8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 16, 2007

JAZZ TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation)

001-32832	20-3320580
(Commission File Number)	(IRS Employer Identification No.)

4321 Jamboree Road

Newport Beach, California 92660

(Address of principal executive offices, including Zip Code)

Registrant's telephone number, including area code: (949) 435-8000

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS

On February 16, 2007, Jazz Technologies, Inc., a Delaware corporation (formerly known as Acquicor Technology Inc.) (“Parent”), consummated the acquisition of Jazz Semiconductor, Inc., a Delaware corporation (“Jazz”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) among Parent, Joy Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), Jazz and TC Group, L.L.C., as stockholders’ representative (the “Stockholders’ Representative”), whereby Merger Sub merged with and into Jazz with Jazz becoming a wholly-owned subsidiary of Parent (the “Merger”). Based in Newport Beach, California, Jazz is an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog and mixed-signal semiconductor devices.

At the closing of the Merger (the “Closing”), Parent made total payments of approximately $260.1 million pursuant to the merger agreement, which includes the impact of an estimated working capital adjustment and a deduction for $4.4 million of transaction costs incurred by Jazz in connection with the Merger and its terminated public offering. The purchase price was subject to possible decrease of up to $4.5 million to the extent the working capital of Jazz as of the closing is less than $193 million and a possible increase of up to $4.5 million plus $50,000 per day for each day after March 31, 2007 until the closing to the extent the working capital of Jazz as of the closing is greater than $198 million. Jazz’s estimated working capital at closing was in excess of $200 million resulting in an increase in the purchase price by $4.5 million. Approximately $27.9 million of the purchase price was placed in escrow, of which $4 million will secure any purchase price reductions to be made after the completion of the merger, $20 million will secure indemnification claims by Parent (as well as any purchase price reductions to be made after the completion of the Merger in excess of $4 million) and $3.7 million will fund obligations of Jazz to make certain retention bonus payments following the completion of the Merger to its employees. In addition, $1 million was paid to the Stockholders’ Representative to fund its expenses related to its obligations under the Merger Agreement following the completion of the Merger. Parent financed the Merger consideration and additional payments made at the closing of the Merger from the proceeds of its initial public offering and the sale of convertible senior notes. At the closing of the Merger, Jazz expects to pay approximately $3.0 million in accrued transaction costs incurred in connection with the Merger.

The purchase price is subject to further adjustment based on a final closing date balance sheet to be prepared within 90 days following the closing of the Merger. Also, Parent may become obligated to pay additional amounts to former stockholders of Jazz if Jazz realizes proceeds in excess of $10 million from its investment in Shanghai Hua Hong NEC Electronics Co., Ltd. from certain specified events.

References to “the Company,” “we,” “us” and “our” refer to Parent and its subsidiaries, including Jazz. References to Parent refer solely to Parent and references to Jazz refer solely to Jazz and its subsidiaries.

FORWARD-LOOKING STATEMENTS

Some of the information contained or incorporated by reference in this current report constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends,” and “continue” or similar words. You should read statements that contain these words carefully because they:

• discuss future expectations;

• contain projections of future results of operations or financial condition; or

• state other “forward-looking” information.

We believe it is important to communicate our expectations to our stockholders. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risk factors and cautionary language discussed or incorporated by reference in this current report provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements, including among other things:

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• the amount of cash on hand available to us;

• our business strategy;

• outcomes of government reviews, inquiries, investigations and related litigation;

• continued compliance with government regulations;

• legislation or regulatory environments, requirements or changes adversely affecting the business in which we are engaged;

• fluctuations in customer demand;

• management of rapid growth; and

• general economic conditions.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this current report.

All forward-looking statements included or incorporated herein attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.

You should be aware that the occurrence of the events described in the “Risk Factors” portion of this current report, the documents incorporated herein and Parent’s other SEC filings could have a material adverse effect on our business, prospects, financial condition or operating results.

Business

Our business is described in the definitive proxy statement filed by Parent with the Securities and Exchange (the “SEC”) on January 29, 2007 (the “Definitive Proxy Statement”) in the section entitled “Business of Jazz” beginning on page 120, which is incorporated herein by reference.

Risk Factors

The risks associated with our business are described in the Definitive Proxy Statement in the section entitled “Risk Factors” beginning on page 28, which is incorporated herein by reference.

Financial Information

Reference is made to the disclosure set forth under Item 9.01 of this current report on Form 8-K concerning the financial information of Parent and Jazz, which is incorporated herein by reference.

Properties

Our principal executive office is located at 4321 Jamboree Road, Newport Beach, CA 92660. Our facilities are described in the Definitive Proxy Statement in the sections entitled “Business of Jazz — Properties” beginning on page 137, which is incorporated herein by reference.

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information regarding the beneficial ownership of our common stock as of February 16, 2007 by:

• each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;

• each of our executive officers and directors; and

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

The following table gives effect to the conversion of 5,668,116 shares of our common stock into a pro rata share of the trust account and the redemption of 1,873,738 shares of common stock held by Acquicor Management LLC and our outside directors.

Name and Address of Beneficial Owner(1)	Amount and Nature of Beneficial Ownership(2)		Approximate Percentage of Outstanding Common Stock(3)
The Baupost Group, L.L.C. (4) 10 St. James Avenue, Suite 2000 Boston, Massachusetts 02116		3,377,983		12.6	%
Wellington Management Company, LLP (6) 75 State Street Boston, MA 02109		2,982,200		11.1	%
Fir Tree, Inc. (5) 505 Fifth Avenue, 23rd Floor New York, New York 10017		1,953,100		7.3	%
Acquicor Management LLC (7)		4,838,468		17.7	%
Gilbert F. Amelio, Ph.D. (8)		4,838,468		17.7	%
Ellen M. Hancock		-		*
Steve Wozniak		-		*
Shu Li		-		*
Paul Pittman (9)		750,000		2.8	%
Allen R. Grogan (10)		-		*
Harold L. Clark, Ed.D. (11)		303,844		*
John P. Kensey (12)		303,844		*
Moshe I. Meidar (13)		303,844		*
All directors and executive officers as a group (9 individuals) (14)		6,500,000		23.6	%

* Less than 1%.

(1) Unless otherwise noted, the business address of each of the following is 4321 Jamboree Road, Newport Beach, CA 92660.

(2) This table is based upon information supplied to us by our officers, directors and principal stockholders and upon any Schedules 13D or 13G filed with the SEC. Unless otherwise indicated in the footnotes to this table, and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.

(3) Applicable percentages are based on 26,915,218 shares outstanding on February 16, 2007.

(4) According to a Schedule 13/G dated December 31, 2006, all shares are owned by The Baupost Group, L.L.C (“Baupost”), a registered investment adviser. SAK Corporation is the manager of Baupost and Seth A. Klarman, as the sole Director of SAK Corporation and a controlling person of Baupost, may be deemed to have beneficial ownership of the securities beneficially owned by Baupost. Each of the aforementioned persons disclaims beneficial ownership of the shares held by Baupost. Securities reported on this Schedule 13G as being beneficially owned by Baupost include securities purchased on behalf of various investment limited partnerships.

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(5) According to a Schedule 13/G dated December 31, 2006, Wellington Management Company, LLP (“Wellington”) has shared dispositive power with respect to 1,738,500 shares of Parent’s common stock and shared dispositive power with respect to 2,982,200 shares of Parent’s common stock. The securities reported by Wellington, in its capacity as investment adviser, are owned of record by clients of Wellington. Those clients have the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from the sale of, such securities. No such client is known to have such right or power with respect to more than five percent of Parent’s common stock.

(6) According to a Schedule 13/G Amendment No. 1 dated December 31, 2006, 1,560,581 shares are beneficially owned by Sapling, LLC (“Sapling”) and 392,519 shares are beneficially owned by Fir Tree Recovery master Fund, L.P. (“Fir Tree Recovery”). Fir Tree, Inc. (“Fir Tree”), as investment manager for Sapling and Fir Tree Recovery, may be deemed to beneficially own the shares held by Sapling and Fir Tree Recovery.

(7) Acquicor Management LLC (“Acquicor Management”) is managed by Dr. Amelio, as the sole manager. As the sole manager, Dr. Amelio has sole voting and dispositive power over the shares held by Acquicor Management. Includes 416,666 shares of common stock subject to warrants expected to become exercisable within 60 days of February 16, 2007. The securities held by Acquicor Management have been pledged to secure loans, the proceeds of which were used by Acquicor Management to purchase Parent securities.

(8) Includes the shares held by Acquicor Management. See footnote (7) above.

(9) Includes 750,000 shares of common stock subject to unit purchase options and warrants included in such unit purchase options expected to become exercisable within 60 days of February 16, 2007. Excludes 51,993 shares of restricted stock to be issued to Mr. Pittman as a result of the consummation of the Merger.

(10) Excludes17,331 shares of restricted stock to be issued to Mr. Grogan as a result of the consummation of the Merger.

(11) Includes 83,334 shares of common stock subject to warrants expected to become exercisable within 60 days of February 16, 2007. The securities held by Mr. Clark have been pledged to secure loans, the proceeds of which were used by Mr. Clark to purchase Parent securities.

(12) Includes 83,334 shares of common stock subject to warrants expected to become exercisable within 60 days of February 16, 2007. The securities held by Mr. Kensey have been pledged to secure loans, the proceeds of which were used by Mr. Kensey to purchase Parent securities.

(13) Includes 83,334 shares of common stock subject to warrants expected to become exercisable within 60 days of February 16, 2007. The securities held by Mr. Meidar have been pledged to secure loans, the proceeds of which were used by Mr. Meidar to purchase Parent securities.

(14) See notes (7) through (13) above.

Directors and Executive Officers

Our directors and executive officers immediately after the consummation of the Merger are described in the Definitive Proxy Statement in the section entitled “Directors and Management of Acquicor Following the Merger” beginning on page 166, which is incorporated herein by reference.

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Director and Executive Officer Compensation

The compensation of our directors and executive officers is generally described in the Definitive Proxy Statement in the sections entitled “Compensation Discussion and Analysis” beginning on page 170, which is incorporated herein by reference. Other than the compensation arrangements with Dr. Li described in the Definitive Proxy Statement, we have not yet entered into any compensation arrangements with our directors and executive officers in connection with their services as directors and executive officers. We will promptly disclose any compensation arrangements with our directors and executive officers in a current report on Form 8-K once approved by our board of directors.

Certain Relationships and Related Transactions

The description of certain relationships and related transactions is included in the Definitive Proxy Statement in the sections entitled “Summary of the Proxy Statement — Interests of Acquicor Directors and Officers in the Merger” beginning on page 18, “Summary of the Proxy Statement — Certain Other Interests in the Merger” beginning on page 18 and “Certain Relationships and Related Transactions” beginning on page 177, which are both incorporated herein by reference.

Independence of Directors

Our board of directors has determined that Dr. Clark and Messrs. Kensey and Meidar are each independent within the meaning of Rule 121(A) of the American Stock Exchange (“Amex”) Company Guide. Our board of directors has also determined that each member of our Compensation Committee and Nominating and Corporate Governance Committee is independent under Amex Rule 121(A) and each member of our Audit Committee is independent under Amex Rule 121(B).

Legal Proceedings

We are not currently a party to any material pending legal proceedings.

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

Information about the market price, number of stockholders and dividends for our securities is described in the Definitive Proxy Statement in the section entitled “Price Range of Acquicor Securities and Dividends” beginning on page 180, which is incorporated herein by reference.

Our common stock, warrants and units are listed on the American Stock Exchange under the symbols “JAZ,” “JAZ.WS” and “JAZ.U,” respectively. The closing price of our common stock, warrants and units as reported on the American Stock Exchange on February 22, 2007, was $5.20, $0.96 and $7.00, respectively.

Recent Sales of Unregistered Securities

A description of the convertible senior notes is included in the Definitive Proxy Statement in the section entitled “The Merger Proposal — Financing for the Merger — Convertible Senior Notes” beginning on page 156, which is incorporated herein by reference. We used a substantial portion of the proceeds from the sale of the convertible senior notes to fund the Merger consideration and pay transaction expenses and we expect to use the remaining proceeds to fund our operations after the Merger and to fund the stock and warrant repurchase program that we announced on January 11, 2007.

Description of Registrant’s Securities

The description of our common stock and other securities is included in our prospectus filed with the SEC on March 16, 2006 in connection with our initial public offering under the section entitled “Description of Securities” beginning on page 60 and in the Definitive Proxy Statement in the section entitled “The Merger Proposal — Financing for the Merger — Convertible Senior Notes” beginning on page 156, which are both incorporated herein by reference.

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Indemnification of Directors and Officers

Reference is made to the disclosure set forth under Item 14 of Part II of Amendment No. 7 to our Registration Statement on Form S-1 (file no. 333-128058) filed with the SEC on March 9, 2006, which is incorporated herein by reference.

Financial Statements And Supplementary Data

Reference is made to the disclosure set forth under Item 9.01 of this current report on Form 8-K concerning the financial statements and supplementary data of Parent and Jazz, which is incorporated herein by reference.

ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

Reference is made to the disclosure set forth under Item 9.01 of this current report on Form 8-K concerning the financial information of Parent and Jazz, which is incorporated herein by reference.

ITEM 3.03. MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS.

Reference is made to the disclosure set forth under Item 5.03 of this current report on Form 8-K concerning an amendment to Parent’s Certificate of Incorporation, which is incorporated herein by reference.

ITEM 5.02. DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS.

As described in the Definitive Proxy Statement in the section entitled “Directors and Management of Acquicor Following the Merger,” Dr. Li, Mr. Pittman and Mr. Grogan became executive officers following consummation of the Merger. The compensation of Dr. Li, Mr. Pittman and Mr. Grogan is generally described in the Definitive Proxy Statement in the sections entitled “Compensation Discussion and Analysis” beginning on page 170, which is incorporated herein by reference. The description of certain relationships and related transactions with Dr. Li, Mr. Pittman and Mr. Grogan is included in the Definitive Proxy Statement in the sections entitled “Summary of the Proxy Statement — Certain Other Interests in the Merger” beginning on page 18 and “Certain Relationships and Related Transactions” beginning on page 177, which are both incorporated herein by reference.

ITEM 5.03. AMENDMENT TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL YEAR.

In connection with the Merger, on February 16, 2007, Parent amended its Certificate of Incorporation to (i) change Parent’s name from Acquicor Technology Inc. to Jazz Technologies, Inc., (ii) remove the Fifth Article from the Certificate of Incorporation, which relates to the operation of Parent as a blank check company prior to the consummation of a business combination, (iii) restrict the Parent stockholders’ ability to act by written consent and (iv) increase the authorized shares of Parent common stock from 100,000,000 shares to 200,000,000 shares, as further described in the Definitive Proxy Statement.

ITEM 5.06. CHANGE IN SHELL COMPANY STATUS.

The material terms of the Merger are described in the Definitive Proxy Statement in the sections entitled “The Merger Proposal” beginning on page 55 and “The Merger Agreement” beginning on page 70, which are both incorporated herein by reference.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

The audited financial statements of Parent as of December 31, 2006 and 2005, and for the year ended December 31, 2006, the period from August 12, 2005 (inception) to December 31, 2005 and the period from August 12, 2005 (inception) to December 31, 2006, selected financial data and management’s discussion and analysis of financial condition and results of operations are filed as Exhibit 99.1 to this current report on Form 8-K.

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The audited consolidated financial statements of Jazz as of December 29, 2006 and December 30, 2005, and for each of the three fiscal years ended December 29, 2006, December 30, 2005 and December 31, 2004, selected consolidated historical financial data and management’s discussion and analysis of financial condition and results of operations are filed as Exhibit 99.2 to this current report on Form 8-K, which is incorporated herein by reference.

The summary unaudited pro forma condensed combined financial information and unaudited pro forma condensed combined financial statements as of and for the fiscal year ended December 31, 2006 are furnished as Exhibit 99.3 to this current report on Form 8-K, which is incorporated herein by reference.

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation.
†10.1	Contribution Agreement among Specialtysemi, Inc., Conexant Systems, Inc. and Carlyle Capital Investors, L.L.C. dated February 23, 2002 — Incorporated by reference to Exhibit 10.1 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.2	First Amendment to Contribution Agreement between Specialtysemi, Inc., Conexant Systems, Inc. and Carlyle Capital Investors, L.L.C. dated March 12, 2002 — Incorporated by reference to Exhibit 10.2 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.3	Second Amendment to Contribution Agreement dated July 1, 2002 among Jazz Semiconductor, Inc., Conexant Systems, Inc., Carlyle Partners III L.P., CP III Coinvestment, L.P. and Carlyle High Yield Partners, L.P. — Incorporated by reference to Exhibit 10.3 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.4	Third Amendment to Contribution Agreement dated September 1, 2003 among Jazz Semiconductor, Inc., Conexant Systems, Inc., Carlyle Partners III L.P., CP III Coinvestment, L.P. and Carlyle High Yield Partners, L.P. — Incorporated by reference to Exhibit 10.4 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.5	Newport Fab, LLC Contribution Agreement between Conexant Systems, Inc. and Newport Fab, LLC dated February 23, 2002 — Incorporated by reference to Exhibit 10.5 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.6	IP License Agreement between Specialtysemi, Inc., Newport Fab, LLC and Conexant Systems, Inc. dated March 12, 2002 — Incorporated by reference to Exhibit 10.6 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.7	First Amendment to IP License Agreement dated July 1, 2002 between Jazz Semiconductor, Inc. and Conexant Systems, Inc. — Incorporated by reference to Exhibit 10.7 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.8	Transferred IP License Agreement between Specialtysemi, Inc., Newport Fab, LLC and Conexant Systems, Inc. dated March 12, 2002 — Incorporated by reference to Exhibit 10.8 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.9	First Amendment to Transferred IP License Agreement dated July 1, 2002 among Jazz Semiconductor, Inc., Conexant Systems, Inc. and Newport Fab, LLC— Incorporated by reference to Exhibit 10.9 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.10	Guarantee between Specialtysemi, Inc. and Conexant Systems, Inc. dated March 12, 2002 — Incorporated by reference to Exhibit 10.10 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.11	Half Dome Lease Agreement between Specialtysemi, Inc. and Conexant Systems, Inc. dated March 12, 2002 — Incorporated by reference to Exhibit 10.13 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).

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Exhibit No.	Description
10.12	First Amendment to Half Dome Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated May 1, 2004 — Incorporated by reference to Exhibit 10.14 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.13	Second Amendment to Half Dome Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated December 31, 2005 — Incorporated by reference to Exhibit 10.15 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.14	Third Amendment to Half Dome Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated as of September 26, 2006.
10.15	El Capitan Lease Agreement between Specialtysemi, Inc. and Conexant Systems, Inc. dated March 12, 2002 — Incorporated by reference to Exhibit 10.16 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.16	First Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated October 1, 2004 — Incorporated by reference to Exhibit 10.17 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.17	Second Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated November 31, 2005 — Incorporated by reference to Exhibit 10.18 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.18	Third Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated September 1, 2006.
10.19	Fourth Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated September 26, 2006.
†10.20	Wafer Supply Agreement between Newport Fab, LLC and RF Micro Devices, Inc. dated October 15, 2002 — Incorporated by reference to Exhibit 10.34 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.21	Master Joint Technology Development Agreement between Newport Fab, LLC and RF Micro Devices, Inc. dated October 15, 2002 — Incorporated by reference to Exhibit 10.35 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.22	License and Supply Agreement between Newport Fab, LLC and Advanced Semiconductor Manufacturing Corp. of Shanghai dated December 16, 2003 — Incorporated by reference to Exhibit 10.36 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.23	HHNEC Wafer Supply Agreement between Jazz/Hua Hong, LLC, Newport Fab, LLC and Shanghai Hua Hong NEC Electronics Company, Limited dated August 29, 2003 — Incorporated by reference to Exhibit 10.37 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.24	LLC Wafer Supply Agreement between Jazz/Hua Hong, LLC, Newport Fab, LLC and Shanghai Hua Hong NEC Electronics Company, Limited dated August 30, 2003 — Incorporated by reference to Exhibit 10.38 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.25	Technology Sublicense Agreement—Jazz Advanced Technology by Jazz/Hua Hong, LLC, Shanghai Hua Hong NEC Electronics Company, Limited and Newport Fab, LLC dated August 30, 2003 — Incorporated by reference to Exhibit 10.39 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.26	Technology License and Transfer Agreement by Newport Fab, LLC and Shanghai Hua Hong NEC Electronics Company, Limited dated August 30, 2003 — Incorporated by reference to Exhibit 10.40 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).

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Exhibit No.	Description
†10.27	Technology License Agreement—Jazz Advanced Technology Newport Fab, LLC, Jazz/ Hua Hong, LLC and Shanghai Hua Hong NEC Electronics Company, Limited dated August 30, 2003 — Incorporated by reference to Exhibit 10.41 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.28	Wafer Supply and Services Agreement among Jazz Semiconductor, Inc. and Skyworks Solutions, Inc. dated as of May 2, 2003 — Incorporated by reference to Exhibit 10.42 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.29	Amendment One to Wafer Supply and Services Agreement among Jazz Semiconductor, Inc. and Skyworks Solutions, Inc. dated as of May 2, 2003 — Incorporated by reference to Exhibit 10.43 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
†10.30	Amendment Two to Wafer Supply and Services Agreement among Jazz Semiconductor, Inc. and Skyworks Solutions, Inc. dated June 13, 2003 — Incorporated by reference to Exhibit 10.44 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.31	401(k) Hourly Savings Plan between Jazz Semiconductor, Inc. and Fidelity dated January 6, 2003 — Incorporated by reference to Exhibit 10.46 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.32	401(k) and Profit Sharing Retirement Savings Plan between Jazz Semiconductor, Inc. and Fidelity dated January 6, 2003 — Incorporated by reference to Exhibit 10.47 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.33	License Agreement between Jazz Semiconductor, Inc. and Conexant Systems, Inc. dated as of July 2, 2004 — Incorporated by reference to Exhibit 10.48 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.34	Loan and Security Agreement by and among Jazz Semiconductor, Inc., Newport Fab, LLC and Wachovia Capital Finance Corporation (Western), dated as of January 6, 2006 — Incorporated by reference to Exhibit 10.49 to Jazz’s Registration Statement on Form S-1 (Registration No. 333-133485).
10.35	Consent by and among Jazz Semiconductor, Inc., Newport Fab, LLC and Wachovia Capital Finance Corporation (Western), dated as of February 16, 2007.
10.36	Employment Agreement, dated as of September 26, 2006, by and between Jazz Semiconductor, Inc. and Shu Li.
99.1	Jazz Technologies, Inc. Selected Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Audited Financial Statements.
99.2	Jazz Semiconductor, Inc. Selected Consolidated Historical Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Audited Consolidated Financial Statements.
99.3	Summary Unaudited Pro Forma Condensed Combined Financial Information and Unaudited Pro Forma Condensed Combined Financial Statements.

† Confidential treatment requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Jazz Technologies, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	JAZZ TECHNOLOGIES, INC.
Date: February 23, 2007	By:	/s/ Allen R. Grogan
		Allen R. Grogan
		Chief Legal Officer and Secretary

EXHIBIT INDEX

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation.
10.14	Third Amendment to Half Dome Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated as of September 26, 2006.
10.18	Third Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated September 1, 2006.
10.19	Fourth Amendment to El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated September 26, 2006.
10.35	Consent by and among Jazz Semiconductor, Inc., Newport Fab, LLC and Wachovia Capital Finance Corporation (Western), dated as of February 16, 2007.
10.36	Employment Agreement, dated as of September 26, 2006, by and between Jazz Semiconductor, Inc. and Shu Li.
99.1	Jazz Technologies, Inc. Selected Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Audited Financial Statements.
99.2	Jazz Semiconductor, Inc. Selected Consolidated Historical Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Audited Consolidated Financial Statements.
99.3	Summary Unaudited Pro Forma Condensed Combined Financial Information and Unaudited Pro Forma Condensed Combined Financial Statements.

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

ACQUICOR TECHNOLOGy INC.

Gilbert F. Amelio hereby certifies as follows:

1.The name of the Corporation is “Acquicor Technology Inc.”;

2.The Corporation’s original Certificate of Incorporation was filed in the office of the Secretary of State of the State of Delaware on August 12, 2005;

3.This Amended and Restated Certificate of Incorporation restates, integrates and amends the Amended and Restated Certificate of Incorporation of the Corporation filed with the Secretary of State on February 21, 2006 (together, the “Prior Certificate”);

4.This Amended and Restated Certificate of Incorporation was duly adopted by the directors and stockholders of the Corporation in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware; and

5.The text of the Prior Certificate is hereby amended and restated to read, in full, as follows:

First. The name of the Corporation is hereby changed to “Jazz Technologies, Inc.”

Second. The address of the registered office of the corporation in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware 19801, and the name of the registered agent of the corporation in the State of Delaware at such address is The Corporation Trust Company.

Third. The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporations Law (“DGCL”).

Fourth. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is Two Hundred and One Million (201,000,000), Two Hundred Million (200,000,000) shares of which shall be designated “Common Stock,” having a par value of $0.0001 per share, and One Million (1,000,000) shares of which shall be designated “Preferred Stock,” having a par value of $0.0001 per share.

A.Preferred Stock. The Board of Directors is expressly granted authority to issue shares of Preferred Stock, in one or more series, and to fix for each such series such voting powers, full or limited, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such series (a “Preferred Stock Designation”) and as may be permitted by the DGCL. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof, unless a vote of any such holders is required to take such action pursuant to any Preferred Stock Designation. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.

B.Common Stock. Except as otherwise required by law or as otherwise provided in any Preferred Stock Designation, the holders of Common Stock shall exclusively possess all voting power and each share of Common Stock shall have one vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock).

Fifth.

A.Subject to any rights of the holders of any series of Preferred Stock to elect additional directors (as specified in any Preferred Stock Designation related to such series of Preferred Stock), following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public (the “IPO”), the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. At the first annual meeting of stockholders following the closing of the IPO, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the IPO, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the IPO, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. During such time or times that the Corporation is subject to Section 2115(b) of the California Corporation Code (the “CCC”), Section A of this Article Fifth shall not apply and all directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting.

B.No stockholder entitled to vote at an election for directors may cumulate votes to which such stockholder is entitled, unless, at the time of such election, the corporation is subject to Section 2115(b) of the CCC. During such time or times that the corporation is subject to Section 2115(b) of the CCC, every stockholder entitled to vote at an election for directors may cumulate such stockholder’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder’s shares are otherwise entitled, or distribute the stockholder’s votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder’s votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder’s intention to cumulate such stockholder’s votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.

Notwithstanding the foregoing provisions of this section, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

C.During such time or times that the Corporation is subject to Section 2115(b) of the CCC, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director’s removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director’s most recent election were then being elected. At any time or times that the Corporation is not subject to Section 2115(b) of the CCC and subject to any limitations imposed by law, Section C of this Article Fifth above shall no longer apply and removal shall be as provided in Section 141(k) of the DGCL.

D.Subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified.

E.At any time or times that the corporation is subject to Section 2115(b) of the CCC, if, after the filling of any vacancy by the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then

(1)Any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or

(2)The Superior Court of California of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CCC. The term of office of any director shall terminate upon that election of a successor.

Sixth. The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

A.The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by a majority of the authorized number of directors constituting the Board of Directors.

B.Election of directors need not be by ballot unless the Corporation’s Bylaws so provide.

C.The Board of Directors shall have the power, without the assent or vote of the stockholders, to make, alter, amend, change, add to or repeal the Corporation’s Bylaws as provided in the Corporation’s Bylaws.

D.[Reserved].

E.The directors in their discretion may submit any contract or act for approval or ratification at any Annual Meeting of Stockholders or at any Special Meeting of Stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or be ratified by the vote of the holders of a majority of the stock of the Corporation which is represented in person or by proxy at such meeting and entitled to vote thereat (provided that a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and binding upon the Corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the Corporation, whether or not the contract or act would otherwise be open to legal attack because of directors’ interests, or for any other reason.

F.In addition to the powers and authorities hereinbefore stated or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation; subject, notwithstanding, to the provisions of applicable law, this Certificate of Incorporation, and any bylaws from time to time made by the stockholders; provided, however, that no bylaw so made shall invalidate any prior act of the directors which would have been valid if such bylaw had not been made.

Seventh. The following paragraphs shall apply with respect to liability and indemnification of officers and directors:

A.A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Any repeal or modification of this paragraph A by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation with respect to events occurring prior to the time of such repeal or modification.

B.The Corporation, to the full extent permitted by Section 145 of the DGCL, as amended from time to time, shall indemnify all persons whom it may indemnify pursuant thereto. Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative, or investigative action, suit or proceeding or which such officer or director may be entitled to indemnification hereunder shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized hereby.

C.The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the CCC) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or through shareholder resolutions, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the CCC, subject, at any time or times the corporation is subject to Section 2115(b) to the limits on such excess indemnification set forth in Section 204 of the CCC.

Eighth. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

In Witness Whereof, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by Gilbert F. Amelio, its Chairman and Chief Executive Officer, as of this 16th day of February, 2007.

/s/ Gilbert F. Amelio                                      

Gilbert F. Amelio 

Chairman and Chief Executive Officer 

EX-10.14

Exhibit 10.14

THIRD AMENDMENT TO LEASE

(Half Dome Building)

THIS THIRD AMENDMENT TO LEASE (the “Amendment”) is made as of the 26th day of September, 2006 (“Effective Date”), by and between Conexant Systems, Inc., a Delaware corporation (“Landlord”), and Newport Fab, LLC, a Delaware limited liability company, doing business as Jazz Semiconductor (“Tenant”), with respect to the following:

RECITALS

A.Landlord is the landlord and Tenant is the tenant pursuant to that certain written lease dated March 12, 2002, by and between Landlord, as landlord, and SpecialtySemi, Inc. (“Original Tenant”), as tenant and amended as of May 1, 2004 and December 31, 2005 (collectively, the “Lease”). The Lease covers certain premises (the “Leased Premises”) known as Building 501 and as Half Dome located at 4311 Jamboree Road, Newport Beach, California (“Building”). Tenant has succeeded to the interests of Original Tenant under the Lease.

B.Tenant’s parent, Jazz Semiconductor, Inc. (“Jazz”), and Acquicor Technology Inc. (“Acquicor”) are parties to that certain Agreement and Plan of Merger (“Merger Agreement”) dated as of the date hereof pursuant to which Jazz shall become a wholly-owned subsidiary of Acquicor.

C.Landlord and Tenant wish to modify and amend the Lease, subject to the conditions set forth herein.

AGREEMENT

NOW, THEREFORE, IN CONSIDERATION OF the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant hereby agree as follow:

1.Capitalized Terms. Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Lease.

2.Modifications of Lease. Section 15.1(b) of the Lease is hereby deleted in its entirety and is of no further force and effect.

3.Services and Pass-Through Costs. Landlord shall maintain, repair and replace the air conditioning, heating and ventilation system, the plumbing in restrooms, the fire life safety systems and the fire extinguishers serving the Leased Premises. Tenant shall be responsible for all other maintenance of the Leased Premises. Notwithstanding the provisions of the Lease, Tenant shall pay its pro rata share of any property taxes, security costs and all maintenance and repair costs for the Building (“Pass-Through Costs”). Tenant shall also pay for gas, electrical, sewer and water services and for janitorial and waste management and removal services for the Leased Premises, or if such services are not separately metered or provided, Tenant shall pay its pro rata share of such costs calculated on a per square foot basis, and all such costs are included within the definition of Pass-Through Costs. Tenant shall pay all Pass-Through Costs within thirty (30) days following billing from Landlord.

4.Relocation of Premises. Landlord shall have a one time right to relocate the Premises to another building located within one mile of the Leased Premises as detailed in Exhibit A attached hereto and made a part hereof, on the following terms and conditions:

(a)Landlord shall provide to Tenant not less than six (6) months advance written notice of the date of such relocation, and no such relocation shall occur within twelve (12) months following the Closing, as defined in the Merger Agreement. Tenant shall provide Landlord with written notice of the Closing within ten (10) business days after the Closing.

(b)The new premises shall be of a single, contiguous space of approximately equal size and shall contain reasonably comparable quality of finishes and function as the Leased Premises as of the time immediately prior to such relocation (including without limitation, conference room capacity) and, if necessary, shall be placed in that condition by Landlord at the cost of Landlord. Tenant shall have the use of 150 non-exclusive parking spaces contiguous to the new premises. The parties hereby agree that any existing or future building in Koll Center Newport is reasonably comparable to the Building.

(c)The physical relocation of the furniture, fixtures, equipment, signage and personal property of Tenant from the Leased Premises to the new premises shall be accomplished by Landlord at the cost of Landlord.

(d)The physical relocation of Tenant to the new premises shall take place outside of normal business hours or other mutually agreed upon time.

(e)All reasonable out-of-pocket costs incurred by Tenant in connection with such relocation, including without limitation costs incurred in changing addresses on stationery, business cards, directories, websites, advertising, postage for a distribution of such information and other related and similar items, but excluding any lost revenues or other intangible costs, shall be paid by Landlord. There shall be no abatement of rent payable under the Lease on account of Tenant’s relocation provided that if Tenant is unable to use either the Leased Premises or new premises for the conduct of its business as reasonably determined by the parties, then all rent shall be abated on a per diem basis.

(f)Base Rent for the new premises shall be equal to the Expense Rent immediately prior to such relocation. No change in Base Rent shall be made regardless of the actual measurement of the new premises or the building of which they form a part, except that On each anniversary of the date upon which Tenant commences to do business in the new premises on or following the Closing, Landlord may increase the Base Rent by three percent (3%). Tenant shall pay Pass-Through Costs for the new premises provided they do not exceed the amount Pass-Through Costs would have been for the Leased Premises during the same period.

(g)Upon Landlord’s exercise of its relocation right, the Lease shall automatically be amended to delete the last sentence of Section 7.1 and to delete Section 15.1(c) in order to permit Tenant to assign this Lease or extend the term hereof without concurrently assigning or extending the El Capitan Lease, and the El Capitan Lease shall be automatically amended to delete the last sentence of Section 7.1 therein in order to permit Tenant to assign the El Capitan Lease without concurrently assigning this Lease.

(h)The parties shall promptly execute an amendment to the Lease identifying the new premises or, if the new premises are leased by Landlord as tenant and being provided to Tenant under a sublease, then the parties shall promptly execute a sublease for the new premises which incorporates the provisions of the Lease, as modified by this Amendment.

5.Condition Precedent to Effectiveness of this Amendment. Sections 2 and 4 of this Amendment shall not be effective unless and until the Closing, as defined in the Merger Agreement, has occurred. In the event the Merger Agreement is terminated for any reason without a Closing occurring, then Sections 2 and 4 of this Amendment shall be void and of no effect.

6.Lease in Effect. Landlord and Tenant acknowledge and agree that the Lease, except as amended by this Amendment, remains unmodified and in full force and effect in accordance with its terms.

7.Entire Agreement. This Amendment embodies the entire understanding between Landlord and Tenant with respect to the subject matter hereof and can be changed only by an instrument in writing executed by both Landlord and Tenant.

