Loans” having the terms set forth in clause (ii) below and the remaining amount of such Stockholder Loans (not to exceed $50 million) shall be “Stockholder Term B Loans” having the terms set forth in clause (i) below.

(i) Any portion of the Stockholder Loans that are a “Stockholder Term B Loan” (the “Stockholder Term B Loan”) shall (1) have an initial adjustable interest rate equal to LIBOR plus 950 basis points, payable quarterly in cash, which interest rate shall be increased by 200 basis points per annum beginning on the six month anniversary of the Closing Date and an additional 200 basis points per annum each three months thereafter, (2) be subject to a 1.5% origination fee payable in cash at the Closing, one-half of which shall be refunded to Parent with respect to any portion of the Stockholder Term B Loan principal amount that is refinanced or otherwise repaid within six months of the Closing Date, (3) be secured by a second lien on all of the assets of Parent and its Subsidiaries and shall be subordinate to the debt financing contemplated by the Wachovia Commitment Letter or any other first lien debt financing, not to exceed $75 million initial principal amount in the aggregate (together with any replacements and refinancings thereof in an aggregate principal amount that does not exceed $75 million, the “First Lien Loan”) and pari passu or senior to all other indebtedness of Parent and its Subsidiaries, (4) have a maturity of three and a half years following the Closing Date, and (5) shall otherwise be on terms and conditions customary for commercial “Second Lien” Term B loans and in no event shall contain terms, covenants and conditions less favorable to the Escrow Participants in any material respect than the terms, covenants and conditions obtained by a third party in connection with any other Term B loan entered into by Parent or its Subsidiaries with such a third party as part of the Financing Transactions.

(ii) Any portion of the Stockholder Loans that are a “Stockholder Mezzanine Loan” (the “Stockholder Mezzanine Loan”) shall (1) have an initial interest rate equal to twenty percent per annum, one half of which shall be payable quarterly in cash and one half of which shall be payable quarterly in kind, which interest rate shall be increased by 100 basis points per annum beginning on the twelve month anniversary of the Closing Date and by an additional 100 basis points per annum each three months thereafter, one half of which shall be payable quarterly in cash and one half of which shall be payable quarterly in kind, (2) be secured by a third lien on all of the assets of Parent and its Subsidiaries and shall be subordinate to the First Lien Loan (not to exceed $75 million initial principal amount in the aggregate) and any second lien debt financing consummated by Parent in connection with the Closing (and any replacements or refinancings thereof in an aggregate principal amount, together with the First Lien Loans, not to exceed $115 million), (3) have a maturity of three and a half years following the Closing Date, and (4) otherwise be on terms and conditions customary for commercial “mezzanine” bridge loans and in no event shall contain terms, covenants and conditions less favorable to the Escrow Participants in any material respect than the terms, covenants and conditions obtained by a third party in connection with any mezzanine or other loans subordinated to any second lien financing entered into by Parent or its Subsidiaries with such a third party as part of the Financing Transactions.

(iii) In addition, to the terms and conditions specified above, the Stockholder Loans shall provide that (in the case of clauses (w), (x) and (z) to the extent permitted by the terms of the First Lien Loan): (w) 100% of the proceeds of any debt or equity financing consummated by Parent or its Subsidiaries following the Closing shall be used to prepay first the Stockholder Term B Loan and, when such loan has been repaid in full, thereafter the Stockholder Mezzanine Loan, (other than financing used to refinance or replace the First Lien Loan in an aggregate principal amount that does not exceed $75 million), (x) 100% of the proceeds of any sale of assets of Parent or its Subsidiaries (other than the sale of inventory or the licensing of Intellectual Property in the ordinary course of business or the sale of equipment in the ordinary course of business so long as the proceeds of the sale of such equipment are used to purchase additional equipment within 90 days thereof) following the Closing shall be used to prepay first the Stockholder Term B Loan and, when such loan has been paid in full, thereafter the Stockholder Mezzanine Loan, (y) no dividends, distributions, redemptions or other payments shall be made to the equity holders of Parent in respect of the equity securities of Parent held by such holders so long as any Stockholder Loan remains outstanding, and (z) 100% of excess cash flow from the operation of Parent and its Subsidiaries (to be defined in the definitive agreements with respect to the Stockholder Loans in a manner consistent with general market practice) shall be used to prepay first the Stockholder Term B Loan and, when such loan has been paid in full, thereafter the Stockholder Mezzanine Loan; provided for purposes of this clause (z) the maximum availability to Parent or its Subsidiaries under any revolving credit facility plus the aggregate amount of cash and cash equivalents as determined in accordance with GAAP on a consolidated basis is at least $35 million after giving effect to such repayment.

(d) If requested by the Company at any time after the earlier of January 10, 2007 or the date of the filing of the definitive Proxy Statement by Parent in the event Parent has not negotiated definitive agreements with respect to Financing Transactions as a result of which it reasonably expects to receive at least $115 million in proceeds at the Closing, or by Parent at any time, Parent and the Stockholder Representative shall negotiate definitive agreements with respect to the Stockholder Loans and Parent shall reimburse the Stockholder Representative for any out-of-pocket expenses (including reasonable out-of-pocket legal fees in connection therewith) incurred by the Stockholder Representative in negotiating such agreements. If Parent and the Stockholder Representative are unable to agree on any terms or conditions of the Stockholder Loans not specified above, Parent and the Stockholder Representative shall jointly retain (at Parent’s sole cost and expense) a mutually acceptable nationally recognized law firm with experience representing lenders in loans of the types included in the Stockholder Loan, which shall resolve any dispute regarding such terms and conditions by determining the prevailing market practice then in effect with respect to loans of such type (it being understood that, except as noted in Section 5.9(c), such loans are not being made on terms customary for seller financing and are instead intended to be made on market terms typical for loans of such type made by commercial lenders).

(e) If the Stockholder Loan is made, then notwithstanding anything to the contrary in this Agreement, the Indemnity Escrow Contribution Amount shall be equal to the excess (if any) of (i) $20,000,000 over (ii) the Stockholder Loan Amount. In the event that, and at such time as, any Parent Indemnitee would otherwise have become entitled to receive a distribution out of the Indemnity Escrow Fund in accordance with Section 9.7 (a “Distribution Entitlement”), the indemnity obligation of the Escrow Participants, and such Parent Indemnitee’s entitlement to such distribution, shall be satisfied first by reducing the principal amount of the Stockholder Term B Loan dollar-for-dollar by the amount of such Distribution Entitlement, up to the lesser of (x) the principal amount of the Stockholder Term B Loan then remaining outstanding or (y) the amount of such Distribution Entitlement, and any remaining portion of such Distribution Entitlement shall be satisfied by reducing the principal amount of the Stockholder Mezzanine Loan dollar-for-dollar by the remaining amount of such Distribution Entitlement, up to the lesser of (1) the principal amount of the Stockholder Mezzanine Loan then remaining outstanding or (2) the remaining amount of such Distribution Entitlement. To the extent that at any time a proposed repayment by Parent of all or any portion of the principal amount of a Stockholder Loan (other than by reason of a Distribution Entitlement) would have the effect of reducing the aggregate principal amount outstanding of all Stockholder Loans remaining below an amount equal to the excess (if any) of (A) $20 million over (B) the aggregate amount of all of all prior reductions in the principal amount of Stockholder Loans as a result of Distribution Entitlements, the amount of such repayment shall not be paid by Parent to the payees of the Stockholder Loan, but instead shall be deposited in the Indemnity Escrow Fund; provided, however, that the principal amount of the Stockholder Loan shall for all purposes be deemed to have been reduced by the amount of such deposit.

(f) The Company shall use commercially reasonable efforts (at Parent’s sole cost and expense with respect to any out-of-pocket expenses requested to be incurred by Parent in connection therewith) to assist Parent in connection with transactions undertaken by Parent to finance the transactions contemplated by this Agreement. Notwithstanding the foregoing, in no event shall any of the Acquired Companies be required to enter into any agreement or incur any liability or obligation with respect to such financing transactions prior to the Closing.

5.10 Post Closing Option Pool. Promptly following the Closing, Parent shall establish a pool of options to acquire 4,698,692 shares of Parent’s common stock, a portion of which shall be subject to issuance to members of management and other selected employees of the Acquired Companies, as determined by the Parent in its sole discretion.

5.11 FIRPTA Matters. At the Closing: (a) the Company shall deliver to Parent a statement (in such form as may be reasonably requested by counsel to Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the United States Treasury Regulations; and (b) the Company shall deliver to the IRS the notification required under Section 1.897 - 2(h)(2) of the United States Treasury Regulations.

5.12 Termination of the Company Option Plan. Unless otherwise requested by Parent prior to the Closing, the Company shall take all actions reasonably necessary to terminate the Company Option Plan prior to the Closing.

5.13 Resignation of Officers and Directors. The Company shall use commercially reasonable efforts to obtain and deliver to Parent at or prior to the Closing the resignation of (a) each director of each of the Acquired Companies, and (b) each officer of each of the Acquired Companies identified on Schedule 5.13.

5.14 Indemnification of Officers and Directors.

(a) Parent and Merger Sub agree that all rights to indemnification for acts or omissions occurring prior to the Effective Time existing as of the date of this Agreement in favor of each current and former officer and director of the Acquired Companies (the “D&O Indemnified Persons”) as provided in the certificate of incorporation and bylaws or other organization documents of the Acquired Companies (as in effect on the date of this Agreement) or the indemnification agreements identified in Part 2.10(a)(ii) of the Disclosure Schedule (as in effect on the date of this Agreement) shall survive the Merger and shall continue in full force and effect in accordance with their terms for at least six years following the Effective Time (or, in the case of a claim for indemnification asserted against an Acquired Company by a D&O Indemnified Person during such six year period, for such longer period until such claim is finally resolved), and Parent shall cause the Surviving Corporation to fulfill and honor such obligations to the maximum extent permitted by applicable Legal Requirements.

(b) For a period of six years after the Effective Time, Parent shall maintain or cause the Surviving Corporation to maintain in effect, for events that shall have occurred prior to the Effective Time, the existing level and scope of directors’ and officers’ liability, employee practices liability insurance and fiduciary insurance covering those D&O Indemnified Persons who are currently covered by the Company’s existing directors’ and officers’ liability, employee practices liability insurance and fiduciary insurance policy (collectively, the “Existing D&O Policies”), if directors’ and officers’ liability insurance coverage is commercially available; provided, however, that: (i) the Surviving Corporation may substitute for the Existing D&O Policies a policy or policies of comparable coverage; and (ii) in no event shall the Surviving Corporation be required to expend in any one year for the Existing D&O Policies (or for any substitute policies) in the aggregate, in excess of 150% of current premium (such amount being referred to as the “Maximum Premium”); and provided, further, that if the annual premiums payable for the Existing D&O Policies (or any substitute policies) exceed the Maximum Premium, Parent or the Surviving Corporation shall be entitled to reduce the amount of coverage of the Existing D&O Policies (or any substitute policies) to the amount of coverage that can be obtained for a premium equal to the Maximum Premium. The provisions of this Section 5.14(b) shall be deemed to have been satisfied if a prepaid policy has been obtained prior to the Effective Time for purposes of this Section 5.14(b), which policy provides such D&O Indemnified Persons with coverage comparable to the coverage provided by the Existing D&O Policies for an aggregate period of six years following the Effective Time (and the Company shall, at the request of Parent, obtain such a prepaid policy prior to the Effective Time, provided that the cost thereof shall be borne by Parent).

(c) The provisions of this Section 5.14 shall survive the Closing and are intended to be for the benefit of, and enforceable by, each of the D&O Indemnified Persons and his or her heirs and personal representatives.

5.15 Amendment to Certificate of Incorporation. The Company shall: (a) cause to be adopted an amendment to the Company’s certificate of incorporation in the form of Exhibit D (the “Certificate Amendment”); and (b) file the Certificate Amendment with the Secretary of State of the State of Delaware and cause the Certificate Amendment to take effect prior to the Closing Date.

5.16 Termination and Amendment of Certain Agreements.

(a) Prior to the Closing, the Company shall have caused the Contracts identified on Schedule 5.16(a) to have been terminated effective on or prior to the Effective Time.

(b) Prior to the Closing, the Company shall have caused the Contracts identified on Schedule 5.16(b) to have been amended as set forth on Schedule 5.16(b) effective on or prior to the Effective Time.

5.17 Board of Directors; Management.

(a) Parent shall use commercially reasonable efforts to cause the board of directors of Parent to consist, at or promptly following the Effective Time, of the individuals identified on Schedule 5.17(a).

(b) Parent shall use commercially reasonable efforts to cause each individual identified on Schedule 5.17(b) to hold, at or promptly following the Effective Time, the management position set forth opposite such individual’s name on Schedule 5.17(b).

5.18 Parent Trust Account. Notwithstanding anything to the contrary herein, the Company has read a copy of Parent’s prospectus dated March 15, 2006 and filed with the Securities and Exchange Commission (the “Prospectus”). The Company understands that Parent is a blank check company formed for the purpose of consummating a “business combination” (as described in the Prospectus), must complete such business combination within 18 months (or 24 months if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months) (the “Transaction Deadline Date”), has established a trust account at Lehman Brothers, maintained by Continental Stock Transfer & Trust Company acting as trustee, initially in an amount of $164,308,004 after the exercise of the underwriters’ over-allotment option for the benefit of its public stockholders (the “Trust Account”), and does not have access to the funds in such Trust Account except under the circumstances set forth in the Prospectus. On behalf of itself and each other Acquired Company, Acquired Company Affiliate and Company Indemnitee (and affiliates thereof) (collectively, the “Company Claimants”), the Company: (a) agrees that neither it nor any Company Claimant has any right, title, interest or claim of any kind in or to (i) any assets in the Trust Account, (ii) assets of Parent to the extent such right, title, interest or claim would impair the amounts in the Trust Account or (iii) assets distributed from the Trust Account to the public stockholders (each such right, title, interest or claim a “Claim”); (b) unless and until Parent completes another Business Combination (as defined in Parent’s certificate of incorporation as of the date of this Agreement), hereby waives any Claim that it or any Company Claimant may have in the future as a result of, or arising out of, this Agreement or the Ancillary Agreements; and (c) agrees that neither it nor any other Company Claimant will seek recourse against the Trust Account or the public stockholders of Parent (in their capacity as stockholders of Parent or as recipients of liquidating distributions from Parent) for any reason whatsoever. Further, the Company acknowledges that it has read Section 1542 of the Civil Code of the State of California, which states in full:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

The Company, on behalf of itself and the Company Claimants, hereby waives any right that the Company or the Company Claimants have or may have under Section 1542 (or any similar provision of the laws of any other jurisdiction) to the full extent that the Company may lawfully waive such rights pertaining to this waiver of Claims and generally affirms that Company is releasing, on behalf of itself and the Company Claimants, all known and unknown Claims.

Without limiting the foregoing, the Company hereby acknowledges and agrees that the Trust Account is not a party to this Agreement and shall have no liability pursuant hereto. Notwithstanding the forgoing, no provision contained herein shall limit the Company or the Company Indemnitees’ right to make a claim against such monies to the extent such monies are released from the Trust Account to Parent upon the consummation of the Merger.

5.19 Maintenance of Benefits. Parent will extend to each Acquired Company Employee an offer of employment that, if accepted, would contemplate that such Acquired Company Employee would commence employment with Parent or continue employment with the Surviving Corporation effective as of the Closing Date and would provide, for one year following the Closing Date, such Acquired Company Employee with compensation, benefits and terms of employment that in the aggregate are substantially comparable to the compensation, benefits and terms of employment provided by the Company to such Acquired Company Employee as of the date of this Agreement. Subject to the foregoing, nothing in this Agreement shall be deemed to prevent or restrict in any way the right of Parent to terminate, reassign, promote, or demote any of the Acquired Company Employees after the Closing Date or to change adversely or favorably the title, powers, duties, responsibilities, functions, locations, compensation, benefits, or terms or conditions of employment of such employees.

5.20 Conexant Supply Termination Agreement Amendment. At or prior to the Closing, the Company shall consummate the transactions contemplated by that certain Wafer Supply Termination Agreement Amendment between the Company and Conexant (the “Conexant Supply Termination Agreement Amendment”) and immediately after the Closing but prior to the Effective Time, Parent shall fund the payment of the Conexant Termination Payment Amount and cause the Company to pay to Conexant the Conexant Termination Payment Amount in accordance with the terms of the Conexant Supply Termination Agreement Amendment. To the extent such transactions are consummated at or prior to the Closing, the 7,583,501 shares of Company Class B Common Stock held of record by Conexant as of the date hereof shall be deemed not to be outstanding immediately prior to the Effective Time for all purposes hereunder and the holder thereof shall not be entitled to any portion of the consideration payable pursuant to this Agreement to the holders of Company Common Stock.

SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB

The obligations of Parent and Merger Sub to effect the Merger and otherwise consummate the Contemplated Transactions are subject to the satisfaction (or waiver by Parent), at or prior to the Closing, of each of the following conditions:

6.1 Accuracy of Representations. Each of the representations and warranties set forth in Section 2 and each of the other representations and warranties of the Company set forth in this Agreement: (a) shall have been accurate in all respects as of the date of this Agreement; and (b) shall be accurate in all respects as of the Closing Date as if made on the Closing Date (except that any representation and warranty that is made exclusively as of, and that refers specifically to, a specified date need only have been accurate in all respects as of such specified date), except in the case of both clauses (a) and (b) (individually and together), for inaccuracies that would not, individually or in the aggregate, reasonably be expected to result in or otherwise involve Damages in excess of $20,000,000; provided, however, that in determining the accuracy of such representations and warranties for purposes of this Section 6.1: (i) all “Material Adverse Effect” and other materiality qualifications limiting the scope of such representations and warranties shall be disregarded; and (ii) any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of this Agreement shall be disregarded, provided that any update to Part 2.9 or Part 2.10 of the Disclosure Schedule permitted hereby for the purpose of adding to Part 2.9 or Part 2.10 of the Disclosure Schedule a list of any Material Contracts or licenses of Intellectual Property entered into after the execution of this Agreement of the type described in Section 4.2(b)(ix) and Section 4.2(b)(x) shall be deemed to update the Disclosure Schedule, but solely for the purposes of determining whether the representations and warranties of the Company set forth in this Agreement are inaccurate or have been breached as of the Closing Date (as if such representations and warranties had been made on and as of the Closing Date).

6.2 Performance of Covenants. Each of the covenants and obligations that the Company is required to comply with or to perform at or prior to the Closing shall have been complied with and performed in all material respects.

6.3 Company Stockholder Approval. The Certificate Amendment shall have been duly approved by the Required Amendment Stockholder Votes and the Merger shall have been duly approved and this Agreement shall have been duly adopted by the Required Company Merger Stockholder Votes.

6.4 Parent Stockholder Approval. The Merger shall have been duly approved by the Required Parent Merger Stockholder Vote.

6.5 No Section 280G Payments. Neither any payment made, nor any options granted, to any Person in connection with or in contemplation of the Merger or any of the other Contemplated Transactions shall constitute a Section 280G Payment.

6.6 Amendment to Certificate of Incorporation. The Company shall have provided Parent with evidence satisfactory to Parent that the Company has filed the Certificate Amendment with the Secretary of State of the State of Delaware and that the Certificate Amendment was in effect prior to the Closing.

6.7 Dissenting Shares. No more than 2% of the aggregate number of shares of Company Capital Stock outstanding as of the Closing Date shall be Dissenting Shares or shall have the right under the DGCL to become Dissenting Shares.

6.8 Antitrust Matters

(a) The waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated, and there shall not be in effect any voluntary agreement between Parent or the Company and the Federal Trade Commission or the Department of Justice pursuant to which Parent or the Company has agreed not to consummate the Merger for a period of time.

(b) Any similar waiting period under any other Antitrust Law applicable to the Contemplated Transactions shall have expired or been terminated.

(c) Any Consent required under any Antitrust Law applicable to the Contemplated Transactions shall have been obtained and shall be in full force and effect.

6.9 No Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any Material Adverse Effect.

6.10 Agreements and Documents. Parent shall have received the following agreements and documents, each of which shall be in full force and effect:

(a) the Escrow Agreement, executed by the Stockholders’ Representative and the Escrow Agent;

(b) the Noncompetition Agreements as signed as of the date of this Agreement, and effective as of the Closing Date;

(c) the Lease Amendment Agreements as signed as of the date of this Agreement, and effective as of the Closing Date;

(d) the Termination Agreement, which shall evidence the termination the Contracts identified on Schedule 5.16(a) in accordance with Section 5.16(a), as signed as of the date of this Agreement, and effective as of the Closing Date;

(e) the Conexant Supply Termination Agreement Amendment, as signed as of the date of this Agreement, and effective as of the Closing Date;

(f) the General Releases, executed by each of the Key Stockholders, as signed as of the date of this Agreement, and effective as of the Closing Date;

(g) a certificate, executed on behalf of the Company by an officer of the Company, certifying that the Closing Payment Schedule is accurate and complete;

(h) the statement referred to in Section 5.11(a), executed on behalf of the Company;

(i) a legal opinion of Latham & Watkins LLP, counsel to the Company, dated as of the Closing Date and addressed to Parent and the Company, addressing the matters set forth in Schedule 6.10(i) and containing no exceptions, assumptions or qualifications that are not customarily included in legal opinions relating to transactions similar to the Merger; and

(j) a certificate, executed on behalf of the Company by an officer of the Company, containing the representation and warranty of the Company that the conditions set forth in Sections 6.1, 6.2, 6.3, 6.5, 6.7, 6.9, 6.13 and 6.15 have been duly satisfied (the “Company Closing Certificate”).

6.11 FIRPTA Compliance. The Company shall have filed with the IRS the notification referred to in Section 5.11(b).

6.12 No Restraints. No temporary restraining order, preliminary or permanent injunction or other Order preventing the consummation of the Merger shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any Legal Requirement enacted or deemed applicable to the Merger that makes consummation of the Merger illegal.

6.13 No Governmental Legal Proceedings. Neither any Governmental Body nor the American Stock Exchange shall have commenced or be a party to, or shall, to the Knowledge of the Company, have threatened in writing to commence or to become a party to, any Legal Proceeding: (a) seeking a material amount of damages in connection with the Merger; (b) seeking to prohibit or limit the exercise by Parent of any material right pertaining to its ownership of stock of Merger Sub or the Surviving Corporation; (c) challenging, or that may have the effect of preventing, making illegal or otherwise materially interfering with, the consummation of the Merger; (d) seeking to compel any of the Acquired Companies, Parent or any Subsidiary of Parent to dispose of or hold separate any material assets as a result of the Merger; or (e) seeking to impose any criminal sanctions or criminal liability on any of the Acquired Companies in connection with the Merger.

6.14 Financing. Parent and Merger Sub shall have received (or be receiving contemporaneously with the Closing) financing in an amount equal to $35,000,000 (including any undrawn amounts thereunder) on the terms and conditions set forth in the Wachovia Commitment Letter.