8.Conflict of Terms. In the event that there is any conflict or inconsistency between the terms and conditions of the Lease and those of this Amendment, the terms and conditions of this Amendment shall control and govern the rights and obligations of the parties.

IN WITNESS WHEREOF, the undersigned have entered into this Amendment as of the Effective Date of this Amendment.

LANDLORD:	TENANT:
Conexant Systems, Inc.,	Newport Fab, LLC, a Delaware limited
a Delaware corporation	liability company, dba Jazz Semiconductor
By: /s/ Scott Blouin	By: /s/ Shu Li
Name: Scott Blouin	Name: Shu Li
Title: CFO & SVP of Conexant	Title: President & CEO

EX-10.18

Exhibit 10.18

THIRD AMENDMENT TO LEASE

THIS THIRD AMENDMENT TO LEASE (the "Amendment") is made of the 1st day of September, 2006 (the "Effective Date of the Third Amendment"), by and between CONEXANT SYSTEMS, INC., a Delaware corporation ("Landlord"), and Newport Fab, LLC, a Delaware limited liability company, doing business as JAZZ SEMICONDUCTOR, LLC ("Tenant"), with respect to the following:

RECITALS

A.Landlord is the landlord and Tenant is the tenant pursuant to that certain written Lease dated March 12, 2002, by and between Landlord, as landlord, and SpecialtySemi Inc. ("Original Tenant"), as tenant which has been subsequently amended (the "Lease"). The Lease covers certain premises (the "Leased Premises") known as Buildings 503 and 505 and as El Capitan located at 4321 Jamboree Road, Newport Beach, California (collectively, the "Building"). Tenant has succeeded to the interests of Original Tenant under the Lease.

B.Tenant desires to lease from Landlord certain additional space in the Building as more particularly depicted on Attachment A hereto (the "Additional Space"), and Landlord is willing to consent thereto, but only on the terms and conditions set forth in this Amendment.

AGREEMENT

NOW, THEREFORE, IN CONSIDERATION OF the foregoing Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

1.Capitalized Terms. Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Lease.

2.Leasing of Additional Space.

a.From and after the Effective Date of the Third Amendment, Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the Additional Space for the term, at the rental and upon all of the conditions and agreements described herein.

b.Unless otherwise provided in this Amendment or required by the context of the Lease as amended hereby, from and after the Effective Date of this Amendment through the Lease Expiration Date, Section 1.1(v) of the Lease is hereby amended to read in its entirety as follows:

The term "Leased Premises" shall mean certain interior space in the building outlined on Exhibit "B" hereto consisting of approximately (i) 296,032 rentable square feet as of the Effective Date, (ii) 311,217 rentable square feet as of April 2, 2005, (iii) 311,697 rentable square feet as of May 1, 2005 and (iv) 320,510 rentable square feet as of the Effective Date of the Third Amendment. The parties acknowledge and agree that the total building square footage is 330,430.

c.Exhibit B to the Lease is amended by including therein the depiction of the Additional Space attached to this Amendment as Attachment A.

3.Commencement Date. The commencement date of the Lease with respect to the Additional Space is the Effective Date of the Third Amendment, from and after which Tenant shall observe or perform, with respect to the Additional Space, all obligations of Tenant with respect to the Leased Premises pursuant to the Lease as amended hereby.

4.Tenant's Pro Rata Share. Section 1.1(bb) of the Lease is here replaced in its entirety with the following: “The term ‘Tenant’s Pro Rata Share’ shall mean the percentage obtained by dividing the number of rentable square feet in the Leased Premises by the number of rentable square feet in the Building, at the time of calculation. As of the Effective Date of this Amendment, such percentage is 90% and as of May 1, 2005, it is 94% and as of the Effective Date of the Third Amendment, it is 97%. In the event that any portion of the Property is sold by Landlord, or the rentable square footage of the Leased premises or the Building is otherwise changed, tenant’s pro Rata Share shall be recalculated to equal the percentage described in the first sentence of this paragraph, so that the aggregate Tenant’s Pro Rata Share of all tenants, occupants, and/or licensees of the Building shall equal 100%. Notwithstanding the foregoing, (1) ‘Tenant’s Pro Rata Share’ of property taxes as described in paragraph (1)(n)(i) above shall mean 100%, (2) ‘Tenant’s Pro Rata Share’ of any Common Area maintenance costs shall mean 84% as of May 1, 2005 and 85.4% as of the Effective Date of the Third Amendment (3) ‘Tenant’s Pro Rata Share’ of electricity shall mean 87% as of November 1, 2002 and 88.4% as of November 15, 2004 and 89.2% as of the Effective Date of the Third Amendment and gas shall mean 89% as of August 1, 2003 and 99% as of November 15, 2004.”

5.Brokers. Tenant represents that no broker, agent or finder has any claim under, by or through Tenant for a commission or fee in connection with the Additional Space.

6.Lease in Effect. Landlord and Tenant acknowledge and agree that the Lease, except as amended by this Amendment, remains unmodified and in full force and effect in accordance with its terms.

7.Entire Agreement. This Amendment embodies the entire understanding between Landlord and Tenant with respect to the subject matter hereof and can be changed only by an instrument in writing executed by both Landlord and Tenant.

8.Conflict of Terms. In the event that there is any conflict or inconsistency between the terms and conditions of the Lease and those of this Amendment, the terms and conditions of this Amendment shall control and govern the rights and obligations of the parties.

IN WITNESS WHEREOF, the undersigned have entered into this Amendment to be effective as of the date first above written.

LANDLORD: CONEXANT SYSTEMS, INC., a Delaware corporation	TENANT: Newport Fab, LLC, a Delaware limited liability company, dba Jazz Semiconductor, LLC
By:/s/Jacob L. Cisneros                                                 Name:Jacob L. Cisneros                                                 Title:Manager, Facilities & Corp. Real Estate	By:/s/ Nabil Alali                               Name:Nabil Alali                              Title:VP of Operations

EX-10.19

Exhibit 10.19

FOURTH AMENDMENT TO LEASE

(El Capitan Building)

THIS FOURTH AMENDMENT TO LEASE (the “Amendment”) is made as of the 26th day of September, 2006 (“Effective Date”), by and between Conexant Systems, Inc., a Delaware corporation (“Landlord”), and Newport Fab, LLC, a Delaware limited liability company, doing business as Jazz Semiconductor (“Tenant”), with respect to the following:

RECITALS

A.Landlord is the landlord and Tenant is the tenant pursuant to that certain written lease dated March 12, 2002, by and between Landlord, as landlord, and SpecialtySemi, Inc. (“Original Tenant”), as tenant and amended as of October 1, 2004, November 31, 2005 and September 1, 2006 (collectively, the “Lease”). The Lease covers certain premises (the “Leased Premises”) known as Buildings 503 and 505 and as El Capitan located at 4321 Jamboree Road, Newport Beach, California (collectively, the “Building”). Tenant has succeeded to the interests of Original Tenant under the Lease.

B.Tenant and Acquicor Technology Inc. (“Parent”) are parties to that certain Agreement and Plan of Merger (“Merger Agreement”) dated as of September 26, 2006 pursuant to which Tenant shall be merged into and become a wholly-owned subsidiary of Parent.

C.Landlord and Tenant wish to modify and amend the Lease, subject to the conditions set forth herein.

AGREEMENT

NOW, THEREFORE, IN CONSIDERATION OF the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant hereby agree as follow:

1.Capitalized Terms. Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Lease.

2.Modifications of Lease. Section 15.1(b) of the Lease is hereby deleted in its entirety and is of no further force and effect.

3.Condition Precedent to Effectiveness of this Amendment. This Amendment shall not be effective unless and until the Closing, as defined in the Merger Agreement, has occurred. In the event the Merger Agreement is terminated for any reason without a Closing occurring, then this Amendment shall be void and of no effect.

4.Lease in Effect. Landlord and Tenant acknowledge and agree that the Lease, except as amended by this Amendment, remains unmodified and in full force and effect in accordance with its terms.

5.Entire Agreement. This Amendment embodies the entire understanding between Landlord and Tenant with respect to the subject matter hereof and can be changed only by an instrument in writing executed by both Landlord and Tenant.

6.Conflict of Terms. In the event that there is any conflict or inconsistency between the terms and conditions of the Lease and those of this Amendment, the terms and conditions of this Amendment shall control and govern the rights and obligations of the parties.

IN WITNESS WHEREOF, the undersigned have entered into this Amendment as of the Effective Date of this Amendment.

LANDLORD:	TENANT:
Conexant Systems, Inc., a Delaware corporation	Newport Fab, LLC, a Delaware limited liability company, dba Jazz Semiconductor
By: /s/ Dennis E. O’Reilly ______	By: /s/ Shu Li_____________________
Name: Dennis E. O'Reilly_______	Name: Shu Li_____________________
Title:Senior Vice President & Chief Legal Officer	Title: Chief Executive Officer ________

EX-10.35

Exhibit 10.35

February 16, 2007

Jazz Semiconductor, Inc.

4321 Jamboree Road

Newport Beach, California 92660

Ladies and Gentlemen:

Reference is made to that certain Loan and Security Agreement, dated as of January 6, 2006 (the “Loan Agreement”), by and among Wachovia Capital Finance Corporation (Western) (“Lender”), Jazz Semiconductor, Inc., a Delaware corporation (“Parent”), and Newport Fab, LLC, a Delaware limited liability company (“Operating Company”, Operating Company and Parent, collectively, the “Borrowers”, and each a “Borrower”). Unless otherwise defined in this letter, any capitalized terms that are defined in the Loan Agreement shall have the same meanings as used herein.

Pursuant to the terms of Section 9.7(a) of the Loan Agreement (and subject to certain exceptions), no Borrower shall permit any Person to merge into or with or consolidate with it. Borrowers wish to have Joy Acquisition Corp., a Delaware corporation (“Merger Sub”), merge with and into Parent (with Parent as the surviving corporation) in accordance with the terms of that certain Agreement and Plan of Merger dated as of September 26, 2006, by and among Acquicor Technology Inc., a Delaware corporation (“Acquicor”), Merger Sub, Parent, and TC Group, L.L.C (the “Proposed Merger”). The terms of Section 9.7(a) of the Loan Agreement prohibit such an action by the Borrowers and therefore the Borrowers have requested that the Lender consent to such action.

Lender hereby consents to the Borrowers consummating the Proposed Merger; provided that (i) within ten (10) Business Days of the date hereof Borrowers and Lender, in its capacity as agent for certain financial institutions, have amended and restated the Loan Agreement consistent with the terms of that certain Commitment Letter dated September 26, 2006, issued by Lender and Wachovia Capital Markets, LLC to Acquicor; and (ii) from the date hereof no additional Loans or Letters of Credit shall be available to Borrowers under the Loan Agreement (it being understood that loans and letters and credit would be made available to Borrowers under the terms and subject to the conditions contained in such amended and restated loan agreement).

Except as expressly provided herein, nothing contained herein shall (i) amend, modify or alter any term or condition of the Loan Agreement or any other Financing Agreement or (ii) diminish, prejudice or waive any of the Lender’s rights and remedies under the Loan Agreement (including the right to require strict compliance with the terms of Section 9.7(a) of the Loan Agreement at any time hereafter), any other Financing Agreement or applicable law, and the Lender hereby reserves all of such rights and remedies.

This letter agreement shall be construed under and governed by the internal laws of the State of California, and may be executed in any number of counterparts and by different parties on separate counterparts. Each of such counterparts shall be deemed to be an original, and all of such counterparts, taken together, shall constitute but one and the same agreement. Delivery of an executed counterpart of this letter agreement by telefacsimile or electronic transmission of a “pdf” (or other such viewable, printable data file) shall be equally effective as delivery of a manually executed original counterpart.

Very truly yours,
WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN),
a California corporation
By:	/s/ Robin L. Van Meter
Name:	Robin L. Van Meter
Title:	Vice President

Accepted and agreed:
JAZZ SEMICONDUCTOR, INC.,
a Delaware corporation
By:	/s/ Harsha Tank
Name:	Harsha Tank
Title:	Interim CFO and Secretary

NEWPORT FAB, LLC,
a Delaware limited liability company
By:	/s/ Shu Li
Name:	Shu Li
Title:	President

EX-10.36

Exhibit 10.36

EMPLOYMENT AGREEMENT

This Employment Agreement (the “EmploymentAgreement”) is entered into as of September 25, 2006 (the “Date of this Employment Agreement”) by and between Shu Li, an individual (“Executive”) and Jazz Semiconductor, Inc., a Delaware corporation (the “Company”). Executive and the Company are hereinafter collectively referred to as the “Parties”, each as a “Party”.

A.Whereas, Acquicor Technology Inc., a Delaware corporation (the “Parent”), Joy Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (the “Merger Sub”), the Company and the stockholders’ representative named therein are entering into that certain Agreement and Plan of Merger (the “Merger Agreement”) dated as of the date hereof pursuant to which the Company will become a wholly-owned subsidiary of Parent (the “Merger”);

B.Whereas, Executive is a key employee of the Company, and is intimately familiar with the Company’s operations, plans, trade secrets, proprietary information, business activities and operations;

C.Whereas, Executive’s past experience and skills make Executive singularly qualified to render special, unique, unusual and extraordinary services to the Company, and Executive will receive significant consideration and other benefits from the consummation of the Merger Agreement;

D.Whereas, as an inducement to, and in consideration of, the Parent’s agreement to enter into the Merger Agreement, Executive has offered to continue to serve as an employee of the Company after the date the Merger closes pursuant to the Merger Agreement (the “Effective Date”) and to provide personal services in exchange for certain compensation and benefits; and

E.Whereas, the Parent would not enter into the Merger Agreement but for Executive’s agreement to enter into this Employment Agreement and to provide continuing employment services to the Company pursuant to the terms and conditions set forth herein;

Now, Therefore, in consideration of the mutual promises and covenants contained herein, the Parties agree as follows:

1.Condition Precedent. Executive’s employment with the Company pursuant to this Employment Agreement shall commence immediately on the Effective Date. If Executive’s employment with the Company ends for any reason prior to the Effective Date, or the Merger is not consummated for any reason, the Employment Agreement shall be deemed null and void, and the offer of employment contained herein shall not be binding upon the Company, the Parent or any other person or entity.

2.Employment by the Company.

2.1Job Title and Responsibilities. The Company shall employ Executive in the position of Chief Executive Officer and President (“CEO”) and Executive hereby accepts such employment on the terms set forth herein. Executive shall report directly to the Chief Executive Officer of Parent (the “Parent CEO”), and shall perform all duties customarily associated with Executive’s job title and all such other duties as may be reasonably assigned to Executive. Executive shall perform his duties from the Company’s corporate headquarters in Newport Beach, California or from such other location that Executive and the Company may agree upon. Executive will devote his best efforts and substantially all of his professional time and attention to the business of the Company, subject to reasonable vacation or sick leave allowed by Company policy or as otherwise permitted by the Company. The Company reserves the right to change Executive’s job title, duties, reporting relationship and work location from time to time, as it deems necessary, subject to the terms and conditions set forth herein.

2.2Company Employment Policies. Executive agrees to abide by all Company employment policies and procedures in effect from time to time that are applicable to management level employees of the Company, and to sign and acknowledge receipt of any such written policies or procedures as requested by the Company from time to time. Except for the Company’s at-will employment policy (described below), the Company may modify, revoke, suspend or terminate its policies and procedures at any time, with or without notice.

3.Compensation and Benefits.

3.1Salary. Executive shall receive for services rendered hereunder a base salary paid at the rate of $422,923 per year, less required payroll deductions and withholdings (the “Base Salary”), paid on the Company’s customary payroll payment dates. The Company reserves the right to modify Executive’s compensation at other times, subject to all other terms and conditions set forth in this Employment Agreement.

3.2Annual Performance Bonus. Executive shall be eligible to earn annual bonus compensation (the “Bonus”) as a participant in the Company's current 2006 Employee Quarterly Performance Bonus Program and in any annual bonus plan that may hereafter be established by the Company for the Executive or its executive team generally. The prerequisites for Executive’s earning of any Bonus in a 2007 plan and in any plan hereafter established, as well as the amount of any bonus that may be awarded, shall be determined by the terms and conditions of the applicable bonus plan and/or by the Parent's Board of Directors (the “Board”) in its discretion. To the extent that the amount of Executive’s Bonus is based on Executive’s achievement of certain Company and personal performance and business objectives (the “Performance Objectives”), the Performance Objectives shall be approved by the Parent CEO for the relevant Bonus year. It shall be Executive’s responsibility to obtain written approval of the Performance Objectives before the start of the applicable Bonus year. The Parent CEO, after consulting with the Board, will determine, in his sole discretion, to what extent Executive achieved the Performance Objectives, and the amount of the Bonus earned as a result, if any. Executive must remain employed with the Company through the end of the accounting quarter in order to be eligible to earn a Bonus for that quarter. No pro-rated or partial Bonus may be earned or paid. Executive shall not be eligible to earn any other bonus or incentive compensation from the Company except as expressly authorized in a writing signed by the Parent CEO.

3.3Stock Options/Equity. Executive may be awarded stock options or other equity awards (collectively, the “Equity Awards”) pursuant to terms of the Company’s governing equity incentive plan (the “Plan”) as determined by the Compensation Committee of the Board in its sole discretion. The exercisability, vesting and other terms and conditions governing the Equity Awards will be governed solely by the Plan and separate written agreements governing such Equity Awards, and not by this Employment Agreement.

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3.4Expense Reimbursements. Executive will be reimbursed by the Company for all reasonable, documented business expenses incurred in the course of performing his duties hereunder, in accordance with the Company’s governing expense reimbursement policies and procedures, in effect from time to time. When traveling on Company business, Executive shall be entitled to business class or first class airline travel.

3.5Company Benefits Package. Executive will continue to be eligible to participate in the Company’s standard employee benefits package (including group medical, dental and vision insurance coverage, paid holiday, vacation and sick leave, and 401(k) plan participation) on the terms and conditions applicable to such benefit plans, as may be in effect from time to time. Executive and the Company each hereby represent that as of the Date of this Employment Agreement, Executive has a balance of 100.28 hours of accrued, unused vacation time, and that Executive will continue to accrue additional vacation after the Effective Date at his then-current accrual rate (i.e., 4.62 hours per pay period) in accordance with the Company’s vacation policies and procedures in effect from time to time, up to a maximum accrued balance of 1.75 times Executive’s annual vacation accrual rate. For purposes of determining Executive’s eligibility and/or rights under any applicable Company benefit plan, Executive will be credited as providing employment services effective as of his start date as reflected in the Company’s records (i.e, January 24, 2000). The Company reserves the right to suspend, modify or terminate employee benefits at any time, in its sole discretion.

4.Proprietary Information, Rights and Duties.

4.1Employee Confidential Information and Inventions Agreement. As a condition of employment, Executive must sign the Employee Confidential Information and Inventions Assignment Agreement (the “Confidential Information Agreement”), attached hereto as Exhibit A.

4.2Exclusive Property. Executive agrees that all Company-related business procured by Executive, and all Company-related business opportunities and plans made known to Executive while employed by the Company, are and shall remain the permanent and exclusive property of the Company.

5.     Outside Activities During Employment.

5.1Activities. Except with the prior written consent of the Board and as otherwise provided below, Executive will not during his employment with the Company undertake or engage in any other employment, occupation or business enterprise. Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of his duties hereunder. Subject to the limitations of Sections 5.2 and 5.3 of this Employment Agreement and with the prior written consent of the Board, Executive may serve as a director of other corporations and may devote a reasonable amount of his time to other types of business or public activities not expressly mentioned in this Section.

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5.2Investments and Interests. During Executive’s employment with the Company, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by his to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise.

5.3Non-Competition. During Executive’s employment with the Company, except on behalf of the Company, Executive will not directly or indirectly, whether as an officer, director, stockholder, partner, proprietor, associate, representative, consultant, or in any capacity whatsoever engage in, become financially interested in, be employed by or have any business connection with any other person, corporation, firm, partnership or other entity whatsoever known by his to compete directly with the Company, anywhere in the world, in any line of business engaged in (or planned to be engaged in) by the Company; provided, however, that the Executive may purchase or otherwise acquire up to (but not more than) one percent (1%) of any class of securities of any enterprise (but without participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended.

6.Termination/Severance Benefits.

6.1At-Will Employment. Executive’s relationship with the Company is at-will. Accordingly, both the Company and Executive may terminate the employment relationship at any time, with or without Cause or good reason, and with or without advance notice. Upon termination of Executive’s employment for any reason (the “Termination Date”), the Company will pay Executive all accrued but unpaid base salary, accrued but unpaid bonuses, unpaid expense reimbursements and accrued but unused vacation earned through the Termination Date, less applicable withholdings and deductions, in accordance with applicable law. Except as expressly provided in Section 6.2 and 6.3 of this Employment Agreement, Executive shall not be entitled to receive any additional compensation (including Base Salary, Bonuses, incentive compensation, or equity), severance, or benefits from the Company after the Termination Date, with the exception of any vested right Executive may have under the express terms of a written ERISA-qualified benefit plan (e.g., 401(K) account). To the extent Executive is governed by any severance plan, program or policy which the Company has in effect now or may adopt in the future, Executive shall be entitled to receive only the greater of the severance benefits available to him under any such plan, program or policy, or under this Employment Agreement.

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6.2Severance Benefits.

(a)Benefits. If, within one (1) year after the Effective Date, Executive’s employment with the Company is terminated without Cause or Executive resigns his employment for any or no reason (each a “Covered Termination”), the Company shall pay Executive, as severance, an amount equal to two (2) times the sum of (i) Executive’s annualized Base Salary in effect as of the Effective Date (i.e., $845,846), plus (ii) an amount equal to the total bonus compensation paid to Executive during the twelve (12) month period immediately preceding the Termination Date(the “Severance Payment”). The Severance Payment shall be subject to payroll withholding and deduction. (For purposes of calculating the Severance Payment, the Parties acknowledge and agree that, during the twelve (12) month period immediately prior to Date of this Employment Agreement, Executive received the bonus compensation set forth in Exhibit B hereto.) To the extent provided by the federal COBRA law or, if applicable, state insurance laws (collectively, “COBRA”) and by the Company’s then-current group health insurance policies, provided Executive timely elects continued health insurance coverage pursuant to the governing COBRA laws and the terms of the applicable health insurance plans, as a further severance benefit, the Company will pay directly to the applicable insurance carrier all COBRA premiums necessary to continue Executive’s health insurance coverage as of the Termination Date (including dependent coverage, if applicable) in effect for eighteen (18) months after the Termination Date (the “COBRA Reimbursement”). In addition, the Company shall, at the end of such eighteen (18) month period, pay directly to Executive a lump sum equal to six (6) times the then most recent monthly COBRA premium paid by Company to the applicable insurance carrier (the “Additional Health Reimbursement”). The COBRA Reimbursement and the Additional Health Reimbursement shall be reported for tax purposes as earnings. The Additional Health Reimbursement shall be subject to payroll withholding and deduction. The Executive shall at his discretion be allowed to receive the Severance Payment shall be paid in a lump sum or as salary and benefits continuation in bi-weekly installments. If the Executive chooses to be paid in a lump sum, such amount, less applicable withholdings and deductions, will be paid within ten (10) business days after Executive provides the Company with an effective Release, as required under Section 6.2(d) below. If the Executive chooses to be paid in salary continuation, then the Severance Payment, less applicable withholdings and deductions, will be paid in bi-weekly installments over the applicable 52 week or 104 week period after the Executive provides the Company with an effective Release, as required under Section 6.2(d) below.

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

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(c)Release And Other Requirements. Executive must provide the Company with an effective general release of claims in substantially the form attached hereto as Exhibit B (the “Release”) as a precondition to receiving the Severance Payment or COBRA Reimbursement (together, the “Severance Benefits”). Executive further understands and agrees that, if Executive materially breaches his obligations under the Confidential Information Agreement or that certain Noncompetition Agreement entered into by the Executive on behalf of the Company, the Parent and certain other Indemnitees on the date hereof (the “Noncompetition Agreement”), and such material breach, if reasonably susceptible of cure, has not been cured within thirty (30) days following Executive’s receipt of written notice from the Company specifying the particulars of the conduct constituting a material breach of either such agreement, then in addition (and without prejudice) to all other remedies and relief available to the Company; (i) Executive shall be eligible to receive only $100.00 of total Severance Benefits available under this Employment Agreement, (ii) Executive’s entitlement to all other severance benefits, including any unpaid balance of Severance Benefits, shall immediately terminate; (iii) if the Severance Benefits have already been paid to Executive, Executive agrees to immediately remit to the Company the gross amount of all Severance Benefits paid or otherwise provided to him except for $100.00; and (iv) Executive’s Release shall remain in full force and effect, notwithstanding the reduction in Severance Benefits. No breach by Executive of the Confidential Information Agreement shall be considered “material” for purposes of the immediately preceding sentence unless it is reasonably foreseeable that the breach could result in material competitive harm to the Company or Executive has acted or failed to act, either intentionally or with an absence of good faith or with substantial lack of concern for his compliance with Confidential Information Agreement.

6.3Deferred Compensation. Because of the uncertainty of the application of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), to payment of the Severance Benefits, Executive and the Company hereby agree that if any Severance Benefits are subject to the provisions of Section 409A of the Code by reason of this Employment Agreement, or any part thereof, being considered a “nonqualified deferred compensation plan” pursuant to Section 409A of the Code, then such payments shall be made in accordance with, and this Employment Agreement shall be amended to comply with, Section 409A of the Code, including, without limitation, any necessary delay of six (6) months applicable to payment of deferred compensation to a “specified employee” (as defined in Section 409A(2)(B)(i) of the Code) upon separation from service.

7.Dispute Resolution.

7.1Mandatory Arbitration. To ensure the rapid and economical resolution of disputes that may arise in connection with Executive’s employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to the enforcement, breach, performance, execution or interpretation of this Employment Agreement, Executive’s employment, or the termination of that employment, shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration conducted in Newport Beach, California by a single arbitrator with JAMS (formerly known as “Judicial Arbitration and Mediation Services”), or its successor, under the then-applicable JAMS’ arbitration rules. Executive acknowledges that by agreeing to this arbitration procedure, both Executive and the Company are waiving the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to determine if an issue is subject to this arbitration obligation, and to award any or all remedies that Executive or the Company would be entitled to seek in a court of law. To the extent permitted by applicable law, the Company shall reimburse the Executive for all legal costs and expenses reasonably incurred (and documented in invoices) in connection with any dispute under this Agreement, so long as the Executive substantially prevails in such dispute. The Company shall pay all JAMS’ arbitration fees.

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7.2Limitations. Nothing in this Section 7 shall or is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any arbitration held pursuant to this Section.

8.General Provisions.

8.1Notices. Any notices provided hereunder must be in writing and shall be deemed to be received upon the earlier of personal delivery (including, personal delivery by facsimile transmission), delivery by express delivery service (e.g. Federal Express), or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at most current home address as listed on the Company payroll (which address may be changed by written notice).

8.2Severability. Whenever possible, each provision of this Employment Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Employment Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but such invalid, illegal or unenforceable provision will be reformed, construed and enforced in such jurisdiction so as to render it valid, legal, and enforceable consistent with the intent of the parties insofar as possible.

8.3Waiver. Any waiver of any right hereunder must be in evidenced in a writing signed by the waiving party to be effective, and any such waiver shall not be construed to be a waiver of any preceding or succeeding breach of the same or any other provision of this Employment Agreement.

8.4Entire Agreement. This Employment Agreement, together with the Confidential Information Agreement, the Noncompetition Agreement, constitutes the entire agreement between Executive and the Company regarding the subject matter hereof and it supersedes any and all prior agreements, promises, representations or understandings, written or otherwise, between Executive and the Company with regard to this subject matter. This Employment Agreement is entered into without reliance on any agreement, or promise, or representation, other than those expressly contained or incorporated herein, and it cannot be modified or amended except in a writing signed by Executive and a duly authorized representative of the Board.

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8.5Headings and Construction. The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof or to affect the meaning thereof. Any ambiguities in this Employment Agreement shall not be construed against either Party as the drafter.

8.6Successors and Assigns. This Employment Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company.

8.7Governing Law. All questions concerning the construction, validity and interpretation of this Employment Agreement shall be governed by the law of the State of California as applied to contracts made and to be performed entirely within California.

8.8Counterparts. This Employment Agreement may be executed in separate counterparts, which shall be taken together and shall constitute one agreement. Facsimile and PDF signatures shall be as effective as originals.

In Witness Whereof, the parties enter into this Employment Agreement as of the Effective Date (as defined above).

Jazz Semiconductor, Inc.

By: /s/ Carolyn Follis                               

Print Name:Carolyn Follis                      

Title: General Counsel                             

/s/ Shu Li                                                                                         

Shu Li

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Exhibit A

EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTIONS ASSIGNMENT AGREEMENT

(CEO)

In consideration of my employment or continued employment by Jazz Semiconductor, Inc., a Delaware corporation (“Company”), and the compensation paid to me now and during my employment with the Company, I agree to the terms of this Agreement as follows:

1.Confidential Information Protections.

1.1Nondisclosure; Recognition of Company’s Rights. At all times during and after my employment, I will hold in confidence and will not disclose, use, lecture upon, or publish any of Company’s Confidential Information (defined below), except as may be required in connection with my work for Company, or as expressly authorized by the Company’s Board of Directors (the “Board”), or the Chief Executive Officer (the “CEO”) of Company (if I am no longer employed with the Company at the time such authorization is requested). I will obtain written approval from the Board or the CEO (as applicable) before publishing or submitting for publication any material (written, oral, or otherwise) that relates to my work at Company and/or incorporates any Confidential Information. I hereby assign to Company any rights I may have or acquire in any and all Confidential Information and recognize that all Confidential Information shall be the sole and exclusive property of Company and its assigns.

1.2Confidential Information. The term “Confidential Information” shall mean any and all confidential knowledge, data or information related to Company’s business or its actual or demonstrably anticipated research or development, including without limitation (a) trade secrets, inventions, ideas, processes, computer source and object code, data, formulae, programs, other works of authorship, know-how, improvements, discoveries, developments, designs, and techniques; (b) information regarding products, services, plans for research and development, marketing and business plans, budgets, financial statements, contracts, prices, suppliers, and customers; (c) information regarding the skills and compensation of Company’s employees, contractors, and any other service providers of Company; and (d) the existence of any business discussions, negotiations, or agreements between Company and any third party. Notwithstanding the forgoing, “Confidential Information” shall not include any of the forgoing items which has become publicly known and made generally available other than through my violation of this Agreement.

1.3Third Party Information. I understand that Company has received and in the future will receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty on Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. During and after the term of my employment, I will, in accordance with and subject to the terms and limitations of the Company’s duties to maintain the confidentiality of such information and to use it only for certain limited purposes, hold Third Party Information in strict confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for Company) or use, Third Party Information, except in connection with my work for Company or unless expressly authorized by an officer of Company in writing.

1.4No Improper Use of Information of Prior Employers and Others. I represent that my employment by Company does not and will not breach any agreement with any former employer, including any noncompete agreement or any agreement to keep in confidence or refrain from using information acquired by me prior to my employment by Company. I further represent that I have not entered into, and will not enter into, any agreement, either written or oral, in conflict with my obligations under this Agreement. During my employment by Company, I will not improperly make use of, or disclose, any information or trade secrets of any former employer or other third party, nor will I bring onto the premises of Company or use any unpublished documents or any property belonging to any former employer or other third party, in violation of any lawful agreements with that former employer or third party. I will use in the performance of my duties only information that is generally known and used by persons with training and experience comparable to my own, is common knowledge in the industry or otherwise legally in the public domain, or is otherwise provided or developed by Company.

2.Inventions.

2.1Inventions and Intellectual Property Rights. As used in this Agreement, the term “Invention” means any ideas, concepts, information, materials, processes, data, programs, know-how, improvements, discoveries, developments, designs, artwork, formulae, other copyrightable works, and techniques and all Intellectual Property Rights in any of the items listed above. The term “Intellectual Property Rights” means all trade secrets, copyrights, trademarks, mask work rights, patents and other intellectual property rights recognized by the laws of any jurisdiction or country. Nothing in this Agreement shall prohibit me from (i) disclosing information and documents when required by law, subpoena or court order, (ii) disclosing information and documents to any attorney or tax adviser for the purpose of securing legal or tax advice; (iii) disclosing my post-employment restrictions in this Agreement in confidence to any potential new employer, or (iv) retaining, at any time, my personal correspondence and documents relating only to my own person benefits, entitlements and obligations.

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2.2Prior Inventions. I have disclosed on Exhibit Aa complete list of all Inventions that (a) I have, or I have caused to be, alone or jointly with others, conceived, developed, or reduced to practice prior to the commencement of my employment by Company; (b) in which I have an ownership interest or which I have a license to use; (c) and that I wish to have excluded from the scope of this Agreement (collectively referred to as “Prior Inventions”). If no Prior Inventions are listed in Exhibit A, I warrant that there are no Prior Inventions. I agree that I will not incorporate, or permit to be incorporated, Prior Inventions in any Company Inventions (defined below) without Company’s prior written consent. If, in the course of my employment with Company, I incorporate a Prior Invention into a Company process, machine or other work, I hereby grant Company a non-exclusive, perpetual, fully-paid and royalty-free, irrevocable and worldwide license, with rights to sublicense through multiple levels of sublicensees, to reproduce, make derivative works of, distribute, publicly perform, and publicly display in any form or medium, whether now known or later developed, make, have made, use, sell, import, offer for sale, and exercise any and all present or future rights in, such Prior Invention.

Assignment of Company Inventions. Inventions assigned to the Company or to a third party as directed by the Company pursuant to the section titled “Government or Third Party” are referred to in this Agreement as “Company Inventions.” Subject to the section titled “Government or Third Party” and except for Inventions that I can prove qualify fully under the provisions of California Labor Code section 2870 and I have set forth in Exhibit A, I hereby assign and agree to assign in the future (when any such Inventions or Intellectual Property Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to Company all my right, title, and interest in and to any and all Inventions (and all Intellectual Property Rights with respect thereto) made, conceived, reduced to practice, or learned by me, either alone or with others, during the period of my employment by Company.

2.3Government or Third Party. I agree that, as directed by the Company, I will assign to a third party, including without limitation the United States, all my right, title, and interest in and to any particular Company Invention.

2.4Enforcement of Intellectual Property Rights and Assistance. During and after the period of my employment, I will assist Company in every proper way to obtain and enforce United States and foreign Intellectual Property Rights relating to Company Inventions in all countries. If the Company is unable to secure my signature on any document needed in connection with such purposes, I hereby irrevocably designate and appoint Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act on my behalf to execute and file any such documents and to do all other lawfully permitted acts to further such purposes with the same legal force and effect as if executed by me.

2.5Incorporation of Software Code. I agree that I will not incorporate into any Company software or otherwise deliver to Company any software code licensed under the GNU General Public License or Lesser General Public License or any other license that, by its terms, requires or conditions the use or distribution of such code on the disclosure, licensing, or distribution of any source code owned or licensed by Company.

3.Records. I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that is required by the Company) of all Inventions made by me during the period of my employment by the Company, which records shall be available to, and remain the sole property of, the Company at all times.

4.Additional Activities. I agree that during the term of my employment by Company, I will not directly or indirectly, without Company’s express written consent: (a) engage in any employment or business activity that is competitive with, or would otherwise conflict with my employment by, Company; or (b) solicit or attempt to solicit any employee, independent contractor, consultant or customer of Company to terminate his, her or its relationship with Company in order to become an employee, consultant, independent contractor, or customer to or for any other person or entity.

5.Return of Company Property. Upon termination of my employment or upon Company’s request at any other time, I will deliver to Company all of Company’s property, equipment, and documents, together with all copies thereof, and any other material containing or disclosing any Inventions, Third Party Information or Confidential Information and certify in writing that I have fully complied with the foregoing obligation. I agree that I will not copy, delete, or alter any information contained upon my Company computer or Company equipment before I return it to Company. In addition, if I have used any personal computer, server, or e-mail system to receive, store, review, prepare or transmit any Company information, including but not limited to, Confidential Information, I agree to provide the Company with a computer-useable copy of all such Confidential Information and then permanently delete and expunge such Confidential Information from those systems; and I agree to provide the Company access to my system as reasonably requested to verify that the necessary copying and/or deletion is completed. I further agree that any property situated on Company’s premises and owned by Company is subject to inspection by Company’s personnel at any time with or without notice. Prior to the termination of my employment or promptly after termination of my employment, I will cooperate with Company in attending an exit interview and certify in writing that I have complied with the requirements of this section.

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6.Notification of New Employer. If I leave the employ of Company, I consent to the notification of my new employer of my rights and obligations under this Agreement, by Company providing a copy of this Agreement or otherwise.

7.General Provisions.

7.1Governing Law and Venue. This Agreement and any action related thereto will be governed and interpreted by and under the laws of the State of California, without giving effect to any conflicts of laws principles that require the application of the law of a different state.I expressly consent to personal jurisdiction and venue in the state and federal courts for the county in which Company’s principal place of business is located for any lawsuit filed there against me by Company arising from or related to this Agreement.

7.2Severability. If any provision of this Agreement is, for any reason, held to be invalid or unenforceable, the other provisions of this Agreement will remain enforceable and the invalid or unenforceable provision will be deemed modified so that it is valid and enforceable to the maximum extent permitted by law.

7.3Survival. This Agreement shall survive the termination of my employment and the assignment of this Agreement by Company to any successor or other assignee and be binding upon my heirs and legal representatives.

7.4Employment. I agree and understand that nothing in this Agreement shall give me any right to continued employment by Company, and it will not interfere in any way with my right or Company’s right to terminate my employment at any time, with or without cause and with or without advance notice.

7.5Notices. Each party must deliver all notices or other communications required or permitted under this Agreement in writing to the other party at the address listed on the signature page, by courier, by certified or registered mail (postage prepaid and return receipt requested), or by a nationally-recognized express mail service. Notice will be effective upon receipt or refusal of delivery. If delivered by certified or registered mail, notice will be considered to have been given five (5) business days after it was mailed, as evidenced by the postmark. If delivered by courier or express mail service, notice will be considered to have been given on the delivery date reflected by the courier or express mail service receipt. Each party may change its address for receipt of notice by giving notice of the change to the other party.

7.6Injunctive Relief. I acknowledge that, because my services are personal and unique and because I will have access to the Confidential Information of Company, any breach of this Agreement by me would cause irreparable injury to Company for which monetary damages would not be an adequate remedy and, therefore, will entitle Company to injunctive relief (including specific performance). The rights and remedies provided to each party in this Agreement are cumulative and in addition to any other rights and remedies available to such party at law or in equity.

7.7Waiver. Any waiver or failure to enforce any provision of this Agreement on one occasion will not be deemed a waiver of that provision or any other provision on any other occasion.

7.8Export. I agree not to export, directly or indirectly, any U.S. technical data acquired from Company or any products utilizing such data, to countries outside the United States, because such export could be in violation of the United States export laws or regulations.

7.9Entire Agreement. If no other agreement governs nondisclosure and assignment of inventions during any period in which I was previously employed or am in the future employed by Company as an independent contractor, the obligations pursuant to sections of this Agreement titled “Confidential Information Protections” and “Inventions” shall apply. If any other agreement governs my nondisclosure of information and assignment of inventions during any period in which I was previously employed with the Company, this Agreement and such prior agreements shall be taken together and construed as one agreement; provided, however, that to the extent any term of any such prior agreement conflicts or is in consistent with the terms set forth herein, this Agreement shall control. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior communications between us with respect to such matters, and is meant to be consistent with the Noncompetition Agreement between me and the Company. No modification of or amendment to this Agreement, or any waiver of any rights under this Agreement, will be effective unless in writing and signed by me and a duly authorized representative of the Board (if I am an employee of the Company at the time of such modification) or the CEO of Company (if I am not an employee at the time of such modification). Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.

11

This Agreement shall be effective as of the first day of my employment with Company.

EMPLOYEE:		JAZZ SEMICONDUCTOR, INC.:
I have read, understand, and Accept this agreement and have been given the opportunity to Review it with independent legal counsel.		Accepted and agreed:
/s/ Shu Li		/s/ Carolyn Follis
(Signature)		(Signature)
By:	Shu Li	By:	Carolyn Follis
Title:	Chief Executive Officer	Title:	General Counsel
Date:	9/26/06	Date:	9/26/06
Address:	566 Nyes Place Laguna Beach, California 92651	Address:	4321 Jamboree Road Newport Beach, California 92660

12

EXHIBIT A OF EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTIONS ASSIGNMENT AGREEMENT

INVENTIONS

1.Prior Inventions Disclosure. The following is a complete list of all Prior Inventions (as provided in Section 2.2 of the attached Employee Confidential Information and Inventions Assignment Agreement, defined herein as the “Agreement”):

o None

o See immediately below:

2.Limited Exclusion Notification.

This is to notify you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and Company does not require you to assign or offer to assign to Company any Invention that you develop entirely on your own time without using Company’s equipment, supplies, facilities or trade secret information, except for those Inventions that either:

a.Relate at the time of conception or reduction to practice to Company’s business, or actual or demonstrably anticipated research or development; or

b.Result from any work performed by you for Company.

To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.

This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.

13

Exhibit B

Bonus compensation Paid prior to Date of this Employment Agreement

Date of Payment	Gross Amount of Bonus Paid
7/27/2006	$73,078.54

14

Exhibit C

Release of Claims

I, _____________, hereby acknowledge and agree that: (a)I have been paid all accrued salary and other compensation, as well as all accrued unused vacation, owed to me for my services to Jazz Semiconductor, Inc. (the “Company”) through and including the date my employment with the Company terminated (the “Termination Date”); (b) I understand and will abide by all continuing obligations under my Confidential Information Agreement and Noncompetition Agreement with the Company (as defined in my Employment Agreement with the Company dated August __, 2006 (the “Employment Agreement”)); and (c) within thirty (30) days after Termination Date, I will submit all final documented expense reimbursement statements reflecting all business expenses incurred by me through and including the Termination Date, if any, for which I seek reimbursement.

In consideration for the Severance Benefitsto be provided to me under the Employment Agreement to which I would not otherwise be entitled, I hereby release the Company, AcquicorTechnology, Inc., The Carlyle Group, each of such entities’ parents, subsidiaries, successors, predecessors and affiliates, and each of such entities’ directors, officers, employees, agents, attorneys, insurers, affiliates and assigns (individually and collectively, the “Released Parties”), of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I sign this Release of Claims (the “Release”). This general release includes, but is not limited to: (a) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (b) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other equity interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990 (as amended), the federal Age Discrimination in Employment Act (as amended), the California Labor Code, and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, this release shall not release the Company from: (i) its obligation (consistent with applicable Company policy) to reimburse me for valid business expenses that I have incurred on behalf of the Company and that I submit for reimbursement within thirty (30) days after the Termination Date; (ii) its obligations to provide me with the Severance Benefits set forth in the Employment Agreement; or (iii) any obligation to indemnify me pursuant to the Company’s certificate of incorporation and bylaws, any written indemnification agreement to which I am a party or applicable law. Further notwithstanding the foregoing, this release shall not release any of the Released Parties from: (y) any rights that I may have under the Merger Agreement; or (z) any rights I may have to seek contribution or indemnification for third party claims. I represent that I have no lawsuits, claims or actions pending in my name, or on behalf of any other person or entity, against the Company or any other person or entity subject to the release granted in this paragraph.

15

I acknowledge that I am also knowingly and voluntarily waiving and releasing any rights that I may have under the under the Age Discrimination in Employment Act of 1967, as amended (the “ADEA”). I acknowledge that the consideration given for this waiver and release is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Release; (b) I have been advised hereby that I should consult with an attorney prior to executing this Release; (c) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily sign it earlier); (d) I have seven (7) days after the date I sign this Release to revoke my agreement to it (by providing the Company (through its General Counsel) with written notice of such revocation); and (e) my acceptance of this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth day after I sign it (provided I do not earlier revoke my acceptance of it) (the “Release Effective Date”).

I understand that this Release includes a release of all unknown and unsuspected claims. I acknowledge that I have read and understand Section 1542 of the California Civil Code, which states: “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.” I hereby waive all rights and benefits under Section 1542 of the California Civil Code and any law or legal principle of similar effect in any jurisdiction with regard to this Release, including my release of unknown and unsuspected claims herein.

This Release, together with the Employment Agreement, the Confidential Information Agreement, and the Noncompetition Agreement (including the exhibits thereto) (collectively, the “Agreements”), constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation not expressly stated in the Agreements.

Understood and agreed:

____________________________________ Date:______________________

[Executive]

16

EX-99.1

Exhibit 99.1

JAZZ TECHNOLOGIES, INC.

(FORMERLY ACQUICOR TECHNOLOGY INC.)

SELECTED FINANCIAL DATA,

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

AND FINANCIAL STATEMENTS

SELECTED FINANCIAL DATA

The following selected financial and other operating data of Jazz Technologies, Inc. (“Parent,” “we” or “us”) should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Parent’s financial statements and the related notes to those. The statement of operations data for the year ending December 31, 2006 and the period from August 12, 2005 (inception) through December 31, 2005 and the balance sheet data as of December 31, 2006 and 2005 have been derived from Parent’s audited financial statements. Historical results are not necessarily indicative of results to be expected in any future period.

Statements of Operations

(in thousands, except per share data)

	Year ended December 31, 2006			August 12, 2005 (date of inception) through December 31, 2005
	(in thousands)
Operating expenses:
General and administrative	$	316		$	3
Consulting		280			--
Insurance		73			--
Total operating expenses		669		$	3
Other income (expense):
Interest income		4,935			--
Interest expense		(487	)		(3	)
Total other income (expense)		4,448			(3	)
Net income (loss) before provision for taxes		3,779			(6	)
Provision for taxes		485			—
Net income (loss)	$	3,294		$	(6	)
Accretion of trust account relating to common stock subject to possible conversion		(649	)		--
Net income (loss) attributable to other common stockholders	$	2,645		$	(6	)
Weighted average common shares outstanding subject to possible conversion		5,739			--
Basic and diluted net income per share subject to possible conversion	$	0.11		$	--
Weighted average common shares outstanding		22,704			5,374
Basic and diluted net income per share	$	0.12		$	--

1

Balance Sheets

(in thousands)

	December 31, 2006		December 31, 2005
Assets
Current assets:
Cash and cash equivalents	$	633	$	76
Cash and cash equivalents held in trust account		167,715		—
Cash and cash equivalents held in convertible note escrow account		166,750		—
Accrued interest receivable in trust account		489		—
Accrued interest receivable in convertible note escrow account		273		—
Prepaid insurance		66		—
Deferred offering costs		—		417
Total current assets	$	335,926	$	493
Deferred acquisition costs		2,163		—
Debt issuance costs		6,017		—
Total assets	$	344,106	$	493
Liabilities and stockholders’ equity
Deferred underwriting fees	$	3,450	$	—
Other current liabilities		9,133		474
Long term liabilities:
8% convertible senior notes due 2011		166,750		—
Common stock, subject to possible conversion		33,511		—
Total stockholders’ equity		131,262		19
Total liabilities and stockholders’ equity	$	344,106	$	493

2

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

On February 16, 2007, we consummated the acquisition of Jazz Semiconductor, Inc., a Delaware corporation (“Jazz”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) among Parent, Joy Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), Jazz and TC Group, L.L.C., as stockholders’ representative, whereby Merger Sub merged with and into Jazz with Jazz becoming our wholly-owned subsidiary (the “Merger”). As a result of the consummation of the Merger, we expect our future operating results will differ substantially from our historical results of operations.

On December 19 and 22, 2006, we completed private placements of $166.8 million aggregate principal amount of convertible senior notes. The gross proceeds from the convertible senior notes were placed in escrow pending the completion of the Merger.

Results of Operations

Net Income

For the fiscal year ended December 31, 2006, we had net income of approximately $3.3 million derived primarily from interest income related to the cash held in our trust account. For the period from August 12, 2005 (inception) through December 31, 2005, we had a net loss of approximately $6,300, related primarily to start-up costs and interest expense.

As of December 31, 2006, interest earned on the funds held in our trust account was our primary source of income and amounted to approximately $4,662,000. From inception to March 31, 2006, we incurred very little in expenses. Prior to January 1, 2006, we spent approximately $2,800 in general operating costs and $3,400 in interest expense. In the first quarter ended March 31, 2006, out of the approximately $57,000 in operating costs, $40,000 was spent on travel expenses in pursuit of an acquisition. In the three months ended June 30, 2006, we spent an additional $49,000 in travel-related expenses, $57,000 in consulting fees and $23,000 in insurance expense. In the three months ended September 30, 2006, we spent an additional $36,000 in travel-related expenses, $79,000 in consulting fees and $23,000 in insurance expense. In the three months ended December 31, 2006, we spent an additional $67,000 in travel-related expenses, $155,000 in consulting fees and $23,000 in insurance expense. We also accrued $487,000 in interest expense related to the completion of the convertible senior notes. A portion of the accrued interest was offset by the accrual of $273,000 in interest income from the escrowed proceeds of the offering. For the year ended December 31, 2006, we incurred a total of $669,000 in expenses, the primary components of which were $193,000 in travel-related expenses, $280,000 in consulting fees, $74,000 in insurance expense and $122,000 in general and administrative expenses.  The $487,000 in interest expense on the notes was offset by $273,000 in interest income. In addition, as of December 31, 2006, we had incurred approximately $8.2 million in acquisition and debt issuance costs, of which approximately $7.9 million were unpaid.

Changes In Financial Condition

Liquidity and Capital Resources

On March 13, 2006, we consummated a private placement of 333,334 units with Acquicor Management LLC and certain of our directors. Each unit consists of one share of common stock and two warrants. Each warrant entitles the holder to purchase from us one share of our common stock at an exercise price of $5.00. The units were sold at an offering price of $6.00 per unit, generating total gross proceeds of $2.0 million. Approximately $280,000 of the proceeds from the private placement were used to repay a loan from Acquicor Management LLC, a holder of more than 10% of our outstanding shares of common stock.

3

On March 17, 2006, we consummated our initial public offering of 25,000,000 units and, on March 21, 2006, we consummated the exercise in full of the underwriters’ over-allotment option of 3,750,000 units. The units were sold at an offering price of $6.00 per unit, generating total gross proceeds of $172.5 million. We paid a total of $8.6 million in underwriting discounts and commissions in connection with our initial public offering. $164.3 million of the proceeds from our initial public offering and the private placement were deposited in a trust account at Lehman Brothers, maintained by Continental Stock Transfer & Trust Company acting as trustee. We also agreed to pay the underwriters additional deferred underwriting discounts and commissions of $3.5 million upon the consummation of the Merger.

As discussed above, in December 2006, we completed private placements of $166.8 million aggregate principal amount of convertible senior notes, the gross proceeds of which were placed in escrow pending consummation of the Merger. In connection with the private placement, we agreed to pay the initial purchasers of the notes a fee of $5.8 million upon consummation of the Merger.

On February 16, 2007, the funds in the trust account and the escrowed proceeds from the sale of convertible senior notes were released to us upon consummation of the Merger. We used a substantial portion of the proceeds to fund the Merger consideration, pay transaction expenses, pay the deferred underwriting fees and the fee to the initial purchasers of our convertible senior notes, and make payments to stockholders who elected to covert their common stock in connection with the Merger. We expect to use the remaining proceeds to fund our operations after the Merger and to fund the stock and warrant repurchase program that we announced on January 11, 2007.

As of December 31, 2006, we had incurred approximately $1.8 million of unpaid acquisition costs. We believe we will have sufficient funds to pay any unpaid acquisition costs and to cover our operating expenses for at least the next 12 months.

Off-Balance Sheet Arrangements

As of December 31, 2006, other than contractual obligation incurred in the normal course of business, we did not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity.

Contractual Obligations

Our long-term debt obligations and other commitments as of December 31, 2006 are as follows:

	Payment Due by Period
	Total		Less than 1 Year		1 -3 Years		3 - 5 Years		After 5 Years
	(in thousands)
Long term debt obligations:
Convertible senior notes	$	166,750		—		—	$	166,750		—
Total contractual commitments	$	166,750		—		—	$	166,750		—

Selected Quarterly Financial Information

The following table sets forth our unaudited quarterly statements of operations for each of the four quarters in the year ended December 31, 2006 and for the period from August 12, 2005 (inception) to December 31, 2005. You should read the following table in conjunction with our financial statements and related notes contained elsewhere in this prospectus. We have prepared the unaudited information on the same basis as our audited financial statements. This table includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. Operating results for any quarter are not necessarily indicative of results for the full fiscal year or any other future period.

4

	Aug. 12 to Sept. 30, 2005			Dec. 31, 2005			Mar. 31, 2006			June 30, 2006			Sept. 30, 2006			Dec. 31, 2006
	(In thousands, except per share data)
Statements of operations data:
Operating expenses:
General and administrative		3			—			57			57			132			70
Consulting		—			—			—			57			69			154
Insurance		—			—			4			23			23			23
Total expenses		3			—			61			137			224			247
Loss from operations		(3	)		—			(61	)		(137	)		(224	)		(247	)
Interest income		—			—			218			1,451			1,515			1,751
Interest expense		—			(3	)		(2	)		—			—			(485	)
Provision for tax		—			—			(2	)		(96	)		(73	)		(314	)
Net income (loss)		(3	)		(3	)		153			1,218			1,218			705
Accretion of trust account		—			—			(43	)		(271	)		(213	)		(122	)
Net income attributable to other common stockholders		—			—			110			947			1,005			583
Basic and diluted net income per common share subject to conversion		—			—			0.01			0.05			0.03			0.02
Basic and diluted net income per common share		0.00			0.00			0.03			0.03			0.04			0.02
Shares used in computing basic and diluted net income per common share subject to conversion		—			—			5,550			5,750			5,750			5,750
Shares used in computing basic and diluted net income per common share		5,374			5,374			4,519			28,707			28,707			28,707

Critical Accounting Policies

In December 2006, the Financial Accounting Standards Board issued FASB Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements (“FSP 00-19-2”), which provides guidance on accounting for registration payment arrangements. FSP 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies. FSP 00-19-2 is required to be applied to reporting periods beginning after December 15, 2006. We early adopted FSP 00-19-2 in the fourth quarter of 2006 and applied FSP 00-19-2 to account for a registration payment arrangement in connection with our convertible senior notes.

In connection with the issuance of our convertible senior notes, we entered into a registration rights agreement that requires us to file and maintain the effectiveness of a registration statement covering the resale of the convertible senior notes and the shares of common stock issuable upon conversion of the notes. If (i) a registration statement covering the resale of the notes and the underlying common is not declared effective within 180 days of stockholder approval of the merger proposal and the authorized shares proposal, (ii) after the registration statement is declared effective, the registration statement ceases to be effective or usable and we do not amend or supplement such registration statement to make it effective, (iii) after the registration statement is declared effective, use of the registration statement is suspended for more than 90 days, whether consecutive or not, in any 12-month calendar period or (iv) we fail to timely amend or supplement the registration statement to name a new holder of notes as a selling securityholder under the registration statement, then we will be required to pay additional interest on the convertible senior notes. The amount of additional interest will be equal to 0.25% per year of the principal amount of the then outstanding notes for the first 90 days of any failure to meet the foregoing registration requirements and will increase to 0.50% per year after the first 90 days. Once the event giving rise to the additional interest has been cured, the interest payable on the notes will return to the initial 8% interest rate. Our obligation to maintain the effectiveness of the registration statement ends upon the earlier to occur of (i) two years from the date of effectiveness of the registration statement, (ii) the date when all holders of notes and/or the underlying shares of common stock are eligible to sell such securities under Rule 144(k) promulgated under the Securities Exchange Act of 1933, as amended, (iii) the date when all securities registered under the registration statement have been sold and (iv) the date when all securities registered under the registration statement cease to be outstanding. We estimate that the maximum amount of consideration that we could be required to transfer to holders of the convertible senior notes under the registration payment obligation is approximately $1.1 million.

5

Given the grace periods within which we can satisfy our registration obligations, we believe a transfer under the registration payment arrangement is remote, and accordingly under FSP 00-19-2 we have not recorded a liability related to the registration payment arrangement in our financial statements.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, commodity prices, equity prices and other market-driven rates or prices. Our exposure to market risk is limited to interest income sensitivity with respect to the funds placed in the trust account. However, the funds held in our trust account have been invested only in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940, as amended, or securities issued or guaranteed by the United States. Due to the nature of our short-term investments, we do not believe we are subject to any material interest rate risk exposure. We are not and, until such time as we consummate a business combination, we will not be, exposed to risks associated with foreign exchange rates, commodity prices, equity prices or other market-driven rates or prices.

6

Jazz Technologies, Inc.

(a development stage company)

Index to Financial Statements

	Page
Financial Statements
Report of independent registered public accounting firm	F-2
Balance sheets as of December 31, 2006 and 2005	F-3
Statements of operations for the year ended December 31, 2006, the period from August 12, 2005 (date of inception) through December 31, 2005 and the period from August 12, 2005 through December 31, 2006	F-4
Statement of stockholder’s equity for the period from August 12, 2005 (date of inception) through December 31, 2006	F-5
Statements of cash flows for the year ended December 31, 2006, the period from August 12, 2005 (date of inception) through December 31, 2005 and the period from August 12, 2005 through December 31, 2006	F-6
Notes to financial statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Jazz Technologies, Inc.

We have audited the accompanying balance sheets of Jazz Technologies, Inc. (formerly Acquicor Technology Inc.) (a development stage company) as of December 31, 2006 and 2005 and the related statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2006, the period from August 12, 2005 (date of inception) through December 31, 2005 and the period from August 12, 2005 through December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jazz Technologies, Inc. as of December 31, 2006 and 2005 and the results of its operations and its cash flows for the year ended December 31, 2006, the period from August 12, 2005 (date of inception) through December 31, 2005 and the period from August 12, 2005 through December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note O, on February 16, 2007, the Company consummated the acquisition of Jazz Semiconductor, Inc.

/s/ BDO Seidman, LLP

New York, New York

February 21, 2007

F-2

JAZZ TECHNOLOGIES, INC.

(a development stage company)

Balance Sheets

	December 31, 2006		December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	633,286	$	76,523
Cash and cash equivalents held in trust account (Notes A and K)		167,715,009		—
Cash and cash equivalents held in convertible note escrow account (Note M)		166,750,000		—
Accrued interest receivable in trust account (Notes A and K)		488,875		—
Accrued interest receivable in convertible note escrow account (Note M)		272,789		—
Prepaid insurance		65,775		—
Deferred offering costs (Note D)		—		416,616
Total current assets		335,925,734		493,139
Deferred acquisition costs (Notes E and L)		2,163,173		—
Debt issuance costs (Notes E and M)		6,016,557		—
Total assets	$	344,105,464	$	493,139
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued expenses	$	167,988	$	6,099
Accrued acquisition costs (Note L)		1,798,367		—
Accrued offering costs		182,040		193,313
Accrued interest expense		444,667		—
Accrued debt issuance costs		6,056,913		—
Deferred underwriting fees (Notes C and D)		3,450,000		—
Taxes payable		482,710		—
Note payable to a stockholder (Note G)		—		275,000
Total current liabilities		12,582,685		474,412
Long term liabilities
8% Convertible Senior Notes due 2011 (Note M)		166,750,000		—
Total liabilities		179,332,685		474,412
Common stock, subject to possible conversion, 5,749,999 shares at conversion value (Note A)		33,510,655		—
Contingency (Note H) and commitments (Notes L and M)
STOCKHOLDERS’ EQUITY
Preferred stock — $0.0001 par value; 1,000,000 shares authorized; 0 shares issued and outstanding (Note I)		—		—
Common stock — $0.0001 par value; 100,000,000 shares authorized; 34,457,072 shares (including 5,749,999 shares subject to possible conversion) and 5,373,738 shares issued and outstanding at December 31, 2006 and December 31, 2005, respectively  (Notes A and J)		3,446		537
Additional paid-in capital		127,971,081		24,463
Retained earnings (deficit) accumulated during the development stage		3,287,597		(6,273	)
Total stockholders’ equity		131,262,124		18,727
Total liabilities and stockholders’ equity	$	344,105,464	$	493,139

See notes to financial statements

F-3

JAZZ TECHNOLOGIES, INC.

(a development stage company)

Statements of Operations

	Year Ended December 31, 2006			August 12, 2005 (date of inception) through December 31, 2005			August 12, 2005 (date of inception) through December 31, 2006
Operating expenses:
General and administrative	$	315,882		$	2,885		$	318,737
Consulting		279,502			—			279,502
Insurance		73,511			—			73,511
Total operating expenses		668,895			2,885			671,750
Other income (expense)
Interest income (Notes K and M)		4,934,878			—			4,934,878
Interest expense (Notes G and M)		(487,003	)		(3,418	)		(490,421	)
Total other income		4,447,875			—			4,444,457
Net income before provision for taxes		3,778,980			(6,273	)		3,772,707
Provision for taxes (Note F)		485,110			—			485,110
Net income for the period	$	3,293,870		$	(6,273	)	$	3,287,597
Accretion of Trust Account relating to common stock subject to possible conversion (Note A)		(649,060	)		—			(649,060	)
Net income attributable to other common stockholders	$	2,644,810		$	(6,273	)	$	2,638,537
Weighted average common shares outstanding subject to possible conversion (basic and diluted)		5,739,654			—
Basic and diluted net income per share subject to possible conversion	$	0.11			—
Weighted average number of shares outstanding (basic and diluted)		22,703,948			5,373,738
Basic and diluted net income per share	$	0.12		$	0.00

See notes to financial statements

F-4

JAZZ TECHNOLOGIES, INC.

(a development stage company)

Statement of Stockholders’ Equity

	Common Stock				Additional paid-in capital			Retained earnings (deficit) accumulated during the development stage			Total
	Shares		Amount
Balance — August 12, 2005 (date of inception)		—	$	—	$	—		$	—		$	—
Issuance of common stock to initial stockholder		5,373,738		537		24,463			—			25,000
Net loss for the period		—		—		—			(6,273	)		(6,273	)
Balance — December 31, 2005		5,373,738	$	537	$	24,463		$	(6,273	)	$	18,727
Sale of 28,750,000 units and representative’s option, net of underwriters’ discount and offering costs (Note A)		28,750,000		2,875		159,616,776			—			159,619,651
Proceeds from private placement of 333,334 units (Note A)		333,334		34		1,999,970			—			2,000,004
Net proceeds subject to possible conversion of 5,749,999 shares (Note A)		—		—		(32,861,595	)		—			(32,861,595	)
Accretion of Trust Account relating to common stock subject to possible conversion (Note A)		—		—		(649,060	)		—			(649,060	)
Reimbursement of additional offering expenses (Note H)		—		—		225,000			—			225,000
Additional offering expenses		—		—		(384,473	)		—			(384,473	)
Net income for the period		—		—		—			3,293,870			3,293,870
Balance — December 31, 2006		34,457,072	$	3,446	$	127,971,081		$	3,287,597		$	131,262,124

See notes to financial statements

F-5

JAZZ TECHNOLOGIES, INC.

(a development stage company)

Statements of Cash Flows

	Year Ended December 31, 2006			August 12, 2005 (date of inception) through December 31, 2005			August 12, 2005 (date of inception) through December 31, 2006
Cash flows from operating activities:
Net income for the period	$	3,293,870		$	(6,273	)	$	3,287,597
Adjustments to reconcile net income for the period to net cash used in operating activities:
Changes in assets and liabilities:
Accrued interest receivable		(761,664	)		—			(761,664	)
Prepaid insurance		(65,775	)		—			(65,775	)
Accrued expenses		(40,509	)		6,099			(34,410	)
Accrued offering costs		44,267			—			(179,036	)
Accrued interest expense		444,667			—			444,667
Taxes payable		482,710			—			482,710
Net cash provided by (used in) operating activities		3,397,566			(174	)		3,174,089
Cash flows from investing activities:
Cash and cash equivalents held in trust account		(167,715,009	)		(223,303	)		(167,715,009	)
Cash and cash equivalents held in convertible note escrow account		(166,750,000	)		—			(166,750,000	)
Net cash used in investing activities		(334,465,009	)		(223,303	)		(334,465,009	)
Cash flows from financing activities:
Proceeds from offering, net		165,248,657			—			165,248,657
Proceeds from convertible note offering, net		166,750,000			—			166,750,000
Proceeds from note payable to stockholder		—			275,000			275,000
Repayment of note payable to stockholder		(275,000	)		—			(275,000	)
Proceeds from issuance of common stock to initial stockholder		—			25,000			25,000
Reimbursement of additional offering expenses		225,000			—			225,000
Acquisition costs		(364,807	)		—			(364,807	)
Debt offering costs		40,356			—			40,356
Net cash provided by financing activities		331,624,206			300,000			331,924,206
Net increase in cash and cash equivalents		556,763			76,523			633,286
Cash and cash equivalents — beginning of period		76,523			—			—
Cash and cash equivalents — end of period	$	633,286		$	76,523		$	633,286
Supplemental disclosure of interest and taxes paid and non-cash investing and financing activities:
Interest paid	$	5,398		$	—		$	5,398
Taxes paid		2,400			—			2,400
Accrued offering costs		182,040			193,313			182,040
Accrued acquisition costs		1,798,367			—			1,798,367
Accrued debt issuance costs		6,056,913			—			6,056,913
Fair value of underwriter purchase option included in offering costs		4,974,580			—			4,974,580
Deferred underwriting fees		3,450,000			—			3,450,000
Accretion of trust fund relating to common stock subject to possible conversion		649,060			—			649,060

See notes to financial statements

F-6

JAZZ TECHNOLOGIES, INC.

(a development stage company)

Notes to Audited Financial Statements

December 31, 2006

NOTE A — ORGANIZATION AND BUSINESS OPERATIONS

Jazz Technologies, Inc., formerly known as Acquicor Technology Inc. (the “Company”), was incorporated in Delaware on August 12, 2005. The Company was formed to serve as a vehicle for the acquisition of one or more domestic and/or foreign operating businesses through a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination. The Company has neither engaged in any operations nor generated significant revenue to date. The Company is considered to be in the development stage and is subject to the risks associated with activities of development stage companies.

The registration statement for the Company’s initial public offering was declared effective on March 13, 2006. On March 13, 2006, the Company consummated a private placement of 333,334 units (the “Private Placement”) for an aggregate purchase price of approximately $2 million. On March 17, 2006, the Company consummated the public offering of 25,000,000 units (the “Public Offering”) for net proceeds of approximately $142 million. On March 21, 2006, the Company consummated the exercise of the over-allotment option of 3,750,000 units (as defined in Note C) (the “Over-Allotment Offering,” and together with the Public Offering, the “Offering”) for net proceeds of approximately $21 million.

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Offering and the Private Placement, although substantially all of the net proceeds of the Offering and the Private Placement are intended to be generally applied toward consummating a business combination with (or acquisition of) one or more domestic and/or foreign operating businesses in the technology, multimedia and networking industries (“Business Combination”). Upon the closing of the Private Placement and the Offering, approximately $164.3 million (including approximately $3.5 million of underwriters fees which have been deferred by the underwriters as described in Note C) was placed in a trust account (“Trust Account”) and was invested in money market funds meeting conditions of the Investment Company Act of 1940 or securities issued or guaranteed by the U.S. government until the earlier of (i) the consummation of the Company’s initial Business Combination or (ii) the distribution of the Trust Account as described below; provided, however, that up to $750,000 of the interest earned on the Trust Account (net of taxes payable on such interest) may be released to the Company to cover its operating expenses. The remaining proceeds and up to $750,000 of interest earned on the Trust Account (net of taxes payable on such interest) was used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. The Company, after signing a definitive agreement for the acquisition of a target business, submitted a Business Combination for stockholder approval on February 15, 2007. In the event that 20% or more of the outstanding stock (excluding, for this purpose, those shares of common stock issued prior to the Offering, including up to 333,334 shares included in the units purchased by the Company’s existing stockholders in the Private Placement) had voted against the Business Combination and exercised their conversion rights described below, the Business Combination would not have been consummated. Accordingly, Public Stockholders holding approximately 19.99% of the aggregate number of shares owned by all Public Stockholders could have sought conversion of their shares in the event of a Business Combination. Such Public Stockholders are entitled to receive their per share interest in the Trust Fund computed without regard to the shares held by the Company’s existing stockholders prior to the consummation of the Offering. In this respect, $33,510,655 (including $649,060 of accretion due to interest earned on the Trust Account, net of taxes payable on the income of the funds in the Trust Account) has been classified as common stock subject to possible conversion at December 31, 2006. The Company’s existing stockholders prior to the Offering agreed to vote all of the shares of common stock held by them immediately before the Private Placement and the Offering either for or against a business combination in the same manner that the majority of the shares of common stock are voted by all of the public stockholders of the Company with respect to the Business Combination. In addition, the existing stockholders and the Company’s directors, officers and special advisors agreed to vote any shares acquired by them in the Private Placement or in connection with or following the Offering in favor of the Business Combination.

F-7

As further described in Note O, on February 16, 2007, the Company consummated the acquisition of Jazz Semiconductor, Inc., a Delaware corporation (“Jazz”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) among the Company, Joy Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), Jazz and TC Group, L.L.C., as stockholders’ representative (the “Stockholders’ Representative”), whereby Merger Sub merged with and into Jazz with Jazz becoming a wholly-owned subsidiary of the Company (the “Merger”). Based in Newport Beach, California, Jazz is an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog and mixed-signal semiconductor devices.

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1]Cash and cash equivalents:

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

[2]Income per common share:

Basic net income per share is calculated by dividing net income attributable to (1) common stockholders and (2) common stockholders subject to possible conversion by their weighted average number of common shares outstanding during the period. Calculation of the weighted average common shares outstanding during the period is comprised of 5,373,738 initial shares outstanding throughout the period from January 1 to December 31, 2006 and an additional 29,083,334 shares (including 5,749,999 shares subject to possible conversion) outstanding after the effective date of the Offering in March 2006. No effect has been given to potential issuances of common stock from the Warrants or the Purchase Option (both as defined in Note C) in the diluted computation, as the effect would not be dilutive.

[3]Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

[4]Income taxes:

Deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. There were no deferred taxes at December 31, 2006.