6.15 Termination of Company Option Plan. If required pursuant to Section 5.12, the Company shall have provided Parent with evidence satisfactory to Parent that the board of directors of the Company has adopted resolutions regarding the termination of the Company Option Plan prior to the Closing.

SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY

The obligation of the Company to effect the Merger and otherwise consummate the Contemplated Transactions is subject to the satisfaction (or waiver by the Company), at or prior to the Closing, of the following conditions:

7.1 Accuracy of Representations. Each of the representations and warranties made by Parent and Merger Sub in this Agreement shall have been accurate in all respects as of the date of this Agreement, and shall be accurate in all respects as of the Closing Date as if made on the Closing Date; provided, however, that the condition set forth in this Section 7.1 shall be deemed to have been satisfied notwithstanding the existence of inaccuracies in such representations and warranties if the circumstances rendering such representations and warranties inaccurate have not had and would not reasonably be expected to have or result in a material adverse effect on Parent’s ability to consummate the Merger.

7.2 Performance of Covenants. All of the covenants and obligations that Parent and Merger Sub are required to comply with or to perform at or prior to the Closing shall have been complied with and performed in all material respects.

7.3 Agreements and Documents. The Stockholders’ Representative shall have received the following agreements and documents, each of which shall be in full force and effect:

(a) the Escrow Agreement, executed by Parent and the Escrow Agent;

(b) the Employment Agreements, as executed by Parent as of the date of this Agreement and effective as of the Closing Date; and

(c) a certificate executed on behalf of Parent by an officer of Parent containing the representation and warranty of Parent that the conditions set forth in Sections 7.1, 7.2 and 7.6 have been duly satisfied (the “Parent Closing Certificate”).

7.4 No Restraints. No temporary restraining order, preliminary or permanent injunction or other Order preventing the consummation of the Merger shall have been issued against the Company by any court of competent jurisdiction and remain in effect, and there shall not be any Legal Requirement enacted or deemed applicable to the Company and the Merger that makes consummation of the Merger by the Company illegal.

7.5 Company Stockholder Approval. The Merger shall have been duly approved and this Agreement shall have been duly adopted by the Required Company Merger Stockholder Votes.

7.6 Parent Stockholder Approval. The Merger shall have been duly approved by the Required Parent Merger Stockholder Vote.

7.7 Antitrust Matters.

(b) Any similar waiting period under any other Antitrust Law applicable to the Contemplated Transactions shall have expired or been terminated.

(c) Any Consent required under any Antitrust Law applicable to the Contemplated Transactions shall have been obtained and shall be in full force and effect.

SECTION 8. TERMINATION

8.1 Termination Events. This Agreement may be terminated prior to the Closing:

(a) by the mutual consent of Parent and the Company;

(b) by either Parent or the Company if (i) the SEC has notified Parent that it has no further comments to the Proxy Statement on or before February 14, 2007 and the Closing has not occurred on or prior to March 31, 2007, (ii) the SEC has notified Parent that it has no further comments on the Proxy Statement after February 14, 2007 but on or before March 15, 2007 and the Closing has not occurred on or before April 30, 2007 or (iii) the SEC has notified Parent that it has no further comments on the Proxy Statement after March 15, 2007 and the Closing has not occurred on or before May 31, 2007, unless, in each case (x) the non-terminating party’s failure to close prior to the applicable date resulted from any failure on the part of such terminating party to comply with in all material respects, or perform in all material respects, any covenant or obligation of such terminating party set forth in this Agreement, and (y) the non-terminating party provided written notice of such failure to the terminating party as soon as practicable after it had knowledge thereof;

(c) by either Parent or the Company if: (i) the Parent Stockholders’ Meeting (including any adjournments and postponements thereof) shall have been held and completed and Parent’s stockholders shall have taken a final vote on the proposal to approve the Merger, and (ii) the Merger shall not have been approved at the Parent Stockholders’ Meeting (and shall not have been approved at any adjournment or postponement thereof) by the Required Parent Merger Stockholder Vote; provided, however, that a party shall not be permitted to terminate this Agreement pursuant to this Section 8.1(c) if the failure to have the Merger approved by the Required Parent Merger Stockholder Vote is attributable to a failure on the part of the party seeking to terminate this Agreement to perform in any material respects any covenant or obligation in this Agreement required to be performed by such party at or prior to the Effective Time;

(d) by the Company, if, prior to the Merger having been approved at the Parent Stockholders’ Meeting (or at any adjournment or postponement thereof) by the Required Parent Merger Stockholder Vote, (i) Parent receives a written communication from the banking firm providing the fairness opinion or valuation opinion obtained by Parent in connection with the Contemplated Transactions rescinding, withdrawing or adversely modifying such fairness opinion or valuation opinion, or (ii) Parent’s board of directors withdraws the Parent Board Recommendation or adversely modifies the Parent Board Recommendation;

(e) by Parent if: (i) any representation or warranty of the Company contained in this Agreement shall be inaccurate or shall have been breached as of the date of this Agreement, or shall have become inaccurate or shall be breached as of a date subsequent to the date of this Agreement (as if made on such subsequent date), such that the condition set forth in Section 6.1 would not be satisfied (it being understood that, for purposes of determining the accuracy of such representations and warranties as of the date of this Agreement or as of any subsequent date: (A) all “Material Adverse Effect” and other materiality qualifications limiting the scope of such representations and warranties shall be disregarded; and (B) any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of this Agreement shall be disregarded, provided that any update to Part 2.9 or Part 2.10 of the Disclosure Schedule permitted hereby for the purpose of adding to Part 2.9 or Part 2.10 of the Disclosure Schedule a list of any Material Contracts or licenses for Intellectual Property entered into after the execution of this Agreement of the type described in Section 4.2(b)(ix) and Section 4.2(b)(x) shall be deemed to update the Disclosure Schedule, but solely for the purposes of determining whether the representations and warranties of the Company set forth in this Agreement are inaccurate or have been breached as of the Closing Date (as if such representations and warranties had been made on and as of the Closing Date); or (ii) any of the covenants or obligations of the Company contained in this Agreement shall have been breached in any material respect; provided, however, that if an inaccuracy in or breach of any representation or warranty of the Company as of a date subsequent to the date of this Agreement or a breach of a covenant or obligation by the Company is curable by the Company through the use of commercially reasonable efforts during the 30-day period after Parent notifies the Company in writing of the existence of such inaccuracy or breach (the “Company Cure Period”), then Parent may not terminate this Agreement under this Section 8.1(e) as a result of such inaccuracy or breach prior to the expiration of the Company Cure Period, provided the Company, during the Company Cure Period, continues to exercise commercially reasonable efforts to cure such inaccuracy or breach;

(f) by the Company if: (i) any representation or warranty of Parent contained in this Agreement shall be inaccurate or shall have been breached as of the date of this Agreement, or shall have become inaccurate or shall be breached as of a date subsequent to the date of this Agreement (as if made on such subsequent date), such that the condition set forth in Section 7.1 would not be satisfied; or (ii) if any of Parent’s or Merger Sub’s covenants or obligations contained in this Agreement shall have been breached in any material respect, including Parent’s and Merger Sub’s obligation to effect the Merger upon the satisfaction of the conditions set forth in Section 6; provided, however, that if an inaccuracy in or breach of any representation or warranty of Parent as of a date subsequent to the date of this Agreement or a breach of a covenant or obligation by Parent is curable by Parent through the use of commercially reasonable efforts during the 30-day period after the Company notifies Parent in writing of the existence of such inaccuracy or breach (the “Parent Cure Period”), then the Company may not terminate this Agreement under this Section 8.1(f) as a result of such inaccuracy or breach prior to the expiration of the Parent Cure Period, provided Parent, during the Parent Cure Period, continues to exercise commercially reasonable efforts to cure such inaccuracy or breach;

(g) by Parent if: (i) there shall have occurred any Material Adverse Effect; or (ii) any event shall have occurred or circumstance shall exist that, in combination with any other events or circumstances, would reasonably be expected to have or result in a Material Adverse Effect; provided, however, that if such Material Adverse Effect is curable by the Company through the use of commercially reasonable efforts during the 30-day period after Parent notifies the Company in writing of the existence thereof (the “MAE Cure Period”), then Parent may not terminate this Agreement under this Section 8.1(g) as a result of such Material Adverse Effect prior to the expiration of the MAE Cure Period, provided the Company, during the MAE Cure Period, continues to exercise commercially reasonable efforts to cure such Material Adverse Effect;

(h) by either Parent or the Company if a court of competent jurisdiction or other Governmental Body shall have issued a final and nonappealable Order, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger;

(i) by the Company during the 15-day period commencing on the date 21 days after the date on which the Wachovia Financing Commitment is terminated, revoked or amended such that the aggregate amount of financing contemplated by the Wachovia Financing Commitment to be loaned to Parent or the Company at the Closing decreases below $40 million, if on or prior to the date of such termination, Parent shall have failed to obtain one or more replacement Financing Commitments resulting in the aggregate amount of financing contemplated by all outstanding Financing Commitments (other than any Stockholder Loans to be lent to Parent or the Company at Closing) being at least $40 million; provided, however, that the Company shall not be permitted to terminate this Agreement pursuant to this Section 8.1(i) if the failure of Parent to obtain any replacement Financing Commitment is caused by or otherwise results from, principally or in significant part, any one or more of the following factors: (A) any inaccuracy or breach of any of the representations or warranties set forth in Section 2.4; or (B) any failure of the Company to perform in any material respects any covenant or obligation in this Agreement required to be performed by the Company prior to the Effective Time;

(j) by the Company if the preliminary Proxy Statement shall not have been filed with the SEC in a form that substantially complies with Regulation 14A promulgated under the Exchange Act on or before the date that is 20 business days after the date of this Agreement; provided, however, in no event shall the Company have the right or power to terminate this Agreement pursuant to this Section 8.1(j) if the failure of Parent to meet the foregoing deadline is caused by or otherwise results from, principally or in significant part, any one or more of the following factors: (A) any failure of the Company to perform in any material respects any covenant or obligation in this Agreement required to be performed by the Company prior to the Effective Time; (B) any failure of any of the Company’s financial statements included or required to be included in the preliminary Proxy Statement to be prepared in accordance with GAAP and fairly present in all material respects the financial position, results of operations or cash flows in any material respect as of the date of such financial statements and for the periods presented therein; or (C) any actions, omissions or delays on the part of the auditors for either Parent or the Company; or

(k) by Parent if the Required Company Merger Stockholder Votes are not obtained within three business days after the date of this Agreement.

8.2 Termination Procedures. If a party wishes to terminate this Agreement pursuant to Section 8.1, then such party shall deliver to the other parties to this Agreement a written notice stating that such party is terminating this Agreement and setting forth a brief description of the basis on which such party is terminating this Agreement.

8.3 Effect of Termination. If this Agreement is terminated pursuant to Section 8.1, all further obligations of the parties under this Agreement shall terminate and no party shall have any further liability hereunder; provided, however, that: (a) neither the Company nor Parent shall be relieved of any obligation or liability arising from any intentional breach by such party of any covenant or obligation of such party set forth in this Agreement occurring after the execution of this Agreement; and (b) the parties shall, in all events, remain bound by and continue to be subject to the provisions set forth in Sections 5.7 and 10.

SECTION 9. INDEMNIFICATION, ETC.

9.1 Survival of Representations, Etc.

(a) The representations, warranties, covenants and obligations of the Company (including the representations and warranties set forth in Section 2 and the representations and warranties set forth in the Company Closing Certificate) shall survive the Closing. All representations, warranties, covenants and obligations of the Company (including the representations and warranties set forth in Section 2 and the representations and warranties set forth in the Company Closing Certificate) shall expire on the Designated Date, and any liability with respect to such representations and warranties shall thereupon cease; provided, however, that if, at any time on or prior to the Designated Date, any Parent Indemnitee (acting in good faith) delivers to the Stockholders’ Representative a Notice of Indemnification Claim (as defined in Section 9.7(a)) alleging the existence of an inaccuracy in or a breach of any of such representations, warranties, covenants or obligations and asserting a claim for recovery under Section 9.2(a) based on such alleged inaccuracy or breach, then the claim asserted in such Notice of Indemnification Claim shall survive until such time as such claim is fully and finally resolved. All representations, warranties, covenants and obligations of Parent and Merger Sub (including the representations and warranties set forth in Section 3 and in the Parent Closing Certificate) shall terminate and expire as of the Designated Date, and any liability of Parent or Merger Sub with respect to such representations and warranties shall thereupon cease; provided, however, that if, at any time on or prior to the Designated Date, any Company Indemnitee (acting in good faith) delivers to Parent a Notice of Indemnification Claim alleging the existence of an inaccuracy in or a breach of any of such representations, warranties, covenants or obligations and asserting a claim for recovery under Section 9.2(b) based on such alleged inaccuracy or breach, then the claim asserted in such Notice of Indemnification Claim shall survive until such time as such claim is fully and finally resolved; provided, further, the covenants set forth in Section 5.14 shall survive the Closing in accordance with their terms.

(b) The representations, warranties, covenants and obligations of an Indemnitor, and the rights and remedies that may be exercised by the Indemnitees, shall not be limited or otherwise affected by or as a result of any information furnished to, or any investigation made by or knowledge of, any of the Indemnitees or any of their Representatives (it being understood that the representations and warranties of the Company are qualified by the disclosures set forth in the applicable parts or subparts of the Disclosure Schedule to the extent set forth therein or in any other part or subpart of the Disclosure Schedule to the extent it is reasonably apparent from a reading of such disclosure item that it would also qualify or apply to such other part).

(c) Notwithstanding anything to the contrary contained in Section 9.1(a), the limitations set forth in Section 9.1(a) shall not apply in the case of claims based upon fraud.

9.2 Indemnification.

(a) From and after the Effective Time, the Parent Indemnitees shall be entitled to be held harmless and indemnified solely (except in the event of fraud) from the Indemnity Escrow Fund from and against, and shall be entitled to be compensated and reimbursed solely (except in the event of fraud) from the Indemnity Escrow Fund for, any Damages that are directly or indirectly suffered or incurred by any of the Parent Indemnitees or to which any of the Parent Indemnitees may otherwise become directly or indirectly subject (regardless of whether or not such Damages relate to any third party claim), and that arise from or as a result of, or are directly or indirectly connected with:

(i) any inaccuracy in or breach of any representation or warranty of the Company as of the date of this Agreement: (A) giving effect to any “Material Adverse Effect” or other materiality qualification limiting the scope of such representation or warranty for purposes of determining whether such representation or warranty is inaccurate or has been breached, but without giving effect to any “Material Adverse Effect” or other materiality qualification limiting the scope of such representation or warranty for purposes of calculating any Damages; and (B) without giving effect to any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of this Agreement;

(ii) any inaccuracy in or breach of any representation or warranty of the Company as of the Closing Date as if such representation and warranty had been made on and as of the Closing Date: (A) giving effect to any “Material Adverse Effect” or other materiality qualification limiting the scope of such representation or warranty for purposes of determining whether such representation or warranty is inaccurate or has been breached, but without giving effect to any “Material Adverse Effect” or other materiality qualification limiting the scope of such representation or warranty for purposes of calculating any Damages; and (B) without giving effect to any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of this Agreement, provided that any update to Part 2.9 or Part 2.10 of the Disclosure Schedule permitted hereby for the purpose of adding to Part 2.9 and Part 2.10 of the Disclosure Schedule a list of any Material Contracts or licenses of Intellectual Property entered into after the execution of this Agreement of the type described in Section 4.2(b)(ix) and Section 4.2(b)(x) shall be deemed to update the Disclosure Schedule, but solely for the purposes of determining whether the representations and warranties of the Company set forth in this Agreement are inaccurate or have been breached as of the Closing Date (as if such representations and warranties had been made on and as of the Closing Date);

(iii) any breach of any covenant or obligation of the Company in this Agreement, other than the covenant in Section 4.2(a)(ii);

(iv) any inaccuracy in the Closing Payment Schedule;

(v) any liability of any Acquired Company for unpaid Taxes for any tax period (or portion thereof) ending on or before the Closing Date (a “Pre-Closing Tax Period”) (except to the extent such unpaid Taxes were included in the calculation of the Closing Working Capital Amount;

(vi) the Post-Closing Deficit Amount exceeding the amount remaining in the Working Capital Adjustment Escrow Fund;

(vii) the exercise by any Stockholder of such Stockholder’s appraisal rights under the DGCL to the extent any Damages as a result thereof (including any payment required to be made to such Stockholder) exceed the amount such Stockholder would otherwise be paid under Section 1.5 if such Stockholder had not exercised such Stockholder’s appraisal rights under the DGCL; and

(viii) the matters disclosed in Part 9.2(a)(viii) of the Disclosure Schedule.

Notwithstanding clause “(i)” or clause “(ii)” above (to the extent they relate to breaches of any representations or warranties in Section 2.14) or clause “(v)” above, the Parent Indemnitees shall not be indemnified pursuant to such clauses for any Damages for Taxes that are directly or indirectly suffered or incurred by any of the Parent Indemnitees or to which any of the Parent Indemnitees may otherwise become directly or indirectly subject and that arise from or as a result of or are directly or indirectly connected with: (A) the acquisition of Company stock pursuant to this Agreement being treated as a sale of assets pursuant to any express or deemed election by Parent under Section 338 of the Code or comparable provisions under foreign or other Tax law; (B) any transaction that is undertaken on the Closing Date at the direction of Parent or any of its Affiliates or after the Closing Date outside the ordinary course of business; (C) any transaction of the Acquired Companies occurring after the Closing; and (D) any Tax election or Tax reporting position with a Governmental Body with respect to Taxes by a Parent Indemnitee following the Effective Time that results in an increased Tax liability or reduction in any Tax asset of the Acquired Companies in respect of any Pre-Closing Tax Period (or portion of any Straddle Period ending on the Closing Date), unless such Tax election or Tax reporting position was required by a Governmental Body as a result of an audit or was clearly required by applicable Legal Requirements. Notwithstanding clause “(i)” or clause “(ii)” above (to the extent they relate to breaches of any representations or warranties in Section 2.14) or clause “(v)” above, Damages arising out of the Company’s obligation to pay California sales or use Taxes for any transaction that occurred after March 31, 2005 and that remain unpaid at the Closing Date shall be deemed to be, and shall in all events be limited to, 70% of such unpaid amounts.

(b) From and after the Effective Time, Parent shall indemnify and hold harmless the Company Indemnitees from and against, and shall compensate and reimburse the Company Indemnitees for, any Damages that are directly or indirectly suffered or incurred by any of the Company Indemnitees (regardless of whether or not such Damages relate to any third party claim), and that arise from or as a result of, or are directly or indirectly connected with:

(i) any inaccuracy in or breach of any representation or warranty of Parent as of the date of this Agreement, giving effect to any materiality qualification limiting the scope of such representation or warranty for purposes of determining whether such representation or warranty is inaccurate or has been breached, but without giving effect to any materiality qualification limiting the scope of such representation or warranty for purposes of calculating any Damages;

(ii) any inaccuracy in or breach of any representation or warranty of Parent as of the Closing Date as if such representation and warranty had been made on and as of the Closing Date, giving effect to any materiality qualification limiting the scope of such representation or warranty for purposes of determining whether such representation or warranty is inaccurate or has been breached, but without giving effect to any materiality qualification limiting the scope of such representation or warranty for purposes of calculating any Damages; or

(iii) any breach of any covenant or obligation of Parent in this Agreement.

(c) The parties acknowledge and agree that, if the Surviving Corporation suffers, incurs or otherwise becomes subject to any Damages as a result of or in connection with any inaccuracy in or breach of any representation, warranty, covenant or obligation, then (without limiting any of the rights of the Surviving Corporation as a Parent Indemnitee) Parent shall also be deemed, by virtue of its ownership of the stock of the Surviving Corporation, to have incurred Damages as a result of and in connection with such inaccuracy or breach (it being understood that any Damages suffered or incurred by the Surviving Corporation shall be recoverable without duplication under this Section 9 by either Parent or the Surviving Corporation).

9.3 Certain Limitations.

(a) Except in the event of fraud and any intentional breach of any covenant of the Company, the Parent Indemnitees shall not be entitled to recover any Damages pursuant to Section 9.2(a)(i), Section 9.2(a)(ii) or Section 9.2(a)(iii) until such time as the total amount of all Damages that have been directly or indirectly suffered or incurred by any one or more of the Parent Indemnitees, or to which any one or more of the Parent Indemnitees has or have otherwise become subject, and that would otherwise be indemnifiable pursuant to such Sections but for the application of this Section 9.3(a), exceeds $1,700,000 in the aggregate. At such time as the cumulative amount of such Damages exceeds $1,700,000 in the aggregate, the Parent Indemnitees shall be entitled to recover the entire amount of such Damages, including the initial $1,700,000.

(b) Except in the event of fraud, any intentional breach of any covenant of Parent and any breach by Parent of any obligation to pay any amounts required to be paid pursuant to Sections 1.5, 1.6, 1.7 and 1.8, the Company Indemnitees shall not be entitled to recover any Damages pursuant to Section 9.2(b)(i) or Section 9.2(b)(ii) for any inaccuracy in or breach of any representation, warranty, covenant or obligation of Parent until such time as the total amount of all Damages that have been directly or indirectly suffered or incurred by any one or more of the Company Indemnitees, or to which any one or more of the Company Indemnitees has or have otherwise become subject, and that would otherwise be indemnifiable pursuant to such Sections but for the application of this Section 9.3(b), exceeds $1,700,000 in the aggregate. At such time as the cumulative amount of such Damages exceeds $1,700,000 in the aggregate, the Company Indemnitees shall be entitled to recover the entire amount of such Damages, including the initial $1,700,000.

(c) Notwithstanding any other provision contained herein, except in the event of fraud, recourse by the Parent Indemnitees to the Indemnity Escrow Fund and the indemnification provisions contained in this Section 9 shall be the Parent Indemnitees’ sole and exclusive remedy after the Effective Time for monetary Damages for any inaccuracy in or breach of any representation, warranty, covenant or obligation of the Company set forth in this Agreement; provided, however, that nothing contained in this Section 9.3(c) or elsewhere in this Agreement shall limit the rights of any Parent Indemnitee to seek or obtain injunctive relief or any other non-monetary equitable remedy to which such Parent Indemnitee is otherwise entitled.

(d) Except in the event of fraud or for the breach by Parent of any obligation to pay any amounts required to be paid pursuant to Sections 1.5, 1.6, 1.7 and 1.8, the maximum aggregate amount payable by Parent to the Company Indemnitees pursuant to this Section 9 shall in no event exceed $20,000,000.

(e) Except in the event of fraud or for the breach by Parent of any obligation to pay any amounts required to be paid pursuant to Sections 1.5, 1.6, 1.7 and 1.8, the indemnification provisions contained in this Section 9 shall be the Company Indemnitees’ sole and exclusive remedy after the Effective Time for monetary damages for any inaccuracy in or breach of any representation, warranty, covenant or obligation of Parent set forth in this Agreement; provided, however, that nothing contained in this Section 9.3(e) or elsewhere in this Agreement shall limit the rights of any Company Indemnitee to seek or obtain injunctive relief or any other non-monetary equitable remedy to which such Company Indemnitee is otherwise entitled.

(f) If (i) an Indemnitor obtains a bona fide, good faith, written offer from a third-party claimant to settle in all respects a Legal Proceeding being defended by such Indemnitor pursuant to Section 9.5(a) in exchange solely for a cash payment specified in such written offer, all of which would be paid or otherwise borne by the Indemnitor (the “Specified Settlement Amount”) and a release of claims against such third party (a “Release of Claims”), and such settlement offer is subject to no requirements, obligations or limitations on the part of the Indemnitee or imposed on the Indemnitee or its business other than the obligation to provide a Release of Claims, (ii) such Indemnitor requests in writing the written consent of the Indemnitee to such settlement in accordance with Section 9.5(a)(E), and (iii) the Indemnitee refuses in writing to consent to such settlement or otherwise fails to consent to such settlement within 15 business days after its receipt of such written request, thereafter the maximum liability of the Indemnitor for the matters arising out of such Legal Proceeding shall be, subject to the other provisions of this Section 9.3, the Specified Settlement Amount. Without limiting the foregoing, in any case where an Indemnitor is defending a Legal Proceeding in accordance with Section 9.5, such Indemnitor shall be required to promptly inform the Indemnitee in writing of any definitive offer from a third-party claimant to settle in any respect such Legal Proceeding.

(g) In the event that the Company notifies Parent in writing at least five business days prior to the date of the Parent Stockholders’ Meeting of any material error identified in the financial statements of the Company or other information provided by the Company, in either case that are included in the preliminary Proxy Statement or in the definitive Proxy Statement mailed to Parent’s stockholders, and Parent nevertheless determines that it is not necessary to or otherwise refuses or fails to modify such preliminary Proxy Statement or, in the case that the definitive Proxy Statement that has been mailed to the stockholders of Parent, to mail a supplement or amendment to Parent’s stockholders, Parent shall have no recourse to the Indemnity Escrow Fund or otherwise for any Damages resulting from any Legal Proceeding brought by or on behalf of Parent’s stockholders to the extent such Legal Proceeding is based upon the error identified by the Company.

(h) In no event shall any Parent Indemnitee be entitled to be indemnified for a breach of the representation set forth in Section 2.25 or for the representation set forth in Section 2.4(c) (or in any certificate delivered at Closing, but only to the extent that it relates to such Sections) or the covenant set forth in Section 4.1(e), except to the extent that Parent’s Damages arise out of one or more Legal Proceedings brought by a stockholder or stockholders of Parent on the basis of such actual or alleged breach of representations set forth in Section 2.4(c) or Section 2.25.

(i) In the event Damages are directly or indirectly suffered or incurred by any of the Parent Indemnitees or to which any of the Parent Indemnitees may otherwise become directly or indirectly subject (regardless of whether or not such Damages relate to any third party claim), to the extent such Damages arise from or as a result of, or are directly or indirectly connected with an Acquired Company’s failure, prior to the Closing, to have complied with provisions in (1) Acquired Company Contracts with customers of the Acquired Companies specifying wafer yield, delivery date and capacity guarantee requirements or (2) Acquired Company Contracts with suppliers of the Acquired Companies specifying payment due date requirements, then:

(i) if such Damages are less than $25,000 with respect to any event or occurrence or series of related events or occurrences relating to the same customer or supplier, such Damages shall be deemed to be zero for all purposes under this Agreement;

(ii) if such Damages are greater than $25,000 but less than $275,000 with respect to any event or occurrence or series of related events or occurrences relating to the same customer or supplier, the amount of such Damages shall for all purposes of this Agreement be deemed to be 45% of the amount of such Damages; and

(iii) if such Damages are greater than $275,000 with respect to any event or occurrence or series of related events or occurrences relating to the same customer or supplier, the amount of such Damages shall for all purposes of this Agreement be deemed to be an amount equal to (x) $123,750 plus (y) 70% of the amount of such Damages in excess of $275,000.

(j) The amount of “Damages” for which any Indemnitee is entitled to indemnification hereunder shall be reduced by (i) with respect to Parent Indemnitees an amount (the “Net Alternative Recovery Amount”) equal to, (x) any portion of such Damages which such Parent Indemnitee has actually recovered against an insurance policy, net of any increase in premiums resulting from any such insurance claim and all other out-of-pocket costs and expenses relating to the recovery of such amounts to the extent not reimbursed by insurance, (y) any portion of such Damages which such Parent Indemnitee has actually recovered as a result of any indemnity claim by such Parent Indemnitee against Conexant or any licensor or transferor of Intellectual Property to the Company or (z) any portion of such Damages which such Parent Indemnitee has actually recovered from any supplier to the Company (any party referred to in clauses (x), (y) or (z) shall collectively be referred to as, “Specified Third Parties”), in each case with respect to the same facts and circumstances that give rise to the breach of representation and warranty, breach of covenant or other indemnifiable matter hereunder that has resulted in such Damages, (ii) the amount of any specific reserve or other specific accrual on the Final Closing Date Balance Sheet (whenever established) that was specifically established to cover a particular item of Damages, up to the lesser of the amount of such Damages or the amount of such specific reserve or other accrual, but only to the extent that the establishment of such reserve or other accrual reduced the Final Closing Working Capital Amount, (iii) the amount of any general reserve or other general accrual on the Final Closing Date Balance Sheet established after the date of this Agreement, up to the lesser of the amount of Damages incurred by such Indemnitee with respect to the matter for which such reserve or accrual was established or the amount of such reserve or other accrual, but only to the extent that the establishment of such reserve or other accrual reduced the Final Closing Working Capital Amount; and (iv) the amount of any general reserve for uncollectible accounts receivable, up to the lesser of the amount of Damages from any inaccuracy in or breach of the representations and warranties in the last sentence of Section 2.7(b) or the amount of such general reserve. No particular dollar of any reserve or other accrual shall be utilized more than once to offset a dollar of Damages. With respect to clause (i) above, the applicable Parent Indemnitee(s) shall (contemporaneously with the pursuit by such Indemnitee(s) of indemnification claims hereunder), use commercially reasonable efforts to pursue claims against such insurance policies or Specified Third Parties, to the extent (x) such claims, if successful, would result in an offset pursuant to the terms of this Agreement against Damages that are otherwise indemnifiable hereunder, and (y) such claims are valid and reasonably recoverable based on a written insurance policy of which an Acquired Company is the beneficiary or the express terms of a written indemnity agreement between the Acquired Company and such Specified Third Party, a breach of contract by such Specified Third Party or as a result of the failure of any supplier to deliver any product that meets the specifications required by the Acquired Companies’ processes. In no event shall the existence or pendency of any possible claim by an Indemnitee against any such insurance policy or Specified Third Party preclude any Indemnitee from delivering a Notice of Indemnification Claim with respect to any Damages that are directly or indirectly suffered or incurred by such Indemnitee or to which any of the Parent Indemnitees may otherwise become directly or indirectly subject (regardless of whether or not such Damages relate to any third party claim), and that arise from or as a result of, or are directly or indirectly connected with, any matter described in Section 9.2(a) or Section 9.2(b), as applicable. In the event that, with respect to clause (i) above, (1) an Indemnitee is required to use commercially reasonable efforts to pursue a claim against an insurance policy or Specified Third Party, but (2) such Indemnitee has not recovered the Net Alternative Recovery Amount with respect to such claim prior to the time that such Indemnitee receives any payment out of the Indemnity Escrow Fund with respect to the particular breach of representation and warranty, breach of covenant or other indemnifiable matter hereunder to which such Net Alternative Recovery Amount would relate, such Indemnitee shall be obligated to continue to pursue such insurance claim or claim against such Specified Third Party for an additional period (A) of up to 120 days following the date of such Indemnitee’s receipt of such payment out of the Escrow Fund in the case of a Specified Third Party that is a supplier and (B) that is commercially reasonable under the circumstances in the case of any other Specified Third Party (any such additional period, the “Subsequent Pursuit Period”). If, at any time on or prior to the Designated Date, such Indemnitee receives any Net Alternative Recovery Amount with respect to such insurance claim or claim against such Specified Third Party, such Indemnitee shall pay any portion of such Net Alternative Recovery Amount that would have reduced the amount of Damages recoverable by such Indemnitee from the Indemnity Escrow Fund back to the Indemnity Escrow Fund. If, at any time after the Designated Date, such Indemnitee receives any Net Alternative Recovery Amount with respect to such insurance claim or claim against such Specified Third Party, such Indemnitee shall pay any portion of such Net Alternative Recovery Amount that would have reduced the amount of Damages recoverable by such Indemnitee from the Indemnity Escrow Fund (x) to the extent of the excess (if any) of (1) the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow Claims as of such date, over (2) the Aggregate Escrow Balance (as defined in Section 9.7(i)) as of such date, back to the Indemnity Escrow Fund, and (y) otherwise to the Stockholders’ Representative for distribution to the Escrow Participants. The payment of any such amount by Parent to the Stockholders’ Representative shall completely discharge Parent’s obligations with respect to such amount, and in no event shall Parent have any responsibility or liability whatsoever for causing or ensuring that all or any portion of such amount is ultimately paid or distributed to Escrow Participants.

9.4 No Contribution. Each Stockholder waives, and acknowledges and agrees that such stockholder shall not have and shall not exercise or assert (or attempt to exercise or assert), any right of contribution, right of indemnity or other right or remedy against Parent or against the Surviving Corporation or any of the other Acquired Companies in connection with any indemnification obligation or any other liability to which such stockholder may become subject under or in connection with this Agreement.

9.5 Defense of Third Party Claims.

(a) In the event of the commencement by any Person of any Legal Proceeding (whether against a Parent Indemnitee, a Company Indemnitee or against any other Person) with respect to which any Indemnitee would reasonably be entitled to be held harmless, indemnified, compensated or reimbursed pursuant to this Section 9, or the receipt by Parent of any written threat of such a Legal Proceeding: (i) the Indemnitee shall notify the Indemnitor promptly after the Indemnitee receives written notice of such actual or threatened Legal Proceeding (it being understood that any failure by the Indemnitee to so promptly notify the Indemnitor shall have no effect on the Indemnitee’s ability to recover Damages pursuant to this Section 9, except to the extent that the defense of such Legal Proceeding is materially prejudiced thereby); and (ii) if such Legal Proceeding does not involve any claims for any injunction, specific performance or any other non-monetary remedy or relief, the Indemnitor shall have the right, at its election, at any time prior to the end of the 90-day period commencing with the commencement of discovery proceedings in such Legal Proceeding, by delivering a written notice to the Indemnitee of such election, to proceed with the defense of such Legal Proceeding on its own with counsel reasonably acceptable to the Indemnitee. If the Indemnitor so proceeds with the defense of any such Legal Proceeding: (A) the Indemnitor shall be deemed to have conclusively agreed that all Damages suffered by the Indemnitee as a result of or in connection with the claim are recoverable from the Indemnitor under Section 9, subject to the provisions of Section 9.3; (B) all reasonable out-of-pocket expenses relating to the defense of such Legal Proceeding shall be borne and paid exclusively by the Indemnitor (or in the case the Indemnitor is the Stockholders’ Representative, exclusively from the Indemnity Escrow Fund); (C) the Indemnitee shall use commercially reasonable efforts to make available to the Indemnitor reasonable access to properties, documents, materials and employees (subject to the execution of reasonable confidentiality agreements that permit such confidential information to be used in the legal proceedings) to the extent that the Indemnitor determines in good faith that such access is necessary to the defense of such Legal Proceeding; (D) the Indemnitee (which in the case the Indemnitor is Parent shall refer solely for this purpose to the Stockholders’ Representative) may, at its own cost and expense, participate in the investigation, trial and defense of such Legal Proceeding; and (E) the Indemnitor shall have the right to settle, adjust or compromise such Legal Proceeding with the prior written consent of the Indemnitee (which consent shall not be unreasonably withheld, conditioned or delayed). In addition, the Indemnitor shall not have the right to assume the control of the defense of any such Legal Proceeding if at the time the Indemnitor assumes control the amount claimed in such Legal Proceeding, in the aggregate with the amount claimed in other third party claims and direct claims against the Indemnitor (or in the case the Indemnitor is the Stockholders’ Representative, the Indemnity Escrow Fund) asserted as of such time against the Indemnitor (or in the case the Indemnitor is the Stockholders’ Representative, the Indemnity Escrow Fund) under this Section 9, would exceed the limitation of the Indemnitor’s liability set forth in Section 9.3(c) or Section 9.3(d), as applicable.

(b) If, with respect to any Legal Proceeding described in Section 9.5(a), the Indemnitor is not permitted to proceed with the defense of such Legal Proceeding or is required to cease its control of such Legal Proceeding, or does not elect (or has not yet informed the Indemnitee in writing that it is electing) to proceed with the defense of any such Legal Proceeding, the Indemnitee may proceed with the defense of such Legal Proceeding with counsel reasonably acceptable to the Indemnitor. If the Indemnitee so proceeds with the defense of any such Legal Proceeding: (i) if it is ultimately agreed or otherwise determined that the Indemnitee is entitled to indemnification for Damages resulting from such Legal Proceeding pursuant to this Section 9, all reasonable out-of-pocket expenses relating to the defense of such Legal Proceeding shall, subject to Section 9.3, be borne and paid exclusively by the Indemnitor (or in the case the Indemnitor is the Stockholders’ Representative, exclusively from the Indemnity Escrow Fund); (ii) the Indemnitor shall use commercially reasonable efforts to make available to the Indemnitee any documents and materials that the Indemnitee determines in good faith may be necessary to the defense of such Legal Proceeding; (iii) the Indemnitor may, at its own cost and expense, participate in the investigation, trial and defense of such Legal Proceeding; and (iv) the Indemnitee shall have the right to settle, adjust or compromise such Legal Proceeding; provided, however, that if the Indemnitee settles, adjusts or compromises any such Legal Proceeding without the consent of the Indemnitor, the Indemnitee shall bear the burden of proof to establish the Damages arising as result of such Legal Proceeding for which the Indemnitee is entitled to be held harmless, indemnified, compensated or reimbursed pursuant to this Section 9, and Damages paid in connection with settlement, adjustment or compromise of such Legal Proceeding shall not establish any presumption regarding the amount of such Damages or any liability of the Indemnitor with respect thereto.

(c) In the event any Person that is or was a customer or supplier of the Company asserts any claim, or any other Person asserts a claim arising out of or related to the Intellectual Property used in the business of the Company, that (i) either on its face involves Damages of greater than $500,000 or with respect to which Parent at any time determines in good faith or to the Knowledge of Parent such claim is reasonably likely to result in Damages of greater than $500,000 and (ii) with respect to which a Parent Indemnitee would reasonably be entitled to be indemnified pursuant to this Section 9: (A) Parent shall notify the Stockholders’ Representative promptly after the date Parent Indemnitee receives notice of such claim (or if such claim does not on its face involve Damages of greater than $500,000, after the date on which Parent determines in good faith or any individual included in the definition of “Knowledge of the Company” (or such person’s replacement) obtains actual knowledge that such claim is reasonably likely to result in Damages of greater than $500,000) (it being understood that any failure by Parent to so promptly notify the Indemnitor shall have no effect on the Parent Indemnitee’s ability to recover Damages pursuant to this Section 9, except to the extent that the resolution or defense of such claim is prejudiced thereby); and (B) the Stockholders’ Representative shall be entitled to participate in all substantive discussions and meetings regarding such claim, including meetings with such third party and shall be provided a copy of all correspondence relating to such claim. At least five business days prior to any resolution, settlement or compromise of such claim that would result in a Parent Indemnitee being entitled to indemnification pursuant to this Section 9, Parent shall inform the Stockholders’ Representative of the terms of such resolution, settlement or compromise and shall consider the Stockholders’ Representative’s views regarding the advisability of resolving, settling or compromising such claim on the terms proposed. Thereafter, Parent shall be entitled to resolve, settle or compromise such claim on the terms presented to the Stockholders’ Representative (or such additional terms as have been proposed by the Stockholders’ Representative), without the consent of the Stockholders’ Representative, provided, however, that if a Parent Indemnitee settles, adjusts or compromises any such claim without the consent of the Stockholders’ Representative, the Parent Indemnitee shall bear the burden of proof to establish the Damages arising as result of such claim for which the Indemnitee is entitled to be held harmless, indemnified, compensated or reimbursed pursuant to this Section 9, and Damages paid in connection with resolution, settlement or compromise of such claim shall not establish any presumption regarding the amount of such Damages or any liability of the Indemnitor with respect thereto.

9.6 Exercise of Remedies by Parent Indemnitees Other Than Parent. No Parent Indemnitee (other than Parent or any successor thereto or assign thereof) shall be permitted to assert any indemnification claim or exercise any other remedy under this Agreement unless Parent (or any successor thereto or assign thereof) shall have consented to the assertion of such indemnification claim or the exercise of such other remedy.

9.7 Indemnification Claims; Escrow Arrangements.

(a) If any Indemnitee has incurred or suffered or claims to have incurred or suffered, or believes that it may incur or suffer, Damages for which it is or may be entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9, such Indemnitee may deliver a notice to the Indemnitor (any such notice being referred to as a “Notice of Indemnification Claim,” and the claim for indemnification, compensation and reimbursement described in such Notice of Indemnification Claim being referred to as an “indemnification claim”), which shall: (i) state that such Indemnitee believes that that there is or has been an inaccuracy in or breach of a representation, warranty, covenant or obligation contained in this Agreement or that such Indemnitee is otherwise entitled to be held harmless, indemnified, compensated or reimbursed under this Section 9; (ii) contain a brief description of the circumstances supporting such Indemnitee’s belief that there is or has been such an inaccuracy or breach or that such Indemnitee may otherwise be entitled to be held harmless, indemnified, compensated or reimbursed; and (iii) contain a good faith, non-binding, preliminary estimate of the aggregate dollar amount of actual and potential Damages that have arisen and may arise as a result of the inaccuracy, breach or other matter referred to in such notice (the aggregate amount of such estimate, as it may be modified by such Indemnitee in good faith from time to time, being referred to as the “Claimed Amount”).

(b) During the 30-day period (the “Dispute Period”) commencing upon (i) the delivery by an Indemnitee to the Indemnitor of a Notice of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates to a third party claim or Legal Proceeding, the final resolution or settlement of such claim or Legal Proceeding, the Indemnitor shall deliver to the Indemnitee a written response (the “Response Notice”) in which the Indemnitor: (i) agrees that the full Claimed Amount is owed to the Indemnitee; (ii) agrees that part (but not all) of the Claimed Amount (the “Agreed Amount”) is owed to the Indemnitee; or (iii) asserts that no part of the Claimed Amount is owed to the Indemnitee. Any part of the Claimed Amount that is not agreed by the Indemnitor to be owed to the Indemnitee pursuant to the Response Notice (or the entire Claimed Amount, if the Indemnitor asserts in the Response Notice that no part of the Claimed Amount is owed to the Indemnitee) shall be referred to as the “Contested Amount” (it being understood that the Contested Amount shall be modified from time to time to reflect any good faith modifications by the Indemnitee to the Claimed Amount). If a Response Notice is not received by the Indemnitee prior to the expiration of the Dispute Period, then the Indemnitor shall be conclusively and irrevocably deemed to have agreed that the full Claimed Amount is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its Affiliates shall cooperate with the Indemnitor to permit it to investigate such claim, including by providing the Indemnitor and its representatives reasonable access to the books, records, properties and employees of Indemnitor to the extent reasonably related to the investigation of such claim.

(c) If the Indemnitor delivers a Response Notice to the Indemnitee agreeing that the full Claimed Amount is owed to the Indemnitee, or if the Indemnitor does not deliver a Response Notice to the Indemnitee during the Dispute Period, then, within three days following the earlier of the delivery of such Response Notice to the Indemnitee or the expiration of the Dispute Period:

(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the full Claimed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and

(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the full Claimed Amount.

(d) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period agreeing that less than the full Claimed Amount is owed to the Indemnitee, then, within three days following the delivery of such Response Notice to the Indemnitee:

(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Agreed Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and

(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Agreed Amount.

(e) If the Indemnitor delivers a Response Notice to the Indemnitee during the Dispute Period indicating that there is a Contested Amount, the Indemnitor and the Indemnitee shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Indemnitee and the Indemnitor resolve such dispute in writing, then their resolution of such dispute shall be binding on the Indemnitor, the Escrow Participants and the Indemnitee and a settlement agreement stipulating the amount owed to the Indemnitee (the “Stipulated Amount”) shall be signed by the Indemnitee and the Indemnitor. Within three days after the execution of such settlement agreement:

(i) if the Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Stipulated Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and

(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Stipulated Amount.

(f) If the Indemnitor and the Indemnitee are unable to resolve the dispute relating to any Contested Amount during the 30-day period commencing upon the delivery of the Response Notice to the Indemnitee, then either the Indemnitee or the Indemnitor may submit the contested portion of the indemnification claim to binding arbitration in the State of California in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect. Arbitration will be conducted by one arbitrator, mutually selected by the Indemnitee and the Indemnitor; provided, however, that if the Indemnitee and the Indemnitor fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The arbitrator’s authority shall be confined to: (i) whether the Indemnitee is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Indemnitee is entitled to recover; and (ii) whether either party to the arbitration shall be required to bear and pay all or a portion of the other party’s attorneys’ fees and other expenses relating to the arbitration. The final decision of the arbitrator shall include the dollar amount of the award to the Indemnitee, if any (the “Award Amount”), and shall be furnished in writing to the Indemnitor, the Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent, shall constitute a conclusive determination of the issues in question, binding upon the Indemnitor, the former holders of Company Capital Stock and In-the-Money Company Options and the Indemnitee. Within three days following the receipt of the final award of the arbitrator setting forth the Award Amount:

(i) if the Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to release the Award Amount to the Parent Indemnitee from the Indemnity Escrow Fund; and

(ii) if the Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee, in cash, an amount equal to the Award Amount.

(g) Within five business days after the date that Parent receives the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2006, together with the final audit report thereto signed by the Company’s outside auditor (the “Initial Release Date”), Parent shall notify the Stockholders’ Representative in writing of such receipt. If the sum of the aggregate amount of all distributions made from the Indemnity Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date plus the aggregate amount of all Claimed Amounts or Contested Amounts, as the case may be, associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid on or prior to the Initial Release Date (each such indemnification claim being referred to as an “Unresolved Claim”) is less than $7,000,000 (the amount of such shortfall being referred to as the “Aggregate Initial Distribution Amount”), then within five business days after receipt of such written notice, Parent and the Stockholders’ Representative shall execute joint written instructions to the Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Initial Distribution Amount.