The effective tax rate differs from the statutory rate of 34% due to the exemption of certain interest income from federal taxes.

[5]Recently issued accounting standards:

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.

[6]Registration payment arrangement:

The Company early adopted Financial Accounting Standards Board Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements (“FSP 00-19-2”) in the fourth quarter of 2006 to account for the registration payment arrangement in connection with the issuance of the Convertible Senior Notes (See Note M). FSP 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies. Given the grace periods within which the Company can satisfy its registration obligations, the Company has determined a transfer under the registration payment arrangement is remote, and accordingly under FSP 00-19-2 the Company has not recorded a liability related to the registration payment arrangement in its financial statements.

F-8

NOTE C — OFFERING

In the Public Offering, effective March 17, 2006, the Company sold 25,000,000 units. In the Over-Allotment Offering, effective March 21, 2006, the Company sold 3,750,000 units. The underwriters were paid fees equal to 5% of the gross proceeds of the Offering, or $8,625,000 and deferred an additional $3,450,000 (the “Deferred Fees”) of their underwriting fees until the consummation of a Business Combination. Upon the consummation of a Business Combination, the Company will pay such Deferred Fees out of the proceeds of the Offering held in the Trust Account. The underwriters will not be entitled to any interest accrued on the Deferred Fees. The underwriters have agreed to forfeit any rights to, or claims against, such proceeds if the Company does not successfully complete a business combination.

Each unit sold in the Offering consists of one share of the Company’s common stock, $0.0001 par value, and two redeemable common stock purchase warrants (each a “Warrant”). Each Warrant will entitle the holder to purchase from the Company one share of common stock at an exercise price of $5.00 commencing on the later of (a) one year from the date of the final prospectus for the Offering or (b) the completion of a Business Combination with a target business or the distribution of the Trust Account, and expiring five years from the date of the prospectus. The Warrants, including outstanding Warrants issuable upon exercise of the purchase option sold to ThinkEquity Partners LLC discussed below, will be redeemable at a price of $0.01 per Warrant upon 30 days notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $8.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to the date on which notice of redemption is given. Upon a redemption, the existing stockholders will have the right to exercise the Warrants included in the 333,334 units purchased in the Private Placement on a cashless basis. The Company does not need the consent of the underwriters in order to redeem the outstanding Warrants.

On November 9, 2006, the Company entered into a warrant clarification agreement with Continental to clarify and confirm the terms of the Warrant Agreement, dated as of March 15, 2006, between the Company and Continental (the “Warrant Agreement”). The warrant clarification agreement clarified, consistent with the terms of the Warrant Agreement and the disclosure contained in the prospectus dated March 15, 2006 (the “Prospectus”) filed by the Company with the Securities Exchange Commission (the “SEC”) in connection with the Offering, that if the Company is unable to deliver securities pursuant to the exercise of a Warrant because a registration statement under the Securities Act of 1933, as amended, with respect to the common stock is not effective, then in no event would the Company be obligated to pay cash or other consideration to the holders of Warrants or otherwise “net-cash settle” any Warrant exercise and that accordingly the Warrants may expire or be redeemed unexercised and be deprived of any value.

The Company also sold to ThinkEquity Partners LLC, the representative of the underwriters, for $100, an option (the “Purchase Option”) to purchase up to a total of 1,250,000 units, consisting of one share of common stock and two warrants, at $7.50 per unit, exercisable on the later of the consummation of the business combination and one year after the date of the final prospectus for the Offering and expiring five years after the date of the final prospectus for the Offering. The warrants underlying such units will have terms that are identical to those being issued in the Offering, with the exception of the exercise price, which will be set at $6.65 per warrant. The Company accounted for the fair value of the Purchase Option, inclusive of the receipt of the $100 cash payment, as an expense of the Offering resulting in a charge directly to stockholders’ equity. There was no net impact on the Company’s financial position or results of operations, except for recording the receipt of the $100 proceeds at the time of the sale of the Purchase Option. The Company estimated that the fair value of the Purchase Option was approximately $4,974,580 using the Black-Scholes option-pricing model. The fair value of the Purchase Option granted was estimated as of the date of grant using the following assumptions: (1) expected volatility of 86.4%, (2) a risk-free interest rate of 4.13% and (3) a contractual life of 5 years. However, because the units do not have a trading history, the expected volatility is based on information currently available to management. The expected volatility was derived by averaging five-year historical stock prices for a representative sample of 34 companies in the technology, multimedia and networking sectors with market capitalization between $100 million and $500 million, which management believes is a reasonable benchmark to use in estimating the expected volatility of the units after the consummation of a business combination. Although an expected life of five years was used in the calculation, if the Company does not consummate a business combination within the prescribed time period and the Company liquidates, the Purchase Option will become worthless. In addition, the Purchase Option provides for registration rights that will permit the holder of the Purchase Option to demand that a registration statement be filed with respect to all or any part of the securities underlying the Purchase Option within five years of the completion of the Offering. Further, the holders of the Purchase Option will be entitled to piggy-back registration rights in the event the Company undertakes a subsequent registered offering within seven years of the completion of the Offering.

F-9

On November 15, 2006, the Company entered into an unit purchase option clarification agreement with the holders of the Purchase Options. The agreement clarifies that if the Company is unable to deliver securities pursuant to the exercise of Purchase Options or the underlying Warrants because a registration statement under the Securities Act of 1933, as amended, with respect to the securities to be issued upon exercise is not effective, then in no event would the Company be obligated to pay cash or other consideration to the holders or otherwise “net-cash settle” any Purchase Option or Warrant exercise and that accordingly the Purchase Options may expire, and the underlying Warrants may expire or be redeemed, unexercised and may be deprived of any value.

NOTE D — DEFERRED OFFERING COSTS

The Company incurred approximately $417,000 in offering expenses as of December 31, 2005 that were charged to additional paid-in capital upon consummation of the Offering in March 2006. The Company also charged to additional paid-in capital $3,450,000 related to a deferred underwriting fee that was paid upon the consummation of a business combination (sees Note C and O).

NOTE E — DEFERRED ACQUISITION COSTS AND DEBT ISSUANCE COSTS

The Company has incurred approximately $2.2 million of costs related to the acquisition of Jazz that have been capitalized as deferred acquisition costs (see Note L). In addition, the Company recorded $6.1 million of debt issuance costs in connection with the private placement of convertible senior notes in December 2006 (see Note M).

NOTE F — TAXES

Taxes consist of the following:

			Period from August 12, 2005		Period from August 12, 2005
	Year Ended		(inception)		(inception)
	December 31,		to December 31,		to December 31,
	2006		2005		2006
Current taxes:
Federal	$	—	$	—	$	—
State (California, Delaware)	$	485,110	$	—	$	485,110
Total current taxes	$	485,110	$	—	$	485,110
Deferred taxes:
Federal and state	$	—	$	—	$	—
Total taxes	$	485,110	$	—	$	485,110

NOTE G — RELATED PARTY TRANSACTIONS

[1]Note payable to a stockholder:

The Company issued a $275,000 unsecured promissory note to a stockholder, Acquicor Management LLC, on August 26, 2005. The note bore interest at a rate of 3.6% per annum and on March 13, 2006, the Company repaid the note and accrued interest thereon with a portion of the proceeds from the Private Placement. For the period from August 26, 2005 to March 13, 2006, the Company incurred $5,398 of interest expense on the note.

F-10

[2]Office space and administrative support:

Acquicor Management LLC provided the Company with office space, utilities and secretarial support without charge until the Company completed the Merger.

NOTE H — ROADSHOW POSTING CONTINGENCY AND REIMBURSEMENT OF OFFERING EXPENSES

The Company’s roadshow presentation was posted on NetRoadshow.com and RetailRoadshow.com, two Internet web sites, between January 19, 2006 and February 4, 2006 (the “Roadshow Posting”). Because the Company is deemed to be a ‘shell company’ under the rules of the Securities Act of 1933, as amended (the “Securities Act”), the Company was not eligible to use provisions of these rules that permit Internet posting of roadshow presentations. If a court were to conclude that the Roadshow Posting constitutes a violation of Section 5 of the Securities Act, the Company could be required to repurchase the shares sold to purchasers in the Offering at the original purchase price, plus statutory interest from the date of purchase, for claims brought during the one year period following the date of the violation. In that event, the Company would likely be forced to use funds available in the Trust Account to repurchase shares, which would reduce the amount available to the Company to complete a business combination and, if the Company does not complete a business combination within the prescribed time period, the amount available to the Company’s public stockholders upon liquidation. In any case, the Company may not have sufficient funds to repurchase all of the shares sold in the Offering. Management believes that it is not probable that a stockholder will assert a claim for rescission or that any such claim, if asserted, would be successful. Furthermore, the Company has no intention to make any rescission offer to the purchasers in the Offering.

On May 4, 2006, the Company released all claims against the underwriters in the Offering related to the Roadshow Posting. In connection with the release, the Company received a $225,000 cash payment to offset certain additional offering costs incurred by the Company due to the Roadshow Posting; such costs had previously been charged to additional paid-in capital at the date of the original public offering.

NOTE I — PREFERRED STOCK

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

NOTE J — COMMON STOCK

On January 19, 2006, the Company effected a 4,333,334 for 6,250,000 reverse stock split of its common stock. Following this reverse stock split, there were 4,333,334 shares of common stock outstanding. Additionally, on January 19, 2006, the Company reduced the number of authorized shares of common stock from 100,000,000 to 70,000,000. On February 21, 2006, the Company effected a 5,373,738 for 4,333,334 forward stock split of its common stock. Following this stock split (and prior to the Private Placement and the Offering), there were 5,373,738 shares of common stock outstanding. Further, on February 21, 2006, the Company increased the number of authorized shares of common stock to 100,000,000. All references in the accompanying financial statements to the number of shares of common stock and income per share have been retroactively restated to reflect these transactions.

NOTE K - INCOME AVAILABLE FOR OPERATING EXPENSES

Interest earned on the funds in the Trust Account is generally not available to fund the Company’s operations and will continue to be held in the Trust Account until the consummation of the Business Combination or will be released to investors upon exercise of their conversion rights or upon liquidation. In accordance with the Trust Agreement between the Company and Continental Stock Transfer & Trust Company (“Continental”), Continental may release to the Company (i) any amount required to pay income taxes relating to the property in the Trust Account and (ii) up to $750,000 of the interest earned on the Trust Account (net of taxes payable on such interest), provided that only up to $375,000 of such interest may be released in any fiscal quarter. As of December 31, 2006, none of interest previously earned on the trust account had been released to pay income taxes relating to the property in the Trust Account and $750,000 of interest had been released to cover operating expenses. As of December 31, 2006, there was approximately $488,875 of interest received and receivable remaining in the Trust Account that was not available to be released.

F-11

NOTE L — MERGER

On September 26, 2006, the Company and its wholly-owned subsidiary, Joy Acquisition Corp., a Delaware corporation (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Jazz Semiconductor and TC Group, L.L.C., as stockholders’ representative, pursuant to which Merger Sub will merge with and into Jazz (the “Merger”). Based in Newport Beach, California, Jazz is an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog and mixed-signal semiconductor devices. At the effective time of the Merger, Jazz will be the surviving corporation and will become a wholly-owned subsidiary of the Company.

In connection with the Merger, on September 26, 2006, the Company received a commitment letter from Wachovia Capital Finance Corporation (Western) and Wachovia Capital Markets, LLC (collectively, “Wachovia”) with respect to a three-year senior secured revolving credit facility in the amount of $65 million, subject to borrowing base restrictions and other terms and conditions described in the commitment letter. As consideration for the commitment letter, the Company has agreed to pay Wachovia expense reimbursement deposits of $150,000 upon the negotiation of the initial draft loan documentation. In addition, if the revolving credit facility has not closed by March 31, 2007 (other than as a result of a failure by Wachovia to perform its duties under the commitment letter), the Company has agreed to pay Wachovia a fee of $150,000 (less any amounts in the expense reimbursement deposits not used for expenses incurred).

The total merger consideration is approximately $260 million, subject to adjustment based on Jazz’s working capital and possible future contingent payments and subject to reduction by the amount of certain transaction expenses incurred by Jazz in connection with the Merger and its terminated initial public offering. The Company expects to finance the merger consideration and its transaction costs, approximately $3.5 million of deferred underwriting fees from the Public Offering and payments to the Company’s stockholders who exercise conversion rights, and to fund its operations after the Merger through a combination of the funds held in the trust account and proceeds from the issuance of the Convertible Senior Notes (see Note M).

As of December 31, 2006, the Company had incurred and deferred approximately $2.2 million of acquisition costs, of which approximately $1.8 million were unpaid. The Merger was consummated on February 16, 2007 (see Note O).

NOTE M — CONVERTIBLE SENIOR NOTES

In December 2006, the Company completed private placements of $166.8 million aggregate principal amount 8% of convertible senior notes due 2011 (the “Convertible Senior Notes”). The gross proceeds from the Convertible Senior Notes were placed in escrow (the “Convertible Note Escrow Account”) pending completion of the Merger. The conditions for the release of the escrowed proceeds were that (a) the Company’s stockholders vote to approve the Merger (the “Merger Proposal”), (b) the Company’s stockholders vote to increase the Company’s authorized shares (the “Authorized Shares Proposal”) and (c) the Company present an officer’s certificate to the escrow agent certifying that the Merger Proposal and the Authorized Share Proposal have been approved by the Company’s stockholders on or prior to May 31, 2007 and that the Merger will be consummated immediately after release of the escrowed funds. On February 16, 2007, the conditions to release of the escrowed proceeds were met and the escrowed proceeds were released to the Company, less an amount equal to $5.8 million payable to the initial purchasers of the Convertible Senior Notes.

The Convertible Senior Notes were issued pursuant to an Indenture, dated December 19, 2006, among the Company and U.S. Bank National Association, as trustee (the “Indenture”). Pending the completion of the Merger, the gross proceeds from the sale of the Convertible Senior Notes were held in the Convertible Note Escrow Account and were only invested in specified securities, such as money market funds meeting the criterion of Rule 2a-7 under the Investment Company Act of 1940, as amended, or in securities that are direct obligations of, or obligations guaranteed as to principal and interest by, the United States.

F-12

Prior to the completion of the Merger, the Convertible Senior Notes were the Company’s senior obligations secured by a first priority security interest in the Convertible Note Escrow Account. After the completion of the Merger, the Convertible Senior Notes became the Company’s senior unsecured obligations and all of the Company’s existing and future domestic subsidiaries are required to, within 30 days of the Merger, unconditionally guarantee on a joint and several basis the Company’s obligations under the Convertible Senior Notes. If the Merger Proposal or the Authorized Share Proposal had been rejected by the stockholders or not approved by the stockholders on or before May 31, 2007, then the Company would have been required to redeem the Convertible Senior Notes at 100% of the principal amount plus any interest income earned on the funds in the Convertible Note Escrow Account.

The Convertible Senior Notes bear interest from the date of issuance at a rate of 8% per annum payable semi-annually on each June 30 and December 31, beginning on June 30, 2007. The Company may redeem the Convertible Senior Notes on or after December 31, 2009 at the following redemption prices, plus accrued and unpaid interest to the redemption date:

Period	Redemption Price
Beginning on December 31, 2009 through December 30, 2010	102%
Beginning on December 31, 2010 and thereafter	100%

At any time after the completion of the Merger and prior to the maturity of the Convertible Senior Notes, unless the Convertible Senior Notes have previously been redeemed or repurchased by the Company, the Convertible Senior Notes will be convertible into shares of the Company’s common stock at an initial conversion rate of 136.426 shares per $1,000 principal amount of Convertible Senior Notes, subject to adjustment in certain circumstances, which is equivalent to an initial conversion price of $7.33 per share. The conversion rate is subject to adjustment if:

(1) there is a dividend or other distribution payable in common stock with respect shares of the Company’s common stock;

(2) the Company issues to all holders of its common stock any rights, options or warrants entitling them to subscribe for or purchase shares of the Company’s common stock at a price per share that is less than the then current market price (calculated as described in the Indenture) of the Company’s common stock (other than rights, options or warrants that by their terms will also be issued to the holders of the Convertible Senior Notes upon conversion of such Convertible Senior Notes into shares of the Company’s common stock or that are distributed to the Company’s stockholders upon a merger or consolidation); however, if those rights, options or warrants are only exercisable upon the occurrence of specified triggering events, then the conversion rate will not be adjusted until a triggering event occurs; provided that the conversion price will be readjusted to the extent that such rights, options or warrants are not exercised prior to their expiration;

(3) the Company subdivides, reclassifies or combines its common stock;

(4) the Company distributes to all its holders of common stock evidence of its indebtedness, shares of capital stock, cash or assets, including securities, but excluding:

– those dividends, rights, options, warrants and distributions referred to in clauses (1) and (2) above;

– certain rights, options or warrants distributed pro rata to holders of common stock and for which adequate arrangements are made for holders of Convertible Senior Notes to receive their rights, options and warrants upon conversion of the Convertible Senior Notes;

– dividends, distributions or tender offers paid in cash; and

F-13

– distributions upon a merger or consolidation as discussed below;

(5) the Company makes a distribution consisting exclusively of cash (excluding portions of distributions referred to in clause (4) above and cash distributed upon a merger or consolidation as discussed below) to all holders of its common stock; or

(6) the successful completion of a tender offer made by the Company or any of its subsidiaries for its common stock.

Upon conversion, the Company has the right to deliver, in lieu of shares of its common stock, cash or a combination of cash and shares of its common stock to satisfy its conversion obligation. If the Company elects to deliver cash or a combination of cash and common stock to satisfy its conversion obligation, the amount of such cash and common stock, if any, will be based on the trading price of the Company’s common stock during the 20 consecutive trading days beginning on the third trading day after proper delivery of a conversion notice.

Upon the occurrence of certain specified fundamental changes prior to December 31, 2009, the holders of the Convertible Senior Notes will have the right, subject to various conditions and restrictions, to require the Company to repurchase the Convertible Senior Notes, in whole or in part, at par plus accrued and unpaid interest to, but not including, the repurchase date. Further, for those holders of Convertible Senior Notes who convert in connection with a fundamental change which occurs prior to December 31, 2009, the Company will pay a make whole premium in stock based upon the stock price at the time of the occurrence of the fundamental change. A conversion of the Convertible Senior Notes by a holder will be deemed for these purposes to be “in connection with” a fundamental change if the conversion notice is received by the conversion agent on or subsequent to the date 10 trading days prior to the date announced by us as the anticipated effective date of the fundamental change but before the close of business on the business day immediately preceding the related fundamental change purchase date. A “fundamental change” will be deemed to have occurred at the time after the Convertible Senior Notes are originally issued if any of the following occurs:

(1) the Company’s common stock (or other common stock into which the Convertible Senior Notes are convertible) is neither listed for trading on any U.S. national securities exchange or the London Stock Exchange, nor approved for listing on the Nasdaq Global Market (at such time that the NASDAQ Global Market is not a U.S. national securities exchange) or any successor to the Nasdaq Global Market;

(2) any sale, lease or other transfer (in one transaction or a series of transactions) of all or substantially all of the consolidated assets of the Company and its subsidiaries to any person (other than a subsidiary); provided, however, that a transaction where the holders of all classes of the Company’s common equity immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of common equity of such person immediately after such transaction shall not be a fundamental change;

(3) consummation of any share exchange, consolidation or merger of the Company pursuant to which the common stock will be converted into cash, securities or other property; provided, however, that a transaction where the holders of all classes of our common equity immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of common equity of the continuing or surviving corporation or transferee immediately after such event shall not be a fundamental change;

(4) a “person” or “group” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) (other than the Company, its subsidiaries or its employee benefit plans)) files a Schedule 13D or a Schedule TO, disclosing that it has become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of the Company’s common equity representing more than 50% of the voting power of our common equity; or

(5) the Company’s stockholders approve any plan or proposal for the Company’s liquidation or dissolution; provided, however, that a liquidation or dissolution of the Company that is part of a transaction described in clause (2) above that does not constitute a fundamental change under the proviso contained in that clause shall not constitute a fundamental change.

F-14

However, a fundamental change will not be deemed to have occurred if 90% of the consideration for the common stock (excluding cash payments for fractional shares and cash payments made in respect of dissenters’ appraisal rights, if any) in the transaction or transactions constituting the fundamental change consists of another person’s common equity or American Depositary Shares representing shares of another person’s common equity traded on a U.S. national securities exchange or quoted on the Nasdaq Global Market (at such time that the Nasdaq Global Market is not a U.S. national securities exchange), or which will be so traded or quoted when issued or exchanged in connection with the fundamental change, and as a result of such transaction or transactions the Convertible Senior Notes become convertible solely into such common equity or American Depositary Shares.

If an event of default on the Convertible Senior Notes occurs, the principal amount of the Convertible Senior Notes, plus accrued and unpaid interest (including additional interest, if any), may be declared immediately due and payable, subject to certain conditions set forth in the Indenture.

In connection with the issuance of the Convertible Senior Notes, the Company entered into a registration rights agreement that requires the Company to file and maintain the effectiveness of a registration statement covering the resale of the Convertible Senior Notes and the shares of common stock issuable upon conversion of the Convertible Senior Notes. If (i) a registration statement covering the resale of the Convertible Senior Notes and the underlying common is not declared effective within 180 days of stockholder approval of the Merger Proposal and the Authorized Share Proposal, (ii) after the registration statement is declared effective, the registration statement ceases to be effective or usable and the Company does not amend or supplement such registration statement to make it effective, (iii) after the registration statement is declared effective, use of the registration statement is suspended for more than 90 days, whether consecutive or not, in any 12-month calendar period or (iv) the Company fails to timely amend or supplement the registration statement to name a new holder of Convertible Senior Notes as a selling securityholder under the registration statement, then the Company will be required to pay additional interest on the Convertible Senior Notes. The amount of additional interest will be equal to 0.25% per year of the principal amount of the then outstanding Convertible Senior Notes for the first 90 days of any failure to meet the foregoing registration requirements and will increase to 0.50% per year after the first 90 days. Once the event giving rise to the additional interest has been cured, the interest payable on the Convertible Senior Notes will return to the initial 8% interest rate. The Company’s obligation to maintain the effectiveness of the registration statement ends upon the earlier to occur of (i) two years from the date of effectiveness of the registration statement, (ii) the date when all holders of Convertible Senior Notes and/or the underlying shares of common stock are eligible to sell such securities under Rule 144(k) promulgated under the Securities Exchange Act of 1933, as amended, (iii) the date when all securities registered under the registration statement have been sold and (iv) the date when all securities registered under the registration statement cease to be outstanding. The Company estimates that the maximum amount of consideration that the Company could be required to transfer to holders of the Convertible Senior Notes under the registration payment obligation is approximately $1.1 million.

The Company early adopted FSP 00-19-2 in the fourth quarter of 2006 and applied FSP 00-19-2 to account for the registration payment arrangement in connection with the Convertible Senior Notes. Given the grace periods within which the Company can satisfy its registration obligations, the Company has determined a transfer under the registration payment arrangement is remote, and accordingly under FSP 00-19-2 the Company has not recorded a liability related to the registration payment arrangement in its financial statements.

The Company has accrued $482,000 in interest expense for the portion of December 2006 during which the Convertible Senior Notes were outstanding. This is offset by $273,000 in interest income earned on the proceeds in the Convertible Note Escrow Account.

NOTE N — QUARTERLY FINANCIAL DATA

The following table sets forth our unaudited quarterly statements of operations for each of the four quarters in the year ended December 31, 2006 and for the period from August 12, 2005 (inception) to December 31, 2005. You should read the following table in conjunction with our financial statements and related notes contained elsewhere in this prospectus. We have prepared the unaudited information on the same basis as our audited financial statements. This table includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. Operating results for any quarter are not necessarily indicative of results for the full fiscal year or any other future period.

F-15

	Aug. 12 to Sept. 30, 2005			Dec. 31, 2005			Mar. 31, 2006			June 30, 2006			Sept. 30, 2006			Dec. 31, 2006
	(In thousands, except per share data)
Statements of operations data:
Operating expenses:
General and administrative		3			—			57			57			132			70
Consulting		—			—			—			57			69			154
Insurance		—			—			4			23			23			23
Total expenses		3			—			61			137			224			247
Loss from operations		(3	)		—			(61	)		(137	)		(224	)		(247	)
Interest income		—			—			218			1,451			1,515			1,751
Other income (expenses)		—			(3	)		(2	)		—			—			(485	)
Provision for tax		—			—			(2	)		(96	)		(73	)		(314	)
Net income (loss)		(3	)		(3	)		153			1,218			1,218			705
Accretion of trust account		—			—			(43	)		(271	)		(213	)		(122	)
Net income attributable to other common stockholders		—			—			110			947			1,005			583
Basic and diluted net income per common share subject to conversion		—			—			0.01			0.05			0.03			0.02
Basic and diluted net income per common share		0.00			0.00			0.03			0.03			0.04			0.02
Shares used in computing basic and diluted net income per common share subject to conversion		—			—			5,550			5,750			5,750			5,750
Shares used in computing basic and diluted net income per common share		5,374			5,374			4,519			28,707			28,707			28,707

NOTE O — SUBSEQUENT EVENTS

On February 16, 2007, the Company consummated the acquisition of Jazz. At the closing of the Merger (the “Closing”), Parent made total payments of approximately $260.1 million pursuant to the merger agreement, which includes the impact of an estimated working capital adjustment and a deduction for $4.4 million of transaction costs incurred by Jazz in connection with the Merger and its terminated public offering. The purchase price was subject to possible decrease of up to $4.5 million to the extent the working capital of Jazz as of the closing is less than $193 million and a possible increase of up to $4.5 million plus $50,000 per day for each day after March 31, 2007 until the closing to the extent the working capital of Jazz as of the closing is greater than $198 million. Jazz’s estimated working capital at closing was in excess of $200 million resulting in an increase in the purchase price by $4.5 million. Approximately $27.9 million of the purchase price was placed in escrow, of which $4 million will secure any purchase price reductions to be made after the completion of the merger, $20 million will secure indemnification claims by Parent (as well as any purchase price reductions to be made after the completion of the Merger in excess of $4 million) and $3.7 million will fund obligations of Jazz to make certain retention bonus payments following the completion of the Merger to its employees. In addition, $1 million was paid to the Stockholders’ Representative to fund its expenses related to its obligations under the Merger Agreement following the completion of the Merger. Parent financed the Merger consideration and additional payments made at the closing of the Merger, including the payment of $3.5 million of deferred underwriting fees, from the proceeds of its initial public offering and the sale of convertible senior notes. At the closing of the Merger, Jazz expects to pay approximately $3.0 million in accrued transaction costs incurred in connection with the Merger. In connection with the Merger, the holders of 5,668,116 shares of the Company’s common stock elected to convert their shares into a pro rata portion of the Trust Account. The Company estimates the total payments to converting stockholders to be $33.2 million.

F-16

Upon consummation of the Merger on February 16, 2007, the Company’s 2006 Equity Incentive Plan , as amended, under which the Company has reserved an aggregate of 4,700,000 shares of its common stock for future issuance, became effective.

In connection with the Merger, on February 16, 2007, the Company amended its Certificate of Incorporation to (i) change the Company’s name from Acquicor Technology Inc. to Jazz Technologies, Inc., (ii) remove the Fifth Article from the Certificate of Incorporation, which relates to the operation of the Company as a blank check company prior to the consummation of a business combination, and (iii) increase the authorized shares of the Company’s common stock from 100,000,000 shares to 200,000,000 shares.

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

F-17

EX-99.2

Exhibit 99.2

JAZZ SEMICONDUCTOR, INC.

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA,

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

AND FINANCIAL STATEMENTS

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

The following selected consolidated historical financial and other operating data of Jazz Semiconductor, Inc. (“Jazz,” “we” or “us”) should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Jazz’s consolidated financial statements and the related notes to those statements included elsewhere in this exhibit to current report on Form 8-K. Except for the categorization of Jazz’s revenues between standard process technologies, specialty process technologies, formation customers and post-formation customers:

• the consolidated statement of operations data for the period from March 12, 2002 (inception) to December 27, 2002 and the year ended December 26, 2003 and the consolidated balance sheet data as of December 27, 2002, December 26, 2003 and December 31, 2004 have been derived from Jazz’s audited consolidated financial statements not included in this exhibit to current report on Form 8-K; and

• the consolidated statement of operations data for the years ended December 31, 2004, December 30, 2005 and December 29, 2006 and the consolidated balance sheet data as of December 30, 2005 and December 29, 2006 have been derived from Jazz’s audited consolidated financial statements included elsewhere in this exhibit to current report on Form 8-K.

The categorization of Jazz’s revenues between standard and specialty process technologies and between formation customers and post-formation customers is unaudited and has been derived from its accounting records.

1

Statement of Operations Data

(in thousands)

				Year Ended
	Period from March 12, 2002 (inception) to December 27, 2002			December 26, 2003			December 31, 2004			December 30, 2005			December 29, 2006
Consolidated Statement Of Operations Data
Revenues:(1)
Standard process technologies	$	95,172		$	102,262		$	90,232		$	74,951		$	168,298
Specialty process technologies		27,905			82,923			129,303			124,079			44,228
Total revenues		123,077			185,185			219,535			199,030			212,526
Cost of revenues(2)(3)(4)		102,893			160,649			175,346			174,294			187,955
Gross profit		20,184			24,536			44,189			24,736			24,571
Operating expenses:
Research and development(3)(4)		12,606			22,815			18,691			19,707			20,087
Selling, general and administrative(3)(4)		9,722			16,410			21,573			14,956			18,342
Amortization of intangible assets		243			741			869			836			996
Impairment of intangible assets		—			—			—			1,642			551
Loss on disposal of equipment		—			751			—			—			—
Total operating expenses		22,571			40,717			41,133			37,141			39,976
Operating income (loss)		(2,387	)		(16,181	)		3,056			(12,405	)		(15,405	)
Interest income		514			513			786			1,315			1,196
Gain (loss) on investments(4)		(12,651	)		9,682			(5,784	)		(583	)		(840	)
Other income		—			—			18			206			(94	)
Loss before income taxes		(14,524	)		(5,986	)		(1,924	)		(11,467	)		(15,143	)
Income tax provision		12			12			2,348			46			58
Net loss		(14,536	)		(5,998	)		(4,272	)		(11,513	)		(15,201	)
Preferred stock dividends		(4,335	)		(11,708	)		(13,074	)		(14,210	)		(15,631	)
Net loss attributable to common stockholders	$	(18,871	)	$	(17,706	)	$	(17,346	)	$	(25,723	)	$	(30,832	)
Other Financial Data:
Capital expenditures	$	10,742		$	14,249		$	27,282		$	23,505		$	24,142
Depreciation and amortization	$	11,584		$	15,170		$	17,180		$	20,904		$	23,024

(1) Standard process technologies are composed of digital and standard analog complementary metal oxide semiconductor process technologies and specialty process technologies are composed of advanced analog, radio frequency, high voltage, bipolar and silicon germanium bipolar complementary metal oxide semiconductor process technologies and double-diffused metal oxide semiconductor process technologies. Revenues for the year ended December 29, 2006 include 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.

2

The following table shows Jazz’s revenues from formation customers and post-formation customers (in thousands):

	Period from March 12, 2002 (inception) to December 27, 2002		December 26, 2003		December 31, 2004		December 30, 2005		December 29, 2006
Revenues:
Formation customers	$	119,762	$	167,236	$	163,497	$	120,455	$	82,718
Post-formation customers		3,315		17,949		56,038		78,575		129,808
Total revenues	$	123,077	$	185,185	$	219,535	$	199,030	$	212,526

The following table shows Jazz’s revenues from related parties and non-related parties (in thousands):

	Period from March 12, 2002 (inception) to December 27, 2002		December 26, 2003		December 31, 2004		December 30, 2005		December 29, 2006
Revenues:
Related parties(a)	$	119,762	$	169,671	$	66,834	$	60,821	$	40,364
Non-related parties		3,315		15,514		152,701		138,209		172,162
Total revenues	$	123,077	$	185,185	$	219,535	$	199,030	$	212,526

(a) Prior to December 26, 2003, Jazz categorized Skyworks and Mindspeed as related parties because they were part of Conexant at the time of its formation and, upon their separation from Conexant, Jazz was contractually obligated under its supply agreement with Conexant to provide them with the same terms as Conexant under Conexant’s wafer supply agreement with Jazz. During 2003, Jazz amended its respective wafer supply agreements with Skyworks and Mindspeed. Beginning in 2004, Jazz no longer considered Skyworks and Mindspeed to be related parties because the terms of the amendments to the respective wafer supply agreements were negotiated independently on an arm’s length basis.

(2) Cost of revenues for the year ended December 29, 2006 includes the effect of a credit to cost of revenues in the second quarter of 2006 of $1.2 million associated with the termination of the Conexant wafer supply agreement.

(3) Includes stock-based compensation expense (income) as follows (in thousands):

			Year Ended
	Period from March 12, 2002 (inception) to December 27, 2003		December 26, 2003		December 31, 2004			December 30, 2005			December 29, 2006
Cost of revenues:	$	149	$	2,298	$	(522	)	$	164		$	(92	)
Research and development		273		4,243		(1,836	)		(169	)		(30	)
Selling, general and administrative		207		3,237		(1,469	)		(54	)		(102	)
Total	$	629	$	9,778	$	(3,827	)	$	(59	)	$	(224	)

(4) For a discussion of stock compensation expense and gain (loss) on investments, and their relationship to one another, see “Jazz Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Operations Overview” and “—Critical Accounting Policies.”

3

Consolidated Balance Sheet Data

(in thousands)

	December 27, 2002	December 26, 2003	December 31, 2004	December 30, 2005	December 29, 2006
Cash and cash equivalents	$54,552	$65,591	$5,877	$4,372	$6,299
Short-term investments	—	—	50,622	23,850	25,986
Current restricted cash	—	—	—	720	473
Working capital	60,896	85,938	65,220	48,586	43,040
Property, plant and Equipment, net	52,844	50,936	61,839	65,249	71,507
Total assets	144,002	177,733	184,595	168,757	187,627
Total stockholders’ equity	97,828	122,698	119,488	108,185	104,798

4

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 exhibit to current report on Form 8-K. 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” and elsewhere in the definitive proxy statement filed by Jazz Technologies, Inc. (“Parent”) with the Securities and Exchange Commission (the “SEC”) on January 29, 2007. Also see “Forward Looking Statements” in the current report on Form 8-K of which this exhibit is a part.

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., or Skyworks, Conexant Systems, Inc., or Conexant, Marvell Technology Group Ltd., RF Micro Devices, Inc., Freescale Semiconductor, Inc., Airoha Technology Corp., Xceive Corporation and RF Magic, 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 was 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;

• a warrant to purchase 2,900,000 shares of Conexant’s common stock; and

• Jazz accounted for its formation using the purchase method of accounting.

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. Under the contribution agreement pursuant to which Jazz was formed, Jazz 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.

5

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. The lease also provides that Jazz’s headquarters office may be relocated one time no earlier than 12 months from the completion of Parent’s acquisition of Jazz in the merger to another building within one mile of its current location at Conexant’s option and expense, subject to certain conditions.