(h) Following the Initial Release Date, upon the final resolution of any indemnification claim that was an Unresolved Claim on the Initial Release Date, if the final amount for which the Parent Indemnitee is entitled to indemnification with respect to such Unresolved Claim is less than the amount of such Unresolved Claim used for purposes of determining the Aggregate Initial Distribution Amount, Parent and the Stockholders’ Representative shall issue joint written instructions to the Escrow Agent, directing the Escrow Agent to distribute to the Escrow Participants, in the respective proportions set forth in Section 9.7(g), any portion of such amount that would have been distributed to the Escrow Participants as part of such Aggregate Initial Distribution Amount if such Unresolved Claim had been resolved, and any Damages with respect thereto had been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior to the Initial Distribution Date, taking into account other indemnification claims that were Unresolved Claims on the Initial Release Date and continue to be outstanding on the date of such final resolution. In no event shall the aggregate amount of the Aggregate Initial Distribution Amount and any additional amounts distributed pursuant to this clause (h) exceed $7,000,000.

(i) If the aggregate amount of cash remaining in the Indemnity Escrow Fund (the “Aggregate Escrow Balance”) as of the Designated Date exceeds the aggregate dollar amount, as of the Designated Date, of the Claimed Amounts and Contested Amounts associated with all indemnification claims made by Parent Indemnitees that have not been finally resolved and paid prior to the Designated Date in accordance with this Section 9.7 (each, an “Unresolved Escrow Claim”) (the amount of such excess being referred to as the “Aggregate Second Distribution Amount”), then within five business days after the Designated Date, Parent and the Stockholders’ Representative shall deliver joint written instructions to the Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the Aggregate Second Distribution Amount.

(j) Following the Designated Date, if an Unresolved Escrow Claim is finally resolved, Parent and the Stockholders’ Representative shall jointly execute and deliver to the Escrow Agent, within three days after the final resolution of such Unresolved Escrow Claim and the payment to the Parent Indemnitee of all amounts payable to the Parent Indemnitee from the Indemnity Escrow Fund with respect thereto, a written notice instructing the Escrow Agent to release from the Indemnity Escrow Fund to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount (if any) by which the Aggregate Escrow Balance as of such date exceeds the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow Claims.

(k) All cash released to Escrow Participants pursuant to this Section 9.7 will be deemed to have been released in full satisfaction of the rights of such Escrow Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as the case may be.

(l) The parties agree that any cash released from the Working Capital Adjustment Escrow Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to Section 1.7 or this Section 9 shall, to the extent permitted pursuant to applicable Legal Requirements, be treated as a reduction in the Aggregate Closing Transaction Value for federal income tax purposes.

9.8 Tax Matters.

(a) The parties shall reasonably cooperate, and shall cause their respective affiliates and their respective directors, officers, employees, agents, auditors and representatives reasonably to cooperate, in preparing and filing all Tax Returns and in resolving all disputes and audits with respect to all taxable periods or relating to Taxes, including maintaining and making available to each other all records necessary in connection with Taxes of the Acquired Companies.

(b) Parent and the Acquired Companies shall prepare or cause to be prepared all Tax Returns for all Pre-Closing Tax Periods not yet filed or due to be filed as of the Closing Date (giving effect to extensions). Except to the extent otherwise required by law, such Tax Returns shall be prepared on a basis consistent with the past practices of such entities. Parent and the Acquired Companies shall prepare all Tax Returns of the Acquired Companies for all Tax periods that begin after the Closing Date (a “Post-Closing Tax Period”) and all Tax Returns of the Acquired Companies for all Tax periods that begin on or before the Closing Date and end after the Closing Date (a “Straddle Period”). With respect to any Tax Return for a Straddle Period, Parent and the Acquired Companies shall apportion Taxes to the Interim Period in accordance with Section 1.7(f)(ii) hereof. Parent and the Acquired Companies shall provide the Stockholders’ Representative with drafts of all Tax Returns prepared by Parent or the Acquired Companies at least 15 business days prior to the filing date thereof, but only to the extent such Tax Returns are for a Pre-Closing Tax Period or a Straddle Period or would constitute an amendment to Tax Returns previously filed by the Stockholders’ Representative or the Acquired Companies for a Pre-Closing Tax Period. The Stockholders’ Representative shall have the right to review and comment on the Tax Returns for any Pre-Closing Tax Period and the portion of the Straddle Period ending on the Closing Date. In the event the Parent rejects any such comments by the Stockholders’ Representative on any such Tax Return, and Parent and the Stockholders’ Representative cannot within a reasonable period of time resolve such disagreement, such Tax Return shall be filed as proposed by the Stockholders’ Representative (to the extent its comments relate to any Pre-Closing Tax Period or the portion of the Straddle Period ending on the Closing Date), and the parties shall submit to binding arbitration in the State of California in accordance with the JAMS Comprehensive Arbitration Rules and Procedures then in effect the issue of whether the position embodied in the change to the Tax Return requested by the Stockholders’ Representative and rejected by Parent is more consistent with applicable Tax law than the position of the Parent sought to be changed. For the avoidance of doubt, the authority of the Arbitrator shall be limited to the determination of whether the position embodied in the change to the Tax Return requested by the Stockholders’ Representative and rejected by Parent is more consistent with applicable Tax law than the position of the Parent sought to be changed. Arbitration will be conducted by one arbitrator, mutually selected by the Stockholders’ Representative and the Parent; provided, however, that if they fail to mutually select an arbitrator within 15 business days after the contested portion of the indemnification claim is submitted to arbitration, then the arbitrator shall be selected by JAMS in accordance with its Comprehensive Arbitration Rules and Procedures then in effect. The parties agree to use commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration hearing. The final decision of the arbitrator shall constitute a conclusive determination of the issues in question, binding upon the Stockholders Representative and Parent and its Affiliates. If the final decision of the Arbitrator is in favor of Parent, Parent may at its election cause to be filed an amended Tax Return that embodies the position of Parent. Parent shall also cause the Surviving Corporation to make available to the Stockholders’ Representative and its accountants any relevant work papers of the Surviving Corporation and its accountants generated in connection with the preparation of Tax Returns for any Pre-Closing Tax Period and or Straddle Period and shall provide the Stockholders’ Representative and its accountants with access to the records and employees of the Surviving Corporation and its Subsidiaries (and make appropriate personnel available during reasonable business hours) to the extent reasonably necessary to for the Stockholders’ Representative to review and evaluate such Tax Returns.

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(c) Parent and the Acquired Companies may amend any Tax Return filed with respect to any Pre-Closing Tax Period, provided that no Parent Indemnitee shall be entitled to indemnification hereunder arising out of or in connection with the filing of any such amended Tax Return unless the filing of such amendment is required by a Governmental Body as a result of an audit or is clearly required by applicable Legal Requirements.

(d) Any Taxes of the Acquired Companies that (i) are paid by the Acquired Companies on or before the Closing Date, (ii) were accrued as a liability of the Acquired Companies in the computation of the Closing Working Capital Amount or (iii) are paid from the Indemnity Escrow Fund to the Parent Indemnitees under Section 9.2(a) hereof and are either later refunded to an Acquired Company or credited against a Tax liability of an Acquired Company or any of the Acquired Companies’ Affiliates shall, together with any interest paid by the Governmental Body with respect to such refund or credit, promptly be paid over to the Stockholders’ Representative for distribution to the Escrow Participants pro rata in accordance with their respective Aggregate Proceeds Contribution Fractions; provided, however, that in the case of clause (iii) above, Parent shall pay an amount equal to the aggregate amount of such refund, credit and/or interest (x) to the extent of the excess (if any) of (1) the aggregate amount of the Claimed Amounts and Contested Amounts, as the case may be, associated with all remaining Unresolved Escrow Claims as of such date, over (2) the Aggregate Escrow Balance as of such date, back to the Indemnity Escrow Fund, and (y) otherwise to the Stockholders’ Representative for distribution to the Escrow Participants pro rata in accordance with their respective Aggregate Proceeds Contribution Fractions. The payment of any such amount by Parent to the Stockholders’ Representative shall completely discharge Parent’s obligations with respect to such amount, and in no event shall Parent have any responsibility or liability whatsoever for causing or ensuring that all or any portion of such amount is ultimately paid or distributed to Escrow Participants.

(e) Parent or the Acquired Companies shall promptly notify the Stockholders’ Representative in writing upon receipt by any Acquired Company of a written notice of any pending or threatened Tax audits or assessments for which a Parent Indemnitee may have a right to indemnification under Section 9.2 hereof (“Tax Contest Claims”). Parent and the Stockholders’ Representative shall cooperate with each other in the conduct of any Tax Contest Claim. The Stockholders’ Representative shall have the right to control the conduct of any Tax Contest Claim with respect to which Parent Indemnitees would be entitled to indemnity under Section 9.2 hereof; provided that (i) the Stockholders’ Representative shall keep Parent informed regarding the progress and substantive aspects of any Tax Contest Claim, including providing Parent with all written materials relating to such Tax proceeding received from the relevant Governmental Body, (ii) Parent shall be entitled to participate in any Tax Contest Claim at its own expense, including having an opportunity to comment on any written materials prepared in connection with any Tax Contest Claim and to attend any conferences relating to any Tax Contest Claim and (iii) the Stockholders’ Representative shall not compromise or settle any such Tax Contest Claim without obtaining Parent’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. If the Stockholders’ Representative requests in writing the consent of the Parent to a proposed settlement of a Tax Contest Claim embodied in a written settlement offer from the applicable Governmental Body (a “Proposed Settlement”) and Parent withholds or conditions its consent, or delays its consent for more than 15 business days, in each case to such Proposed Settlement, thereafter the Stockholders’ Representative shall no longer be obligated to continue to defend or prosecute its position with respect to the issues in such Tax Contest Claim that are covered by the Proposed Settlement, and the maximum liability for indemnity that may be claimed and recovered by the Parent Indemnitees in respect of any claim for indemnity arising from or as a result of, or are directly or indirectly connected with the issues in such Tax Contest Claim as are proposed to be settled in the Proposed Settlement, shall be limited to the amount required to be paid under the Proposed Settlement.

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(f) Notwithstanding the foregoing, if the amount of Taxes at risk from an adverse determination of the items in dispute in the Tax Contest Claim with respect to the Pre-Closing Period is less than the amount of Taxes at risk from an adverse determination of such items with respect to any Post-Closing Period, then Parent shall have the right to control the conduct of the Tax Contest Claim, provided that (i) Parent shall keep the Stockholders’ Representative informed regarding the progress and substantive aspects of such Tax Contest Claim, including providing the Stockholders’ Representative with all written materials relating to such Tax proceeding received from the relevant Governmental Body, (ii) the Stockholders’ Representative shall be entitled to participate in such Tax Contest Claim at its own expense or the expense of the Escrow Participants, including having an opportunity to comment on any written materials prepared in connection with such Tax Contest Claim and to attend any conferences relating to such Tax Contest Claim and (iii) Parent shall not compromise or settle any Tax Contest Claim without obtaining the Stockholders’ Representative’s consent, which consent shall not be unreasonably withheld, conditioned or delayed.

(g) In addition, the Stockholder Representative shall not have the right to assume the control of any Tax Contest Claim if, at the time the Stockholder Representative assumes control the amount claimed at issue in such Tax Contest Claim, in the aggregate with the amount claimed in other third party claims and direct claims against the Indemnity Escrow Fund under this Section 9, would exceed the limitation of liability set forth in Section 9.3(c).

(h) The Acquired Companies may make (or cause to be made) an election under Section 172(b)(3) of the Code (or any analogous or similar rules in any relevant tax jurisdiction, to the extent permitted by law) to relinquish the entire carryback period with respect to any net operating loss attributable to the Acquired Companies in any Post-Closing Tax Period that could be carried back to a Pre-Closing Tax Period.

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(i) In the event any provision of this Section 9.8 conflicts with another provision in this Section 9, this Section 9.8 shall control.

SECTION 10. MISCELLANEOUS PROVISIONS

10.1 Stockholders’ Representative.

(a) The Escrow Participants (by virtue of the approval of the Merger and the adoption of this Agreement) hereby irrevocably nominate, constitute and appoint TC Group, L.L.C. as the agent and true and lawful attorney-in-fact of the Escrow Participants (the “Stockholders’ Representative”), with full power of substitution, to act in the name, place and stead of the Escrow Participants for purposes of executing any documents and taking any actions that the Stockholders’ Representative may, in its sole discretion, determine to be necessary, desirable or appropriate in all matters relating to or arising out of this Agreement, including in connection with any adjustment to the consideration payable in connection with the Contemplated Transactions pursuant to Sections 1.7 and 1.8 or any claim for indemnification, compensation or reimbursement under Section 9 or under the Escrow Agreement. In that regard, the Stockholders’ Representative shall take any and all actions which it believes are necessary or appropriate under this Agreement for and on behalf of the Stockholders, as fully as if the Stockholders were acting on their own behalf, including executing this Agreement as Stockholders’ Representative and overseeing the Stockholders’ Representative Expense Fund, giving and receiving notices, instructions and communications permitted or required under this Agreement, interpreting this Agreement, authorizing payments to be made with respect hereto or thereto, obtaining reimbursement as provided for herein of all out-of-pocket fees and expenses and other obligations of or incurred by the Stockholders’ Representative in connection with this Agreement, objecting to deliveries, agreeing to, negotiating and entering into settlements and compromises of, demanding arbitration or other legal proceedings and complying with orders of courts and awards of arbitrators, with respect to such claims, engaging counsel or accountants or other representatives in connection with the foregoing matters, and taking all actions necessary or appropriate in the judgment of the Stockholders’ Representative for the accomplishment of the foregoing. TC Group, L.L.C. hereby accepts its appointment as the Stockholders’ Representative.

(b) The Escrow Participants (by virtue of their adoption of this Agreement) grant to the Stockholders’ Representative full authority to execute, deliver, acknowledge, certify and file on behalf of the Escrow Participants (in the name of any or all of the Escrow Participants or otherwise) any and all documents that the Stockholders’ Representative may, in its sole discretion, determine to be necessary, desirable or appropriate, in such forms and containing such provisions as the Stockholders’ Representative may, in its sole discretion, determine to be appropriate, in performing its duties as contemplated by Section 10.1(a). Notwithstanding anything to the contrary contained in this Agreement or in any other Contract executed in connection with the Contemplated Transactions, Parent shall be entitled to deal exclusively with the Stockholders’ Representative on all matters relating to Sections 1.7 and 1.8 and each Parent Indemnitee shall be entitled to deal exclusively with the Stockholders’ Representative on all matters relating to Section 9 and the Escrow Agreement, and Parent and each other Parent Indemnitee shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed on behalf of any Escrow Participant by the Stockholders’ Representative or any individual acting on behalf of the Stockholders’ Representative, and on any other action taken or purported to be taken on behalf of any Escrow Participant by the Stockholders’ Representative or any individual acting on behalf of the Stockholders’ Representative, as fully binding upon such Escrow Participant. The provisions of this Section 10.1 shall be binding upon each Escrow Participant and the executors, heirs, legal representatives and successors of each Escrow Participant, and any references in this Agreement to an Escrow Participant or the Escrow Participants shall mean and include the successors to the Escrow Participants’ rights hereunder, whether pursuant to testamentary disposition, the laws of descent and distribution or otherwise.

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(c) The power of attorney granted in Section 10.1(a): (i) is coupled with an interest and is irrevocable; (ii) may be delegated by the Stockholders’ Representative; and (iii) shall survive the dissolution, death or incapacity of each Escrow Participant.

(d) In dealing with this Agreement and in exercising or failing to exercise all or any of the powers conferred upon the Stockholders’ Representative under this Agreement, (i) the Stockholders’ Representative shall not assume any, and shall incur no, responsibility to any Escrow Participant by reason of any error in judgment or other act or failure to act in connection with this Agreement, except for any act or failure to act which represents willful misconduct or bad faith, and (ii) the Stockholders’ Representative shall be entitled to rely on the advice of counsel, public accountants or other independent experts experienced in the matter at issue, and any error in judgment or other act or failure to act on the part of the Stockholders’ Representative pursuant to such advice shall not subject the Stockholders’ Representative to liability to any Escrow Participant. The Escrow Participants shall jointly and severally indemnify the Stockholders’ Representative and its respective partners, directors, officers, employees, agents and controlling persons and hold each of them harmless against and from any loss, liability or expense (including attorneys fees reasonably incurred or suffered as a result of the performance of its duties under this Agreement) incurred without willful misconduct or bad faith on its part and arising out of or in connection with the acceptance or administration of its duties hereunder. The costs of such indemnification (including the costs and expenses of enforcing this right of indemnification) shall be paid from the Stockholders’ Representative Expense Fund, then from proceeds otherwise subject to release from the Indemnity Escrow Fund to Escrow Participants to the extent the Stockholders’ Representative has submitted an Excess Expense Certificate (as defined in Section 10.1(g)) in accordance with Section 10.1(g) below, and thereafter shall be the responsibility of the Escrow Participants.

(e) Upon 30 days’ prior written notice to Parent, the Stockholders’ Representative shall have the right to resign in its sole discretion for any reason. If the Stockholders’ Representative shall resign or otherwise become unable to fulfill its responsibilities under this Section 10.1 or cease to function in its capacity as Stockholders’ Representative for any reason whatsoever, then Escrow Participants collectively holding greater than a 50% interest in the cash held in the Indemnity Escrow Fund shall, within 30 days thereof, appoint a successor and, promptly thereafter, shall notify Parent and the Escrow Agent of the identity of such successor. In any event, the Stockholders’ Representative shall continue to have all rights to indemnification provided in Section 10.1(d). Any such successor shall become the “Stockholders’ Representative” for purposes of this Agreement, including Sections 1.7, 1.8 and 9 and this Section 10.1. If for any reason there is no Stockholders’ Representative at any time, all references herein to the Stockholders’ Representative shall be deemed to refer to the Escrow Participants.

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(f) All expenses incurred by the Stockholders’ Representative in connection with the performance of its duties as Stockholders’ Representative shall be borne and paid exclusively by the Escrow Participants. The Stockholders’ Representative shall be entitled to withdraw amounts held in the Stockholders’ Representative Expense Fund in reimbursement for out-of-pocket fees and expenses (including legal, accounting and other advisors’ fees and expenses, if applicable) incurred by the Stockholders’ Representative in connection with this Agreement and the transaction contemplated hereby. The Stockholders’ Representative shall be entitled to hold the Stockholders’ Representative Expense Fund until the date that is 90 days after such time as all amounts remaining in the Indemnity Escrow Fund have been distributed pursuant to Section 9.7. Upon any release of funds by the Stockholders’ Representative from the Stockholders’ Representative Expense Fund, (other than to cover expenses of the Stockholders’ Representative as set forth above), the Stockholders’ Representative shall release to each Escrow Participant, with respect to each share of Company Capital Stock held by such Escrow Participant immediately prior to the Effective Time and each share of Company Common Stock subject to an In-the-Money Company Option held by such Escrow Participant immediately prior to the Effective Time, an amount in cash determined by multiplying the Aggregate Proceeds Contribution Fraction with respect to such share of Company Capital Stock or such share of Company Common Stock subject to such In-the-Money Company Option by the amount of funds to be released from the Stockholders’ Representative Expense Fund.

(g) In the event that the Stockholders’ Representative shall expend amounts in excess of the Stockholders’ Representative Expense Fund in accordance with the terms and conditions of this Section 10.1, the Stockholders’ Representative shall be entitled deliver to Parent written notice certifying the amount of such expenses in excess of the Stockholders’ Representative Expense Fund payable by the Stockholders (an “Excess Expenses Certificate”). Following receipt by Parent of an Excess Expenses Certificate, prior to the distribution of any funds to Escrow Participants from the Indemnity Escrow Fund, Parent shall reimburse the amount certified in the Excess Expenses Certificate to the Stockholders’ Representative (up to the amount of funds otherwise to be distributed from the Indemnity Escrow Fund) and shall deduct a corresponding amount from such amount otherwise to be distributed. Parent shall be entitled to rely on the amount set forth in any Excess Expenses Certificate without investigation or liability whatsoever, and the payment of any amount to the Stockholders’ Representative in accordance with this Section 10.1(g) shall completely discharge Parent’s obligations with respect to such amount.

(h) Any action taken by the Stockholders’ Representative pursuant to the authority granted in this Section 10.1 shall be effective and absolutely binding on each Escrow Participant notwithstanding any contrary action of, or direction from, any Escrow Participant.

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10.2 Further Assurances. Each party hereto shall execute and cause to be delivered to each other party hereto such instruments and other documents, and shall take such other actions, as such other party may reasonably request (prior to, at or after the Closing) for the purpose of carrying out or evidencing any of the Contemplated Transactions.

10.3 Fees and Expenses. Except as otherwise provided in this Agreement, each party to this Agreement shall bear and pay all fees, costs and expenses (including legal fees, accounting fees and investment banking fees) that have been incurred or that are incurred by or on behalf of such party in connection with the Contemplated Transactions.

10.4 Notices. Any notice or other communication required or permitted to be delivered to any party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service or by facsimile) to the address or facsimile telephone number set forth beneath the name of such party below (or to such other address or facsimile telephone number as such party shall have specified in a written notice given to the other parties hereto):

if to Parent:

Acquicor Technology Inc.

4910 Birch Street, Suite 102

Irvine, CA 92660

Attention: General Counsel

Facsimile: (949) 266-9020

with a copy to:

Cooley Godward Kronish LLP

101 California Street

San Francisco, CA 94111

Attention: Gian-Michele a Marca

Facsimile: (415) 693-2222

if to the Company:

Jazz Semiconductor, Inc.

4321 Jamboree Rd.

Newport Beach, CA 92660

Attention: General Counsel

Facsimile: (949) 435-8455

with a copy to:

Latham & Watkins LLP

555 Eleventh Street, NW

Suite 1000

Washington, DC 20004-1304

Attention: David Dantzic

Jonn R. Beeson

Facsimile: (202) 637-2201

and the Stockholders’ Representative.

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if to the Stockholders’ Representative:

T.C. Group, L.L.C.

101 South Tryon St.

25th Floor

Charlotte, NC 28280

Attention: Todd R. Newnam

Facsimile: 704-632-0299

with a copy to:

Latham & Watkins LLP

555 Eleventh Street, NW

Suite 1000

Washington, DC 20004-1304

Attention: David Dantzic

Jonn R. Beeson

Facsimile: (202) 637-2201

10.5 Time of the Essence. Time is of the essence of this Agreement.

10.6 Headings. The headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.

10.7 Counterparts and Exchanges by Facsimile Transmission. This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement. The exchange of a fully executed Agreement (in counterparts or otherwise) by facsimile transmission or other electronic transmission shall be sufficient to bind the parties to the terms and conditions of this Agreement.

10.8 Governing Law.

(a) This Agreement shall be construed in accordance with, and governed in all respects by, the internal laws of the State of Delaware (without giving effect to principles of conflicts of laws).

(b) Except as otherwise provided in Sections 1.7 and 9.7 or in the Escrow Agreement, any action, suit or proceeding relating to this Agreement or the enforcement of any provision of this Agreement may be brought or otherwise commenced only in any state or federal court located in the State of California. Each party to this Agreement: (i) irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the state and federal courts located in the State of California; (ii) agrees that each state and federal court located in the State of California shall be deemed to be a convenient forum; (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such action, suit or proceeding commenced in any state or federal court located in the State of California, any claim that such party is not subject personally to the jurisdiction of such court, that such action, suit or proceeding has been brought in an inconvenient forum, that the venue of such proceeding is improper or that this Agreement or the subject matter of this Agreement may not be enforced in or by such court; and (iv) waives such party’s right to trial by jury.

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10.9 Successors and Assigns. This Agreement shall be binding upon: the Company and its successors and assigns (if any); Parent and its successors and assigns (if any); Merger Sub and its successors and assigns (if any); and the Stockholders’ Representative and its successors and assigns (if any). This Agreement shall inure to the benefit of: the Company; Parent; Merger Sub; the other Indemnitees; the Stockholders’ Representative; and the respective successors and assigns (if any) of the foregoing. Except as otherwise provided in this Agreement, neither the Company nor any Company Indemnitee shall, without the prior written consent of Parent, assign or delegate any or all of its or his rights or obligations under this Agreement (including indemnification rights and obligations under Section 9), in whole or in part, to any other Person, and any attempted assignment or delegation without such prior written consent shall be void and of no force or effect.

10.10 Remedies Cumulative; Specific Performance. The rights and remedies of the parties hereto shall be cumulative (and not alternative). The parties to this Agreement agree that, in the event of any breach or threatened breach by any party to this Agreement of any covenant, obligation or other provision set forth in this Agreement for the benefit of any other party to this Agreement, such other party shall be entitled (in addition to any other remedy that may be available to it) to (a) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, and (b) an injunction restraining such breach or threatened breach. The parties agree that neither Parent nor any other Indemnitee shall be required to provide any bond or other security in connection with any such decree, order or injunction or in connection with any related Legal Proceeding.

10.11 Waiver.

(a) No failure on the part of any Person to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Person in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.

(b) No Person shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

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10.12 Amendments. This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of all of the parties hereto; provided, however, that (a) any such amendment, modification, alteration or supplement adopted or entered into prior to the Effective Time must be duly authorized by the respective boards of directors of each of the Company and Merger Sub, and (b) unless any required approval of the stockholders of the Company is obtained, no amendment, modification, alteration or supplement shall (i) alter or change the amount or kind of consideration to be received in exchange for or on conversion of all or any shares of any class of Company Capital Stock or any shares of Merger Sub, (ii) alter or change any term of the certificate of incorporation of the Surviving Corporation to be effected by the Merger, or (iii) alter or change any of the terms and conditions of this Agreement if such alteration or change would adversely affect the holders of shares of any class of Company Capital Stock or the holder of shares of Merger Sub.

10.13 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the parties hereto agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term or provision.

10.14 Parties in Interest. Except to the extent expressly set forth in Sections 5.14 and 9, none of the provisions of this Agreement is intended to provide any rights or remedies to any Person other than the parties hereto and their respective successors and assigns (if any).

10.15 Entire Agreement. This Agreement and the other agreements referred to herein set forth the entire understanding of the parties hereto relating to the subject matter hereof and thereof and supersede all prior agreements and understandings among or between any of the parties relating to the subject matter hereof and thereof.

10.16 Construction.

(a) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders.

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(b) The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

(c) As used in this Agreement and in Exhibit A and the Schedules to this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”

(d) For purposes of this Agreement, e-mail and other forms of electronic communications shall be deemed to be written communications. An e-mail or other electronic communication shall be deemed to have been provided to and received by an Acquired Company if an officer or other employee of such Acquired Company who has or had any authority or responsibility relating to the subject matter of such communication shall have received such communication or a copy thereof (whether directly from the sender or otherwise).

(e) Except as otherwise indicated, (i) all references in this Agreement to “Sections,” “Exhibits” and “Schedules” are intended to refer to Sections of this Agreement and Exhibits and Schedules to this Agreement, and (ii) all references in this Agreement to dollar amounts are intended to refer to U.S. dollars.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first set forth above.


	ACQUICOR TECHNOLOGY INC., a Delaware corporation

	By:	/s/ Gilbert F. Amelio
	Name:	Gilbert F. Amelio
	Title:	Chairman and CEO


	JOY ACQUISITION CORP., a Delaware corporation

	By:	/s/ Gilbert F. Amelio
	Name:	Gilbert F. Amelio
	Title:	Chairman and CEO


	JAZZ SEMICONDUCTOR, INC., a Delaware corporation

	By:	/s/ Shu Li
	Name:	Shu Li
	Title:	CEO


	TC GROUP, L.L.C., as the Stockholders’ Representative

	By:	TCG Holdings, L.L.C., its Managing Member

	By:	/s/ Claudius E. Watts II
	Name:	Claudius E. Watts II
	Title:	Managing Director

Annex A of the Merger Agreement

CERTAIN DEFINITIONS

For purposes of the Agreement (including this Exhibit A and the Disclosure Schedule):

Acquired Company Affiliate. “Acquired Company Affiliate” shall mean any Person under common control with an Acquired Company within the meaning of Sections 414(b), 414(c), 414(m) and 414(o) of the Code, and the regulations thereunder.

Acquired Company Contract. “Acquired Company Contract” shall mean any Contract (a) to which an Acquired Company is a party; (b) by which an Acquired Company or any of its assets is or may become bound or under which an Acquired Company has, or may become subject to, any obligation; or (c) under which an Acquired Company has any right.

Acquired Company Employee. “Acquired Company Employee” shall mean any current or former employee, consultant, independent contractor or director of an Acquired Company or an Acquired Company Affiliate.

Acquired Company Employee Agreement. “Acquired Company Employee Agreement” shall mean any management, employment, severance, change in control, transaction bonus, consulting, relocation, repatriation or expatriation agreement or other Acquired Company Contract between an Acquired Company and any Acquired Company Employee, other than any such Contract that is terminable “at will” and that does not obligate an Acquired Company to make any payment or provide any benefit in connection with the termination of such Contract, other than as already required by law.

Acquired Company Employee Plan. “Acquired Company Employee Plan” shall mean any plan, program, policy, practice or Contract providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other benefits or remuneration of any kind, whether written or unwritten, and whether funded or unfunded, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA (whether or not ERISA is applicable to such plan), that is or has been maintained, contributed to or required to be contributed to by an Acquired Company for the benefit of any Acquired Company Employee, and with respect to which an Acquired Company has or may have any liability or obligation; provided, however, than an Acquired Company Employee Agreement shall not be considered an “Acquired Company Employee Plan.”

Acquired Company IP. “Acquired Company IP” shall mean (a) all Acquired Company Software; (b) all Acquired Company Process Technology; and (c) all other Intellectual Property Rights and Intellectual Property that is related to the business of the Acquired Companies and in which an Acquired Company has (or purports to have) an ownership interest.

Acquired Company Pension Plan. “Acquired Company Pension Plan” shall mean any (a) Acquired Company Employee Plan that is an “employee pension benefit plan,” within the meaning of Section 3(2) of ERISA, or (b) other occupational pension plan, including any final salary or money purchase plan.

Acquired Company Process Technology. “Acquired Company Process Technology” shall mean any Intellectual Property and Intellectual Property Rights that both (a) are owned (or purported to be owned) by an Acquired Company or under development by an Acquired Company (the results of which development will be owned exclusively by an Acquired Company); and (b) relate to Process Technology.

Acquired Company Software. “Acquired Company Software” shall mean (a) software components of design kits owned or purported to be owned by any Acquired Company and used in connection with Acquired Company Process Technology and (b) any software (including software development tools and firmware and other software embedded in hardware devices, and all updates, upgrades, releases, enhancements and bug fixes) owned or currently being developed by or on behalf of any Acquired Company (the results of which development will be owned exclusively by an Acquired Company), including all modules and components of such software and all prior versions and releases of such software.

Acquired Companies. “Acquired Companies” shall mean (i) the Company and (ii) each Subsidiary of the Company.

Acquisition Transaction. “Acquisition Transaction” shall mean any merger, combination, acquisition, disposition or other transaction involving any Acquired Company or any securities or assets of an Acquired Company that would reasonably be expected to result in: (i) a person, entity or group acquiring 1% or more of any class of the capital stock of an Acquired Company; (ii) any sale, license, disposition or acquisition of all or a substantial portion of the business or assets of any Acquired Company; or (iii) the issuance or disposition of 1% or more of any class of capital stock of an Acquired Company.

Agreement. “Agreement” shall mean the Agreement and Plan of Merger to which this Exhibit A is attached (including the Disclosure Schedule), as it may be amended from time to time.

Ancillary Agreements. “Ancillary Agreements” shall mean the Stockholder Support Agreement, the General Releases, the Noncompetition Agreements, the Lease Amendment Agreements and the Termination Agreement.

Class A Common Stock. “Class A Common Stock” shall mean the Class A Common Stock, par value $0.001 per share, of the Company.

Class B Common Stock. “Class B Common Stock” shall mean the Class B Common Stock, par value $0.001 per share, of the Company.

COBRA. “COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

Company Capital Stock. “Company Capital Stock” shall mean the Company Common Stock and the Company Preferred Stock.

Company Common Stock. “Company Common Stock” shall mean the Class A Common Stock and the Class B Common Stock.

Company Indemnitees. “Company Indemnitees” shall mean the Stockholders and their respective successors and assigns.

Company Option. “Company Option” shall mean an option to acquire shares of Company Common Stock from the Company, whether vested or unvested.

Company Option Plan. “Company Option Plan” shall mean the Company’s 2002 Amended and Restated Equity Incentive Plan.

Company Preferred Stock. “Company Preferred Stock” shall mean the Series A Preferred Stock and the Series B Preferred Stock.

Company Retention Bonus Escrow Fund. “Company Retention Bonus Escrow Fund” shall mean the escrow fund established pursuant to the Escrow Agreement for purposes of securing the Company’s obligation to make payments following the Closing under the Company Retention Bonus Plan.

Company Retention Bonus Plan. “Company Retention Bonus Plan” shall mean the Jazz Semiconductor, Inc. Retention Bonus Plan in the form attached hereto as Exhibit F.

Company Special Retention Bonus Plan. “Company Special Retention Bonus Plan” shall mean the Jazz Semiconductor, Inc. Special Retention Bonus Plan in the form attached hereto as Exhibit G.

Company Stay Bonus Agreement. “Company Stay Bonus Agreement” shall mean each agreement between the Company and a key employee of the Company set forth in Part 2.15(h) of the Disclosure Schedule and identified therein as a Company Stay Bonus Agreement.

Company Stock Appreciation Rights Plan. “Company Stock Appreciation Rights Plan” shall mean the Company’s Stock Appreciation Rights Plan adopted and effective March 12, 2002 and amended by Amendment No. 1 thereto effective November 5, 2004.

Conexant. “Conexant” shall mean Conexant Systems, Inc., a Delaware corporation.

Consent. “Consent” shall mean any approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization).

Contemplated Transactions. “Contemplated Transactions” shall mean the transactions and other matters contemplated by the Agreement, including the Merger, the adoption of the Certificate Amendment, the solicitation and obtaining of Written Consents and the solicitation and obtaining of the Required Parent Merger Stockholder Vote.

Contract. “Contract” shall mean any written, oral or other agreement, contract, subcontract, lease, understanding, instrument, note, certificate, warranty, proxy, insurance policy, benefit plan or legally binding commitment, arrangement or undertaking of any nature.

Damages. “Damages” shall include any loss, damage (including consequential and indirect damages), injury, liability, claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including reasonable attorneys’ fees), charge, out-of-pocket cost (including reasonable costs of investigation) or expense of any nature. Notwithstanding anything herein to the contrary, (i) in no event shall “Damages” include any punitive or special damages (except to the extent that a third party is entitled to receive punitive or special damages against a Parent Indemnitee), (ii) in no event shall “Damages” include any Damages resulting solely from the voluntary initiation by Parent or the Surviving Corporation or their Affiliates, following the Closing, of any investigation of environmental conditions at the Facilities that involves physically invasive testing procedures such as soil and groundwater sampling (except to the extent that Parent or the Surviving Corporation (a) was required to do so by a Legal Requirement, (b) was requested to do so by any Governmental Body, (c) conducted such testing for purposes of assessing air quality or (d) had a good faith belief, based in whole or in significant part on the discovery of facts ascertained following the date of this Agreement, including any change of Legal Requirements or standards, information from adjoining property owners or other third parties or investigations or reviews of Governmental Bodies, that such investigation was necessary or appropriate, in which event Parent shall promptly notify the Stockholders’ Representative and permit the Stockholders’ Representative or its Representative a reasonable opportunity to (x) inspect such condition prior to testing, (y) meet with the environmental consultant retained to conduct such testing prior to such testing and (z) observe such testing), (iii) in no event shall “Damages” be calculated based upon any multiple of lost earnings or other similar methodology used to value the equity of the Acquired Companies based on the financial performance or results of operations of the Acquired Companies, provided that nothing in this Agreement shall prevent an Indemnitee from seeking to recover or recovering Damages pursuant to Section 9 based on the net present value of the effect on the future cash flows of the Surviving Corporation or any of the Acquired Companies of any matters with respect to which any indemnification is otherwise available pursuant to Section 9; and (iv) in no event shall Damages include the reduction of any Tax attribute or Tax asset as a result of it being applied against Taxes for any Pre-Closing Tax Period (or portion thereof) the Tax Return with respect to which is not yet due to be filed (giving effect to any extensions) as of the date hereof.

Designated Date. “Designated Date” shall mean the date that is 18 months after the Closing Date.

Disclosure Schedule. “Disclosure Schedule” shall mean the schedule (dated as of the date of the Agreement) delivered to Parent on behalf of the Company.

DOL. “DOL” shall mean the United States Department of Labor.

El Capitan Facility. “El Capitan Facility” shall mean that certain property leased by the Company pursuant to El Capitan Lease Agreement between the Company and Conexant dated March 12, 2002.

Encumbrance. “Encumbrance” shall mean any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, option, right of first refusal, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).

Entity. “Entity” shall mean any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), branch office, firm or other enterprise, association, organization or entity.

Environment. “Environment” shall mean any soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource.

Environmental, Health, and Safety Liabilities. “Environmental, Health, and Safety Liabilities” shall mean any cost, damages, expense, liability, obligation, or other responsibility arising from or under Environmental Law or Occupational Safety and Health Law.

Environmental Law. “Environmental Law” shall mean any Legal Requirement relating to the protection of human health and safety, natural resources or the environment, including related to pollution, contamination, cleanup, preservation, protection, and reclamation of the Environment; and (ii) any Release or Threatened Release of any hazardous materials, including investigation, monitoring, clean up, removal, treatment, or any other action to address such Release or Threatened Release.

ERISA. “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

Escrow Agent. “Escrow Agent” shall mean Citibank, N.A. or U.S Bank National Association or another escrow agent reasonably acceptable to Parent and Stockholders’ Representative.

Escrow Agreement. “Escrow Agreement” shall mean the escrow agreement to be entered into among Parent, the Stockholders’ Representative and the Escrow Agent on the Closing Date, substantially in the form of Exhibit E to the Agreement.

Escrow Participant. “Escrow Participant” shall mean each Non-Dissenting Stockholder and each holder of an In-the-Money Company Option that is unexercised and outstanding immediately prior to the Effective Time.

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

Facilities. “Facilities” shall mean any real property or interest in real property that is being used or has been used by the Company and all buildings, structures or other improvements thereon.

Foreign Plan. “Foreign Plan” shall mean: (a) any Acquired Company Employee Plan or Acquired Company Employee Agreement mandated by a Governmental Body outside the United States; (b) any Acquired Company Employee Plan that is subject to any of the Legal Requirements of any jurisdiction outside the United States; and (c) any Acquired Company Employee Plan that covers or has covered any Acquired Company Employee while such employee is or was performing services outside of the United States; provided, however, that a “Foreign Plan” shall not include an Acquired Company Employee Plan sponsored by any Governmental Body.

GAAP. “GAAP” shall mean generally accepted accounting principles in the United States.

Governmental Authorization. “Governmental Authorization” shall mean any: (a) permit, license, certificate, franchise, permission, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or (b) right under any Acquired Company Contract with any Governmental Body.

Governmental Body. “Governmental Body” shall mean any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or Entity, and any court or other tribunal).

Government Bid. “Government Bid” shall mean any quotation, bid or proposal submitted to any Governmental Body or any proposed prime contractor or higher-tier subcontractor of any Governmental Body.

Government Contract. “Government Contract” shall mean any prime contract, subcontract, letter contract, purchase order or delivery order executed or submitted to or on behalf of any Governmental Body or any prime contractor or higher-tier subcontractor, or under which any Governmental Body or any such prime contractor or subcontractor otherwise has or may acquire any right or interest.

HSR Act. “HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Indemnitor. “Indemnitor” shall mean: (a) in the case of an indemnification claim made by a Parent Indemnitee, the Stockholders’ Representative; and (b) in the case of an indemnification claim made by a Company Indemnitee, Parent.

Indemnitees. “Indemnitees” shall mean the Parent Indemnitees and the Company Indemnitees.

Indemnity Escrow Fund. “Indemnity Escrow Fund” shall mean the escrow fund established pursuant to the Escrow Agreement primarily for purposes of securing Parent’s indemnification rights pursuant to Section 9 of the Agreement.

Intellectual Property. “Intellectual Property” shall mean algorithms, APIs, apparatus, databases, data collections, development tools, diagrams, formulae, inventions (whether or not patentable), know-how, logos, marks (including brand names, product names, logos and slogans), mask works, methods, network configurations and architectures, processes, proprietary information, protocols, schematics, semiconductor devices, specifications, software, software code (in any form, including source code and executable or object code), subroutines, techniques, user interfaces, URLs, web sites, works of authorship and other forms of technology (whether or not embodied in any tangible form and including all tangible embodiments of the foregoing, such as instruction manuals, laboratory notebooks, prototypes, samples, studies and summaries).

Intellectual Property Rights. “Intellectual Property Rights” shall mean all past, present, and future rights of the following types, which may exist or be created under the laws of any jurisdiction in the world: (a) rights associated with works of authorship, including exclusive exploitation rights, copyrights, moral rights and mask works; (b) trademark and trade name rights and similar rights; (c) trade secret rights; (d) patent and industrial property rights; (e) other proprietary rights in Intellectual Property; and (f) rights in or relating to registrations, renewals, extensions, combinations, divisions and reissues of, and applications for, any of the rights referred to in clauses “(a)” through “(f)” above.

In-the-Money Company Option. “In-the-Money Company Option” shall mean a Company Option having a per share exercise price equal to or greater than the Common Residual Per Share Amount (it being understood that whether a Company Option is an In-the-Money Company Option shall be determined on an iterative basis by initially calculating the Common Residual Per Share Amount without taking account of outstanding Company Options, recalculating the Common Residual Per Share Amount taking into account the outstanding Company Options with a per share exercise price that is less than the initially calculated Common Residual Per Share Amount and then repeating this process until no additional Company Options become In-the-Money Company Options as a result of such calculation).

IRS. “IRS” shall mean the United States Internal Revenue Service.

Key Stockholders. “Key Stockholders” shall mean Carlyle Partners III, LP, Carlyle High Yield Partners, LP, CP III Coinvestment, LP, Conexant and RF Micro Devices, Inc.

Knowledge of the Company. “Knowledge of the Company” shall mean the actual knowledge of any of the following individuals: Shu Li; Brent Jensen; Harsha Tank; Carolyn Follis; Theodore Zhu; Marco Racanelli; Dan Lynch; Nabil Alali; Jeff McHenry; Bala Govender; and Andrew Chan.

Knowledge of Parent. “Knowledge of Parent” shall mean, following the Effective Time, the actual knowledge of any of the following individuals as long as they remain employed by Parent or its Subsidiaries or their respective successors: Paul Pittman, Allen Grogan, Shu Li; Brent Jensen; Harsha Tank; and Carolyn Follis.

Lease Agreement. “Lease Agreement” shall mean any real property lease, sublease, license, occupancy agreement or other contractual obligation that grants the right of use or occupancy of any of the real property leased to any of the Acquired Companies.

Legal Proceeding. “Legal Proceeding” shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel.

Leased Properties. “Leased Properties” shall mean any real property subject to a leasehold interest of the Acquired Companies.

Legal Requirement. “Legal Requirement” shall mean any federal, state, local, municipal, foreign or other ordinance, regulation, law, statute, constitution or principal of common law, and any enforceable judicial interpretation thereof, including any resolution, code, edict, decree, rule, order, award, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Body.

Material Adverse Effect. “Material Adverse Effect” shall mean any change, event, effect, claim, circumstance or matter that (considered together with all other changes, effects, claims, circumstances or matters) has materially and adversely affected, or would reasonably be expected to materially and adversely affect: (a) the business, financial condition, properties, assets, liabilities or results of operations of the Company and its Subsidiaries taken as a whole; or (b) Parent’s right to own, or to receive dividends or other distributions with respect to, the stock of the Surviving Corporation; provided, however, that none of the following, in and of itself, either individually or in the aggregate, shall be deemed to constitute a Material Adverse Effect: (i) any change or event attributable to conditions generally affecting the semiconductor wafer fabrication or semiconductor design industries in which the Company participates, provided that such change or event does not have a materially disproportionate impact on the Company and its Subsidiaries, taken as a whole; (ii) any change or event attributable to conditions generally affecting the general economy as a whole, provided that such change or event does not have a materially disproportionate impact on the Company and its Subsidiaries, taken as a whole; (iii) the failure of the Company to meet projections of earnings, revenues or other financial measures; (iv) the announcement of the Agreement and the pendency of the Contemplated Transactions, including any impact thereof on relationships, contractual or otherwise, with customers, suppliers, distributors, consultants or employees; or (v) the taking by the Company of any action required to be taken by the Company by the Agreement (other than actions contemplated by Section 4.2).

Non-Dissenting Stockholder. “Non-Dissenting Stockholder” shall mean each Stockholder that does not perfect his or its appraisal rights under the DGCL and is otherwise entitled to receive the applicable consideration for such Stockholders shares of Company Capital Stock pursuant to Section 1.5 of the Agreement.

Occupational Safety and Health Law. “Occupational Safety and Health Law” shall mean any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards.

Order. “Order” shall mean any order, writ, injunction, judgment or decree.