At formation, Jazz also entered into management agreements with Carlyle and Conexant, pursuant to which Carlyle and Conexant were each paid a management fee of $300,000 per year for advisory services each party performed in connection with the operations, strategic planning, marketing and financial oversight of Jazz. These management agreements and the obligation to pay these management fees will terminate upon the completion of the merger.

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 spun-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.

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In June 2006, Jazz and Conexant agreed to terminate the wafer supply and services agreement. In connection with the termination agreement and in consideration of the cancellation of the wafer credits, Jazz agreed to issue 7,583,501 shares of its common stock to Conexant and to forgive $1.2 million owed to it by Conexant for a refund of property taxes previously paid by Jazz for the 2003 property tax year. This termination of the wafer supply agreement was subsequently amended on September 16, 2006 in connection with the execution of the Merger Agreement to provide for the repurchase of the 7,583,501 shares previously issued by Jazz to Conexant immediately prior to the completion of the merger and the termination of Jazz’s obligation to issue any additional shares to Conexant for 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.

In accordance with Financial Accounting Standards Board, or FASB, Emerging Issues Task Force, or EITF, Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer, or EITF 01-9, and 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, or EITF 96-18, the fair value of the 7,583,501 shares of common stock Jazz issued to Conexant in connection with the termination of the wafer supply agreement, which was $17.5 million, and Jazz's forgiveness of the $1.2 million owed to Jazz by Conexant for reimbursement of property taxes in connection with the termination of the wafer supply agreement had the effect of reducing Jazz's revenues by $17.5 million and reducing Jazz's cost of revenues by $1.2 million in the second quarter of 2006. Under EITF 01-9 cash consideration, including credits the customer can apply against trade amounts owed to the vendor as a sales incentive, given by a vendor to a customer is presumed to be a reduction of the selling prices of the vendor’s products or services and, therefore, should be characterized as a reduction of revenue when recognized in the vendor’s statement of operations. In addition, under EITF 96-18, consideration in the form of equity instruments is recognized in the same period and in the same manner as if the customer had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with or using the equity instruments. Therefore, the $17.5 million fair value of the common stock issued to Conexant was reflected as a reduction to Jazz’s revenues for the second quarter of 2006. The forgiveness of the property tax reimbursement owed to Jazz by Conexant was an expense reduction to Jazz because the amounts owed to Jazz related to the 2003 property tax year and all costs from that period have expired and were previously expensed.

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 updates 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.

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For the years ended December 31, 2004, December 30, 2005 and December 29, 2006, revenues from Jazz’s formation customers accounted for 74.5%, 60.5% and 38.9%, 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. Excluding the effect of the $17.5 million charge against revenue, Jazz expects revenues from these customers to generally 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.

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 December 29, 2006, Jazz had 260 design wins, of which 252 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
	December 31, 2004			December 30, 2005			December 29, 2006
Revenues from post-formation customers	$	56.0		$	78.6		$	129.8
Percent of total revenues		25.5	%		39.5	%		61.1	%
Revenues from formation customers (1)	$	163.5		$	120.4		$	82.7
Percent of total revenues		74.5	%		60.5	%		38.9	%

(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

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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.

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 December 29, 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
	December 31, 2004			December 30, 2005			December 29, 2006
Revenues from specialty process technologies	$	129.3		$	124.1		$	168.3
Percent of total revenues		58.9	%		62.3	%		79.2	%
Revenues from standard process technologies 1	$	90.2		$	74.9		$	44.2
Percent of total revenues		41.1	%		37.7	%		20.8	%

(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.

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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. For the year ended December 29, 2006 Jazz invested $28.4 million from operating and financing activities 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 and currently relies on these suppliers for only approximately 12% of its wafer production volume. While these suppliers have substantially met Jazz’s 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.

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 20,671 wafers for Jazz in 2004, 2005 and 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 strategic relationship with HHNEC. Under the arrangement, Jazz has secured additional manufacturing capacity for its products. HHNEC did not manufacture a significant amount of wafers for Jazz at anytime during 2006. As part of its strategic relationship, the Company has contributed certain licensed process technologies and invested $10.0 million in HHNEC, of which $1.5 million was paid in the fourth quarter of 2003 and $8.5 million was paid in the third quarter of 2004. As of December 29, 2006, the investment represents a minority interest of approximately 10% in HHNEC. This investment is carried at its original cost basis and is accounted for using the cost method of accounting for investments, as the Company does not have the ability to exercise significant influence.

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, and the last month of 2006, none of which had a significant effect on annual results in 2005 or 2006.

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 spreads 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 Jazz’s 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.

Payment of SiGe Royalties

The contribution agreement entered into between Jazz and Conexant in connection with the formation of Jazz, requires Conexant to indemnify Jazz for up to 60% of any damages incurred by Jazz with respect to certain intellectual property contributed by Conexant to Jazz at its formation. In September 2004, Jazz entered into a license agreement pursuant to which it agreed to pay royalties to a third party for the license of intellectual property purportedly covered by the contribution agreement with Conexant. Conexant acknowledged that Jazz’s license agreement with a third party gave rise to an indemnification obligation by Conexant. From October 2004 to June 2006, Jazz withheld royalties otherwise owed to Conexant for the sale of SiGe products to offset these indemnification obligations. In September of 2006, Jazz and Conexant agreed that Conexant’s total indemnification obligation with respect the third party license agreement would be satisfied in full through the offset of royalties otherwise payable by Jazz to Conexant of an aggregate amount equal to $2.6 million. The parties also acknowledged that Jazz had previously withheld royalties owed to Conexant in the amount of approximately $2.7 million. As such, Jazz agreed to refund the $0.1 million difference to Conexant, the parties released each other from all additional future claims and Jazz began paying SiGe related royalties to Conexant in the third quarter of 2006. Jazz’s total SiGe royalty liability for 2006 was $1.7 million.

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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.

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 entitled 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 was 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 expired on December 29, 2006.

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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 expired on January 20, 2007. The warrant was also subject to adjustment for, among other things, subsequent distributions of securities by Conexant to holders of its common stock. 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. Upon a holder’s exercise of a stock appreciation right, Jazz exercised a corresponding portion of the applicable warrant and sold the underlying securities received upon exercise such that the transactions were cash neutral to Jazz.

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 December 29, 2006, no stock appreciation rights were exercised for Conexant common stock and Jazz did not exercise any warrants to purchase Conexant common stock.

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 Jazz’s 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.

Jazz reflected 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 reflected 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 was reflected as a liability on Jazz’s 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 affected operating income but did not have a significant effect on net income or net loss. This is because any increase or decrease in stock compensation expense was substantially offset by a corresponding change in the value of the warrants, which was accounted for as a gain or loss on investments.

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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 was 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 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 eliminated Jazz’s 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 grants estimated in accordance with the provisions of SFAS No. 123R. In accordance with SFAS No. 123R, Jazz has not continued to provide pro forma disclosures of net loss and net loss per share for periods beginning after December 30, 2005.

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 did not recognize compensation expense when it issued stock options to employees unless the exercise price was below the fair market value of the underlying common stock on the date of grant.

During 2005, Jazz granted options to employees to purchase a total of 1,378,085 shares of common stock 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:

• 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;

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• 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 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 Jazz’s right to repurchase the stock lapses or the options become vested. During 2004, 2005 and 2006 Jazz recorded deferred stock compensation related to these options in the amounts of $0.2 million, $(0.5 million) and $(1.0 million) related to cancellations of associated options, respectively. Of the deferred stock compensation balance, $0.7 million, $0.5 and $0.4 million has been amortized to expense during the years ended December 31, 2004, December 30, 2005 and December 29, 2006 respectively. The balance of deferred stock compensation as of December 29, 2006 is $0.3 million.

At December 29, 2006, the amount of unearned stock-based compensation remaining to be expensed through 2010 related to unvested share-based payment awards granted on or after December 31, 2005 was $0.6 million. As a result of Jazz’s acquisition by Parent, the stock-based compensation program will be terminated.

Jazz accounts for stock compensation arrangements with non-employees in accordance, with SFAS No. 123, as amended by SFAS No. 148, and EITF 96-18, 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.

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 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.

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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 $62.5 million. Due to uncertainty as to its ability to realize the deferred tax assets, Jazz recorded a full valuation allowance against its deferred tax assets. 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 zero 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 December 29, 2006, its net losses had increased net deferred tax assets to $73.5 million and $81.3 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 $78.9 million reduction of income tax expense and $2.4 million increase in stockholders’ equity. The increase to stockholders’ equity primarily relates to tax benefits associated with the Company’s unfunded pension liability and postretirement medical liability that are reported as a component of other comprehensive income.

Utilization of net operating losses, credit carryforwards, and certain deductions may be subject to annual limitations due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The tax benefits related to future utilization of federal and state net operating losses, tax credit carryforwards, and other deferred tax assets will be limited or lost if cumulative changes in ownership exceed 50% within any three-year period. Such a limitation may occur upon the completion of Parents acquisition of Jazz. Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examinations from various tax authorities.

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

Results of Operations

The following table presents its historical operating results for the periods indicated as a percentage of revenues:

	Years Ended
	December 31, 2004			December 30, 2005			December 29, 2006
Revenues:
Standard process technologies (1)		41.1	%		37.6	%		20.8	%
Specialty process technologies		58.9			62.4			79.2
Total revenues		100.0			100.0			100.0
Cost of revenues (1)		80.0			87.6			88.4
Gross profit		20.0			12.4			11.6
Operating expenses:
Research and development		8.5			9.9			9.5
Selling, general and administrative		9.8			7.5			8.6
Amortization of intangible assets		0.4			0.4			0.5
Impairment of intangible assets		—			0.8			0.2
Loss on disposal of equipment		—			—			—
Total operating expenses		18.7			18.6			18.8
Operating income (loss)		1.3			(6.2	)		(7.2	)
Interest income		0.4			0.7			0.5
Gain (loss) on investments		(2.6	)		(0.3	)		(0.4	)
Other income		—			0.1			—
Loss before income taxes		(0.9	)		(5.7	)		(7.1	)
Income tax provision		1.1			—			—
Net loss		(2.0	)%		(5.7	)%		(7.1	)%

____________________________________

(1) Includes a charge against revenue from Conexant of $17.5 million and a credit to cost of revenues of $1.2 million in the second quarter of 2006 associated with the termination of the Conexant wafer supply agreement.

Year Ended December 29, 2006 Compared with Year Ended December 30, 2005

Revenues. Revenues of $212.5 million for 2006 include a charge against revenue from Conexant of $17.5 million in connection with the termination of the Conexant wafer supply agreement (see “—Factors Affecting Jazz’s Operating Results—Formation Customers”), and reflect an increase of $13.5 million or 6.8% from $199.0 million in 2005. The $13.5 million increase in revenues resulted from a $51.2 million increase in revenues from post-formation customers, offset by a $37.7 million decrease in revenues from formation customers, which includes the $17.5 million charge against revenues from Conexant during the second quarter of 2006 associated with the termination of the Conexant wafer supply agreement. The increase in revenues from Jazz’s post-formation customers primarily resulted from a 100.5% increase in wafer volume as manufacturing of designs in volume production increased and new designs entered volume production, offset in part by a 7.9% decline in average wafer selling price. As customers products reach maturity, there is a natural price degradation. However, Jazz continues to increase its production of customers’ products that use more advanced processes which command higher averages wafer selling prices that balance out the natural price declines. Additionally, as customers move from pre-production to volume production sales, the average selling price would decline, given that production volumes are much higher. The increase in revenues from post-formation customers also includes a $3.9 million increase in non-wafer revenues. These revenues include fees for prototype development, photomask purchases and engineering services in preparation of design wins for qualification of process technology used in volume production at Jazz’s Newport Beach, California fab.

The decrease in revenues from Jazz’s formation customers was primarily due to the termination of the Conexant wafer supply agreement and a 17.9% decline in wafer volume from these customers, partially offset by a 1.6% increase in average wafer selling price, as a result of a shift in mix to a higher percentage of wafers manufactured using specialty process technology sold to these customers. Revenues from Skyworks declined $15.4 million, due to Skyworks’ transition of certain standard process products to smaller geometries not offered by Jazz and a decline in orders for a specialty process product nearing the end of its life cycle as Skyworks transitioned to a newer product generation that also uses Jazz’s specialty process technology but that had not reached similar production levels.

As a result of the increase in revenues from post-formation customers and the decline in revenues from formation customers, including the charge against revenues from Conexant of $17.5 million during the second quarter of 2006 associated with the termination of the Conexant wafer supply agreement, revenues from post-formation customers grew to 61.1% of total revenues in 2006 compared to 39.5% of total revenues in 2005.

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Specialty process revenues in 2006 increased by $44.2 million, or 35.6%, compared to 2005, while standard process revenues in 2006, including the charge against revenue from Conexant of $17.5 million associated with the termination of the Conexant wafer supply agreement, decreased by $30.7 million, or 41.0%, compared to 2005, such that specialty process revenues in 2006 comprised 79.2% of total revenues, up from 62.3% of total revenues in 2005.

Gross Profit. Gross profit as a percentage of revenues, or gross margin, was 11.6% for 2006 as compared to 12.4% for 2005. The 0.8% overall decrease in gross margin was the result of the following:

• a 6.2 percentage point decrease in gross margin attributable to the charge against revenues from Conexant of $17.5 million associated with the termination of the Conexant wafer supply agreement and an offsetting credit to cost of revenues of $1.2 million for a property tax refund due from Conexant, also associated with the termination of the Conexant wafer supply agreement; and

• a 5.4 percentage point increase in gross margin primarily attributable to:

• an increase in production activity at Jazz’s Newport Beach, California fab, primarily due to an increase in wafer sales volume to its post-formation customers, partially offset by a decrease in wafer sales volume to formation customers, resulting in an increase in capacity utilization to 93.6% in 2006 compared to 86.2% in 2005 and the allocation of fixed manufacturing costs over a larger number of wafers produced; and

• an approximate 6.3 percentage point increase in the average selling price of wafers, as the effect of the decrease in average wafer selling prices to post-formation customers was more than offset by the effect of the higher wafer sales volume to these customers and marginally offset by an increase in the average selling price to formation customers.

Although production activity at Jazz’s Newport Beach, California fab increased in 2006, resulting in an increase in capacity utilization for the full year, capacity utilization was lower in the fourth quarter than the rest of the year. The lower utilization in the fourth quarter resulted in a greater allocation of fixed production costs to inventory produced in the fourth quarter. As a result, gross profit in Jazz’s first quarter of 2007 is expected to be adversely affected when such inventory is sold.

Research and Development. Research and development expenses increased to $20.1 million or 9.5% of revenue for 2006 from $19.7 million or 9.9% for 2005. The net increase in research and development expenses in 2006 as compared to 2005 primarily resulted from:

• a $2.6 million increase relating to the achievement of process qualification milestones under Jazz’s agreements with PolarFab;

• as compared to no stock compensation income allocable to research and development in 2006, $0.2 million of stock compensation income was allocable to research and development in 2005;

• a $1.1 million decrease due to research and development expenditures associated with engineering services revenues being allocated to cost of revenue;

• $0.6 million net decrease in costs associated with engineering activity in 2006 compared to 2005. These were costs associated with research and development efforts undertaken to improve fab and probe yields and costs associated with the development of new processes which resulted in higher costs of engineering lots and masks incurred in 2005;

• a $0.4 million decrease in depreciation; and

• $0.3 million net decrease in miscellaneous other charges associated with consultants and other outside service providers.

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Under Jazz’s agreements with Polar Fab, modified in November 2006, Jazz is required to make a series of payments to Polar Fab for the transfer and licensing of technology for a total obligation of $2.8 million and future royalties associated with the sale of wafers using this technology. The transfer of the technology is expected to be completed in the early part of 2007 and as of December 29, 2006, $2.6 million has been expensed to research and development costs. The balance of $0.2 million is expected to be expensed in the first quarter of 2007.

Selling, General and Administrative. Selling, general and administrative expenses increased to $18.3 million, or 8.6% of revenues in 2006, from $15.0 million, or 7.5% of revenues in 2005. The $3.3 million increase in selling, general and administrative expenses primarily resulted from:

• a $2.1 million increase in expense related to Jazz’s acquisition by Acquicor with no such corresponding expenses recorded in 2005;

• a $0.6 million increase in the write-off of previously capitalized costs associated with Jazz’s withdrawn initial public offering from $1.4 million in 2006 to $0.8 million in 2005;

• a net increase of $0.8 million associated with Jazz’s provision for doubtful accounts, resulting from a $0.3 million expense for doubtful accounts in 2006 compared to a $0.5 million credit in 2005 relating to a reversal of provision for doubtful accounts recorded at the end of 2004;

• a $0.5 million net increase in salaries and related costs, mainly associated with sales personnel including costs related to a new sales office established in the United Kingdom;

• a $0.3 million credit in 2005 relating to a refund received from Conexant in connection with a transition services agreement between Jazz and Conexant with no such corresponding credit in 2006; partially offset by

• lower outside services costs of $0.7 million, mainly associated with lower audit and other consultant costs and lower insurance premiums of $0.3 million in 2006.

Impairment of Intangible Assets. Jazz accounts for long-lived assets, including purchased intangible assets, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment, such as reductions in demand, are present. Reviews are performed to determine whether the carrying value of an asset is impaired based on comparisons to undiscounted expected cash flows. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is typically calculated using discounted expected cash flows. Impairment is based on the excess of the carrying amount over the fair value of those assets. Jazz agreed to reimburse HHNEC for up to approximately $1.6 million incurred by it to license intellectual property associated with a potential customer engagement. These costs were originally determined to have future value and were capitalized in 2005. Subsequently, the customer did not place an order and this asset was determined not to have future value and was therefore fully expensed in 2005. During 2006, Jazz recognized additional impairment charges related to licensed intangible assets of $0.6 million.

Net Interest Income. Net interest income in 2006 was $1.2 million compared to $1.3 million in 2005. The $1.2 million in 2006 was net of interest expense and other fees of $0.5 million associated with Jazz’s loan and security agreement with Wachovia Capital Finance Corporation entered into in January 2006.

Gain (Loss) on Investments. Loss on investments was $0.8 million in 2006 compared to $0.6 million in 2005. The loss in 2006 and 2005 resulted from adjusting Jazz’s carrying value of Conexant warrants to the fair value. The changes in value of these investments largely offset related compensation expense and compensation income for stock appreciation rights related to the common stock of Conexant that had been granted to employees who were transferred to Jazz upon its formation. Taken together, the stock compensation expense (income) and the gain (loss) on investments have not had a significant effect on Jazz’s net loss. The stock appreciation rights expired in December 2006 and the associated Conexant warrants expired in January 2007 and accordingly will not have a future effect on Jazz’s net income or loss.

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Income Tax Provision. The income tax provision increased to $58,000 in 2006, from $46,000 in 2005. The income tax provision for 2006 relates primarily to minimum state taxes and foreign taxes. The income tax provision for 2005 relates primarily to minimum state taxes.

Year Ended December 30, 2005 Compared with Year Ended December 31, 2004

Revenues. Revenues decreased $20.5 million or 9.3% to $199.0 million in 2005, from $219.5 million in 2004. The decrease in revenues resulted from a $43.0 million decrease in revenues from Jazz’s formation customers, $32.7 million of which related to declines in orders from Skyworks. The decrease in revenues from Jazz’s formation customers was primarily due to a 20.3% decline in wafer volume from these customers. The decline in wafer volume for Skyworks was primarily due to a decline in orders for a specialty process product nearing the end of its life cycle as Skyworks transitioned to a newer generation product that also uses Jazz’s specialty process technologies but that had not reached similar production levels. To a lesser extent, the decline in wafer volume for Skyworks was due to its transition of certain standard process products to smaller geometries not offered by Jazz. The decrease in revenues from Jazz’s formation customers was also impacted by an 8.0% decline in average wafer selling price to these customers, primarily as a result of industry-wide pricing declines in standard process wafers and a reduction in the percentage of wafers for which Jazz provided probe services. Specialty process revenues in 2005 decreased by $5.2 million, or 4.0%, as compared to 2004 while standard process revenues in 2005 decreased by $15.3 million, or 16.9% as compared to 2004. Jazz’s revenues in 2005 were also adversely affected compared to 2004 as a result of a 52-week fiscal year in 2005 compared to a 53-week fiscal year in 2004.

The $43.0 million decrease in revenues from formation customers was partially offset by a $22.5 million increase in revenues from Jazz’s post-formation customers, which primarily utilize specialty process technologies. The increase in revenues from post-formation customers resulted from a $14.4 million increase in wafer revenues in 2005 compared to 2004, driven by an increase in wafer sales volume to these customers of 32.6% as manufacturing volumes of designs in volume production increased and new designs entered volume production, and an increase in average wafer selling price to these customers of 1.6%, primarily resulting from a favorable shift in mix to higher priced wafers. The increase in revenues from post-formation customers also included an $8.1 million increase in non-wafer revenues primarily related to engineering services in support of preparing design wins for volume production and qualifying a customer’s specialty process to enable volume production using that process at Jazz’s Newport Beach, California fab. In 2005, revenues from one post-formation customer decreased by $13.3 million, and revenues from another post-formation customer increased by $13.2 million, reflecting the significant fluctuation in revenues Jazz may receive from any particular customer from period to period based on the success of their products.

As a result of the increase in revenues from post-formation customers and the decline in revenues from formation customers, revenues from post-formation customers grew to 39.5% of total revenues in 2005 compared to 25.5% of total revenues in 2004. For 2005, specialty process revenues comprised 62.3% of total revenues, up from 58.9% in 2004.

Gross Profit. Gross margin, decreased to 12.4% in 2005 compared to 20.1% in 2004. Stock compensation expense allocable to cost of revenues, which resulted primarily from the change in value of stock appreciation rights previously granted to employees, reduced gross margin in 2005 by 0.1 percentage points and increased gross margin in 2004 by 0.2 percentage points. While Jazz made adjustments under SFAS No. 151 in three months during 2005, these adjustments did not have a significant effect on its gross profit in 2005. The aggregate decrease in gross margin was primarily attributable to:

• a decrease in production activity at Jazz’s Newport Beach, California fab due to a reduction in wafer sales volume to formation customers, partially offset by an increase in wafer sales volume to post-formation customers, resulting in a decrease in capacity utilization to 86.2% in 2005 from 91.0% in 2004 and the allocation of fixed manufacturing costs over a smaller number of wafers produced; and

• an approximate 2.0% decrease in the average selling price of wafers, as the effect of the decrease in average wafer selling prices to formation customers was partially offset by the effect of the increase in average wafer selling prices to post-formation customers.

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Research and Development. Research and development expenses increased to $19.7 million, or 9.9% of revenues, in 2005, from $18.7 million, or 8.5% of revenues, in 2004. The $1.0 million increase in research and development expense was primarily attributable to adjusting outstanding stock appreciation rights to fair value, resulting in a $1.6 million decrease in stock compensation income allocable to research and development to $0.2 million in 2005 from $1.8 million in 2004, partially offset by a $0.6 million decrease in other research and development expenditures, as these costs were allocated to cost of revenue upon the recognition of revenue in connection with providing engineering services.

Selling, General and Administrative. Selling, general and administrative expenses decreased to $15.0 million, or 7.5% of revenues, in 2005, from $21.6 million, or 9.8% of revenues, in 2004. The $6.6 million decrease in selling, general and administrative expenses primarily resulted from:

• decrease in costs expensed relating to Jazz's attempted public offering of $2.0 million due to the write-off in 2004 of $2.8 million of costs associated with Jazz’s withdrawn public offering as compared to the write-off in 2005 of $0.8 million for the corresponding costs associated with its withdrawn public offering;

• the absence in 2005 of $3.8 million in fees paid to obtain general releases in connection with technology cross-licenses from a third party and to settle a claim for a finder’s fee in connection with Jazz’s formation;

• a decrease in bad debt expenses of $1.2 million in 2005 compared to 2004;

• a decrease in net costs of $0.6 million associated with the termination of a transition services agreement with Conexant for information technology services, offset by an increase in "in-house" information technology costs and other support associated with additional labor and outside professional services;

• a decrease in insurance premium expense of $0.5 million; and

• partially offset by a $1.4 million decrease in stock compensation income allocable to selling, general and administrative, of $0.1 million in 2005 compared to $1.5 million in 2004, primarily resulting from the adjustment of outstanding stock appreciation rights to fair value.

Impairment of Intangible Assets. Jazz agreed to reimburse HHNEC for up to approximately $1.6 million incurred by it to license intellectual property associated with a potential customer engagement. These costs were originally determined to have future value and were capitalized during 2005. Subsequently, the customer did not place an order, this asset was determined not to have future value and Jazz fully expensed the $1.6 million in 2005.

Gain (Loss) on Investments. Loss on investments was $0.6 million in 2005 compared to $5.8 million in 2004. The losses related to adjusting Jazz’s carrying value of Conexant warrants to the fair value for the 2005 period and the carrying value of Conexant, Skyworks and Mindspeed warrants to the fair value for the 2004 period. The changes in value of these investments largely offset compensation expense for stock appreciation rights related to the common stock of Conexant, Skyworks and Mindspeed that had been granted to employees that were transferred to Jazz upon its formation.

Income Tax Provision. The income tax provision decreased to $46,000 in 2005 from $2.3 million in 2004. The 2005 income tax provision relates primarily to minimum state taxes. Despite its $1.9 million net loss before tax for book purposes in 2004, Jazz had taxable income for that year as a result of the differences in timing between the recognition of income and expense for tax and book purposes. For further discussion regarding the provision for income taxes for 2004, see “— Financial Operations Overview — Deferred Tax Assets.”

Liquidity and Capital Resources

Since the inception of its business in March 2002, Jazz has financed its operations primarily through issuances of equity securities and cash generated from operations. Jazz received gross proceeds of approximately $52.0 million from entities affiliated with The Carlyle Group in connection with its formation, of which Jazz paid $19.3 million to Conexant for its contribution of assets and $5.5 million in transaction expenses. In October 2002, Jazz received $30.0 million in cash and $30.0 million in the form of a note due October 2003 from RF Micro Devices in exchange for credit towards the purchase of future products and shares of its series B preferred stock. In October 2003, Jazz received $30.0 million from RF Micro Devices in full payment of the note. As of December 29, 2006, Jazz had $6.3 million in unrestricted cash and cash equivalents, $0.5 million in short-term restricted cash and $26.0 million in short-term investments. Historically, Jazz’s cash flows from operations have exceeded its operating income, reflecting its significant non-cash depreciation and other non-cash expenses.

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Jazz has made capital expenditures of $27.3 million, $23.5 million and $24.1 million in 2004, 2005 and 2006, respectively. Jazz continues to make capital investments in its Newport Beach, California fab to shift the facility’s available capacity to a greater percentage of specialty process technologies and to expand its overall capacity. For 2007 Jazz expects to invest approximately $22.3 million, funded by its cash flows from operating and financing activities, at its Newport Beach, California fab to support this initiative. Additionally, 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.

In January 2006, Jazz entered into a loan and security agreement with Wachovia Capital Finance Corporation (Western), or Wachovia, as the lender. The agreement establishes a line of credit with an aggregate borrowing limit of $35 million. The first $20 million of loans under the line of credit bear interest on the outstanding unpaid principal amount at a rate equal to the lender’s prime rate plus 0.75%, or in the case of Eurodollar loans, the adjusted Eurodollar rate plus 2.50%. The additional loan amounts, up to the maximum limit, bear interest on the outstanding unpaid principal amount at a rate equal to the lender’s prime rate plus 1.00%, or in the case of Eurodollar loans, the adjusted Eurodollar rate plus 2.75%. Jazz may, at its option, request a Eurodollar rate loan or convert any prime rate loan into a Eurodollar rate loan. The agreement also provides for the issuance of letters of credit by the lender for Jazz’s account not to exceed $4 million. The agreement includes certain affirmative and negative covenants, the non-compliance with which would constitute an event of default under the agreement and result in the acceleration of any amounts due under the agreement. As of December 29, 2006, Jazz had $34.4 million available after using $0.6 million of availability for a stand-by letter of credit. Following the merger, Jazz expects to terminate this loan agreement and Parent and Jazz expect to enter into a new $65 million revolving credit facility with Wachovia pursuant to a commitment letter provided by Wachovia to Parent in connection with the merger.

Cash Flow from Operating Activities

Cash provided in 2006. In 2006, Jazz’s operating activities provided $13.5 million in cash. This was primarily the result of net non-cash operating expenses of $24.5 million that were included in Jazz’s $15.2 million net loss and net cash provided by changes in operating assets and liabilities of $4.2 million. These increases were offset in part by Jazz’s net loss of $15.2 million. $23.0 million of the net non-cash operating activities in 2006 related to depreciation and amortization expense. Non-cash stock compensation income relating to stock appreciation rights for 2006 of $0.7 million was offset by a non-cash loss on related investments in warrants of $0.8 million. Other non-cash operating activities in 2006 included impairment of intangible assets of $0.6 million, stock compensation expense of $0.5 million, provision for doubtful debts of $0.3 million, and a net loss of $0.1 on the disposal of equipment. The changes in net operating assets and liabilities in 2006 include the following:

• an increase in accounts receivable that used $3.4 million of cash mainly attributed to an increase in revenues recognized at the end of the fourth quarter of 2006, a significant portion of which would not typically be collected by Jazz from its customers in the same quarter because Jazz’s billing and payment terms with those customers may provide a payment period that ends after the quarter, and in part due to delayed payments from formation customers of Jazz;

• an increase in inventories that used $5.3 million of cash mainly attributed to increased inventory of finished goods at the end of 2006 compared to 2005 and lower Newport Beach capacity utilization during the fourth quarter that resulted in a greater allocation of fixed production costs to inventory;

• an increase in accounts payable that provided $2.1 million of cash, primarily associated with increased capital expenditures during the latter half of 2006; and

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• an increase in deferred revenues that provided $8.9 million of cash primarily the result of an $8.0 million cash advance received under a capacity reservation and wafer credit subscription agreement with one of Jazz’s customers entered into during the third quarter of 2006.

Cash used in 2005. In 2005, Jazz’s operating activities used $1.5 million in cash. This was primarily the result of a net loss of $11.5 million and $12.4 million of cash used by changes in operating assets and liabilities, offset in part by $22.4 million in cash provided by net non-cash operating expenses. $20.9 million of the net non-cash operating activities for December 30, 2005 related to depreciation and amortization expense and $1.6 million related to the impairment of intangible assets. The impairment of intangible assets resulted from the write-off of intellectual property costs associated with a potential customer engagement originally capitalized under an agreement with HHNEC, which were subsequently determined to have no future value and were therefore fully expensed. Non-cash stock compensation income related to stock appreciation rights for 2005 of $0.7 million was offset by a non-cash loss on investments of $0.6 million. Other non-cash operating activities in 2005 included stock compensation expense of $0.5 million, $0.5 million associated with reversal of certain of Jazz’s doubtful accounts and a $0.2 million gain on disposal of equipment.

The changes in net operating assets and liabilities in 2005 include the following:

• an increase in accounts receivable at December 30, 2005 as compared to December 31, 2004 that used $9.9 million of cash, primarily as a result of delayed payments from Jazz’s formation customers, and to a lesser extent an increase in revenues during the fourth quarter of 2005 compared to the fourth quarter of 2004;

• a decrease in inventories at December 30, 2005 as compared to December 31, 2004 that provided $3.5 million in cash as Jazz consumed inventory due to increased demand in the fourth quarter 2005 as compared to the fourth quarter of 2004.

• a decrease in other current assets at December 30, 2005 as compared to December 31, 2004 that provided cash of $0.9 million, primarily due to a decrease in pre-paid property taxes resulting from lower assessed property values in connection with disputed business property taxes;

• a decrease in deferred revenues at December 30, 2005 as compared to December 31, 2004 that used $3.7 million of cash, primarily due to a change in billing policies relating to mask sets and a reduction in pre-paid engineering services; and

• a decrease in other current liabilities at December 30, 2005 as compared to December 31, 2004 that used $2.5 million of cash, primarily due to a decrease in liabilities for property taxes resulting from lower assessed property values in connection with disputed business property taxes.

Cash Provided in 2004. Jazz’s operating activities provided cash of $26.3 million in 2004. This was primarily the result of net non-cash operating activities of $22.8 million that were included in Jazz’s $4.3 million net loss and net cash provided by changes in operating assets and liabilities of $7.8 million. These increases were offset in part by Jazz’s net loss of $4.3 million. $17.2 million of the net non-cash operating activities in 2004 related to depreciation and amortization expense. Non-cash stock compensation income relating to stock appreciation rights for 2004 of $4.7 million was offset by a non-cash loss on investments of $5.8 million. The gain and loss on investments and compensation expense and income resulted from changes in the market value of the underlying warrants and stock appreciation rights. Other non-cash operating activities in 2004 included an adjustment of $2.2 million to reduce intangible assets acquired upon the formation of Jazz that was offset by a $2.2 million reduction in the current taxes payable, stock compensation expense of $1.6 million associated with stock options granted to employees and others and provision for doubtful debts for $0.8 million. The changes in net operating assets and liabilities in 2004 include the following:

• increased accounts payable that increased cash by $2.5 million primarily related to the timing of payments to Jazz’s suppliers, particularly for capital equipment;

23

• increased other current liabilities increased cash by $10.2 million primarily from accruals of allowances for customer concessions of $3.9 million, $3.0 million for the license of technology and $2.9 million for disputed business property taxes.

• other long-term liabilities increased by $1.5 million, providing an increase in cash. Long-term liabilities increased in 2004 in connection with Jazz’s license of technology from a third party;

• decreased stock appreciation rights used cash of $3.3 million. The decrease resulted from cash payments to employees upon their exercise of stock appreciation rights. The payments were fully offset by proceeds from the sale of shares received upon exercise of warrants, which is classified as cash from investing activities; and

• an increase in inventories at December 31, 2004 that used $4.8 million in cash.

Cash Used in Investing Activities

Investing activities used $26.7 million of cash in 2006. Proceeds of $56.2 million from sale of short-term investments along with cash provided by operating activities were used to purchase other short term investments of $58.3 million of auction rate certificates and other government bonds. In 2006, Jazz used $24.1 million of cash for capital expenditures to expand capacity for its specialty processes and invested $0.6 million in technology licenses. The net cash provided by the operating and financing activities was used to fund the capital and technology license expenditures in 2006.

In 2005, investing activities used $1.2 million in cash. The proceeds of $26.8 million from the sale of short-term investments net of purchases was used to fund Jazz’s capital expenditures of $23.5 million and its operating activities. $1.6 million of cash was used in connection with Jazz’s obligation to reimburse HHNEC for intellectual property costs incurred by it pursuant to Jazz’s agreement with HHNEC and $3.0 million of cash was used in connection with a cross-license agreement with a third-party.

During 2004, Jazz used $86.3 million of cash for investing activities. $27.3 million of cash was used to invest in property, plant and equipment relating to capacity expansion for Jazz’s specialty processes and $8.5 million of cash was used to purchase additional shares of HHNEC pursuant to its agreement with HHNEC. Additionally, investment activities included a net purchase of $50.6 million of auction rate certificates and other government bonds that are accounted for as short-term investments available for sale rather than cash or cash equivalents and $3.2 million was used to purchase technology licenses.