Parent Indemnitees. “Parent Indemnitees” shall mean the following Persons: (a) Parent; (b) Parent’s current and future Subsidiaries (including the Surviving Corporation); (c) the respective directors, officers, employees and other agents of the Persons referred to in clauses “(a)” and “(b)” above; and (d) the respective successors and assigns of the Persons referred to in clauses “(a)”, “(b)” and “(c)” above; provided, however, that the Stockholders shall not be deemed to be Parent Indemnitees.

Permitted Encumbrance. “Permitted Encumbrance” means (i) mechanics, materialmen’s and warehousemen liens and similar Encumbrances with respect to any amounts not yet due and payable or which are being contested in good faith through appropriate proceedings, (ii) Encumbrances for Taxes, assessments or similar charges not yet due and payable or which are being contested in good faith through appropriate proceedings and for which adequate reserves have been made to the extent required by GAAP, (iii) Encumbrances to secure the payment of workers’ compensation, employment insurance or other social security obligations of the Acquired Companies in the ordinary course of business, (iv) Encumbrances on goods in transit incurred pursuant to documentary letters of credit, (v) Encumbrances securing rental payments under capital lease agreements, (vi) Encumbrances arising in favor of the United States Government as a result of progress payment clauses contained in any Government Contract, (vii) easements, covenants, rights of way, restrictions, encroachments and other minor defects or irregularities in title, in each case that do not and will not interfere in any material respect with the uses of the real property to which they apply, and (viii) Encumbrances created by the Loan and Security Agreement with Wachovia Capital Finance Corporation (Western), (ix) restrictions on transfer imposed by securities laws or other Legal Requirements and (x) other Encumbrances arising in the ordinary course of business and that do not (in any case or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the use of such assets by the Acquired Companies, other than Intellectual Property licenses or covenants-not-to-sue granted in, to, or under any Acquired Company IP.

Person. “Person” shall mean any individual, Entity or Governmental Body.

Process Technology. “Process Technology” shall mean (i) process steps used in the fabrication of wafers, including process technologies for digital CMOS, standard analog CMOS, advanced analog CMOS, RF CMOS, high-voltage CMOS, bipolar CMOS, silicon-germanium bipolar CMOS, and bipolar CMOS double-diffused metal oxide semiconductor; or (ii) any improvement to, or new design of, manufacturing tools used to fabricate wafers; or (iii) any layout optimization carried out to enhance yield and performance by design-for-manufacturing rules, optical proximity correction, and other techniques.

Proxy Statement. “Proxy Statement” shall mean the proxy statement to be sent to Parent’s stockholders in connection with the Parent Stockholders’ Meeting.

Registered IP. “Registered IP” shall mean all Intellectual Property Rights that are registered, filed or issued under the authority of, with or by any Governmental Body, including all patents, registered copyrights, registered mask works and registered trademarks and all applications for any of the foregoing.

Release. “Release” shall mean any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment, whether intentional or unintentional.

Required Parent Merger Stockholder Vote. “Required Parent Merger Stockholder Vote” shall mean (i) an affirmative vote by a majority of the shares of Parent’s common stock issued in connection with Parent’s initial public offering consummated on March 17, 2006 (such common stock, “Parent IPO Shares”) voted at a duly convened meeting to approve the Merger, and (ii) holders of less than 20% in interest of the Parent IPO Shares both vote against the Merger and demand that Parent convert such shares into cash.

Representatives. “Representatives” shall mean officers, directors, employees, partners, agents, attorneys, accountants, advisors and representatives.

SEC. “SEC” shall mean the United States Securities and Exchange Commission.

Securities Act. “Securities Act” shall mean the Securities Act of 1933, as amended.

Series A Preferred Stock. “Series A Preferred Stock” shall mean the Series A Preferred Stock, par value $0.001 per share, of the Company.

Series B Preferred Stock. “Series B Preferred Stock” shall mean the Series B Preferred Stock, par value $0.001 per share, of the Company.

Stock Appreciation Rights. “Stock Appreciation Rights” shall mean the rights issued under the Company Stock Appreciation Rights Plan.

Stockholders’ Representative Expense Fund. “Stockholders’ Representative Expense Fund” shall mean the escrow fund established pursuant to the Escrow Agreement for purposes of funding the activities of the Stockholders’ Representative hereunder.

Subsidiary. An Entity shall be deemed to be a “Subsidiary” of another Person if such Person directly or indirectly owns or purports to own, beneficially or of record: (a) an amount of voting securities of other interests in such Entity that is sufficient to enable such Person to elect at least a majority of the members of such Entity’s board of directors or other governing body; or (b) at least 50% of the outstanding equity or financial interests of such Entity.

Tax. “Tax” shall mean any federal, state, local, foreign or other tax (including any income tax, franchise tax, capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including any customs duty), deficiency or fee, and any related charge or amount (including any fine, penalty or interest), imposed, assessed or collected by or under the authority of any Governmental Body.

Tax Return. “Tax Return” shall mean any return (including any information return), report, statement, declaration, estimate, schedule, notice, notification, form, election, certificate or other document or information, and any amendment to any of the foregoing, filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.

Threat of Release. “Threat of Release” shall mean a substantial likelihood of a Release that may require action in order to prevent or mitigate damage to the Environment that may result from such Release.

Transaction Expense. “Transaction Expense” shall mean any out-of-pocket fee, cost, expense, payment, expenditure or liability paid or payable by any Acquired Company (including legal fees and expenses, accounting fees and expenses and financial advisory fees and expenses, but excluding employee salaries and amounts paid to independent contractors hired by an Acquired Company to perform services similar to those regularly performed by employees of the Acquired Companies) whether incurred prior to the date of the Agreement, during the Pre-Closing Period or at or after the Effective Time, that relates to: (a) the participation in or response to the investigation, review and inquiry conducted by Parent and its Representatives with respect to the business of the Acquired Companies (and the furnishing of information to Parent and its Representatives in connection with such investigation and review); (b) the negotiation, preparation, drafting, review, execution, delivery or performance of the Agreement (including the Disclosure Schedule) or any certificate, opinion, Contract or other instrument or document delivered or to be delivered in connection with any of the Contemplated Transactions; (c) the preparation and submission of any filing or notice, including the Proxy Statement, required to be made or given in connection with any of the Contemplated Transactions, or the obtaining of any Consent required to be obtained in connection with any of the Contemplated Transactions; (d) the consummation of the Merger or any of the other Contemplated Transactions; or (e) the possible initial public offering of securities of the Company, including the preparation, drafting and filing of the Company’s Registration Statement on Form S-1 and any amendments thereto; provided, however, that: (i) any out-of-pocket fees and expenses (other than the fees and expenses of counsel) incurred by the Company or its stockholders solely in connection with Parent’s preparation of the Proxy Statement shall not constitute Transaction Expenses; (ii) if an opinion of the Company’s outside counsel is requested by Parent solely for purposes of preparing the Proxy Statement, the fees and expenses of counsel incurred to prepare such opinion would not constitute a Transaction Expense; and (iii) in no event will amounts paid to an Acquired Company’s independent accountant in connection with the audit of its annual financial statements or review of its quarterly financial statements, in each case that has taken place in the ordinary course of business consistent with past practice, constitute Transaction Expenses. Without limiting the generality of the foregoing, “Transaction Expenses” shall include any fees that are payable or may become payable by any Acquired Company in connection with the Contemplated Transactions for services that were performed at or prior to the Effective Time, even if the invoice for such fees is not issued until after the Effective Time.

Working Capital Adjustment Escrow Fund. “Working Capital Adjustment Escrow Fund” shall mean the escrow fund established pursuant to the Escrow Agreement for purposes of the purchase price adjustment, if any, to be determined pursuant to Section 0 of the Agreement.

Acquicor Technology, Inc.

2006 Equity Incentive Plan

Approved By Board on: [October 11], 2006

Approved By Stockholders: _______, 2006

Termination Date: [October 10] , 2016

1. General.

(a) Eligible Award Recipients. The persons eligible to receive Awards are Employees, Directors and Consultants.

(b) Available Awards. The Plan provides for the grant of the following Awards: (i) Incentive Stock Options, (ii) Nonstatutory 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.

(c) General Purpose. The Company, by means of the Plan, seeks to secure and retain the services of the group of persons eligible to receive Awards as set forth in Section 1(a), to provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate and to provide a means by which such eligible recipients may be given an opportunity to benefit from increases in value of the Common Stock through the granting of Stock Awards.

2. Definitions. As used in the Plan, the definitions contained in this Section 2 shall apply to the capitalized terms indicated below:

(a) “Affiliate” means, at the time of determination, any “parent” or “subsidiary” of the Company as such terms are defined in Rule 405 of the Securities Act. The Board shall have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the foregoing definition.

(b) “Award” means a Stock Award or a Performance Cash Award.

(d) “Capitalization Adjustment” means any change that is made in, or other events that occur with respect to, the Common Stock subject to the Plan or subject to any Stock Award after the Effective Date without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company. Notwithstanding the foregoing, the conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company.

(e) “Cause” means with respect to a Participant, the occurrence of any of the following events: (i) such Participant’s commission of, or pleading nolo contendere to, any felony or any crime involving fraud, dishonesty or moral turpitude under any applicable federal, state, local or foreign laws; (ii) such Participant’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) such Participant’s material violation of any contract or agreement between the Participant and the Company or material breach of any statutory duty owed to the Company; (iv) such Participant’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; (v) such Participant’s gross misconduct (including but not limited to Participant’s unlawful use (including being under the influence) or possession of illegal drugs on the Company’s premises or while performing the Participant’s duties and responsibilities); or (vi) such Participant’s failure to substantially perform the Participant’s duties (including following the lawful and reasonable directives of the Participant’s superiors) which is not remedied within 30 days after receipt of written notice from the Company specifying such failure. The determination that a termination of the Participant’s Continuous Service is either for Cause or without Cause shall be made by the Company in its sole discretion. Any determination by the Company that the Continuous Service of a Participant was terminated by reason of dismissal without Cause for the purposes of outstanding Awards held by such Participant shall have no effect upon any determination of the rights or obligations of the Company or such Participant for any other purpose. Notwithstanding the foregoing or any other provision of this Plan, the definition of Cause (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant shall supersede the foregoing definition with respect to Awards subject to such agreement; provided, however, that if no definition of Cause or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply.

(f) “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of securities or (B) solely because the level of Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;

(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;

(iii) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or

(iv) individuals who, on the date this Plan is adopted by the Board, are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the members of the Board; (provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of this Plan, be considered as a member of the Incumbent Board).

The term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant shall supersede the foregoing definition with respect to Awards subject to such agreement; provided, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply.

(g) “Code” means the Internal Revenue Code of 1986, as amended.

(h) “Committee” means a committee of one or more Directors to whom authority has been delegated by the Board in accordance with Section 3(c).

(i) “Common Stock” means the common stock of the Company.

(j) “Company” means Acquicor Technology, Inc., a Delaware corporation.

(k) “Consultant” means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, shall not cause a Director to be considered a “Consultant” for purposes of the Plan.

(l) “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service with the Company or an Affiliate, shall not terminate a Participant’s Continuous Service. For example, a change in status from an employee of the Company to a consultant to an Affiliate or to a Director shall not constitute an interruption of Continuous Service. To the extent permitted by law, the Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by the Company or its Affiliate, including sick leave, military leave or any other personal leave. Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for purposes of vesting in a Stock Award only to such extent as may be provided in the Company’s leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by law.

(m) “Corporate Transaction” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i) a sale or other disposition of all or substantially all, as determined by the Board in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;

(ii) a sale or other disposition of at least ninety percent (90%) of the outstanding securities of the Company;

(iii) the consummation of a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or

(iv) the consummation of a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.

(n) “Covered Employee” shall have the meaning provided in Section 162(m)(3) of the Code and the regulations promulgated thereunder.

(o) “Director” means a member of the Board.

(p) “Disability” means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, as provided in Section 22(e)(3) and 409A(a)(2)(c)(i) of the Code.

(q) “Effective Date” means the effective date of this Plan document, which is the later of (a) the date the Plan was adopted by the Board, (b) the date the Plan was approved by the stockholders of the Company, and (c) the effective date of the acquisition of Jazz Semiconductor, Inc. (“Jazz”) by the Company pursuant to the Agreement and Plan of Merger, dated as of September 26, 2006 by and among the Company, Jazz, Joy Acquisition Corp., and TC Group, L.L.C.

(r) “Employee” means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, shall not cause a Director to be considered an “Employee” for purposes of the Plan.

(s) “Entity” means a corporation, partnership, limited liability company or other entity.

(t) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(u) “Exchange Act Person” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” shall not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company; or (v) any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date of the Plan as set forth in Section 12, is the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities.

(v) “Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or traded on any established market, the Fair Market Value of a share of Common Stock, unless otherwise determined by the Board, shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. Unless otherwise provided by the Board, if there is no closing sales price (or closing bid if no sales were reported) for the Common Stock on the date of determination, then the Fair Market Value shall be the closing selling price (or closing bid if no sales were reported) on the last preceding date for which such quotation exists.

(ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined by the Board in good faith.

(w) “Incentive Stock Option” means an option granted pursuant to Section 6 of the Plan that is intended to be, and qualifies as, an “incentive stock option” within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(x) “Non-Employee Director” means a Director who either (i) is not a current employee or officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

(y) “Nonstatutory Stock Option” means any option granted pursuant to Section 6 of the Plan that does not qualify as an Incentive Stock Option.

(z) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(aa) “Option” means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to the Plan.

(bb) “Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.

(cc) “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if permitted under the terms of this Plan, such other person who holds an outstanding Option.

(dd) “Other Stock Award” means an award based in whole or in part by reference to the Common Stock which is granted pursuant to the terms and conditions of Section 7(e).

(ee) “Other Stock Award Agreement” means a written agreement between the Company and a holder of an Other Stock Award evidencing the terms and conditions of an Other Stock Award grant. Each Other Stock Award Agreement shall be subject to the terms and conditions of the Plan.

(ff) “Outside Director” means a Director who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or an “affiliated corporation,” and does not receive remuneration from the Company or an “affiliated corporation,” either directly or indirectly, in any capacity other than as a Director, or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.

(gg) “Own,” “Owned,” “Owner,” “Ownership” A person or Entity shall be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.

(hh) “Participant” means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.

(ii) “Performance Cash Award” means an award of cash granted pursuant to the terms and conditions of Section 7(d)(ii).

(jj) “Performance Criteria” means the one or more criteria that the Board shall select for purposes of establishing the Performance Goals for a Performance Period. The Performance Criteria that shall be used to establish such Performance Goals may be based on any one of, or combination of, the following: (i) earnings per share; (ii) earnings before interest, taxes and depreciation; (iii) earnings before interest, taxes, depreciation and amortization; (iv) total stockholder return; (v) return on equity; (vi) return on assets, investment, or capital employed; (vii) operating margin; (viii) gross margin; (ix) operating income; (x) net income (before or after taxes); (xi) net operating income; (xii) net operating income after tax; (xiii) pre-tax profit; (xiv) operating cash flow; (xv) sales or revenue targets; (xvi) increases in revenue or product revenue; (xvii) expenses and cost reduction goals; (xviii) improvement in or attainment of working capital levels; (xix) economic value added (or an equivalent metric); (xx) market share; (xxi) cash flow; (xxii) cash flow per share; (xxiii) share price performance; (xxiv) debt reduction; (xxv) implementation or completion of projects or processes; (xxvi) customer satisfaction; (xxvii) stockholders’ equity; and (xxviii) to the extent that an Award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the Board. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Stock Award Agreement or the written terms of a Performance Cash Award. The Board shall, in its sole discretion, define the manner of calculating the Performance Criteria it selects to use for such Performance Period.

(kk) “Performance Goals” means, for a Performance Period, the one or more goals established by the Board for the Performance Period based upon the Performance Criteria. Performance Goals may be based on a Company-wide basis, with respect to one or more business units, divisions, Affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. At the time of the grant of any Award, the Board is authorized to determine whether, when calculating the attainment of Performance Goals for a Performance Period: (i) to exclude restructuring and/or other nonrecurring charges; (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) to exclude the effects of any statutory adjustments to corporate tax rates; and (v) to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles. In addition, the Board retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals.

(ll) “Performance Period” means the period of time selected by the Board over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to and the payment of a Stock Award or a Performance Cash Award. Performance Periods may be of varying and overlapping duration, at the sole discretion of the Board.

(mm) “Performance Stock Award” means a Stock Award granted under the terms and conditions of Section 7(d)(i).

(nn) “Plan” means this Acquicor Technology, Inc., 2006 Equity Incentive Plan.

(oo) “Restricted Stock Award” means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 7(a).

(pp) “Restricted Stock Award Agreement” means a written agreement between the Company and a holder of a Restricted Stock Award evidencing the terms and conditions of a Restricted Stock Award grant. Each Restricted Stock Award Agreement shall be subject to the terms and conditions of the Plan.

(qq) “Restricted Stock Unit Award” means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of Section 7(b).

(rr) “Restricted Stock Unit Award Agreement” means a written agreement between the Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement shall be subject to the terms and conditions of the Plan.

(ss) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

(tt) “Securities Act” means the Securities Act of 1933, as amended.

(uu) “Stock Appreciation Right” means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and conditions of Section 7(c).

(vv) “Stock Appreciation Right Agreement” means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement shall be subject to the terms and conditions of the Plan.

(ww) “Stock Award” means any right to receive Common Stock granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right, a Performance Stock Award or any Other Stock Award.

(xx) “Stock Award Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.

(yy) “Subsidiary” means, with respect to the Company, (i) any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital) of more than fifty percent (50%).

(zz) “Ten Percent Stockholder” means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Affiliate.

3. Administration.

(a) Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration of the Plan to a Committee or Committees, as provided in Section 3(c).

(b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(i) To determine from time to time (A) which of the persons eligible under the Plan shall be granted Awards; (B) when and how each Award shall be granted; (C) what type or combination of types of Award shall be granted; (D) the provisions of each Award granted (which need not be identical), including the time or times when a person shall be permitted to receive cash or Common Stock pursuant to a Stock Award; and (E) the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.

(ii) To construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement or in the written terms of a Performance Cash Award, in a manner and to the extent it shall deem necessary or expedient to make the Plan or Award fully effective.

(iii) To settle all controversies regarding the Plan and Awards granted under it.

(iv) To accelerate the time at which a Stock Award may first be exercised or the time during which an Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Award stating the time at which it may first be exercised or the time during which it will vest.

(v) To suspend or terminate the Plan at any time. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the affected Participant.

(vi) To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, relating to Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or to bring the Plan or Stock Awards granted under the Plan into compliance therewith, subject to the limitations, if any, of applicable law. However, except as provided in Section 10(a) relating to Capitalization Adjustments, stockholder approval shall be required for any amendment of the Plan that either (A) materially increases the number of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan or materially reduces the price at which shares of Common Stock may be issued or purchased under the Plan, (D) materially extends the term of the Plan, or (E) expands the types of Awards available for issuance under the Plan, but only to the extent required by applicable law or listing requirements. Except as provided above, rights under any Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (1) the Company requests the consent of the affected Participant, and (2) such Participant consents in writing.

(vii) To submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of (A) Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to Covered Employees, (B) Section 422 of the Code regarding Incentive Stock Options or (C) Rule 16b-3.

(viii) To approve forms of Award Agreements for use under the Plan and to amend the terms of any one or more Awards, including, but not limited to, amendments to provide terms more favorable to the Participant than previously provided in the Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion; provided however, that the Participant’s rights under any Award shall not be impaired by any such amendment unless (A) the Company requests the consent of the affected Participant, and (B) such Participant consents in writing. Notwithstanding the foregoing, subject to the limitations of applicable law, if any, and without the affected Participant’s consent, the Board may amend the terms of any one or more Awards if necessary to maintain the qualified status of the Award as an Incentive Stock Option or to bring the Award into compliance with Section 409A of the Code and the related guidance thereunder.

(ix) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan or Awards.

(x) To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees, Directors or Consultants who are foreign nationals or employed outside the United States.

(i) General. The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.

(ii) Section 162(m) and Rule 16b-3 Compliance. In the sole discretion of the Board, the Committee may consist solely of two (2) or more Outside Directors, in accordance with Section 162(m) of the Code, or solely of two (2) or more Non-Employee Directors, in accordance with Rule 16b-3. In addition, the Board or the Committee, in its sole discretion, may (A) delegate to a Committee of Directors who need not be Outside Directors the authority to grant Awards to eligible persons who are either (I) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award, or (II) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code, or (B) delegate to a Committee of Directors who need not be Non-Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act.

(d) Delegation to an Officer. The Board may delegate to one (1) or more Officers the authority to do one or both of the following (i) designate Employees who are not Officers to be recipients of Options (and, to the extent permitted by applicable law, other Stock Awards) and the terms thereof, and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation shall specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Notwithstanding anything to the contrary in this Section 3(d), the Board may not delegate to an Officer authority to determine the Fair Market Value of the Common Stock pursuant to Section 2(v)(ii) above.

(e) Effect of Board’s Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.

(f) Cancellation and Re-Grant of Stock Awards. Neither the Board nor any Committee shall have the authority to: (i) reprice any outstanding Stock Awards under the Plan, or (ii) cancel and re-grant any outstanding Stock Awards under the Plan, unless the stockholders of the Company have approved such an action within twelve (12) months prior to such an event.

4. Shares Subject to the Plan.

(a) Share Reserve. Subject to the provisions of Section 10 relating to adjustments upon changes in stock, the aggregate number of shares of Common Stock of the Company that may be issued pursuant to Stock Awards after the Effective Date shall not exceed four million six hundred ninety-eight thousand six hundred ninety-two (4,698,692) shares, plus an annual increase to be added on the first day of each fiscal year for a period of four (4) years, commencing with fiscal year 2008, equal to the lesser of (i) two percent (2%) of the shares of Common Stock outstanding on the last day of the preceding fiscal year (rounded down to the nearest whole share); or (ii) seven hundred thousand (700,000) shares of Common Stock. Notwithstanding the foregoing, the Board may act, prior to the first day of any fiscal year, to increase the share reserve by such number of shares of Common Stock as the Board shall determine, which number shall be less than each of (i) and (ii). For clarity, the limitation in this subsection 4(a) is a limitation in the number of shares of the Company’s common stock that may be issued pursuant to the Plan. Accordingly, this subsection 4(a) does not limit the granting of Stock Awards except as provided in subsection 8(a). Shares may be issued in connection with a merger or acquisition as permitted by NASD Rule 4350(i)(1)(A)(iii) or, if applicable, NYSE Listed Company Manual Section 303A.08, or AMEX Company Guide Section 711 and such issuance shall not reduce the number of shares available for issuance under the Plan. Furthermore, if a Stock Award (i) expires or otherwise terminates without having been exercised in full or (ii) is settled in cash (i.e., the holder of the Stock Award receives cash rather than stock), such expiration, termination or settlement shall not reduce (or otherwise offset) the number of shares of the Company’s common stock that may be issued pursuant to the Plan.

(b) If any shares of common stock issued pursuant to a Stock Award are forfeited back to the Company because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares which are forfeited shall revert to and again become available for issuance under the Plan. Also, any shares reacquired by the Company pursuant to subsection 9(g) or as consideration for the exercise of an Option shall again become available for issuance under the Plan. Notwithstanding the provisions of this subsection 4(b), any such shares shall not be subsequently issued pursuant to the exercise of Incentive Stock Options.

(c) Incentive Stock Option Limit. Notwithstanding anything to the contrary in this Section 4(d), subject to the provisions of Section 10(a) relating to Capitalization Adjustments the aggregate maximum number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options shall be four million six hundred ninety-eight thousand six hundred ninety-two (4,698,692) shares of Common Stock.

(d) Section 162(m) Limitation on Annual Grants. Subject to the provisions of Section 10(a) relating to Capitalization Adjustments, at such time as the Company may be subject to the applicable provisions of Section 162(m) of the Code, no Employee shall be eligible to be granted during any calendar year Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at least one hundred percent (100%) of the Fair Market Value of the Common Stock on the date the Stock Award is granted covering more than one million six hundred forty-four thousand five hundred forty-two (1,644,542) shares of Common Stock.

(e) Source of Shares. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the market or otherwise.

5. Eligibility.

(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to employees of the Company or a parent corporation or subsidiary corporation (as such terms are defined in Code Sections 424(e) and (f)). Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.

(b) Ten Percent Stockholders. A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.

(c) Consultants. A Consultant shall be eligible for the grant of a Stock Award only if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, because the Consultant is a natural person, or because of any other rule governing the use of Form S-8.

6. Option Provisions.

Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates shall be issued for shares of Common Stock purchased on exercise of each type of Option. If an Option is not specifically designated as an Incentive Stock Option, then the Option shall be a Nonstatutory Stock Option. The provisions of separate Options need not be identical; provided, however, that each Option Agreement shall include (through incorporation of provisions hereof by reference in the Option Agreement or otherwise) the substance of each of the following provisions:

(a) Term. Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders, no Option shall be exercisable after the expiration of ten (10) years from the date of its grant or such shorter period specified in the Option Agreement.

(b) Exercise Price. Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders, the exercise price of each Option shall generally be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option if such Option is granted pursuant to an assumption of or substitution for another option in a manner consistent with the provisions of Section 424(a) of the Code (whether or not such options are Incentive Stock Options) or in such other manner designed to comply with the provisions of Section 409A of the Code.

(c) Consideration. The purchase price of Common Stock acquired pursuant to the exercise of an Option shall be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board shall have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to utilize a particular method of payment. The methods of payment permitted by this Section 6(c) are:

(i) by cash, check, bank draft or money order payable to the Company;

(ii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;

(iii) by delivery to the Company (either by actual delivery or attestation) of shares of Common Stock;

(iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Common Stock issued upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however, that the Company shall accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued; provided, further, that shares of Common Stock will no longer be outstanding under an Option and will not be exercisable thereafter to the extent that (A) shares are used to pay the exercise price pursuant to the “net exercise,” (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or

(v) in any other form of legal consideration that may be acceptable to the Board.

(d) Transferability of Options. The Board may, in its sole discretion, impose such limitations on the transferability of Options as the Board shall determine. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options shall apply:

(i) Restrictions on Transfer. An Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder; provided, however, that the Board may, in its sole discretion, permit transfer of the Option in a manner consistent with applicable tax and securities laws upon the Optionholder’s request.

(ii) Domestic Relations Orders. Notwithstanding the foregoing, an Option may be transferred pursuant to a domestic relations order, provided, however, that an Incentive Stock Option may be deemed to be a Nonqualified Stock Option as a result of such transfer.

(iii) Beneficiary Designation. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form provided by or otherwise satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be the beneficiary of an Option with the right to exercise the Option and receive the Common Stock or other consideration resulting from an Option exercise.

(e) Vesting Generally. The total number of shares of Common Stock subject to an Option may vest and therefore become exercisable in periodic installments that may or may not be equal. The Option may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of Performance Goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this Section 6(e) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.

(f) Termination of Continuous Service. Except as otherwise provided in the applicable Option Agreement or other agreement between the Optionholder and the Company, in the event that an Optionholder’s Continuous Service terminates (other than for Cause or upon the Optionholder’s death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination of Continuous Service) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder’s Continuous Service (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination of Continuous Service, the Optionholder does not exercise his or her Option within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.

(g) Extension of Termination Date. An Optionholder’s Option Agreement may provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than for Cause or upon the Optionholder’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of a period of three (3) months after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements, or (ii) the expiration of the term of the Option as set forth in the Option Agreement.

(h) Disability of Optionholder. In the event that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date six (6) months following such termination of Continuous Service (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination of Continuous Service, the Optionholder does not exercise his or her Option within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.

(i) Death of Optionholder. In the event that (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death, or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder’s Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated as the beneficiary of the Option upon the Optionholder’s death, but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, after the Optionholder’s death, the Option is not exercised within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate. If the Optionholder designates a third party beneficiary of the Option in accordance with Section 6(d)(iii), then upon the death of the Optionholder such designated beneficiary shall have the sole right to exercise the Option and receive the Common Stock or other consideration resulting from an Option exercise.

(j) Termination for Cause. Except as explicitly provided otherwise in an Optionholder’s Option Agreement, in the event that an Optionholder’s Continuous Service is terminated for Cause, the Option shall terminate upon the termination date of such Optionholder’s Continuous Service, and the Optionholder shall be prohibited from exercising his or her Option from and after the time of such termination of Continuous Service.

(k) Non-Exempt Employees. No Option granted to an Employee that is a non-exempt employee for purposes of the Fair Labor Standards Act shall be first exercisable for any shares of Common Stock until at least six (6) months following the date of grant of the Option. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option will be exempt from his or her regular rate of pay.

7. Provisions of Stock Awards other than Options.

(a) Restricted Stock Awards. Each Restricted Stock Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. To the extent consistent with the Company’s Bylaws, at the Board’s election, shares of Common Stock may be (x) held in book entry form subject to the Company’s instructions until any restrictions relating to the Restricted Stock Award lapse; or (y) evidenced by a certificate, which certificate shall be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Award Agreements need not be identical; provided, however, that each Restricted Stock Award Agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i) Consideration. A Restricted Stock Award may be awarded in consideration for (A) past or future services actually or to be rendered to the Company or an Affiliate, or (B) any other form of legal consideration that may be acceptable to the Board in its sole discretion and permissible under applicable law.

(ii) Vesting. Shares of Common Stock awarded under the Restricted Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board. Generally, except for Restricted Stock Awards (x) granted to Non-Employee Directors, or (y) that vest based on the satisfaction of Performance Goals, no Restricted Stock Award shall vest at a rate more favorable to the Participant than over a three (3)-year period (or, for a newly-hired Employee, over a one (1)-year period) measured from the date of grant (or the date of hire for newly-hired Employees) except in the event of death or Disability, upon a Corporate Transaction in which such Restricted Stock Award is not assumed or continued, or upon a Change in Control; provided, however, that the aggregate number of shares subject to Restricted Stock Awards which do not meet these minimum vesting guidelines, taken together with the aggregate number of shares subject to Restricted Stock Unit Awards and Other Stock Awards which do not meet the minimum vesting guidelines provided in Sections 7(b) and (e) below, shall be limited to ten percent (10%) of authorized shares under the Plan.

(iii) Termination of Participant’s Continuous Service. In the event a Participant’s Continuous Service terminates, the Company may receive via a forfeiture condition, any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination of Continuous Service under the terms of the Restricted Stock Award Agreement.

(iv) Transferability. Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board shall determine in its sole discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement.

(b) Restricted Stock Unit Awards. Each Restricted Stock Unit Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical; provided, however, that each Restricted Stock Unit Award Agreement shall include (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions:

(i) Consideration. At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the Board in its sole discretion and permissible under applicable law.

(ii) Vesting. At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions or conditions to the vesting of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate. Generally, except for Restricted Stock Unit Awards (x) granted to Non-Employee Directors, or (y) that vest based on the satisfaction of Performance Goals, no Restricted Stock Unit Award shall vest at a rate more favorable to the Participant than over a three (3)-year period (or, for a newly-hired Employee, over a one (1)-year period) measured from the date of grant (or the date of hire for newly-hired Employees) except in the event of death or Disability, upon a Corporate Transaction in which such Restricted Stock Unit Award is not assumed or continued, or upon a Change in Control; provided, however, that the aggregate number of shares subject to Restricted Stock Unit Awards which do not meet these minimum vesting guidelines, taken together with the aggregate number of shares subject to Restricted Stock Awards and Other Stock Awards which do not meet the minimum vesting guidelines provided in Sections 7(a) and (e) hereof, shall be limited to ten percent (10%) of authorized shares under the Plan.

(iii) Payment. A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement.

(iv) Additional Restrictions. At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a time after the vesting of such Restricted Stock Unit Award.

(v) Dividend Equivalents. Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all the terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate.

(vi) Termination of Participant’s Continuous Service. Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participant’s termination of Continuous Service.

(vii) Compliance with Section 409A of the Code. Notwithstanding anything to the contrary set forth herein, any Restricted Stock Unit Award granted under the Plan that is not exempt from the requirements of Section 409A of the Code shall contain such provisions so that such Restricted Stock Unit Award will comply with the requirements of Section 409A of the Code. Such restrictions, if any, shall be determined by the Board and contained in the Restricted Stock Unit Award Agreement evidencing such Restricted Stock Unit Award. For example, such restrictions may include, without limitation, a requirement that any Common Stock that is to be issued in a year following the year in which the Restricted Stock Unit Award vests must be issued in accordance with a fixed pre-determined schedule.

(c) Stock Appreciation Rights. Each Stock Appreciation Right Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. Stock Appreciation Rights may be granted as stand-alone Stock Awards or in tandem with other Stock Awards. The terms and conditions of Stock Appreciation Right Agreements may change from time to time, and the terms and conditions of separate Stock Appreciation Right Agreements need not be identical; provided, however, that each Stock Appreciation Right Agreement shall include (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions:

(i) Term. No Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date of its grant or such shorter period specified in the Stock Appreciation Right Agreement.

(ii) Strike Price. Each Stock Appreciation Right will be denominated in shares of Common Stock equivalents. The strike price of each Stock Appreciation Right shall generally not be less than one hundred percent (100%) of the Fair Market Value of the Common Stock equivalents subject to the Stock Appreciation Right on the date of grant.

(iii) Calculation of Appreciation. The appreciation distribution payable on the exercise of a Stock Appreciation Right will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Stock Appreciation Right) of a number of shares of Common Stock equal to the number of Common Stock equivalents in which the Participant is vested under such Stock Appreciation Right, and with respect to which the Participant is exercising the Stock Appreciation Right on such date, over (B) the strike price that will be determined by the Board at the time of grant of the Stock Appreciation Right.

(iv) Vesting. At the time of the grant of a Stock Appreciation Right, the Board may impose such restrictions or conditions to the vesting of such Stock Appreciation Right as it, in its sole discretion, deems appropriate.

(v) Exercise. To exercise any outstanding Stock Appreciation Right, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.

(vi) Payment. The appreciation distribution in respect to a Stock Appreciation Right may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.

(vii) Termination of Continuous Service. In the event that a Participant’s Continuous Service terminates (other than for Cause), the Participant may exercise his or her Stock Appreciation Right (to the extent that the Participant was entitled to exercise such Stock Appreciation Right as of the date of termination) but only within such period of time ending on the earlier of (A) the date three (3) months following the termination of the Participant’s Continuous Service (or such longer or shorter period specified in the Stock Appreciation Right Agreement), or (B) the expiration of the term of the Stock Appreciation Right as set forth in the Stock Appreciation Right Agreement. If, after termination, the Participant does not exercise his or her Stock Appreciation Right within the time specified herein or in the Stock Appreciation Right Agreement (as applicable), the Stock Appreciation Right shall terminate.

(viii) Termination for Cause. Except as explicitly provided otherwise in an Participant’s Stock Appreciation Right Agreement, in the event that a Participant’s Continuous Service is terminated for Cause, the Stock Appreciation Right shall terminate upon the termination date of such Participant’s Continuous Service, and the Participant shall be prohibited from exercising his or her Stock Appreciation Right from and after the time of such termination of Continuous Service.

(ix) Compliance with Section 409A of the Code. Notwithstanding anything to the contrary set forth herein, any Stock Appreciation Rights granted under the Plan that are not exempt from the requirements of Section 409A of the Code shall contain such provisions so that such Stock Appreciation Rights will comply with the requirements of Section 409A of the Code. Such restrictions, if any, shall be determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right. For example, such restrictions may include, without limitation, a requirement that a Stock Appreciation Right that is to be paid wholly or partly in cash must be exercised and paid in accordance with a fixed pre-determined schedule.

(d) Performance Awards.

(i) Performance Stock Awards. A Performance Stock Award is a Stock Award that may be granted, may vest, or may be exercised based upon the attainment during a Performance Period of certain Performance Goals. A Performance Stock Award may, but need not, require the completion of a specified period of Continuous Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained shall be conclusively determined by the Committee in its sole discretion. The maximum number of shares that may be granted to any Participant in a calendar year attributable to Stock Awards described in this Section 7(d)(i) shall not exceed one million six hundred forty-four thousand five hundred forty-two (1,644,542) shares of Common Stock. In addition, to the extent permitted by applicable law and the applicable Award Agreement, the Board may determine that cash may be used in payment of Performance Stock Awards.

(ii) Performance Cash Awards. A Performance Cash Award is a cash award that may be granted upon the attainment during a Performance Period of certain Performance Goals. A Performance Cash Award may also require the completion of a specified period of Continuous Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained shall be conclusively determined by the Committee in its sole discretion. The maximum value that may be granted to any Participant in a calendar year attributable to cash awards described in this Section 7(d)(ii) shall not exceed nine million eight hundred sixty-seven thousand two hundred fifty-three dollars ($9,867,253). The Board may provide for or, subject to such terms and conditions as the Board may specify, may permit a Participant to elect for, the payment of any Performance Cash Award to be deferred to a specified date or event. The Committee may specify the form of payment of Performance Cash Awards, which may be cash or other property, or may provide for a Participant to have the option for his or her Performance Cash Award, or such portion thereof as the Board may specify, to be paid in whole or in part in cash or other property. In addition, to the extent permitted by applicable law and the applicable Award Agreement, the Board may determine that Common Stock authorized under this Plan may be used in payment of Performance Cash Awards, including additional shares in excess of the Performance Cash Award as an inducement to hold shares of Common Stock.

(e) Other Stock Awards. Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock may be granted either alone or in addition to Stock Awards provided for under Section 6 and the preceding provisions of this Section 7. Subject to the provisions of the Plan, the Board shall have sole and complete authority to determine the persons to whom and the time or times at which such Other Stock Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock Awards and all other terms and conditions of such Other Stock Awards. Generally, except for Other Stock Awards (x) granted to Non-Employee Directors, or (y) that vest based on the satisfaction of Performance Goals, no Other Stock Award shall vest at a rate more favorable to the Participant than over a three (3)-year period (or, for a newly-hired Employee, over a one (1)-year period) measured from the date of grant (or the date of hire for newly-hired Employees) except in the event of death or Disability, upon a Corporate Transaction in which such Other Stock Award is not assumed or continued, or upon a Change in Control; provided however, that the aggregate number of shares subject to Other Stock Awards which do not meet these minimum vesting guidelines, taken together with the aggregate number of shares subject to Restricted Stock Awards and Restricted Stock Unit Awards which do not meet the minimum vesting guidelines provided in Sections 7(a) and (b) above, shall be limited to ten percent (10%) of authorized shares under the Plan.

8. Covenants of the Company.

(a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock reasonably required to satisfy such Stock Awards.

(b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained.

(c) No Obligation to Notify. The Company shall have no duty or obligation to any holder of a Stock Award to advise such holder as to the time or manner of exercising such Stock Award. Furthermore, the Company shall have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of a Stock Award or a possible period in which the Stock Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of a Stock Award to the holder of such Stock Award.

9. Miscellaneous.

(a) Use of Proceeds from Sales of Common Stock. Proceeds from the sale of shares of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.

(b) Corporate Action Constituting Grant of Stock Awards. Corporate action constituting a grant by the Company of a Stock Award to any Participant shall be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Stock Award is communicated to, or actually received or accepted by, the Participant.

(c) Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has exercised the Stock Award pursuant to its terms and the Participant shall not be deemed to be a stockholder of record until the issuance of the Common Stock pursuant to such exercise has been entered into the books and records of the Company.

(d) No Employment or Other Service Rights. Nothing in the Plan, any Stock Award Agreement or other instrument executed thereunder or in connection with any Award granted pursuant to the Plan shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate, or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

(e) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and any Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).

(f) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (x) the issuance of the shares upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (y) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.

(g) Withholding Obligations. Unless prohibited by the terms of a Stock Award Agreement, the Company may, in its sole discretion, satisfy any federal, state, local or foreign tax withholding obligation relating to an Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with the Award; (iii) withholding cash from an Award settled in cash; or (iv) by such other method as may be set forth in the Award Agreement.

(h) Electronic Delivery. Any reference herein to a “written” agreement or document shall include any agreement or document delivered electronically or posted on the Company’s intranet.

(i) Deferrals. To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Common Stock or the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Award may be deferred and may establish programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code. Consistent with Section 409A of the Code, the Board may provide for distributions while a Participant is still an employee. The Board is authorized to make deferrals of Stock Awards and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments, following the Participant’s termination of employment or retirement, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law.

(j) Compliance with Section 409A of the Code. To the extent that the Board determines that any Award granted under the Plan is subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code. To the extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued or amended after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Board determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Board may adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Board determines are necessary or appropriate to (1) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (2) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance.

10. Adjustments upon Changes in Common Stock; Other Corporate Events.

(a) Capitalization Adjustments. In the event of a Capitalization Adjustment, the Board shall appropriately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 4(a), (ii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 4(d), (iii) the class(es) and maximum number of securities that may be awarded to any person pursuant to Section 4(d) and 7(d)(i), and (iv) the class(es) and number of securities and price per share of stock subject to outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive.

(b) Dissolution or Liquidation. Except as otherwise provided in the Stock Award Agreement, in the event of a dissolution or liquidation of the Company, all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares of Common Stock not subject to the Company’s right of repurchase) shall terminate immediately prior to the completion of such dissolution or liquidation, and the shares of Common Stock subject to the Company’s repurchase option may be repurchased by the Company notwithstanding the fact that the holder of such Stock Award is providing Continuous Service, provided, however, that the Board may, in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.

(c) Corporate Transaction. The following provisions shall apply to Stock Awards in the event of a Corporate Transaction unless otherwise provided in the instrument evidencing the Stock Award or any other written agreement between the Company or any Affiliate and the holder of the Stock Award or unless otherwise expressly provided by the Board at the time of grant of a Stock Award.

(i) Stock Awards May Be Assumed. Except as otherwise stated in the Stock Award Agreement, in the event of a Corporate Transaction, any surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) may assume or continue any or all Stock Awards outstanding under the Plan or may substitute similar stock awards for Stock Awards outstanding under the Plan (including but not limited to, awards to acquire the same consideration paid to the stockholders of the Company pursuant to the Corporate Transaction), and any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to Stock Awards may be assigned by the Company to the successor of the Company (or the successor’s parent company, if any), in connection with such Corporate Transaction. A surviving corporation or acquiring corporation (or its parent) may choose to assume or continue only a portion of a Stock Award or substitute a similar stock award for only a portion of a Stock Award. The terms of any assumption, continuation or substitution shall be set by the Board in accordance with the provisions of Section 3.

(ii) Stock Awards Held by Current Participants. Except as otherwise stated in the Stock Award Agreement, in the event of a Corporate Transaction in which the surviving corporation or acquiring corporation (or its parent company) does not assume or continue such outstanding Stock Awards or substitute similar stock awards for such outstanding Stock Awards, then with respect to Stock Awards that have not been assumed, continued or substituted and that are held by Participants whose Continuous Service has not terminated prior to the effective time of the Corporate Transaction (referred to as the “Current Participants”), the vesting of such Stock Awards (and, if applicable, the time at which such Stock Awards may be exercised) shall (contingent upon the effectiveness of the Corporate Transaction) be accelerated in full to a date prior to the effective time of such Corporate Transaction as the Board shall determine (or, if the Board shall not determine such a date, to the date that is five (5) days prior to the effective time of the Corporate Transaction), and such Stock Awards shall terminate if not exercised (if applicable) at or prior to the effective time of the Corporate Transaction, and any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall lapse (contingent upon the effectiveness of the Corporate Transaction).

(iii) Stock Awards Held by Persons other than Current Participants. Except as otherwise stated in the Stock Award Agreement, in the event of a Corporate Transaction in which the surviving corporation or acquiring corporation (or its parent company) does not assume or continue such outstanding Stock Awards or substitute similar stock awards for such outstanding Stock Awards, then with respect to Stock Awards that have not been assumed, continued or substituted and that are held by persons other than Current Participants, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Award may be exercised) shall not be accelerated and such Stock Awards (other than a Stock Award consisting of vested and outstanding shares of Common Stock not subject to the Company’s right of repurchase) shall terminate if not exercised (if applicable) prior to the effective time of the Corporate Transaction; provided, however, that any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall not terminate and may continue to be exercised notwithstanding the Corporate Transaction.

(iv) Payment for Stock Awards in Lieu of Exercise. Notwithstanding the foregoing, in the event a Stock Award will terminate if not exercised prior to the effective time of a Corporate Transaction, the Board may provide, in its sole discretion, that the holder of any Stock Award that is not exercised prior to such effective time will receive a payment, in such form as may be determined by the Board, equal in value to the excess, if any, of (A) the value of the property the holder of the Stock Award would have received upon the exercise of the Stock Award, over (B) any exercise price payable by such holder in connection with such exercise.

(d) Change in Control. A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration shall occur.

11. Termination or Suspension of the Plan.

(a) Plan Term. Unless sooner terminated by the Board pursuant to Section 3, the Plan shall automatically terminate on [October 10], 2016, which date is the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

(b) No Impairment of Rights. Termination of the Plan shall not impair rights and obligations under any Award granted while the Plan is in effect except with the written consent of the affected Participant.

12. Effective Date of Plan.

This Plan shall become effective on the Effective Date.