Cash Provided by Financing Activities

Financing activities provided $15.1 million in 2006. This was primarily due to Jazz’s issuance of $16.3 million of common stock to Conexant in connection with the termination of $16.3 million of wafer credits that were owed to Conexant pursuant to the Conexant wafer supply agreement offset by a $1.2 million repayment of overdraft. Cash provided by financing activities was used primarily to fund the capital expenditures in 2006.

Cash provided by financing activities in 2005 resulted from a $1.2 million overdraft that Jazz used at the end of 2005. This overdraft was repaid during 2006.

Jazz’s financing activities provided $0.3 million in cash in 2004, which was primarily the result of $0.6 million in net proceeds received from issuances of common stock upon the exercises of employee stock options, off set by $0.3 million in repurchases of common stock.

Restricted Cash

Under the terms of Jazz’s workers’ compensation insurance policies it provides letters of credit issued by a financial institution as security to the insurance carriers. The issuing financial institution requires the letter of credit to be secured, which Jazz accomplishes with commercial paper or money market funds. Because the security behind the letters of credit is not cash, Jazz is required to provide security in excess of the face value of the letter of credit. The commercial paper or money market funds used to secure the letters of credit have been classified as non-current restricted cash because that amount cannot be withdrawn and used by Jazz for an indefinite period that is not less than one year. The amounts classified as current restricted cash were $0.7 million and $0.5 million and the amounts classified as non-current restricted cash were $2.9 million and $2.7 million as of December 30, 2005 and December 29, 2006, respectively.

24

Significant Relationships

Jazz’s supply agreements with ASMC and HHNEC provide for changes in the price at which it is able to purchase wafers. Under the ASMC supply agreement, the price at which Jazz purchases wafers declined on April 1, 2004. Under the HHNEC supply agreement, Jazz generally has the right to purchase wafers at commercially competitive prices, subject to a maximum decrease in prices for any one year, and was not obligated to pay more than scheduled prices through 2006. In 2007 and beyond, the price will be determined based on negotiations between HHNEC and Jazz. Jazz initiated production at ASMC in the fourth quarter of 2003 and at HHNEC in the fourth quarter of 2004. To date, Jazz has not obtained a significant portion of its wafer supply from ASMC or HHNEC. Due to the volumes it is currently placing at ASMC and HHNEC, Jazz does not expect any decrease in prices to have a material effect on its liquidity or results of operations.

Jazz’s material wafer supply agreements with Conexant and Skyworks required each of them to purchase a minimum number of wafers each year through March 2005. Both exceeded their respective minimum purchase obligations in each period. While Jazz expects Conexant and Skyworks to remain significant customers, Jazz expects that the percentage of revenues from these customers will likely decline as Jazz continues to diversify its customer base. Jazz also expects, over the long term, actual revenues from Conexant and Skyworks to decline.

Contractual Obligations and Contingent Liabilities

Jazz leases its headquarters and Newport Beach, California fabrication and probing facilities from Conexant under non-cancelable operating leases through March 2017. Jazz has the option to extend the terms of each of these leases for two consecutive five-year periods. Jazz’s rental payments under these leases consist solely of its pro rata share of the expenses incurred by Conexant in the ownership of these buildings. Jazz has estimated future minimum costs under these leases based on its actual costs incurred during 2005 and applicable adjustments for increases in the consumer price index. Jazz is not permitted to sublease space that is subject to these leases without Conexant’s prior approval.

In August 2003, Jazz entered into a manufacturing relationship with HHNEC. Under the arrangement, as of January 2006, during each fixed six month period under the agreement it is required to purchase a minimum number of wafers from HHNEC equal to 50% of the average number of wafers manufactured for Jazz by HHNEC during the three months immediately preceding the applicable six month period. To date, Jazz has not incurred significant commitments to purchase wafers from HHNEC. Jazz also agreed to license certain process technologies and invest $10.0 million in HHNEC. Of the $10.0 million investment, Jazz paid $1.5 million in December 2003 and $8.5 million in August 2004.

Jazz has agreed to pay to Conexant a percentage of its gross revenues derived from the sale of SiGe products to parties other than Conexant and its spun-off entities during its first 10 years of operation. Under its technology license agreement with Polar Semiconductor, Inc., or PolarFab, Jazz has also agreed to pay PolarFab certain royalty payments based on a decreasing percentage of revenues from sales of devices manufactured by Jazz for PolarFab’s former customers.

Jazz also has other commitments consisting of software leases and facility and equipment licensing arrangements.

Future minimum payments under non-cancelable operating leases and other commitments as of December 29, 2006 are as follows:

25

	Payment Obligations by Year
	2007		2008		2009		2010		Thereafter		Total
	(in thousands)
Operating leases	$	2,644	$	2,520	$	2,375	$	2,300	$	14,259	$	24,098
Other commitments		1,993		1,674		1,443		1,123		590		6,823
Total	$	4,637	$	4,194	$	3,818	$	3,423	$	14,849	$	30,921

Jazz believes, based on its current plans, current levels of operations and anticipated growth, that its cash from operations, together with cash and short-term investments currently available, will be sufficient to fund its operations for at least 12 months from the date of this current report on Form 8-K. Poor financial results, unanticipated expenses, unanticipated acquisitions of technologies or businesses or unanticipated strategic investments could give rise to additional financing requirements sooner than Jazz expects. There can be no assurances that equity or debt financing will be available when needed or, if available, that the financing will be on terms satisfactory to Jazz and not dilutive to its then current stockholders.

Quantitative and Qualitative Disclosure Regarding Market Risk

As of December 29, 2006, Jazz had cash, cash equivalents, short-term investments and restricted cash of $32.8 million, which consisted of cash and highly liquid floating rate short-term investments with original maturities of three months or less at the date of purchase, which Jazz holds solely for non-trading purposes, and auction rate certificates with long-term maturities that are available for sale and short-term restricted cash. Interest rates for auction rate certificates are reset at regular intervals ranging from seven to 49 days. These investments may be subject to interest rate risk and may during the period between resets of the interest rate decrease in value if market interest rates increase and the auction rate certificate is not held to maturity. Declines in interest rates over time will also reduce Jazz’s interest income. Due to the nature of Jazz’s short-term investments and to the nature of the interest rate reset feature of the auction rate certificates, Jazz believes that it is not subject to any material market risk. In addition, any future borrowings under Jazz’s loan agreements with Wachovia, including the new loan agreement Jazz and Parent expect to enter into with Wachovia, will be at a variable rate of interest. As a result, an increase in market interest rates may require a greater portion of Jazz’s cash flow to pay interest.

Jazz is currently billed by the majority of its vendors in U.S. dollars and it currently bills the majority of its customers in U.S. dollars. However, its financial results could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. A strengthening of the U.S. dollar could make Jazz’s products less competitive in foreign markets and therefore reduce its revenues. In the future, some portion of Jazz’s revenues and costs may be denominated in foreign currencies. To date, exchange rate fluctuations have had little impact on Jazz’s operating results. Jazz does not have any foreign currency or other derivative financial instruments.

Critical Accounting Policies

Estimates

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

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Revenue Recognition

Jazz recognizes revenues in accordance with SEC Staff Accounting Bulletin, or SAB, No. 101, Revenue Recognition in Financial Statements, or SAB 101, as amended by SAB 101A, SAB 101B and SAB 104. SAB 101 requires four basic criteria to be met before revenues can be recognized:

• persuasive evidence that an arrangement exists;

• delivery has occurred or services have been rendered;

• the fee is fixed and determinable; and

• collectibility is reasonably assured.

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

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

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

Accounts Receivable

Jazz performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by its review of their current credit information. Jazz monitors collections and payments from its customers and maintains an allowance for doubtful accounts based upon its historical experience, industry norms and specific customer collection issues that Jazz has identified. While Jazz’s credit losses have historically been within its expectations and the allowance established, it may not continue to experience the same credit loss rates as it has in the past. Jazz’s accounts receivable are concentrated in a relatively few number of customers. Therefore, a significant change in the liquidity or financial position of any one customer could make it more difficult for Jazz to collect its accounts receivable and requires Jazz to increase its allowance for doubtful accounts, which could have a material adverse impact on its consolidated financial position, results of operations and cash flows.

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Inventories

Jazz initiates production of a majority of its wafers once it has received an order from a customer. Jazz generally does not carry a significant inventory of finished goods except in response to specific customer requests or if it determines to produce wafers in excess of orders because it forecasts future excess demand and capacity constraints. Jazz seeks to purchase and maintain raw materials at sufficient levels to meet lead times based on forecasted demand. If forecasted demand exceeds actual demand, Jazz may need to provide an allowance for excess or obsolete quantities on hand. Jazz also reviews its inventories for indications of obsolescence or impairment and provides reserves as deemed necessary. Jazz scraps inventory that has been written down after it is determined that it cannot be sold. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. Jazz states its inventories at the lower of cost, using the first-in, first-out method, or market.

Long-lived Assets

Jazz reviews long-lived assets and identifiable intangibles for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Jazz reports long-lived assets to be disposed at the lower of carrying amount or fair value less the estimated cost of sale.

Accounting for Income Taxes

Jazz accounts for income taxes under the provisions of SFAS No. 109, which requires that Jazz recognizes in its consolidated financial statements:

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

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

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

Significant judgment is required in determining the Company’s provision for income taxes. In the ordinary course of business, there are many transactions for which the ultimate tax outcome is uncertain. Despite the Company’s belief that the tax return positions are supportable, there are certain positions that may not be sustained upon review by tax authorities. While the Company believes that adequate accruals have been made for such positions, the final resolution of those matters may be materially different than the amounts provided for in the Company’s historical income tax provisions and accruals.

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

At December 29, 2006, Jazz had federal tax net operating loss carryforwards of approximately $93.5 million and state tax net operating loss carryforwards of approximately $79.4 million. The federal tax loss carryforwards will begin to expire in 2022, unless previously utilized. The state tax loss carry forwards will begin to expire in 2008, unless previously utilized. At December 29, 2006, Jazz had combined federal and state alternative minimum tax credit of $0.1 million. The alternative minimum tax credits do not expire.

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Utilization of net operating losses, credit carryforwards, and certain deductions may be subject to annual limitations due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The tax benefits related to future utilization of federal and state net operating losses, tax credit carryforwards, and other deferred tax assets will be limited or lost if cumulative changes in ownership exceed 50% within any three-year period. Such a limitation may occur upon the completion of Parents' acquisition of Jazz. Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examinations from various tax authorities.

Pension Plans

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

Investments in Warrants

Jazz accounted for its warrants to purchase Conexant common stock, Skyworks common stock and Mindspeed common stock, as well as the stock appreciation rights it granted to its employees as derivatives in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and EITF Issue 02-08, Accounting for Options Granted to Employees in Unrestricted Publicly-Traded Shares of an Unrelated Entity.

Accordingly, Jazz reflected the fair value of each instrument (effectively equivalent amounts) as an asset and a liability, respectively, in its initial purchase price allocation in connection with its separation from Conexant and on its subsequent consolidated balance sheets. In addition, as part of the purchase price allocation, Jazz recorded deferred compensation for the fair value of the stock appreciation rights it granted to employees. Initially, the deferred compensation offset the stock appreciation right liability, resulting in a net amount of zero for the stock appreciation right liability on the consolidated balance sheet as of the date of inception. The initial fair value of the warrants and the initial fair value of the stock appreciation rights were each determined to be $14.2 million using the Black-Scholes pricing model. Jazz reflected subsequent adjustments as of each interim and annual reporting date in the fair value of the warrants as a gain or loss on investments on its consolidated statement of operations. Jazz reflected 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 stock compensation expense on its consolidated statement of operations. Jazz amortized deferred compensation on a straight-line basis over the vesting period of the stock appreciation rights.

The fair value and income (expense) related to investments in warrants and stock appreciation rights (net of deferred compensation) for the years ended December 31, 2004, December 30, 2005 and December 29, 2006 is as follows (in millions):

	Warrants			Net Stock Appreciation Rights (SARs)
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)		(0.7	)		0.7
Fair value as of December 29, 2006	$	0.1		$	(0.0	)

The deferred compensation was fully amortized as of March 26, 2004.

29

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans (an amendment of FASB Statements No. 87, 88, 106, and 132R), or SFAS No. 158, which will require employers to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare and other post retirement plans in their financial statements. Under past accounting standards, the funded status of an employer’s post retirement benefit plan (i.e., the difference between the plan assets and obligations) was not always completely reported in the balance sheet. Past standards only required an employer to disclose the complete funded status of its plans in the notes to the financial statements. SFAS No. 158 applies to plan sponsors that are public and private companies and non-governmental not-for-profit organizations. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006, for entities with publicly traded equity securities, and at the end of the fiscal year ending after June 15, 2007, for all other entities. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. Jazz adopted SFAS No. 158 on December 29, 2006, except for the provision to use the fiscal year end measurement date which will be adopted in fiscal 2008. There was no effect on the 2006 financial statements upon adoption of SFAS No. 158 for Jazz’s pension plan; however, the effect pertaining to Jazz’s post-retirement medical plan was to increase the recorded benefit obligation and accumulated other comprehensive loss by $2.9 million. Jazz does not expect that the adoption of the fiscal year end measurement date provision of SFAS No. 158 in fiscal 2008 will have a significant impact on the consolidated results of operations or financial position of Jazz.

In July 2006, the FASB has published FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN No. 48, to address the noncomparability in reporting tax assets and liabilities resulting from a lack of specific guidance in SFAS No. 109 on the uncertainty in income taxes recognized in an enterprise’s financial statements. FIN No. 48 will apply to fiscal years beginning after December 15, 2006, with earlier adoption permitted. Jazz is currently evaluating the impact of adopting Fin No. 48 on its financial condition, results of operations and cash flows.

30

Jazz Semiconductor, Inc.

Index to Consolidated Financial Statements

	Page
Financial Statements
Report of independent registered public accounting firm	F-2
Consolidated Balance sheet as of December 30, 2005 and December 29, 2006	F-3
Consolidated Statement of operations for the year ended December 31, 2004, December 30, 2005 and December 29, 2006	F-4
Consolidated Statement of stockholders’ equity for the year ended December 31, 2004, December 30, 2005 and December 29, 2006	F-5
Consolidated Statement of cash flows for the year ended December 31, 2004, December 30, 2005 and December 29, 2006	F-6
Notes to Consolidated financial statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Jazz Semiconductor, Inc.

We have audited the accompanying consolidated balance sheets of Jazz Semiconductor, Inc. as of December 30, 2005 and December 29, 2006, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 29, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jazz Semiconductor, Inc. at December 30, 2005 and December 29, 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 29, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, effective December 31, 2005 and December 29, 2006, the Company adopted Statement of Financial Accounting Standards Nos. 123 (revised 2004), “Share-based Payment” and 158, “Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans (an Amendment of FASB Statements No. 87, 88, 106, and 132R),” respectively.

                                                    /s/ Ernst & Young LLP  

Orange County, California

February 20, 2007

F-2

JAZZ SEMICONDUCTOR, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except For Par Values)

	December 30, 2005			December 29, 2006
Assets
Current assets:
Cash and cash equivalents	$	4,372		$	6,299
Short-term investments		23,850			25,986
Restricted cash		720			473
Receivables from related parties, net of allowance for doubtful accounts of zero and $70 at December 30, 2005 and December 29, 2006, respectively		11,033			8,341
Receivables, net of allowance for doubtful accounts of $697 and $929 at December 30, 2005 and December 29, 2006, respectively		23,687			29,492
Inventories		17,806			23,102
Other current assets		2,518			2,740
Total current assets		83,986			96,433
Property, plant and equipment, net		65,249			71,507
Investments		10,840			10,000
Restricted cash		2,881			2,681
Other assets		5,801			7,006
Total assets	$	168,757		$	187,627
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	15,516		$	20,728
Accrued compensation, benefits and other		4,437			4,627
Deferred revenues		1,421			10,609
Other current liabilities		14,026			17,429
Total current liabilities		35,400			53,393
Deferred revenues—wafer credits		11,533			11,199
Stock appreciation rights, net		745			—
Pension and retirement medical plan obligations		11,394			17,458
Other long term liabilities		1,500			779
Total liabilities		60,572			82,829
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value
Authorized shares—200,000
Issued and outstanding shares—112,982 at December 30, 2005, and December 29, 2006		113			113
Liquidation preference—$156,309 and $171,941 at December 30, 2005 and December 29, 2006, respectively
Common stock, $.001 par value
Authorized shares—255,000
Issued and outstanding shares—4,805 and 12,339 at December 30, 2005 and December 29, 2006, respectively		5			12
Additional paid in capital		145,857			162,347
Deferred stock compensation		(839	)		(308	)
Accumulated other comprehensive loss		(632	)		(5,846	)
Accumulated deficit		(36,319	)		(51,520	)
Total stockholders’ equity		108,185			104,798
Total liabilities and stockholders’ equity	$	168,757		$	187,627

See accompanying notes.

F-3

JAZZ SEMICONDUCTOR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

	Year Ended
	December 31, 2004			December 30, 2005			December 29, 2006
Revenues from related parties	$	66,834		$	60,821		$	40,364
Revenues from non-related parties		152,701			138,209			172,162
Net revenues		219,535			199,030			212,526
Cost of revenues (1)		175,346			174,294			187,955
Gross profit		44,189			24,736			24,571
Operating expenses:
Research and development (1)		18,691			19,707			20,087
Selling, general and administrative (1)		21,573			14,956			18,342
Amortization of intangible assets		869			836			996
Impairment of intangible assets		—			1,642			551
Total operating expenses		41,133			37,141			39,976
Operating income (loss)		3,056			(12,405	)		(15,405	)
Interest income, net		786			1,315			1,196
Loss on investments		(5,784	)		(583	)		(840	)
Other income (expense)		18			206			(94	)
Loss before income taxes		(1,924	)		(11,467	)		(15,143	)
Income tax provision		2,348			46			58
Net loss		(4,272	)		(11,513	)		(15,201	)
Preferred stock dividends		(13,074	)		(14,210	)		(15,631	)
Net loss attributable to common stockholders	$	(17,346	)	$	(25,723	)	$	(30,832	)

(1) Includes stock-based compensation expense (income) as follows:

	Year Ended
	December 31, 2004			December 30, 2005			December 29, 2006
Cost of revenues	$	(522	)	$	164		$	(92	)
Research and development		(1,836	)		(169	)		(30	)
Selling, general and administrative		(1,469	)		(54	)		(102	)

The amounts of stock-based compensation expense included in the year ended December 29, 2006 reflect the adoption of SFAS No. 123R, Share Based Payment (“SFAS No. 123R”). In accordance with the prospective transition method, the Company’s consolidated statements of operations for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R.

See accompanying notes.

F-4

JAZZ SEMICONDUCTOR, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands)

	Preferred Stock				Common Stock
	Shares			Amount	Shares			Amount		Additional paid in capital			Deferred stock compensation			Accumulated other comprehensive income (loss)			Accumulated deficit			Total stockholders’ equity
Balance at December 26, 2003	113,072		$	113	4,200		$	4	$	145,463		$	(2,348	)	$	—		$	(20,534	)	$	122,698
Exercise of employee stock options and stock awards	—			—	367			1		566			—			—			—			567
Repurchase of common stock	—			—	(98	)		—		(159	)		—			—			—			(159	)
Conversion of preferred stock to common stock	(90	)		—	90			—		—			—			—			—			—
Common stock issued to a consultant	—			—	210			—		735			—			—			—			735
Common stock subject to repurchase	—			—	—			—		(810	)		—			—			—			(810	)
Deferred stock compensation	—			—	—			—		181			(181	)		—			—			—
Amortization of deferred stock compensation	—			—	—			—		—			729			—			—			729
Net loss and comprehensive loss	—			—	—			—		—			—			—			(4,272	)		(4,272	)
Balance at December 31, 2004	112,982			113	4,769			5		145,976			(1,800	)		—			(24,806	)		119,488
Exercise of employee stock options and stock awards	—			—	121			—		94			—			—			—			94
Repurchase of common stock	—			—	(85	)		—		(55	)		—			—			—			(55	)
Common stock subject to Repurchase	—			—	—			—		317			—			—			—			317
Deferred stock compensation reversal for cancellations	—			—	—			—		(475	)		475			—			—			—
Amortization of deferred stock compensation	—			—	—			—		—			486			—			—			486
Comprehensive income (loss):
Minimum pension liability	—			—	—			—		—			—			(669	)		—			(669	)
Foreign currency translation adjustment	—			—	—			—		—			—			37			—			37
Net loss	—			—	—			—		—			—			—			(11,513	)		(11,513	)
Total comprehensive loss	—			—	—			—		—			—			—			—			(12,145	)
Balance at December 30, 2005	112,982			113	4,805			5		145,857			(839	)		(632	)		(36,319	)		108,185
Exercise of employee stock options and awards	—			—	17			—		3			—			—			—			3
Repurchase of common stock	—			—	(67	)		—		(77	)		—			—			—			(77	)
Common stock subject to repurchase	—			—	—			—		282			—			—			—			282
Deferred stock compensation reversal for cancellations	—			—	—			—		(131	)		131			—			—			—
Common stock issued to Conexant	—			—	7,584			7		16,292			—			—			—			16,299
Stock compensation expense	—			—	—			—		121			400			—			—			521
Comprehensive income (loss):
Foreign currency translation adjustment	—			—	—			—		—			—			7			—			7
Minimum pension liability																(2,309	)					(2,309	)
Net loss	—			—	—			—		—			—			—			(15,201	)		(15,201	)
Total comprehensive loss	—			—	—			—		—			—			—			—			(17,503	)
	112,982			113	12,339			12		162,347			(308	)		(2,934	)		(51,520	)		107,710
Adoption of SFAS No. 158 Post Retiree Medical Plan	——			——	—			——		—			—			(2,912	)		—			(2,912	)
Balance at December 29, 2006	112,982		$	113	12,339		$	12	$	162,347		$	(308	)	$	(5,846	)	$	(51,520	)	$	104,798

See accompanying notes.

F-5

JAZZ SEMICONDUCTOR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	Year Ended
	December 31, 2004			December 30, 2005			December 29, 2006
Operating activities:
Net loss	$	(4,272	)	$	(11,513	)	$	(15,201	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Loss on investments		5,784			583			840
Depreciation and amortization		17,180			20,904			23,024
Adjustment of intangible assets contributed at inception		2,205			—			—
Impairment of intangible assets		—			1,642			551
Stock appreciation rights compensation income		(4,689	)		(652	)		(745	)
Stock compensation expense—employees		676			486			521
Stock compensation expense—non employees		53			39			—
Stock compensation expense—repurchase of common stock		133			68			—
Common stock issued to a consultant		735			—			—
Accretion of discount on short-term investments available for sale		—			(4	)		(86	)
(Gain) loss on disposal of equipment		(31	)		(180	)		144
Provision for doubtful accounts		772			(465	)		301
Changes in operating assets and liabilities:
Receivables		(144	)		(9,911	)		(3,415	)
Inventories		(4,845	)		3,504			(5,296	)
Other current assets		10			964			(221	)
Restricted cash		(1,031	)		(1,373	)		447
Other long-term assets		—			(341	)		(218	)
Accounts payable		2,508			434			2,120
Accrued compensation, benefits and other		616			(493	)		191
Deferred revenues		1,486			(3,678	)		8,854
Other current liabilities		10,174			(2,521	)		1,592
Stock appreciation rights		(3,250	)		—			—
Pension and retirement medical plan obligations		742			1,032			843
Other long-term liabilities		1,500			—			(722	)
Net cash provided by (used in) operating activities		26,312			(1,475	)		13,524
Investing activities:
Capital expenditures		(27,282	)		(23,505	)		(24,142	)
Proceeds from sale of equipment		100			207			86
Purchases of short-term investments		(88,272	)		(64,075	)		(56,235	)
Sales of short-term investments		37,650			90,851			56,225
Purchases of commercial paper, net		—			—			(2,039	)
Investments		(8,500	)		—			—
Purchase of other assets		(3,247	)		(4,642	)		(559	)
Proceeds from sale of shares received upon exercise of warrants		3,250			—			—
Net cash used in investing activities		(86,301	)		(1,164	)		(26,664	)
Financing activities:
Exercise of employee stock options		567			55			3
Repurchases of common stock		(292	)		(123	)		(77	)
Change in cash overdraft		—			1,165			(1,165	)
Issuance of common stock to Conexant		—			—			16,299
Net cash provided by financing activities		275			1,097			15,060
Effect of foreign exchange rate change		—			37			7
Net increase (decrease) in cash and cash equivalents		(59,714	)		(1,505	)		1,927
Cash and cash equivalents at beginning of year		65,591			5,877			4,372
Cash and cash equivalents at end of year	$	5,877		$	4,372		$	6,299

See accompanying notes.

F-6

JAZZ SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Description of Business and Formation

Jazz Semiconductor, Inc. (the “Company”) is an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog and mixed-signal semiconductor devices. The Company’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. The Company’s specialty process technologies include advanced analog, radio frequency, high voltage, bipolar and silicon germanium bipolar complementary metal oxide (“SiGe”) semiconductor processes, for the manufacture of analog and mixed-signal semiconductors.

In March 2002, the Company (incorporated in Delaware in February 2002) became an independent, privately held company upon the contribution by Conexant Systems, Inc. (“Conexant”) of $67.3 million of net assets in exchange for $19.3 million in cash and 4,500,000 shares of class B common stock and the contribution by affiliates of The Carlyle Group (“Carlyle”) of approximately $52 million in cash in exchange for 5,500,000 shares of class A common stock. The aggregate value of the transaction, determined based upon the cash consideration paid by affiliates of Carlyle, was $94.5 million. Included in the aggregate value are direct costs incurred related to the transaction of approximately $5.5 million. On July 31, 2002, 5,500,000 shares of class A common stock and 4,500,000 shares of class B common stock, representing all of the then outstanding shares of common stock of the Company, were recapitalized into 55,000,000 and 45,000,000 shares of Series A preferred stock and Series B preferred stock, respectively.

On September 26, 2006, the Company entered into a Merger Agreement, with Jazz Technologies, Inc. (formerly known as Acquicor Technology Inc.) (“Parent”), Joy Acquisition Corp. (“Joy”), and TC Group, L.L.C. as stockholders' representative, pursuant to which Joy will merge with and into the Company, with the Company as the surviving corporation and a wholly-owned subsidiary of Parent (the “Merger”). Under the terms of the Merger Agreement, upon the closing of the merger, Parent will pay cash in an amount equal to $260 million in exchange for all of the outstanding equity of the Company (including all outstanding stock options), reduced by: (i) a payment in the amount of $16.3 million to be made by the Company to Conexant to redeem 7,583,501 shares of the Company's Class B Common Stock held by Conexant and as consideration for an amendment to the Wafer Supply Termination Agreement, dated as of June 26, 2006, by and between the Company and Conexant eliminating the Company's obligation to issue additional shares of its Class B Common Stock to Conexant; (ii) the amount of retention bonus payments to be made to certain employees of the Company in an aggregate amount not to exceed $1.8 million; and (iii) transaction expenses incurred by the Company in connection with the merger. The purchase price is also subject to a possible decrease of up to $4.5 million and a possible increase of up to $4.5 million plus $50,000 per day for each day after March 31, 2007 until the closing of the merger, based on the working capital position of the Company as of the closing of the merger. In addition, following the closing of the Merger, Parent may become obligated to pay additional amounts to former stockholders of the Company if the Company realizes proceeds in excess of $10 million from its investment in HHNEC from certain specified events occurring during the first three years following the closing of the Merger. In such case, Parent will pay an amount equal to 50% of the amount (if any) by which such proceeds exceed $10 million to the Company's former stockholders. Parent will not assume any of the Company's stock options and any stock options of the Company will be canceled at the closing of the Merger.

2.Summary of Significant Accounting Policies

Reclassifications

Certain amounts in the 2004 and 2005 consolidated financial statements have been reclassified to conform with the 2006 presentation.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

F-7

Fiscal Year

The Company maintains a 52- or 53-week fiscal year. Each of the Company’s first three quarters of a fiscal year end on the last Friday in each of March, June and September and the fourth quarter of a fiscal year ends on the Friday prior to December 31. As a result, each fiscal quarter consists of 13 weeks during a 52-week fiscal year. During a 53-week fiscal year, the first three quarters consist of 13 weeks and the fourth quarter consists of 14 weeks. Fiscal years 2004, 2005 and 2006 consist of 53, 52 and 52 weeks, respectively.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those relating to sales allowances, the allowance for doubtful accounts, inventories and related reserves, long-lived assets, investments, income taxes, litigation, deferred stock compensation, retirement medical plan and pension plan. On an ongoing basis, management reviews its estimates based upon currently available information. Actual results could differ materially from those estimates.

Revenue Recognition

The Company derives its revenues primarily from the manufacture and sale of semiconductor wafers. The Company also derives a portion of its revenues from the resale of photomasks and other engineering services.

The Company recognizes revenues in accordance with Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements (“SAB 101”), as amended by SAB 101A, SAB 101B and SAB 104. SAB 101 requires four basic criteria to be met before revenues can be recognized:

• persuasive evidence that an arrangement exists;

• delivery has occurred or services have been rendered;

• the fee is fixed and determinable; and

• collectibility is reasonably assured.

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

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

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

Cash and Cash Equivalents

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

F-8

Short-term Investments

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

Restricted Cash

Under the terms of its workers’ compensation insurance policies, the Company provides letters of credit issued by a financial institution as security to the insurance carriers, totaling $2.9 million and $2.7 million as of December 30, 2005 and December 29, 2006, respectively.

The issuing financial institution requires the Letters of Credit (“LOC”) to be secured. The Company secured the LOC with commercial paper and/or money market funds. Because the security behind the LOC was not cash, the financial institution issuing the LOC requires the Company to provide security in excess of the face value of the LOC.

The portion of the commercial paper and/or money market funds up to the face value of the LOC have been classified as non-current restricted cash because that amount cannot be withdrawn and used by the Company for an indefinite period that is not less than one year. The amounts classified as non-current restricted cash were $2.9 million and $2.7 million as of December 30, 2005 and December 29, 2006, respectively, in the accompanying consolidated balance sheets.

The portion of the commercial paper and/or money market funds in excess of the face value of the LOC has been classified as current restricted cash because that amount could be withdrawn and used by the Company during a period less than one year if the Company uses cash as security for the LOC. The amounts classified as current restricted cash were $0.7 million and $0.5 million as of December 30, 2005 and December 29, 2006, respectively.

Inventories

Inventories include the costs for freight-in, materials, labor and manufacturing overhead and are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method.

Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to 15 years. Leasehold improvements are amortized over the life of the asset or term of the lease, whichever is shorter. Significant renewals and betterments are capitalized and any assets being replaced are written off. Maintenance and repairs are charged to expense as incurred. Upon the sale or retirement of assets, the cost and related accumulated depreciation or amortization are removed from the consolidated balance sheet and the resulting gain or loss is reflected in the consolidated statement of operations.

Investments

Investments consist of the following (in thousands):

	December 30, 2005		December 29, 2006
HHNEC	$	10,000	$	10,000
Warrants		840		—
	$	10,840	$	10,000

F-9

HHNEC

In August 2003, the Company entered into a strategic relationship with HHNEC. Under the arrangement, the Company has secured additional manufacturing capacity for its products. HHNEC did not manufacture a significant amount of wafers for the Company during 2006. As part of its strategic relationship, the Company has contributed certain licensed process technologies and invested $10.0 million in HHNEC, of which $1.5 million was paid in the fourth quarter of 2003 and $8.5 million was paid in the third quarter of 2004. As of December 29, 2006, the investment represents a minority interest of approximately 10% in HHNEC. This investment is carried at its original cost basis and is accounted for using the cost method of accounting for investments, as the Company does not have the ability to exercise significant influence.

Warrants and Stock Appreciation Rights

In connection with the formation of the Company, Conexant issued a warrant to the Company to purchase up to 2,900,000 shares of Conexant common stock. The warrant is subject to adjustment for subsequent distributions to Conexant stockholders by Conexant.

In June 2002 and July 2003, Conexant completed distributions to its stockholders, resulting in the creation of Skyworks Solutions, Inc. (“Skyworks”) and Mindspeed Technologies, Inc. (“Mindspeed”), respectively. In connection with those distributions, the Company also received warrants to acquire shares of Mindspeed common stock and shares of Skyworks common stock and the exercise price of the Conexant warrant was adjusted accordingly. The Mindspeed warrant was exercised by December 31, 2004. The Skyworks warrant expired on January 20, 2005. The Company holds a warrant with an exercise price as follows at December 29, 2006:

Company	Number of Shares		Exercise Price per Share
	(in thousands)
Conexant		2,310	$	3.76

The Conexant warrant expired on January 20, 2007.

In connection with the issuance of the warrants, the Company established a stock appreciation rights (“SARs”) plan that provided for the issuance of 2,979,456 SARs for the benefit of certain employees that transferred employment from Conexant to become employees of the Company. The outstanding SARs were adjusted for the subsequent distributions to Conexant’s stockholders as described above consistent with the effect on the Conexant warrant. As adjusted, the SARs entitled the employee to receive a cash settlement for the excess, if any, of the fair market value of the Conexant, Skyworks and Mindspeed common stock over the reference price of the SARs. Following this adjustment, the reference price of the SARs was equal to the exercise price of the related warrants with Conexant, Skyworks and Mindspeed. Upon a holder’s exercise of a SAR, the Company exercises a corresponding portion of the applicable warrant, sells the underlying securities received upon exercise and remits the proceeds of the sale to the holder of the SAR such that the transactions are cash neutral to the Company. The SARs became fully vested on March 12, 2004. As of December 31, 2004, all Skyworks and Mindspeed SARs were exercised or had expired. The Conexant SARs expired on December 31, 2006.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, and Emerging Issues Task Force (“EITF”) Issue No. 02-08, Accounting for Options Granted to Employees in Unrestricted, Publicly-Traded Shares of an Unrelated Entity, both the warrants and SARs have been accounted for as derivatives and, therefore, the fair value of each instrument (effectively equivalent amounts) has been reflected as an asset and a liability, respectively, in the Company’s initial purchase price allocation. In addition, as part of the purchase price allocation, deferred compensation was recorded for the fair value of the SARs granted to the employees. The deferred compensation was offset against the SARs liability resulting in a net amount of zero for the SARs liability in the consolidated balance sheet as of the Company’s date of inception. The fair value of the instruments has been determined using the Black-Scholes pricing model using the following assumptions:

F-10

	December 30, 2005			December 29, 2006
Remaining life (in years)		1.0			0.0
Risk free interest rate		4.4	%		4.75	%
Dividend yield		0.0	%		0.0	%
Volatility of Conexant stock		76.0	%		73.7	%

The increase in the risk-free interest rate from December 30, 2005 to December 29, 2006 is directly related to the increase in general interest rates. Subsequent adjustments as of each interim and annual reporting date in the fair value of the warrants is reflected as a gain or loss on investments in the consolidated statements of operations. Subsequent adjustments to the SARs liability and deferred compensation due to fluctuations in the fair value of the instruments and due to the amortization of the deferred compensation is reflected as stock compensation expense in the consolidated statements of operations. The deferred compensation has been amortized on a straight-line basis over the vesting period of the SARs.