13. Choice of Law.

The law of the State of California shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of laws rules.

x PRELIMINARY PROXY STATEMENT	¨ CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
¨ DEFINITIVE PROXY STATEMENT
¨ DEFINITIVE ADDITIONAL MATERIALS
¨ SOLICITING MATERIAL PURSUANT TO RULE 14A-11(C) OR RULE 14A-12

	PAGE
Security Ownership of Certain Beneficial Owners and Management	163
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	164
Section 16(a) Beneficial Ownership Reporting Compliance	165
PRICE RANGE OF ACQUICOR SECURITIES AND DIVIDENDS	166
Price Range of Common Stock	166
Holders	166
Dividends	166
APPRAISAL RIGHTS	167
INDEPENDENT ACCOUNTANTS	167
WHERE YOU CAN FIND MORE INFORMATION	167
STOCKHOLDER PROPOSALS	168

Index to Financial Statements of Acquicor Technology Inc.	F-1
Index to Financial Statements of Jazz Semiconductor, Inc.	F-1

	Six months ended June 30, 2006			August 12, 2005 (date of inception) through December 31, 2005			August 12, 2005 (date of inception) through June 30, 2006
	(unaudited)						(unaudited)

Operating expenses:
Formation, general and administrative	$	114		$	3		$	117
Consulting		57			—			57
Insurance		27			—			27
Total operating expenses		198			3			201

Other income (expense)
Interest income		1,669			—			1,669
Interest expense on note payable		(2	)		(3	)		(5	)
Total other income (loss)		1,667			(3	)		1,664
Net income (loss) before provision for income taxes		1,469			(6	)		1,463
Provision for income taxes-federal		99						99
Net income (loss)	$	1,370		$	(6	)	$	1,364
Accretion of trust account relating to common stock subject to possible conversion		(314	)		—			(314	)
Net income (loss) attributable to other common stockholders	$	1,056		$	(6	)	$	1,050
Weighted average common shares outstanding subject to possible conversion		3,351			—
Basic and diluted net income per share subject to possible conversion	$	0.09		$	—
Weighted average common shares outstanding		18,979			5,374
Basic and diluted net income per share	$	0.06		$	0.00

	June 30, 2006		December 31, 2005
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	652	$	76
Cash and cash equivalents held in trust account		165,535		—
Accrued interest receivable in trust account		439		—
Prepaid insurance		112		—
Deferred offering costs		—		417
Total assets	$	166,738	$	493

Deferred underwriting fees	$	3,450	$	—
Other current liabilities		439		474
Common stock, subject to possible conversion		33,176		—
Total stockholders’ equity		129,673		19
Total liabilities and stockholders’ equity	$	166,738	$	493

	Period from March 12, 2002 (inception) to			Year Ended									Six Months Ended
	December 27, 2002			December 26, 2003			December 31, 2004			December 30, 2005			July 1, 2005			June 30 2006
													(unaudited)
	(in thousands)
Consolidated Statement Of Operations Data
Revenues:(1)

Standard process technologies	$	95,172		$	102,262		$	90,232		$	74,951		$	40,883		$	19,331
Specialty process technologies		27,905			82,923			129,303			124,079			56,528			79,728
Total revenues		123,077			185,185			219,535			199,030			97,411			99,059
Cost of revenues(2)(3)(4)		102,893			160,649			175,346			174,294			87,009			95,866

Gross profit		20,184			24,536			44,189			24,736			10,402			3,193
Operating expenses:
Research and development(3)(4)		12,606			22,815			18,691			19,707			10,361			10,223
Selling, general and administrative(3)(4)		9,722			16,410			21,573			14,956			6,676			7,953
Amortization of intangible assets		243			741			869			836			343			493
Impairment of intangible assets		—			—			—			1,642			1,642			—
Loss on disposal of equipment		—			751			—			—			—			—
Total operating expenses		22,571			40,717			41,133			37,141			19,022			18,669

Operating income (loss)		(2,387	)		(16,181	)		3,056			(12,405	)		(8,620	)		(15,476	)
Interest income		514			513			786			1,315			683			411
Gain (loss) on investments(4)		(12,651	)		9,682			(5,784	)		(583	)		(738	)		(344	)
Other income		—			—			18			206			77			15

Loss before income taxes		(14,524	)		(5,986	)		(1,924	)		(11,467	)		(8,598	)		(15,394	)
Income tax provision		12			12			2,348			46			16			36

Net loss		(14,536	)		(5,998	)		(4,272	)		(11,513	)		(8,614	)		(15,430	)
Preferred stock dividends		(4,335	)		(11,708	)		(13,074	)		(14,210	)		(7,105	)		(7,815	)
Net loss attributable to common stockholders	$	(18,871	)	$	(17,706	)	$	(17,346	)	$	(25,723	)	$	(15,719	)	$	(23,245	)

Other Financial Data:
Capital expenditures	$	10,742		$	14,249		$	27,282		$	23,505		$	17,271		$	7,616
Depreciation and amortization	$	11,584		$	15,170		$	17,180		$	20,904		$	10,285		$	11,463

	PAGE
SUMMARY OF THE MATERIAL TERMS OF THE MERGER	1
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS	2
SUMMARY OF THE PROXY STATEMENT	10
The Parties	10
The Merger Proposal	11
Acquicor’s Recommendations to Stockholders; Reasons for Approval of the Merger	12
The Certificate Amendment Proposal	12
The Incentive Plan Proposal	12
Management of Acquicor and Jazz	12
Acquicor Inside Stockholders	12
Merger Consideration	13
Escrow Funds	13
Conditions to Closing	13
Date, Time and Place of Special Meeting of Acquicor Stockholders Meeting	14
Voting Power; Record Date	14
Approval of Jazz Stockholders	14
Quorum and Vote of Acquicor Stockholders	14
Relation of Proposals	15
Conversion Rights	15
Appraisal Rights	16
Proxies and Proxy Solicitation Costs	16
Interests of Acquicor Directors and Officers in the Merger	16
Certain Other Interests in the Merger	17
Quotation or Listing	18
Tax Consequences of the Merger	18
Accounting Treatment	18
Regulatory Matters	18
Risk Factors	18
Market Price for Acquicor Securities	18
Holders	19
Dividends	19
ACQUICOR SELECTED FINANCIAL DATA	20
JAZZ SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA	22
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION	26
RISK FACTORS	27
Risks Related to the Merger	27
Risks Related to Business and Operations Following the Merger with Jazz	34
Risks Related to Jazz’s Business and Industry	34
Risks Related to Jazz’s Manufacturing	44
FORWARD-LOOKING STATEMENTS	48
SPECIAL MEETING OF ACQUICOR STOCKHOLDERS	48
General	49
Date, Time and Place	49
Purpose of the Acquicor Special Meeting	49
Recommendation of Acquicor Board of Directors	49
Record Date; Who is Entitled to Vote	50
Quorum	50
Abstentions and Broker Non-Votes	50
Vote of Our Stockholders Required	50
Voting Your Shares	51
Revoking Your Proxy	51
Who Can Answer Your Questions About Voting Your Shares	51
No Additional Matters May Be Presented at the Special Meeting	51

	PAGE
New Plan Benefits	103
ADJOURNMENT PROPOSAL	104
OTHER INFORMATION RELATED TO ACQUICOR	105
Business of Acquicor	105
Initial Public Offering	105
Plan of Dissolution and Distribution of Assets if No Business Combination	105
Facilities	107
Employees	107
Periodic Reporting and Audited Financial Statements	107
Directors and Executive Officers	107
Executive Officer and Director Compensation	107
Number and Terms of Directors	108
Board Committees	108
Code of Conduct and Ethics	108
ACQUICOR MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS	109
Results of Operations	109
Changes in Financial Condition	109
Quantitative and Qualitative Disclosure About Market Risk	111
BUSINESS OF JAZZ	112
Overview	112
Jazz’s Industry	112
Jazz’s Solution	114
Jazz’s Strategy	115
Process Technologies	115
Manufacturing	117
Jazz’s Services	119
Sales and Marketing	121
Customers, Markets and Applications	123
Competition	125
Research and Development	126
Intellectual Property	127
Environmental Matters	129
Litigation	129
Employees	129
Risk Management and Insurance	129
Properties	129
JAZZ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	131
General	131
Business Overview	131
Factors Affecting Jazz’s Operating Results	132
Migration to Specialty Process Technologies	135
Financial Operations Overview	137
Liquidity and Capital Resources	149
Quantitative and Qualitative Disclosure Regarding Market Risk	153
Critical Accounting Policies	154
Recent Accounting Pronouncements	158
DIRECTORS AND EXECUTIVE OFFICERS OF ACQUICOR FOLLOWING THE MERGER	159
Board of Directors	159
Executive Officers	160
Special Advisors	162
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	163

	Period from March 12, 2002 (inception) to		Year Ended						Six Months Ended
	December 27, 2002		December 26, 2003		December 31, 2004		December 30, 2005		July 1, 2005		June 30, 2006
Revenues:
Formation customers	$	119,762	$	167,236	$	163,497	$	120,455	$	63,940	$	40,569
Post-formation customers		3,315		17,949		56,038		78,575		33,471		58,490

Total revenues	$	123,077	$	185,185	$	219,535	$	199,030	$	97,411	$	99,059

	Period from March 12, 2002 (inception) to		Year Ended						Six Months Ended
	December 27, 2002		December 26, 2003		December 31, 2004		December 30, 2005		July 1, 2005		June 30, 2006
Revenues:									(unaudited)
Related parties(a)	$	119,762	$	169,671	$	66,834	$	60,821	$	30,844	$	16,706
Non-related parties		3,315		15,514		152,701		138,209		66,567		82,353

Total revenues	$	123,077	$	185,185	$	219,535	$	199,030	$	97,411	$	99,059

	As of
	December 27, 2002		December 26, 2003		December 31, 2004		December 30, 2005		As of June 30, 2006
									(unaudited)
	(in thousands)
Cash and cash equivalents	$	54,552	$	65,591	$	5,877	$	4,372	$	7,359
Short-term investments		—		—		50,622		23,850		24,925
Current restricted cash		—		—		—		720		473
Working capital		60,896		85,938		65,220		48,586		51,728
Property, plant and Equipment, net		52,844		50,936		61,839		65,249		61,895
Total assets		144,002		177,733		184,595		168,757		180,416
Total stockholders’ equity		97,828		122,698		119,488		108,185		109,439

	Year Ended December 31, 2005						Six Months Ended June 30, 2006
	Maximum Approval			Minimum Approval			Maximum Approval			Minimum Approval
	(in thousands except per share data)
Consolidated Statement of Operations Data:
Net revenues	$	199,030		$	199,030		$	99,059		$	99,059
Gross profit		24,736			24,736			3,193			3,193
Operating expenses		37,144			37,144			18,868			18,868
Operating loss		(12,408	)		(12,408	)		(15,675	)		(15,675	)
Interest expense, net		(10,588	)		(13,936	)		(5,541	)		(7,215	)
Loss before income taxes		(23,373	)		(26,721	)		(21,545	)		(23,219	)
Net loss		(23,419	)		(26,767	)		(21,581	)		(23,255	)

Pro forma net loss per common share
Basic	$	(4.36	)	$	(4.98	)	$	(0.97	)	$	(1.23	)
Diluted	$	(4.36	)	$	(4.98	)	$	(0.97	)	$	(1.23	)

Weighted-average shares outstanding
Basic		5,374			5,374			22,330			18,980
Diluted		5,374			5,374			22,330			18,980

	As of June 30, 2006
	Maximum Approval		Minimum Approval
Selected Balance Sheet Data at Period End:
Cash and cash equivalents	$	11,831	$	8,011
Working capital		29,766		6,590
Property, plant and equipment, net		61,895		61,895
Goodwill and intangibles		155,936		155,936
Total assets		313,883		310,063
Acquisition financing		80,000		109,356
Stockholders' equity		162,849		129,673

Target		Acquirer

Freescale Semiconductor, Inc.		Private Equity Consortium

Advanced Power Technology, Inc.		Microsemi Corporation

Agilent Technologies, Inc. (Semiconductor Products Group)		Kohlberg Kravis Roberts & Co. and Silver Lake Partners

Conexant Systems, Inc. (Wireless Communications Business)		Alpha Industries, Inc.

STMicroelectronics N.V. (Mixed Signal ASIC Business of Alcatel Microelectronics NV)		AMI Semiconductor, Inc.

Clare, Inc.		IXYS Corporation

Sawtek Inc.		TriQuint Semiconductor, Inc.

Dallas Semiconductor Corporation		Maxim Integrated Products, Inc.

Japan Energy Corporation (AMI Semiconductor, Inc.)		Francisco Partners / Citigroup Venture Capital Equity Partners

Target		Acquirer

CSMC Technologies Corporation		China Resources Logic Ltd.

	Selected Semiconductor Foundry Transaction		Acquicor / Jazz Merger
Enterprise value to LTM revenues		2.0x		1.0x

Enterprise value to LTM EBIT		NM		NM

Enterprise value to LTM EBITDA		9.0x		11.8x

Transaction value to LTM net income		NM		NM

	Acquicor		Acquisition Financing				Jazz Semiconductor			Pro Forma Adjustments				Closing Transaction				Combined Total
Assets
Current assets:
Cash and cash equivalents	$	652	$	80,000		a	$	7,359						$	(80,000	)	l	$	8,011
Cash and cash equivalents held in Trust Account		165,535						-			340		e		(165,875	)	l		-
Short-term investments		-						24,925							(21,105	)	l		3,820
Restricted cash		-						473											473
Receivables from related parties, net of allowance for doubtful accounts		-						10,242											10,242
Receivables, net of allowance for doubtful accounts		-						33,284											33,284
Inventories		-						18,232											18,232
Other current assets		551		-				2,880			(2,003	)	f						1,428
Total current assets		166,738		80,000				97,395			(1,663	)			(266,980	)			75,490
Property, plant and equipment, net		-						61,895											61,895
Investments		-						10,495											10,495
Restricted cash		-						2,681											2,681
Other assets		-						7,950			(564	)	g, r						7,386
Goodwill and intangible assets		-						-			155,936		h						155,936
Total assets	$	166,738	$	80,000			$	180,416		$	153,709			$	(266,980	)		$	313,883

Liabilities and stockholders’ equity
Current liabilities:
Deferred underwriting fees	$	3,450												$	(3,450	)	m
Accounts payable		-						22,408											22,408
Accrued compensation, benefits and other		-						5,721											5,721
Deferred revenues		-						906											906
Other current liabilities		439						16,632			(382	)	i						16,689
Total current liabilities		3,889						45,667			(382	)			(3,450	)			45,724
Second lien debt		-		50,000		b		-											50,000
Subordinated debt		-		30,000		b		-											30,000
Deferred revenues, wafer credits		-						11,453											11,453
Stock appreciation rights, net		-						400											400
Pension and retirement medical plan obligations		-						12,207											12,207
Other long term liabilities		-						1,250											1,250
Total liabilities		3,889		80,000				70,977			(382	)			(3,450	)			151,034
Commitments and contingencies:								-											-
Common stock, subject to possible conversion		33,176		(33,176	)	d		-											-

Stockholders’ equity:
Preferred stock		-						113							(113	)	n		-
Common stock		3						12							(12	)	n		3
Additional paid in capital		128,306		33,176		d		162,218			156,219		j		(318,437	)	n		161,482
Deferred stock compensation		-		-				(526	)						526		n		-
Accumulated other comprehensive loss		-						(629	)						629		n		-
Retained earnings (deficit)		1,364						(51,749	)		(2,128	)	k		53,877		o		1,364
Total stockholders’ equity		129,673		33,176				109,439			154,091				(263,530	)			162,849
Total liabilities and stockholders’ equity	$	166,738	$	80,000			$	180,416		$	153,709			$	(266,980	)		$	313,883

	(in thousands)
Merger consideration payable at closing (a)	$	235,536
Payments to Conexant by Jazz at or prior to the completion of the merger (b)		16,300
Payments in respect of retention and stay bonus payments to be made to certain Jazz employees (c)		6,750
Estimated fees and expenses of Acquicor (d)		4,944
Deferred underwriting fees (e)		3,450
Total.	$	266,980

	(in thousands)
Base consideration	$	260,000

Payments to Conexant by Jazz at or prior to the completion of the merger		(16,300	)
Payments in respect of retention and stay bonus payments to be made to certain Jazz employees		(6,750	)
Transaction expenses incurred by Jazz in connection with its terminated public offering will be subtracted from the aggregate consideration payable to Jazz stockholders (1)		(1,414	)
Working capital adjustments (2)		¾
Total (3)	$	235,536

	Maximum Approval		Minimum Approval
	(in thousands)
Amounts in trust (a)	$	165,875	$	132,699
Jazz short term investments (b)		21,105		24,925
Revolving credit facility (c)		—		19,356
Second lien debt financing (d)		50,000		50,000
Subordinated debt financing (e)		30,000		40,000
Total	$	266,980	$	266,980

	(in thousands)
Accrued interest	$	439
Income tax payable		(99	)
Pro forma adjustment	$	340

	(in thousands)
Jazz transaction costs	$	1,414
Jazz prepaid management fees		150
Acquicor accrued interest	$	439
Pro forma adjustment	$	2,003

	(in thousands)
Jazz liability for common stock subject to repurchase	$	283
Acquicor income tax payable		99
Pro forma adjustment	$	382

	(in thousands)
Adjustments to goodwill and intangible assets	$	155,936
Jazz liability for common stock subject to repurchase		283
Pro forma adjustment	$	156,219

	(in thousands)
Transaction costs	$	(1,414	)
Prepaid management fees		(150	)
Termination of line of credit		(564	)
Pro forma adjustment	$	(2,128	)

	(in thousands)
Jazz additional paid in capital	$	162,218
Pro forma adjustments (to paid in capital)		156,219
Pro forma adjustment.	$	318,437

	(in thousands)
Jazz historical deficit	$	51,749
Jazz transaction costs		1,414
Jazz pre-paid management fees		150
Jazz financing fees		564
Pro forma adjustment.	$	53,877

	Interest Adjustments
	Maximum Approval						Minimum Approval
	Year ended December 31, 2005		Six months ended June 30, 2006		Year ended December 31, 2005		Six months ended June 30, 2006
			(in thousands)
Estimated interest on:
Revolving credit facility	$	—	$	—	$	1,548	$	774
Second lien debt financing		6,500		3,250		6,500		3,250
Subordinated debt financing		5,400		2,700		7,200		3,600
Adjustment for interest earned on trust account		—		1,669		—		1,669
Total.	$	11,900	$	7,619	$	15,248	$	9,293

NEW PLAN BENEFITS

2006 Equity Incentive Plan

Name & Position	Dollar Value ($)²	Number of Shares

Gilbert G. Amelio, CEO	unknown at this time	unknown at this time

Ellen M. Hancock, President, COO & Secretary	unknown at this time	unknown at this time

Steve Wozniak, EVP and CTO	unknown at this time	unknown at this time

Paul A. Pittman, CFO	$283,362	51,993

Shu Li, SVP and Divisional CEO	unknown at this time	unknown at this time

Allen Grogan, CLO	$94,454	17,331

Executive Group	$377,816	69,324

Non-Executive Director Group	unknown at this time	unknown at this time

Non-Executive Officer Employee Group	unknown at this time	unknown at this time

	Payment Obligations by Year
	2006		2007		2008		2009		2010		Thereafter		Total
	(in thousands)
Operating leases	$	3,518	$	3,415	$	3,128	$	3,093	$	3,093	$	19,192	$	35,439
Other commitments		2,563		2,332		604		366		—		—		—
Total	$	6,081	$	5,747	$	3,732	$	3,459	$	3,093	$	19,192	$	35,439

	Warrants			Net Stock Appreciation Rights (SARs)
Fair value as of December 26, 2003	$	10.4		$	(9.3	)
Proceeds from sale of warrants		(3.2	)		—
Compensation paid upon exercise of SARs		—			3.2
Current period income (expense)		(5.8	)		4.7

Fair value as of December 31, 2004		1.4			(1.4	)
Proceeds from sale of warrants		—			—
Compensation paid upon exercise of SARs		—			—
Current period income (expense)		(0.6	)		0.7

Fair value as of December 30, 2005		0.8			(0.7	)
Proceeds from sale of warrants		—			—
Compensation paid upon exercise of SARS		—			—
Current period income (expense)		(0.3	)		(0.3	)
Fair value as of June 30, 2006	$	0.5		$	(0.4	)

NAME	AGE	POSITION
Gilbert F. Amelio, Ph.D.	63	Chairman and Chief Executive Officer
Ellen M. Hancock	63	Director, President and Chief Operating Officer
Harold L. Clark, Ed.D.	71	Director
John P. Kensey	70	Director
Moshe I. Meidar	63	Director

Name and Address of Beneficial Owner⁽¹⁾	Amount and Nature of Beneficial Ownership⁽²⁾		Approximate Percentage of Outstanding Common Stock⁽³⁾
Acquicor Management LLC(4)		4,997,071		14.5	%
Gilbert F. Amelio, Ph.D.(5)		4,997,071		14.5	%
Harold L. Clark, Ed.D		236,667		*
John P. Kensey		236,667		*
Moshe E. Meidar		236,667		*
All directors and executive officers as a group (6 individuals)		5,707,072		16.6	%

QUARTER ENDED	HIGH		LOW
Fourth Quarter (through October 10, 2006)		6.97		6.65
September 30, 2006		7.10		6.16
June 30, 2006 (commencing March 14, 2006)		7.72		6.21

		Page
Financial Statements
Report of independent registered public accounting firm		F-2
Balance sheet as of June 30, 2006 and December 31, 2005		F-3
Statement of operations for the six months ended June 30, 2006, for the period from August 12, 2005 (date of inception) through December 31, 2005 and for the period from August 12, 2005 (date of inception) through June 30, 2006		F-4
Statement of stockholder’s equity for the period from August 12, 2005 (date of inception) through June 30, 2006		F-5
Statement of cash flows for the six months ended June 30, 2006, for the period from August 12, 2005 (date of inception) through December 31, 2005 and for the period from August 12, 2005 (date of inception) through June 30, 2006		F-6
Notes to financial statements		F-7

	Six months ended June 30, 2006			August 12, 2005 (date of inception) through December 31, 2005			August 12, 2005 (date of inception) through June 30, 2006)
	(unaudited)						(unaudited)
Operating expenses:
Formation, general and administrative	$	114,125		$	2,855		$	116,980
Consulting		57,306			—			57,306
Insurance		27,082			—			27,082
Total operating expenses		198,513			2,855			201,368
Other income (expense)
Interest income (Note J)		1,669,345			—			1,669,345
Interest expense on note payable		(1,980	)		(3,418	)		(5,398	)
Total other income		1,667,365			(3,418	)		1,663,947
Income (loss) before provision for income taxes		1,468,852			(6,273	)		1,462,579
Provision for income taxes-federal		98,461			—			98,461
Net income (loss) for the period	$	1,370,391		$	(6,273	)	$	1,364,118
Accretion of Trust Account relating to common stock subject to possible conversion (Note A)		(314,176	)		—			(314,176	)
Net income (loss) attributable to other common stockholders	$	1,056,214		$	(6,273	)	$	1,049,942
Weighted average common shares outstanding subject to possible conversion (basic and diluted)		3,350,828			—
Basic and diluted net income per share subject to possible conversion		0.09			—
Weighted average common shares outstanding		18,979,632			5,373,738
Basic and diluted net income per share		0.06			0.00