At December 30, 2005 and December 29, 2006, the fair value of the warrants was approximately $0.8 million and $0.1 million, respectively. At December 31, 2004, December 30, 2005 and December 29, 2006, the fair value of the SARs was approximately $1.4 million, $0.7 million and zero, respectively, and the remaining deferred compensation was zero for all three periods. For the year ended December 31, 2004, the Company recorded a $5.8 million loss on investments for the decrease in the value of the warrants and net compensation income of $4.7 million which resulted from the decrease in the value of the SARs of $5.8 million offset by net amortization of deferred compensation of $1.1 million. For the year ended December 30, 2005, the Company recorded a $0.6 million loss on investments for the decrease in the value of the warrants and net compensation income of $0.7 million for the decrease in the value of the SARs. For the year ended December 29, 2006 the Company recorded a $0.8 million loss on investments for the increase in the value of the warrants and net compensation income of $0.7 million for the increase in the value of the SARs.

The following table summarizes SARs and warrant activity for the years ended December 31, 2004, December 30, 2005 and December 29, 2006 (in thousands):

	Conexant						Skyworks						Mindspeed
	Warrants			SARs			Warrants			SARs			Warrants			SARs
Outstanding at December 26, 2003		2,679			2,713			1,018			1,027			843			853
Granted/received		—			—			—			—			—			—
Cancellations		—			(44	)		—			(1,027	)		—			(10	)
Exercised		(369	)		(369	)		—			—			(843	)		(843	)
Outstanding at December 31, 2004		2,310			2,300			1,018			—			—			—
Granted/received		—			—			—			—			—			—
Cancellations		—			(142	)		(1,018	)		—			—			—
Exercised		—			—			—			—			—			—
Outstanding at December 30, 2005		2,310			2,158			—			—			—			—
Granted/received		—			—			—			—			—			—
Cancellations		—			(121	)		—			—			—			—
Exercised		—			—			—			—			—			—
Outstanding at December 29, 2006		2,310			2,037			—			—			—			—

For the year ended December 31, 2004, approximately 369,000 and 843,000 SARs were exercised for Conexant common stock and Mindspeed common stock, respectively, resulting in payments to employees of approximately $3.3 million. Concurrently, the Company exercised an equivalent number of warrants in Conexant and Mindspeed common stock. The shares were sold for net proceeds of approximately $3.3 million. No SARs or warrants for Skyworks common stock were exercised.

F-11

As of December 31, 2004, all SARs related to the Skyworks common stock expired and were cancelled and approximately 44,000 and 10,000 SARs related to Conexant and Mindspeed common stock, respectively, were cancelled. During the years ended December 30, 2005 and December 29, 2006 no SARs or warrants were exercised. As of December 30, 2005, the warrants related to Skyworks common stock expired and were cancelled. During the year ended December 29, 2006, approximately 121,000 SARs related to Conexant common stock expired and were cancelled.

Intangible Assets

Intangible assets, which are included in other assets in the accompanying consolidated balance sheets, resulted from the contribution of assets from Conexant at the inception of the Company and primarily consist of intellectual property. Intangible assets contributed by Conexant were recorded at inception in the purchase price allocation at their estimated fair values. During 2004, the intangible assets contributed at the inception of the Company were reduced by $2.2 million to zero value in accordance with the requirements of SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”). The intangible assets as of December 29, 2006 consist of purchased licenses and are stated at cost of approximately $8.9 million, less accumulated amortization of approximately $2.5 million. Amortization is recognized on a straight-line basis over the estimated useful lives of the intangible assets which range from three to ten years.

Impairment of Intangible Assets

The Company accounts for long-lived assets, including purchased intangible assets, in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment, such as reductions in demand, are present. Reviews are performed to determine whether the carrying value of an asset is impaired based on comparisons to undiscounted expected cash flows. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is typically calculated using discounted expected cash flows. Impairment is based on the excess of the carrying amount over the fair value of those assets. The Company agreed to reimburse HHNEC for up to approximately $1.6 million incurred by it to license intellectual property associated with a potential customer engagement. These costs were originally determined to have future value and were capitalized in 2005. Subsequently, the customer did not place an order and this asset was determined not to have future value and was therefore fully expensed in 2005. During 2006, the Company recognized additional impairment charges related to licensed intangible assets of $551,000.

Shipping and Handling Costs

Shipping and handling costs of approximately $0.9 million, $0.9 million, and $1.3 million for the years ended December 31, 2004, December 30, 2005 and December 29, 2006, respectively, are included in the consolidated statements of operations and classified in cost of revenues.

Research and Development Costs

The Company charges all research and development costs to expense when incurred.

Advertising Expense

Advertising expenses were $0.4 million, $0.2 million and $0.2 million in the years ended December 31, 2004, December 30, 2005 and December 29, 2006, respectively.

F-12

Stock-Based Compensation

Stock Based Compensation For Options Issued to Employees Prior to December 31, 2005

At December 29, 2006, the Company has one stock-based employee compensation plan, which is described more fully in Note 8 (Stockholders’ Equity—Equity Incentive Plan). Through December 31, 2005, as permitted by SFAS No. 123, Accounting for Stock-based Compensation (“SFAS No. 123”), the Company accounted for employee stock-based compensation in accordance with Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and related interpretations. Under APB No. 25, deferred stock compensation for an option granted to an employee is equal to its intrinsic value, determined as the difference between the exercise price and the deemed fair value of the underlying stock on the date of grant, such that the Company did not recognize compensation expense when it issued stock options to employees unless the exercise price was below the fair value of the underlying common stock on the date of grant. Because there was no public market for the Company’s common stock, the amount of the compensatory charge was not based on an easily observable, objective measure, such as the trading price of the Company’s common stock. For purposes of financial accounting for employee stock-based compensation, the Company determined deemed values for the shares underlying the options. The Company recorded deferred stock-based compensation equal to the difference between these deemed values and the exercise prices. The deemed values were determined based on a number of factors including independent valuations, input from advisors, the Company’s historical and forecasted operating results and cash flows, comparisons to publicly-held companies and comparisons to the prices paid for publicly-held companies in merger and acquisition transactions. The determination of stock-based compensation is inherently highly uncertain and subjective and involves the application of discounts deemed appropriate to reflect the lack of marketability of the Company’s securities and the inability of a holder of employee stock options to control the Company. If the Company had made different assumptions, its deferred stock-based compensation amount, its stock-based compensation expense and its net loss could have been significantly different.

Stock Based Compensation for Equity Instruments Issued to Non-Employees

The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 as amended by SFAS No. 148, Accounting For Stock-Based Compensation - Transition and Disclosure, and EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services (“EITF 96-18”) and related interpretations which require that such equity instruments are recorded at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the underlying equity instruments vest. During the years ended December 31, 2004, December 30, 2005 and December 29, 2006, the issuance of equity securities to non-employees resulted in compensation expense of $53,000, $39,000 and zero, respectively.

The deferred stock-based compensation is being amortized using the straight-line vesting method, in accordance with APB No. 25, SFAS No. 123 and EITF 96-18, over the vesting period of each stock option, generally over four years. As of December 29, 2006, the Company had an aggregate of approximately $0.3 million of deferred stock-based compensation remaining to be amortized.

Pro forma information regarding net loss is required by SFAS No. 123. This information is required to be determined as if the Company had accounted for stock-based awards to its employees under the fair value method pursuant to SFAS No. 123, rather than the intrinsic value method pursuant to APB No. 25. The fair value of these options was estimated at the date of grant based on the minimum-value method, which does not consider stock price volatility. The minimum value option valuation model requires the input of highly subjective assumptions.

The following assumptions were used in valuing the stock option grants under SFAS No. 123:

	Year Ended
	December 31, 2004			December 30, 2005
Risk-free interest rate		3.0	%		4.1	%
Dividend yield		0.0	%		0.0	%
Expected life (in years)		4.0			4.0

F-13

The following table illustrates the effect on net loss, if the Company had applied the fair value recognition provisions of SFAS No. 123 to employee stock options (in thousands, except per share data):

	Year Ended
	December 31, 2004			December 30, 2005
Net loss, as reported	$	(4,272	)	$	(11,513	)
Add: Stock-based employee compensation expense included in reported net loss		729			486
Deduct: Total stock-based employee compensation determined under fair value based method for all awards		(834	)		(755	)
Pro forma net loss		(4,377	)		(11,782	)
Preferred stock dividends		(13,074	)		(14,210	)
Pro forma net loss attributable to common stockholders	$	(17,451	)	$	(25,992	)

Stock Based Compensation for Options Issued to Employees on or after December 31, 2005 - Adoption of SFAS No. 123R

Effective December 31, 2005, the Company adopted the fair value recognition provisions of SFAS No. 123R, Share-Based Payment (“SFAS No. 123R”), using the prospective method. Under that method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2005 based on the grant-date intrinsic value calculated in accordance with the provisions of APB No. 25 and (b) compensation cost for all share-based payments granted on or after December 31, 2005 based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. Results for prior periods have not been restated.

SFAS No. 123R requires the cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows.

Under SFAS No. 123R, the Company uses the Black-Scholes formula to estimate the fair value of its share-based payments. The application of this valuation model involves assumptions that are judgmental and sensitive in the determination of compensation expense. The Company believes that it has limited historical data regarding the volatility of its share price on which to base an estimate of expected volatility, consequently, it has estimated its volatility based on the volatility of similar individual companies. The Company considered factors such as stage of life cycle, competitors, size, and financial leverage in the selection of similar entities. The Company has estimated expected lives of its options issued for the year ended December 29, 2006, using an expected term based on the midpoint between the vesting date and the end of the contractual term. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued.

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense recognized in the Company’s financial statements in 2006 and thereafter is based on awards that are ultimately expected to vest. The Company evaluates the assumptions used to value the awards on a quarterly basis. If factors change and different assumptions are used, stock-based compensation expense may differ significantly from what has been recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that the Company grants additional equity awards to employees or assumes unvested equity awards in connection with acquisitions.

The weighted average for key assumptions used in determining the fair value of options granted during the year ended December 29, 2006 follows:

Expected life in years	6.25
Expected price volatility	30.6	%
Risk-free interest rate	4.9	%
Dividend yield	0.0	%

During the year ended December 29, 2006, options were granted to certain employees at prices equal to or greater than the market value of the stock on the dates the options were granted. The options granted have a term of 10 years from the grant date and vest over a four year period. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and the vesting date. Since the announcement on September 26, 2006 of the Merger Agreement with Parent, no new options have been granted.

F-14

The implementation of SFAS No. 123R resulted in approximately $121,000 of stock compensation expense during the year ended December 29, 2006.

Income Taxes

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

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

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity or net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Net loss and comprehensive loss were equivalent for the year ended December 31, 2004. The difference between net loss and comprehensive loss for the year ended December 30, 2005 was composed of the Company’s minimum pension liability and foreign currency translation adjustments. The difference between net loss and comprehensive loss for the year ended December 29, 2006 was composed of the Company’s minimum pension liability, retiree medical liability and foreign currency translation adjustments.

Concentrations

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, short-term investments and trade accounts receivable. The Company invests its cash balances through high-credit quality financial institutions. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history, age of the balance and the customer’s current credit worthiness, as determined by a review of the customer’s current credit information. The Company monitors collections and payments from its customers and maintains an allowance for doubtful accounts based upon historical experience and any specific customer collection issues that have been identified. A considerable amount of judgment is required in assessing the ultimate realization of these receivables. Customer receivables are generally unsecured.

Accounts receivable from significant customers representing 10% or more of the net accounts receivable balance as of December 30, 2005 and December 29, 2006 consists of the following customers:

	December 30, 2005			December 29, 2006
Skyworks		32.8	%		22.0	%
Conexant		29.1	%		14.8	%
Marvell		8.7	%		11.5	%

Net revenues from significant customers representing 10% or more of net revenues for the years ended December 31, 2004, December 30, 2005 and December 29, 2006 are provided by three customers as follows:

	Year Ended
	December 31, 2004			December 30, 2005			December 29, 2006
Skyworks		46.2	%		34.5	%		25.0	%
Conexant		28.3	%		26.0	%		13.9	%
Marvell		2.6	%		9.5	%		10.4	%

F-15

As a result of the Company’s concentration of its customer base, loss or cancellation of business from, or significant changes in scheduled deliveries of product sold to these customers or a change in their financial position could materially and adversely affect the Company’s consolidated financial position, results of operations and cash flows.

The Company operates a single manufacturing facility located in Newport Beach, California. A major interruption in the manufacturing operations at this facility would have a material adverse affect on the consolidated financial position and results of operations of the Company.

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

As of December 29, 2006, approximately 55.9% of the Company’s manufacturing related employees are covered by a collective bargaining agreement negotiated with one union. The Company’s current agreement expires in May 2008.

Recent Accounting Standards

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (an amendment of FASB Statements No. 87, 88, 106, and 132R) (“SFAS No. 158”), which requires employers to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare and other postretirement plans in their financial statements. Under past accounting standards, the funded status of an employer’s benefit plan (i.e., the difference between the plan assets and obligations) was not always completely reported in the balance sheet. Past standards only required an employer to disclose the complete funded status of its plans in the notes to the financial statements. SFAS No. 158 applies to plan sponsors that are public and private companies and non-governmental not-for-profit organizations. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006, for entities with publicly traded equity securities, and at the end of the fiscal year ending after June 15, 2007, for all other entities. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Company adopted SFAS No. 158 on December 29, 2006, except for the provision to use the fiscal year-end measurement date which will be adopted in fiscal 2008. There was no effect on the 2006 financial statements upon adoption of SFAS No. 158 for the Company’s pension plan; however, the effect pertaining to the Company’s postretirement medical plan was to increase the recorded benefit obligation and accumulated other comprehensive loss by $2.9 million. The Company does not expect that the adoption of the fiscal year-end measurement date provision of SFAS No. 158 in fiscal 2008 will have a significant impact on the consolidated results of operations or financial position of the Company.

In July 2006, the FASB has published FASB Interpretation No. 48 (“FIN No. 48”), Accounting for Uncertainty in Income Taxes, to address the noncomparability in reporting tax assets and liabilities resulting from a lack of specific guidance in SFAS No. 109 on the uncertainty in income taxes recognized in an enterprise’s financial statements. FIN No. 48 will apply to fiscal years beginning after December 15, 2006, with earlier adoption permitted. The Company is currently evaluating the impact of adopting FIN No. 48 on its financial condition, results of operations and cash flows.

F-16

3.Supplemental Financial Statement Data

Inventories consist of the following (in thousands):

	December 30, 2005		December 29, 2006
Raw material	$	—	$	522
Work in process		14,601		16,444
Finished goods		3,205		6,136
	$	17,806	$	23,102

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

	Useful Life		December 30, 2005			December 29, 2006
	(In years)
Building improvements		5-15	$	25,429		$	25,886
Machinery and equipment		3-8		77,485			93,732
Furniture and equipment		3-15		5,157			5,248
Computer software		3-7		6,133			5,415
Construction in progress				12,233			19,398
				126,437			149,679
Accumulated depreciation				(61,188	)		(78,172	)
			$	65,249		$	71,507

Construction in progress primarily consists of machinery being qualified for service in the Company’s Newport Beach, California foundry. Depreciation expense for the years ended December 31, 2004, December 30, 2005 and December 29, 2006 was $16.3 million, $20.1 million and $21.7 million, respectively.

Other Assets consist of the following (in thousands):

	December 30, 2005		December 29, 2006
Intangible assets, net	$	5,459	$	6,447
Other		342		559
Total other assets	$	5,801	$	7,006

Amortization expense of intangible assets is included in cost of revenues and in operating expenses.

Deferred Revenues consist of the following (in thousands):

	December 30, 2005		December 29, 2006
Current liabilities
Deferred revenue - future capacity commitments	$	290	$	8,290
Deferred revenue - prepayments, customer advances		1,131		2,319
Long-term liabilities
Deferred revenue - wafer credits		11,533		11,199
Total deferred revenues	$	12,954	$	21,808

F-17

Other current liabilities consist of the following (in thousands):

	December 30, 2005		December 29, 2006
Accrued license payable	$	2,500	$	2,842
Sales returns and allowances		4,282		5,429
Accrued property taxes		993		827
Other		6,251		8,331
	$	14,026	$	17,429

4.Short-term Investments

The Company has a cash management program that provides for the investment of excess cash balances primarily in U.S. governmental agency securities and auction rate securities.

The following is a summary of investment securities at fair market value (which approximates cost) (in thousands):

	December 30, 2005		December 29, 2006
Available-for-Sale Securities:
U.S. governmental agency securities	$	450	$	—
Corporate securities		10,200		11,736
Municipal securities		13,200		14,250
	$	23,850	$	25,986

The following is the fair market value (which approximates cost) of investment securities by maturity (in thousands):

	December 30, 2005		December 29, 2006
Available-for-Sale Securities:
Due in one year or less	$	—	$	2,136
Due after ten years		23,850		23,850
	$	23,850	$	25,986

5.Income Taxes

The Company’s effective tax rate differs from the statutory rate as follows (in thousands):

	Year Ended
	December 31, 2004			December 30, 2005			December 29, 2006
Tax benefit computed at the federal statutory rate	$	(673	)	$	(4,013	)	$	(5,300	)
State tax, net of federal benefit		34			21			13
Permanent items		37			47			54
HHNEC deemed gain recognition		—			362			225
Other		—			110			31
Valuation allowance, federal		2,950			3,519			5,035
Income tax provision	$	2,348		$	46		$	58

F-18

The Company’s tax provision is as follows (in thousands):

	Year Ended
	December 31, 2004		December 30, 2005		December 29, 2006
Current tax expense:
Federal	$	91	$	14	$	4
State		52		32		20
Foreign		—		—		34
Total current		143		46		58
Deferred tax expense:
Federal		—		—		—
State		—		—		—
Total deferred		—		—		—
Benefit applied to reduce intangible assets:
Federal		1,894		—		—
State		311		—		—
Total assets		2,205		—		—
Income tax provision	$	2,348	$	46	$	58

Significant components of the Company’s deferred tax assets and liabilities from federal and state income taxes as of December 30, 2005 and December 29, 2006 are as follows (in thousands):

	December 30, 2005			December 29, 2006
Deferred tax assets:
Net operating loss carryforwards	$	33,817		$	37,109
Accruals and reserves		16,035			17,937
Stock compensation		397			550
Alternative minimum tax credit		127			127
Depreciation and amortization		23,549			24,002
Other comprehensive income		257			2,398
Other		75			107
Total deferred tax assets		74,257			82,230
Valuation allowance		(73,529	)		(81,295	)
		728			935
Deferred tax liabilities:
Warrants		39			—
Prepaid assets		425			375
HHNEC basis difference		264			264
Other		—			296
Total deferred tax liabilities		728			935
Net deferred taxes	$	—		$	—

A valuation allowance of $73.5 million and $81.3 million at December 30, 2005 and December 29, 2006, respectively, has been recorded to offset the related net deferred tax assets as the Company is unable to conclude that it is more likely than not that such deferred tax assets will be realized.

A substantial portion of the valuation allowance relates to deferred tax assets recorded in connection with the formation of the Company (“formation deferred tax assets”). SFAS No. 109 requires the benefit from the reduction of the valuation allowance related to the formation deferred tax assets to first be applied to reduce goodwill and then noncurrent intangible assets to zero before the Company can apply any remaining benefit to reduce income tax expense. During 2004, the Company realized tax benefits associated with the formation deferred tax assets. As a result, noncurrent intangible assets were reduced by $2.2 million. This adjustment reduced the value assigned to noncurrent intangible assets recorded in connection with the formation of the Company to zero. Accordingly, any further reductions in the valuation allowance associated with the realization of the formation deferred tax assets will reduce income tax expense.

F-19

Upon realization of the deferred tax assets, the tax benefits related to any reversal of the valuation allowance will be accounted for as follows: approximately $78.9 million will be recognized as a reduction of income tax expense and $2.4 million will be recognized as an increase in stockholders’ equity. The increase to stockholders’ equity primarily relates to tax benefits associated with the Company’s unfunded pension liability and postretirement medical liability that are reported as a component of other comprehensive income.

At December 29, 2006, the Company had federal tax net operating loss carryforwards of approximately $93.5 million and state tax net operating loss carryforwards of approximately $79.4 million. The federal tax loss will begin to expire in 2022, unless previously utilized. The state tax loss carryforwards will begin to expire in 2008, unless previously utilized. At December 29, 2006, the Company had combined federal and state alternative minimum tax credit of $0.1 million. The alternative minimum tax credits do not expire.

Utilization of net operating losses, credit carryforwards, and certain deductions may be subject to annual limitations due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The tax benefits related to future utilization of federal and state net operating losses, tax credit carryforwards, and other deferred tax assets will be limited or lost if cumulative changes in ownership exceed 50% within any three-year period. Such a limitation may occur upon the completion of the pending Merger. Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examinations from various tax authorities.

Significant judgment is required in determining the Company’s provision for income taxes. In the ordinary course of business, there are many transactions for which the ultimate tax outcome is uncertain. Despite the Company’s belief that the tax return positions are supportable, there are certain positions that may not be sustained upon review by tax authorities. While the Company believes that adequate accruals have been made for such positions, the final resolution of those matters may be materially different than the amounts provided for in the Company’s historical income tax provisions and accruals.

6.Commitments and Contingencies

Leases

The Company leases its fabrication facilities and headquarters from Conexant under non-cancelable operating leases through March 2017. The leases generally contain renewal provisions for varying periods of time. The Company also leases office and warehouse facilities from third parties. Rent expense under the fabrication and headquarters facilities leases consists of reimbursement by the Company to Conexant for the Company’s pro rata share of expenses incurred associated with ownership of the facilities. These expenses include property taxes, building insurance, depreciation and common area maintenance and are included in operating expenses in the accompanying consolidated statements of operations. The Company is not permitted to sublease space that is subject to the leases with Conexant without Conexant’s prior approval. In connection with Merger Agreement, the Company and Conexant executed amendments to the leases. Under the lease amendments, the Company’s headquarters may be relocated one time no earlier than 12 months from the completion of the Merger to another building within one mile of the Company’s current location at Conexant’s option and expense, subject to certain conditions.

Aggregate rental expense under operating leases, including amounts paid to Conexant (Note 10 Relationships with Related Parties and Others—Lease Agreement), was approximately, $3.2 million, $3.5 million and $2.9 million for the years ended December 31, 2004, December 30, 2005 and December 29, 2006, respectively.

At December 29, 2006, future minimum payments under operating leases are primarily due to Conexant and these costs have been estimated based on the actual costs incurred during 2006 and when applicable have been adjusted for increases in the consumer price index.

F-20

Future minimum payments under non-cancelable operating leases are as follows:

	Payment Obligations by Year
	2007		2008		2009		2010		2011		Thereafter		Total
	(In thousands)
Operating leases	$	2,644	$	2,520	$	2,375	$	2,300	$	2,300	$	11,959	$	24,098

Supply Agreement

The Company has a fifteen-year, guaranteed supply agreement for certain gases used in the Company’s manufacturing process that expires July 12, 2014. The agreement specifies minimum purchase commitments and contains a termination fee that is adjusted downward on each of the agreement’s anniversary dates. The initial minimum purchase commitment of approximately $1.0 million annually is adjusted based on supplemental gas purchases, wage increases for the labor portion of the minimum purchase commitment and price increases for supplemental product. If the Company were to terminate the supply agreement during 2007, the termination fee would be approximately $4.4 million prior to July 12, 2007 and $4.0 million on or after July 12, 2007.

Purchases under this agreement were approximately, $1.4 million, $1.5 million, and $2.2 million for the years ended December 31, 2004, December 30, 2005 and December 29, 2006, respectively.

Environmental Matters

The Company’s operations are regulated under a number of federal, state and local environmental laws and regulations, which govern, among other things, the discharge of hazardous materials into the air and water as well as the handling, storage and disposal of such materials. Compliance with environmental law is a major consideration for all semiconductor manufacturers because hazardous materials are used in the manufacturing process. In addition, because the Company is a generator of hazardous waste, the Company, along with any other person with whom it arranges for the disposal of such waste, may be subject to potential financial exposure for costs associated with an investigation and remediation of sites at which it has arranged for the disposal of hazardous waste, if such sites become contaminated. This is true even if the Company fully complies with applicable environmental laws. In addition, it is possible that in the future, new or more stringent requirements could be imposed. Management believes it has materially complied with all material environmental laws and regulations. There have been no material claims asserted nor is management aware of any material unasserted claims for environmental matters.

Litigation and Claims

The Company is not currently involved in any material litigation. From time to time, claims have been asserted against the Company, including claims alleging the use of intellectual property rights of others in certain of the Company’s manufacturing processes. The resolution of these matters may entail the negotiation of license agreements, as a settlement, or resolution of such claims through arbitration or litigation proceedings. The outcome of claims asserted against the Company cannot be predicted with certainty and it is possible that some claims or proceedings may be disposed of unfavorably to the Company. Many intellectual property disputes have a risk of injunctive relief and there can be no assurances that a license will be granted or granted on commercially reasonable terms. Injunctive relief or a license with materially adverse terms could have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company. Based on its evaluation of matters that are pending or asserted, management of the Company believes the disposition of such matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

Indemnification

From time to time, the Company enters into contracts with customers in which the Company provides certain indemnification to the customer in the event of claims of patent or other intellectual property infringement resulting from the customer’s use of the Company’s intellectual property. Such provisions are customary in the semiconductor industry and do not reflect an assessment by the Company of the likelihood of a claim. The Company has not recorded a liability for potential obligations under these indemnification provisions and would not record such a liability unless the Company believed that the likelihood of a material obligation was probable and estimatable.

F-21

Property Taxes

In 2005, the Company obtained a decision from the County of Orange Property Tax Appeals Board which resulted in a reduction in the assessed value of business property as well as reduced taxes recognized and expensed in previous years by the Company for the property tax year 2003-2004. As a result, the Company recognized a reduction to cost of revenues in the accompanying consolidated statement of operations for the year ended December 30, 2005. In 2006, the Company again filed an appeal with the County of Orange Property Tax Appeals Board disputing the Assessor’s assessed value.

License and Technology Transfer Agreements with Polar Semiconductor, Inc.

In December 2005, the Company entered into agreements for the transfer of and licensing of technology from Polar Semiconductor, Inc (“PolarFab”). Under the Company’s agreements with PolarFab, which were modified in November 2006, the Company is required to make a series of payments to PolarFab for the transfer and licensing of technology for a total obligation of $2.8 million and also future royalties associated with the sale of wafers using this technology. Costs incurred for royalties will be expensed to cost of revenues. The transfer of the technology is expected to be completed in the early part of 2007. For the year ended December 29, 2006 the Company expensed $2.6 million to research and development as a result of these agreements. The balance of $0.2 million is expected to be expensed to research and development in the first quarter of 2007.

7.Sale of Stock to RF Micro Devices

In October 2002, the Company entered into an agreement with RF Micro Devices, Inc., whereby the Company guaranteed specified production capacity to RF Micro Devices, provided credits of up to $40.0 million to be utilized as a specified percentage discount per wafer when and as the wafers are sold to RF Micro Devices by the Company (Wafer Credits), and issued 13,071,888 shares of its Series B Preferred Stock. The wafer and supply agreement remains in effect until October 15, 2007. In exchange for the consideration described above, RF Micro Devices provided the Company with a cash payment of $30.0 million and issued a promissory note (the “Note”) in the amount of $30.0 million. The Note was secured by the underlying shares of preferred stock issued to RF Micro Devices in connection with this transaction and was originally recorded as a reduction to stockholders’ equity. RF Micro Devices paid the Note in full in October 2003.

Prices for wafers supplied by the Company under this agreement are the lower of specified fixed prices that decrease over time or the average global market price for substantially similar wafers, or if no such price is available, the average price offered by the Company to its other customers, excluding Conexant, its affiliates and spun-off entities. The Wafer Credits are additional discounts to offset a portion of the base price of wafers manufactured by the Company for RF Micro Devices. A valuation of the Wafer Credits was performed using the discounted cash flow method. The fair value assigned to the $40.0 million of Wafer Credits was $12.2 million and was recorded as deferred revenues in the accompanying consolidated financial statements. The remaining value of the agreement of $47.8 million was allocated to the Series B Preferred Stock. Significant assumptions used to determine the value assigned to the Wafer Credits included that RF Micro Devices would purchase its wafer volume forecast over the five year initial term of the supply agreement; both parties would be inclined to renew the supply agreement for one additional term; and estimated rates of return on non SiGe technology and the SiGe technology. Upon shipment of the underlying wafers to RF Micro Devices, the Company recognizes as revenue a portion of the deferred revenues equal to approximately 31% of the amount of any Wafer Credits applied by RF Micro Devices to the base price of the wafers. As of December 29, 2006, the remaining deferred revenues with respect to the Wafer Credits were approximately $11.5 million.

8.Stockholders’ Equity

The Company has authorized 455,000,000 shares of stock of which 55,000,000 shares are designated class A Common Stock, $0.001 par value per share (“class A Common Stock”), and 200,000,000 shares are designated class B Common Stock, $0.001 par value per share (“class B Common Stock”) (the class A Common Stock and the class B Common Stock being collectively referred to herein as “Common” or “Common Stock”), and 200,000,000 shares are Preferred Stock, $0.001 par value per share, of which 55,000,000 shares are designated as Series A Preferred Stock (“Series A Preferred Stock”), and 58,071,888 shares are designated as Series B Preferred Stock (“Series B Preferred Stock” and, together with Series A Preferred Stock, “Preferred Stock”).

F-22

Except as otherwise disclosed below, the rights, privileges and obligations of class A Common Stock and class B Common Stock are identical in all respects.

Dividends

Dividends on the Preferred Stock are payable if and when declared by the Board of Directors or upon a liquidation and are cumulative. In the event a dividend is declared, the Preferred Stock holders are entitled to receive, prior to any payment of dividends to holders of Common Stock, annual dividends in the amount of 10% of the face value of the Preferred Stock that accrue from the date of issuance of the Preferred Stock. The Preferred Stock was originally assigned a face value of $1.00 per share for purposes of calculating the dividends and liquidation preference payable in respect of a share of Preferred Stock.

Any dividends that have accrued but remain unpaid at the end of any calendar year are added to the face value of the Preferred Stock. No dividends are to be paid on any Common Stock until all cumulative dividends have been paid. Thereafter, the holders of Preferred and Common Stock participate ratably in all dividends paid, on an as-converted basis. As of December 29, 2006, the Company had aggregate cumulative Preferred Stock dividends in arrears of $59.0 million.

Voting

Each holder of Preferred Stock is entitled to a number of votes equal to the number of shares of Common Stock into which the holders’ shares of Preferred Stock are convertible. If at any time the combined number of shares of Series A Preferred Stock and class A Common Stock then outstanding is less than 51% of the total number of votes entitled to be cast by all holders of Preferred and Common Stock then outstanding, the holders of Series A Preferred Stock and class A Common Stock are entitled to receive additional voting rights to increase their total votes to equal 51%.

Liquidation

In the event that the total assets available for distribution is less than 3.5 times the aggregate face value of the outstanding Preferred Stock plus accrued and unpaid dividends thereon, each holder of Preferred Stock is entitled to a liquidation preference equal to 1.0 times the face value of the shares of Preferred Stock held by such holder plus all accrued and unpaid dividends thereon. Any remaining assets are to be distributed; 86% to holders of Preferred Stock and 14% to the holders of Common Stock. In the event that the total assets available for distribution is greater than 3.5 times the aggregate face value of the outstanding Preferred Stock plus accrued and unpaid dividends thereon, the proceeds are to be distributed to the holders of Preferred Stock and Common Stock on a pro rata, as-converted basis.

Conversion

Each share of Preferred Stock is convertible at the option of the holder, at any time into one share of Common Stock. Shares of Series A and Series B Preferred Stock convert into shares of class A and class B Common Stock, respectively. Upon the conversion of all of the shares of Series A Preferred Stock into class A Common Stock, all shares of Series B Preferred Stock shall automatically convert into shares of class B Common Stock. In the event of a closing of a firm commitment to underwrite a public offering pursuant to an effective registration statement under the Securities Exchange Act of 1933, each outstanding share of Preferred Stock converts automatically into class B Common Stock and each outstanding share of class A Common Stock and class B Common Stock shall be recapitalized into common stock.

Equity Incentive Plan

In May 2002, the Company adopted the Jazz Semiconductor, Inc. 2002 Equity Incentive Plan (the “Incentive Plan”), as subsequently amended in May 2004 and October 2005, that provides for the issuance of awards to purchase up to 17,647,000 shares of class B Common Stock. This amount will increase annually on the first day of each calendar year beginning in 2007 through 2011, by an amount equal to the lesser of (a) 3.5% of the number of outstanding shares of the Company’s Common Stock on the last day of the immediately preceding fiscal year; (b) 10,000,000 shares, or (c) such lesser number of shares as is determined by the Company’s board of directors.

F-23

Options to acquire shares of the Company’s class B Common Stock may be issued under the Incentive Plan for a period of 10 years following the Incentive Plan’s adoption. Employees, officers, directors and consultants are eligible to receive options under the Incentive Plan. The Incentive Plan is administered by the Board of Directors or a committee appointed for such purposes, which has the sole discretion and authority to determine which eligible employees will receive options, when the options will be granted and the terms and conditions of the options granted. Options granted generally have a term of 10 years, and generally vest and become exercisable at the rate of 25% on each anniversary of the grant date. Options generally can be early exercised but vest ratably over a four-year period commencing on the first anniversary date of the grant.

The following table summarizes stock option and stock award activity for the years ended December 31, 2004, December 30, 2005 and December 29, 2006:

	Number of Shares			Weighted Average Exercise Price
	(in thousands)
Outstanding at December 26, 2003		11,563		$	1.28
Granted		948			2.71
Exercised		(367	)		1.54
Cancelled		(652	)		1.21
Outstanding at December 31, 2004		11,492			1.39
Granted		1,378			2.50
Exercised		(101	)		0.55
Cancelled		(1,714	)		1.33
Outstanding at December 30, 2005		11,055			1.55
Granted		1,212			2.50
Exercised		(17	)		0.20
Cancelled		(2,054	)		1.89
Outstanding at December 29, 2006		10,196			1.59
Options available for grant at December 29, 2006		2,997

Incentive Plan Information

Option activity under the Incentive Plan in the year ended December 29, 2006 is set forth below:

	Options Outstanding
	Number of Shares			Price Range per Share		Weighted Average Exercise Price per Share		Weighted Average Fair Value per Share
	(In thousands)
Balance at December 30, 2005		11,055		$	0.20-3.50	$	1.55
Options granted under the Incentive Plan		1,212			2.50		2.50	$	0.81
Options cancelled		(2,054	)		0.20-3.50		1.89
Options exercised		(17	)		0.20-0.20		0.20
Balance at December 29, 2006		10,196			0.20-3.50

The total pretax intrinsic value of options exercised during the year ended December 29, 2006 was $36,435. This intrinsic value represents the difference between the fair market value of the Company’s Class B common stock on the date of exercise and the exercise price of each option.

F-24

The aggregate pretax intrinsic value, weighted average remaining contractual life, and weighted average per share exercise price of options outstanding and of options exercisable as of December 29, 2006 were as follows:

	Options Outstanding								Options Vested
Range of Exercise Prices	Number of Shares		Weighted Average Exercise Price		Aggregate Pretax Intrinsic Value		Weighted Average Remaining Contractual Life		Number of Shares		Weighted Average Exercise Price		Aggregate Pretax Intrinsic Value
	(In thousands)				(In thousands)		(In years)		(In thousands)				(In thousands)
$    0.20		3,061	$	0.20	$	5,969		5.55		7,084	$	0.20	$	13,814
1.50		2,482		1.50		1,613		6.94		1,936		1.50		1,258
2.50		4,379		2.50		—		7.88		2,179		2.50		—
3.50		274		3.50		—		7.55		186		3.50		—
		10,196		1.59	$	7,582		6.95		11,385		0.92	$	15,072

The aggregate pretax intrinsic values in the preceding table were calculated based on fair value determined by the Company of the Company’s Class A stock of $2.15 on December 29, 2006. At December 29, 2006 the weighted average remaining contractual life of the exercisable options was 6.95 years.

Stock Compensation Expense

At December 29, 2006, the amount of unearned stock-based compensation currently estimated to be expensed in the period 2007 through 2010 related to unvested share-based payment awards granted on or after December 31, 2005 was $0.6 million. The period over which the unearned stock-based compensation is expected to be recognized is approximately 4 years. If there are any modifications or cancellations of the underlying unvested securities, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that the Company grants additional equity awards to employees or assumes unvested equity awards in connection with acquisitions.

The following table summarizes data for stock options granted over the life of the Incentive Plan.

	Weighted Average Exercise Price For Years Ended				Weighted Average Grant Date Fair Values For Years Ended
Common Stock Options Granted with Exercise Price	December 31, 2004		December 30, 2005		December 31, 2004		December 30, 2005
Equal to common stock value at date of grant	$	3.50	$	2.50	$	0.39	$	0.37
Less than common stock value at date of grant		1.39		—		2.15		—
Greater than common stock value at date of grant		2.50		—		—		—

Prior to January 1, 2005, the Company issued options to certain employees under the Incentive Plan with exercise prices below the deemed fair market value of the Company’s common stock at the date of grant. In accordance with the requirements of APB No. 25, the Company recorded deferred stock-based compensation for the difference between the exercise price of the stock option and the deemed fair market value of the Company’s stock at date of grant. This deferred stock-based compensation is amortized to expense on a straight-line basis over the period during which the Company’s right to repurchase the stock lapses or the options become vested, generally four years. During the years ended December 30, 2005, and December 29, 2006, the Company recorded reversals to deferred stock compensation related to these options in the amounts of $(0.5 million), and $(0.1 million), related to cancellations. The Company also amortized $0.5 million, and $0.4 million of deferred stock compensation to expense during the years ended December 30, 2005 and December 29, 2006, respectively.

F-25

Shares Reserved for Future Issuance

The Company has reserved the following shares of its Common Stock for issuance upon conversion of the issued and outstanding shares of Preferred Stock and future issuances of stock options under the Incentive Plan (in thousands):

	December 30, 2005		December 29, 2006
Reserved for convertible preferred stock		112,982		112,982
Reserved for exercise of stock options outstanding and available for grant		13,142		13,193
Total		126,124		126,175

9.Employee Benefit Plans

Retirement Savings Plans

401(k) Plan

The Company maintains two employee savings and retirement plans that are intended to qualify under Section 401(k) of the Internal Revenue Code. The Company’s union employees may participate in one of these plans and its salaried employees may participate in the other plan. Pursuant to the 401(k) plans, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit and have the amount of the reduction contributed to the applicable 401(k) plan. The Company may make matching contributions to the 401(k) plan for salaried employees in amounts to be determined by its board of directors. The Company makes matching contributions to the 401(k) plan for union employees up to 50% of the amount deferred to the plan by the union employee, subject to a per union employee cap of $750 per year. Expense incurred under the retirement savings plans was $0.9 million, $0.7 million and $0.7 million for the years ended December 31, 2004, December 30, 2005 and December 29, 2006, respectively.

Postretirement Medical Plan

On January 1, 2004, the obligations for retired Conexant employees included in the postretirement medical plan were transferred to Conexant. Accordingly, the corresponding liability of $3.1 million and receivable of $3.1 million is no longer included in the consolidated financial statements of the Company as of December 31, 2004.

The components of the Company’s postretirement medical plan expense are as follows (in thousands, except percentages):

	Year Ended
	December 31, 2004			December 30, 2005			December 29, 2006
Service cost	$	421		$	483		$	415
Interest cost		538			667			732
Amortization of actuarial loss		113			102			37
Total postretirement medical plan expense	$	1,072		$	1,252		$	1,184
Weighted average discount rate assumption		6.00	%		6.00	%		6.10	%

F-26

The components of the change in benefit obligation, change in plan assets and funded status for the Company’s postretirement medical plan are as follows (in thousands):

	Year Ended
	December 30, 2005			December 29, 2006
Change in benefit obligation:
Benefit obligation at beginning of period	$	11,671		$	17,697
Service cost		483			415
Interest cost		667			732
Benefits paid		(76	)		(90	)
Actuarial (gain) loss (1)		4,952			(4,317	)
Benefit obligation end of period	$	17,697		$	14,437
Change in plan assets:
Fair value of plan assets at beginning of period	$	—		$	—
Employer contribution		76			90
Benefits paid		(76	)		(90	)
Fair value of plan assets at end of period		—			—
Funded status		(17,697	)		(14,437	)
Unrecognized net actuarial loss		7,266			—
Balance at end of period	$	(10,431	)	$	(14,437	)
SFAS No. 158 Transition Year Disclosure Information - Fiscal Year Ending December 29, 2006
Amount recognized prior to application of SFAS No. 158				$	11,525
Funding status					(14,437	)
Change in amount recognized due to SFAS No. 158				$	(2,912	)

(1) The actuarial loss for the year ended December 30, 2005 is due to medical costs being higher than expected following the effectiveness of Medicare Part D. The actuarial gain for the year ended December 29, 2006 was primarily due to a correction to reflect negotiated retiree contribution rates and Jazz’s intentions with respect to future increases. This significant gain was partially offset by the following: 1) Active employee turnover of this closed group was lower than expected, resulting in actuarial losses; 2) Overall premium increases were larger than the assumed healthcare trend increases, resulting in actuarial losses.

The following benefit payments are expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter (in thousands):

Fiscal Year	Other Benefits
2007	$	132
2008		190
2009		258
2010		326
2011		391
2012 - 2016		3,482

The Company expects to contribute $132,000 to the postretirement medical plan in the fiscal year ending December 28, 2007.

	December 30, 2005			December 29, 2006
Weighted average assumptions at period end:
Annual rate increase in per capita cost of health care benefits:
For the next year		10.0	%		9.0	%
Ultimate trend rate		5.0	%		5.0	%
Year that the rate reaches the ultimate trend rate		2012			2013
Discount rate		6.0	%		6.1	%
Measurement date		September 30, 2005			September 30, 2006

F-27

Increasing the health care cost trend rate by 1% would increase the accumulated postretirement medical plan obligation at December 29, 2006 by approximately $2.7 million and decreasing the health care cost trend rate by 1% would decrease the accumulated postretirement medical plan obligation at December 29, 2006 by approximately $2.2 million. For the year ended December 29, 2006, a similar 1% increase in the health care cost trend rate would increase the service and interest cost by $239,000, and a 1% decrease in the health care cost trend rate would decrease the service and interest cost by $189,000.

Pension Plan

The Company has a pension plan that provides for monthly pension payments to eligible employees upon retirement. The pension benefits are based on years of service and specified benefit amounts. The Company uses a December 31 measurement date. The Company makes quarterly contributions in accordance with the minimum actuarially determined amounts.

The components of the change in benefit obligation, the change in plan assets and funded status for the Company’s pension plan are as follows (in thousands):

	Year Ended
	December 30, 2005			December 29, 2006
Change in benefit obligation:
Benefit obligation at beginning of period	$	4,904		$	6,534
Service cost		650			611
Interest cost		331			386
Actuarial loss (1)		751			2,312
Benefits paid		(102	)		(107	)
Benefit obligation end of period	$	6,534		$	9,736
Change in plan assets:
Assets at beginning of period	$	5,296		$	6,241
Actual return on assets		247			488
Employer contribution		800			810
Benefits paid		(102	)		(107	)
Assets at end of period		6,241			7,432
Funded status	$	(293	)	$	(2,304	)
Unrecognized net actuarial (gain ) loss		669			—
Net amount recognized	$	376		$	(2,304	)

(1) The actuarial loss for the years ended December 30, 2005 and December 29, 2006 is primarily due to earlier than assumed retirements, which increased plan costs. The actuarial loss for the year ended December 29, 2006 is due primarily to changes in actuarial assumptions. 1) The mortality table was updated from the UP-1984 table to the RP-2000 table, resulting in increased liabilities. 2) Retirements occurring prior to age 65 are now assumed, similar to the postretirement health plan, to more accurately reflect expectations. This assumption, combined with the subsidy built into the plan’s early retirement reductions, results in higher liabilities.

The accumulated benefit obligation of the Company’s pension plan was $6.5 million and $9.7 million as of December 30, 2005 and December 29, 2006, respectively.

F-28

The following benefit payments are expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter (in thousands):

Fiscal Year	Other Benefits
2007	$	221
2008		261
2009		316
2010		354
2011		389
2012 - 2016		2,461

The Company expects to contribute $1.2 million to the pension plan in the fiscal year ending December 28, 2007.

Weighted average assumptions at period-end:

	December 30, 2005			December 29, 2006
Discount rate		5.90	%		5.90	%
Expected return on plan assets		7.50	%		7.50	%

Amounts recognized in the statement of financial position consist of the following (in thousands):

	December 30, 2005			December 29, 2006
Accrued pension cost	$	(293	)	$	(2,304	)
Accumulated other comprehensive income		669			2,978
Net amount recognized	$	376		$	674

At December 30, 2005 and December 29, 2006 the additional minimum pension liability was $669,000 and $3.0 million, respectively.

The Company has estimated the expected return on assets of the plan of 7.5% based on assumptions derived from, among other things, the historical return on assets of the plan, the current and expected investment allocation of assets held by the plan and the current and expected future rates of return in the debt and equity markets for investments held by the plan. The obligations under the plan could differ from the obligation currently recorded if management’s estimates are not consistent with actual investment performance.

The Company’s pension plan weighted average asset allocations at December 30, 2005 and December 29, 2006, by asset category are as follows:

Asset Category:	December 30, 2005			December 29, 2006
Equity securities		71	%		73	%
Debt securities		29			27
Total		100	%		100	%

The Company’s primary policy goals regarding plan assets are cost-effective diversification of plan assets, competitive returns on investment, and preservation of capital. Plan assets are currently invested in mutual funds with various debt and equity investment objectives. The target asset allocation for the plan assets is 25-35% debt, or fixed income securities, and 65-75% equity securities. Individual funds are evaluated periodically based on comparisons to benchmark indices and peer group funds and necessary investment decisions are made in accordance with the policy goals of the plan investments by management.

F-29

The components of the Company’s net periodic pension cost are as follows (in thousands):

	Year Ended
	December 31, 2004			December 30, 2005			December 29, 2006
Service cost	$	553		$	650		$	611
Interest cost		201			331			386
Expected return on assets		(416	)		(393	)		(493	)
Amortization of actuarial loss (gain)		(63	)		11			8
Total pension expense	$	275		$	599		$	512

Weighted average assumptions for net periodic pension cost:

	Year Ended
	December 31, 2004			December 30, 2005			December 29, 2006
Discount rate		6.00	%		5.75	%		5.90	%
Expected return on assets		7.50	%		7.50	%		7.50	%

One amendment to the pension plan was approved during 2004. The amendment was approved retroactive to January 1, 1999 and conformed the plan document to the Company’s method of operation regarding employees who transferred from Conexant. This amendment did not result in a material change in the calculation of the cost or benefit obligation of the plan.

Post-Employment Plan

For certain eligible bargaining unit employees who terminate employment, the Company provides a lump-sum benefit payment. The actuarially computed present value of this obligation has been recorded by the Company and was $670,000 and $717,000 at December 30, 2005 and December 29, 2006, respectively.

10.Relationships with Related Parties and Others

As of December 29, 2006, Conexant has an approximate 42% ownership interest in the Company.

Conexant’s Chief Executive Officer and Chairman of the Board is a member of the Company’s Board of Directors. This board member is also a member of the Board of Directors of Skyworks and Mindspeed Technologies, Inc., two other customers of the Company that were spun-off from Conexant. Another member of the Company’s Board of Directors serves as the Executive Vice President of Marketing and Strategic Development of RF Micro Devices. As of December 29, 2006, RF Micro Devices had an approximate 10% ownership interest in the Company (Note 7). The following summarizes significant transactions with related parties since 2004.

Accounts receivable from related parties are as follows (in thousands):

	December 30, 2005		December 29, 2006
Conexant:
Accounts receivable	$	10,061	$	5,881
RF Micro Devices:
Accounts receivable		972		2,460

F-30

Revenues from related parties are as follows (in thousands):

	Year Ended
	December 31, 2004		December 30, 2005		December 29, 2006
Conexant (1)	$	62,200	$	51,843	$	29,553
RF Micro Devices		4,634		8,978		10,811

(1) Revenues for the year ended December 29, 2006 include a reduction of $17.5 million associated with the termination of the Conexant Wafer supply agreement.

Wafer Supply Agreements

At the Company's inception, the Company and Conexant entered into a wafer supply agreement whereby Conexant was obligated to purchase certain minimum annual volumes of wafers through March 2005 at specified prices. Purchases of wafers made by companies that had been spun-off or affiliated with Conexant were counted towards Conexant's minimum purchase obligations. In connection with the wafer supply agreement, the Company had provided Conexant with $60 million of credits that Conexant could use to offset any increase in the contract price for each wafer purchased by Conexant through March 30, 2007. Conexant did not use any of these credits because the Company did not increase the contract prices of wafers 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.

In June 2006, the Company and Conexant agreed to terminate the wafer supply and services agreement. In connection with the termination agreement and in consideration of the cancellation of the wafer credits, the Company agreed to issue 7,583,501 shares of its common stock to Conexant and to forgive $1.2 million owed to it by Conexant for a refund of property taxes previously paid by the Company for the 2003 property tax year. 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.

In accordance with FASB EITF Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer and 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, the fair value of the 7,583,501 shares of common stock the Company issued to Conexant in connection with the termination of the wafer supply agreement, which was $17.5 million, and the Company's forgiveness of the $1.2 million owed to the Company by Conexant for reimbursement of property taxes in connection with the termination of the wafer supply agreement had the effect of reducing the Company's revenues by $17.5 million and reducing the Company's cost of revenues by $1.2 million in 2006. Under EITF Issue No. 01-9 cash consideration, including credits the customer can apply against trade amounts owed to the vendor as a sales incentive, given by a vendor to a customer is presumed to be a reduction of the selling prices of the vendor’s products or services and, therefore, should be characterized as a reduction of revenue when recognized in the vendor’s statement of operations.  In addition, under EITF No. 98-18, consideration in the form of equity instruments is recognized in the same period and in the same manner as if the customer had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with or using the equity instruments. Therefore, the $17.5 million fair value of the common stock issued to Conexant was reflected as a reduction to the Company’s revenues for the second quarter of 2006. The forgiveness of the property tax reimbursement owed to the Company by Conexant was an expense reduction to the Company because the amounts owed to the Company related to the 2003 property tax year and all costs from that period have expired and were previously expensed.

This termination of the wafer supply agreement was subsequently amended on September 16, 2006 in connection with the Merger Agreement to provide for the repurchase of the 7,583,501 shares previously issued by the Company to Conexant immediately prior to the completion of the merger and the termination of the Company’s obligation to issue any additional shares to Conexant for an aggregate consideration of $16.3 million in cash.

In October 2002, the Company and RF Micro Devices entered into a wafer supply agreement.

In May 2003, the Company entered into a wafer supply agreement with Skyworks, whereby Skyworks was obligated to purchase certain minimum annual volumes of wafers through March 2005 at specified prices. The term of the wafer supply agreement expires on March 30, 2007, but may be renewed for additional one-year terms upon agreement of the parties.

F-31

In June 2003, the Company and Mindspeed entered into a wafer supply agreement.

In July 2006, the Company entered into a capacity reservation and wafer subscription agreement with a customer, whereby the customer paid the Company $8.0 million in exchange for the Company's obligation to guarantee a minimum quantity of wafer deliveries per month starting January 2007 through December 2009. This amount is included within deferred revenues in the accompanying consolidated balance sheet as of December 29, 2006.

Services Agreement

The Company and Conexant entered into a transition services agreement and an information technology services agreement, whereby each party provides certain administrative and operational support to one another. Costs charged to the Company by Conexant are included in cost of revenues and operating expenses in the accompanying consolidated statements of operations. Costs recovered by the Company from Conexant are reflected as a reduction to cost of revenues and research and development in the accompanying consolidated statement of operations. Following is a summary of services and costs provided to each party (in thousands):

	Year Ended
	December 31, 2004		December 30, 2005		December 29, 2006
Costs charged to the Company by Conexant
Facilities and related	$	135	$	—	$	—
Information technology services		5,921		—		—
Other		50		22		—
Total	$	6,106	$	22	$	__
Costs Recovered by the Company from Conexant
Engineering services	$	3,101	$	2,266	$	914
Other		680		301		—
Total	$	3,781	$	2,567	$	914

The term of these agreements was three years and both agreements are now expired. All services provided by either party under the transition services agreement and the information technology services agreement have been terminated.

Lease Agreement

The Company leases its fabrication and headquarters facilities from Conexant (Note 6 Commitments and Contingencies—Leases). Related rent expense for the years ended December 31, 2004, December 30, 2005 and December 29, 2006 was $2.7 million, $3.1 million and $2.5 million, respectively.

Royalty Agreement

The Company is required to make royalty payments to Conexant, subject to certain limitations, resulting from the sales of its products manufactured using SiGe process technology transferred at an initial rate of 5% declining over the 10 year term of the royalty agreement. This agreement expires in 2012. Royalty expense under this agreement was $0.6 million, zero, and $1.7 million for the years ended December 31, 2004, December 30, 2005 and December 29, 2006, respectively, and is included in cost of revenues in the accompanying consolidated statements of operations. Pursuant to the terms of the contribution agreement between the Company and Conexant, the Company is entitled to offset the royalty payments otherwise due to Conexant by a portion of certain payments made to third parties related to SiGe technology.

F-32

In September 2006, the Company 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 the Company under the contribution agreement pursuant to which the Company was formed. The contribution agreement requires Conexant to indemnify the Company for up to 60% of amounts paid by the Company to a third party with respect to certain intellectual property contributed by Conexant to the Company at its formation. Under the letter settlement agreement, the Company and Conexant agreed that Conexant’s total indemnification obligation with respect to a certain license agreement entered into between the Company and a certain third party related to such intellectual property would be satisfied in full through the offset of royalties otherwise payable by the Company 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, the Company 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, the Company agreed to refund the $0.1 million difference to Conexant and the parties released each other from all additional future claims related to the dispute. As of December 29, 2006, Conexant has fulfilled its obligation under the terms of the contribution agreement and during the third quarter of 2006, the Company began paying Conexant the SiGe-related royalty.

License Agreements

During 2004, the Company entered into a cross license and release agreement with an unrelated third party. The license includes technology developed by the third party related to the Company’s manufacturing process. In exchange for the license and release, the Company agreed to make certain payments through 2007.

In connection with the Company’s separation from Conexant, Conexant contributed to the Company a substantial portion of its intellectual property, including software licenses, patents and intellectual property rights in know-how related to its business. The Company agreed to license intellectual property rights relating to the owned intellectual property contributed to the Company 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 the Company’s prior consent to sublicense these rights for the purpose of enabling that third party to provide semiconductor fabrication services to Conexant.

In July 2004, the Company entered into a license agreement with Conexant under which Conexant granted to it a limited, non-exclusive and nontransferable license for the right to manufacture, develop and modify integrated circuit products in silicon form that incorporate Conexant’s design kit based on 0.13 micron process technology. The Company may manufacture the licensed technology only at specifically authorized facilities but may subcontract the manufacture of products using the licensed technology to its manufacturing suppliers if they agree to be bound by the terms of the license. The agreement is for an indefinite term but is terminable under certain circumstances for material breach, default or insolvency. The Company paid Conexant $300,000 in exchange for this license.

Management Agreements

Pursuant to management agreements among Carlyle, Conexant and the Company, Carlyle and Conexant are each entitled to be, and have been paid, a management fee of $300,000 per year for advisory services each party performs in connection with the operations, strategic planning, marketing and financial oversight of the Company. A termination agreement executed in conjunction with the Merger Agreement provides for the termination of the management agreements upon the completion of the Merger and the associated management fees to Conexant and Carlyle will no longer be payable by the Company.

Conversion of Preferred Shares and Issuance of Common Shares

In August 2004, the Company entered into a Contribution to Settlement and Release Agreement with Conexant. Under the agreement the Company agreed to issue and pay 210,000 shares of Common Stock and $525,000 in cash in partial satisfaction of claims made by an individual against Conexant arising out of services that he contended he had performed for the benefit of Conexant related to the structuring and formation of the Company. Conexant also agreed to transfer 90,000 shares of Common Stock and $225,000 to the individual. In exchange for the payments made by the Company to the individual, Conexant released the Company from all claims and actions that it may have asserted against it or any of its directors, officers or employees resulting from or related to the claims made by the individual.

F-33

11.Segment and Geographic Information

SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, requires the determination of reportable business segments (i.e., the management approach). This approach requires that business segment information used by the chief operating decision maker to assess performance and manage company resources be the source for segment information disclosure. The Company operates in one business segment: the manufacturing and process design of semiconductor wafers.

Revenues are derived principally from customers located within the United States.

Long-lived assets consisting of property, plant and equipment and intangible assets, are primarily located within the United States.

12.Supplemental Cash Flow Information

The Company paid income taxes of $13,000, $224,000 and $23,000 for the years ended December 31, 2004, December 30, 2005 and December 29, 2006, respectively.

13.Loan & Security Agreement

In January 2006 the Company entered into a loan and security agreement with Wachovia Capital Finance Corporation (Western) as the lender. The agreement established a line of credit with an aggregate borrowing limit of $35 million. The first $20 million of loans under the line of credit bear interest on the outstanding unpaid principal amount at a rate equal to the lender’s prime rate plus 0.75%, or in the case of Eurodollar loans, the adjusted Eurodollar rate plus 2.50%. The additional loan amounts, up to the maximum limit, bear interest on the outstanding unpaid principal amount at a rate equal to the lender’s prime rate plus 1.00%, or in the case of Eurodollar loans, the adjusted Eurodollar rate plus 2.75%. The Company may, at its option, request a Eurodollar rate loan or convert any prime rate loan into a Eurodollar rate loan. The agreement also provides for the issuance of letters of credit not to exceed $4 million. The agreement includes certain affirmative and negative covenants, the non-compliance with which would constitute an event of default under the agreement and result in the acceleration of any amounts due under the agreement. As a result of the Merger, the Company expects to terminate and replace the existing loan and security agreement.

14.Subsequent Event

On February 16, 2007, the Merger was consummated and Parent acquired all of the outstanding equity securities of the Company. Parent will not assume any of the Company’s outstanding stock options and all stock options of the Company were canceled at the consummation of the Merger,

As a result of the Merger, all directors of the Company have resigned ; the Company’s stock incentive plans have been terminated and Parent acquired all of the Company’s stock owned by RFMD and Conexant.

F-34

EX-99.3

Exhibit 99.3

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

AND

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On September 26, 2006, Jazz Technologies, Inc. (“Parent”), and its wholly-owned subsidiary, Joy, entered into the merger agreement with Jazz Semiconductor, Inc. (“Jazz”) and TC Group, L.L.C., as the Jazz stockholders’ representative, pursuant to which Joy agreed to merge with and into Jazz. The merger was consummated on February 16, 2007 and at the effective time of the merger, Jazz was the surviving corporation and became a wholly-owned subsidiary of Parent. We are providing the following summary unaudited pro forma condensed combined financial information to assist you in your analysis of the financial aspects of the merger. The merger will be accounted for under the purchase method of accounting. The following summary unaudited pro forma condensed combined financial information has been derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial statements and the related notes thereto included elsewhere in this current report. The purchase price allocations set forth in the following summary unaudited pro forma condensed combined financial information are based on preliminary valuation estimates of Jazz’s tangible and intangible assets. The final valuations, and any interim updated preliminary valuation estimates, may differ materially from these preliminary valuation estimates and, as a result, the final allocation of the purchase price may result in reclassifications of the allocated amounts that are materially different from the purchase price allocations reflected below. Any material change in the valuation estimates and related allocation of the purchase price would materially impact Parent’s depreciation and amortization expenses, the summary unaudited pro forma condensed combined financial information and Parent’s results of operations after the merger. The pro forma adjustments are preliminary, and the summary unaudited pro forma condensed combined financial information is not necessarily indicative of the financial position or results of operations that may have actually occurred had the merger taken place on the dates noted, or the future financial position or operating results of Parent or Jazz. The summary unaudited pro forma condensed combined financial information reflects the conversion of 5,668,116 shares of our outstanding common stock into a pro rata share of the trust account and the redemption of 1,873,738 common shares held by Acquicor Management LLC and our outside directors at a redemption price of $0.0047 per share.

		Year Ended December 31, 2006
		(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenues		$	212,526
Gross profit			12,450
Operating expenses			49,431
Operating income (loss)			(36,981	)
Interest income (expense), net			(13,802	)
Loss before income taxes			(51,717	)
Net loss			(51,777	)
Pro forma net loss per common share	Basic Diluted	$ $	(2.31 (2.31	) )
Weighted-average shares outstanding	Basic Diluted		22,451 22,451
			December 31, 2006
			(in thousands)
Selected Balance Sheet Data:
Cash, cash equivalents and short-term investments		$	59,445
Total assets			380,652
Stockholders’ equity			130,489
Working capital			69,805
Property, plant and equipment and goodwill and intangibles			204,117
Funded debt			166,750

1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited condensed combined pro forma financial statements as of and for the year ended December 31, 2006 reflect the historical results of Jazz and Parent, adjusted to give effect to the merger.

We are providing this information to assist you in your analysis of the financial aspects of the merger. We derived this information from (i) the audited consolidated financial statements of Jazz as of and for the year ended December 29, 2006, and (ii) the audited financial statements of Parent as of and for year ended December 31, 2006. This information should be read together with the Jazz consolidated financial statements and related notes included elsewhere in this current report and the Parent financial statements and related notes included elsewhere in this current report.

The following unaudited pro forma condensed combined financial statements combine (i) the historical balance sheets of Parent as of December 31, 2006 and Jazz as of December 29, 2006 giving pro forma effect to the merger of Parent and Jazz as if it had occurred on December 31, 2006, and (ii) the historical statements of operations of Parent and Jazz for the year ended December 31, 2006 and December 29, 2006, respectively, giving pro forma effect to the merger of Parent and Jazz and Parent’s convertible note financing as if both had occurred on January 1, 2006.

The pro forma adjustments are preliminary, and the unaudited pro forma condensed combined financial statements are not necessarily indicative of the financial position or results of operations that may have actually occurred had the merger taken place on the dates noted, or the future financial position or operating results of Parent or Jazz. The pro forma adjustments are based upon available information and assumptions that we believe are reasonable. Under the purchase method of accounting, the total purchase price will be allocated to the net tangible and intangible assets acquired and liabilities assumed, based on various estimates of their respective fair values. Parent is determining the estimated fair values of certain assets and liabilities with the assistance of third party valuation specialists and has engaged a third party appraiser to assist management to perform a valuation of all the assets and liabilities in accordance with Statement of Financial Accounting Standard No. 141, Business Combinations (‘‘SFAS No. 141’’). The purchase price allocations set forth in the following unaudited pro forma condensed combined financial statements are based on preliminary valuation estimates of Jazz’s tangible and intangible assets. The final valuations, and any interim updated preliminary valuation estimates, may differ materially from these preliminary valuation estimates and, as a result, the final allocation of the purchase price may result in reclassifications of the allocated amounts that are materially different from the purchase price allocations reflected below. Any material change in the valuation estimates and related allocation of the purchase price would materially impact Parent’s depreciation and amortization expenses, the unaudited pro forma condensed combined financial statements and Parent’s results of operations after the merger.

The following unaudited pro forma condensed combined financial statements reflect the conversion of 5,668,116 shares of our outstanding common stock into a pro rata share of the trust account and the redemption of 1,873,738 common shares held by Acquicor Management LLC and our outside directors at a redemption price of $0.0047 per share. The unaudited pro forma condensed combined financial statements should be read in conjunctions with the notes thereto.

2

Unaudited Pro Forma Condensed Combined Balance Sheet

December 31, 2006

(in thousands)

	Parent		Jazz Semiconductor			Closing Transaction				Combined Total
Current Assets:
Cash and cash equivalents	$	633	$	6,299		$	—			$	6,932
Cash and cash equivalents held in trust accounts		334,465		—			(307,938	)	a		26,527
Short-term investments		—		25,986			—				25,986
Restricted cash		—		473			—				473
Receivables from related parties, net of allowance for doubtful accounts		—		8,341			—				8,341
Receivables, net of allowance for doubtful accounts		—		29,492			—				29,492
Inventories				23,102			—				23,102
Other current assets		828		2,740			(639	)	b		2,929
Total current assets		335,926		96,433			(308,577	)			123,782
Property, plant and equipment, net		—		71,507			60,605		c		132,112
Investments		—		10,000			27,500		c		37,500
Restricted cash		—		2,681			—				2,681
Other assets		2,163		7,006			(2,614	)	d		6,555
Debt issuance costs, net of amortization		6,017		—			—				6,017
Intangible assets		—		—			34,500		c		34,500
Goodwill		—		—			37,505		c		37,505
Total assets	$	344,106	$	187,627		$	(151,081	)		$	380,652
Liabilities and stockholders’ equity
Current liabilities:
Deferred underwriting fees	$	3,450	$	—		$	(3,450	)	e	$	—
Accrued expenses - acquisition and debt issuance		7,855		—			(7,855	)	f		—
Revolving credit facility		—		—			—				—
Accounts payable		—		20,728			—				20,728
Accrued compensation, benefits and other		—		4,627			—				4,627
Deferred revenues		—		10,609			—				10,609
Other current liabilities		1,278		17,429			(694	)	g		18,013
Total current liabilities		12,583		53,393			(11,999	)			53,977
Convertible senior notes		166,750		—			—				166,750
Deferred revenues, wafer credits		—		11,199			—				11,199
Pension and retirement medical plan obligations		—		17,458			—				17,458
Other long term liabilities		—		779			—				779
Total liabilities		179,333		82,829			(11,999	)			250,163
Commitments and contingencies
Common stock, subject to possible conversion		33,511		—			(33,511	)	h		—
Stockholders’ equity:
Preferred stock		—		113			(113	)	i		—
Common stock		3		12			(12	)	i		3
Additional paid in capital		127,971		162,347			(161,870	)	i		128,448
Deferred stock compensation		—		(308	)		308		i		—
Accumulated other comprehensive loss		—		(5,846	)		5,846		i		—
Retained earnings (deficit)		3,288		(51,250	)		50,270		j		2,038
Total stockholders’ equity		131,262		104,798			(105,571	)			130,489
Total liabilities and stockholders’ equity	$	344,106	$	187,627		$	(151,081	)		$	380,652

See notes to the unaudited pro forma condensed combined financial statements.

3

Unaudited Pro Forma Condensed Combined Statement of Operations

Year Ended December 31, 2006

(in thousands, except per share data)

	Parent			Jazz Semiconductor			Pro Forma Adjustments				Pro Forma Combined
Revenues from related parties	$	—		$	40,364		$	—			$	40,364
Revenues from non-related parties		—			172,162			—				172,162
Net revenues		—			212,526			—				212,526
Cost of revenues		—			187,955			12,121		k		200,076
Gross profit		—			24,571			(12,121	)			12,450
Operating expenses:
Research and development		—			20,087			—				20,087
Selling, general and administrative		669			18,342			—				19,011
Amortization of intangible assets		—			996			8,786		l		9,782
Impairment of intangible assets		—			551			—				551
Total operating expenses		669			39,976			8,786				49,431
Operating loss		(669	)		(15,405	)		(20,907	)			(36,981	)
Interest income (expense), net		4,448			1,196			(19,446	)	m		(13,802	)
Loss on investments		—			(840	)		—				(840	)
Other income		—			(94	)		—				(94	)
Loss before income taxes		3,779			(15,143	)		(40,353	)			(51,717	)
Income tax provision		485			58			(483	)	n		60
Net loss	$	3,294		$	(15,201	)	$	(39,870	)		$	(51,777	)
Net loss per common share		Basic									$	(2.31	)
		Diluted									$	(2.31	)
Weighted-average shares outstanding		Basic								o		22,451
		Diluted								o		22,451

See notes to the unaudited pro forma condensed combined financial statements.

4

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION

On September 26, 2006, Parent, and its wholly-owned subsidiary, Joy, entered into the merger agreement with Jazz and TC Group, L.L.C., as the Jazz stockholders’ representative, pursuant to which Joy agreed to merge with and into Jazz. The merger was consummated on February 16, 2007 and at the effective time of the merger, Jazz was the surviving corporation and became a wholly-owned subsidiary of Parent. Pursuant to the merger agreement, the total merger consideration to be paid is approximately $260 million, subject to adjustment based on Jazz’s working capital and possible future contingent payments and subject to reduction by the amount of certain transaction expenses incurred by Jazz in connection with the merger and its terminated initial public offering.

For purposes of these unaudited pro forma condensed combined financial statements, Parent has estimated the total cash payments by Parent or Jazz in connection with the completion of the merger to be $307.9 million:

	(in thousands)
Merger consideration (a)	$	264,500
Jazz transaction costs (b)		3,540
Merger consideration payable at closing (c)	$	260,960
Estimated fees and expenses of Parent (d)		4,443
Debt issuance costs (e)		6,057
Deferred underwriting fees (f)		3,450
Total cash payments at completion of merger		274,910
Cash payments to Acquicor shareholder’s converting shares (g)		33,034
Total cash payments in connection with the completion of the merger	$	307,944

(a) Reflects $264.5 million of merger consideration before the deduction for transaction expenses incurred by Jazz in connection with the merger and its terminated public offering and includes the impact of a working capital adjustment. The purchase price was subject to possible decrease of up to $4.5 million to the extent the working capital of Jazz as of the closing is less than $193 million and a possible increase of up to $4.5 million plus $50,000 per day for each day after March 31, 2007 until the closing to the extent the working capital of Jazz as of the closing is greater than $198 million. Jazz’s estimated working capital at closing was in excess of $200 million resulting in an increase in the purchase price by $4.5 million. Parent financed the merger consideration and additional payments made at the closing of the merger from the proceeds of its initial public offering and the sale of convertible senior notes. The purchase price is subject to further adjustment based on a final closing date balance sheet to be prepared within 90 days following the closing of the merger. Also, Parent may become obligated to pay additional amounts to former stockholders of Jazz if Jazz realizes proceeds in excess of $10 million from its investment in Shanghai Hua Hong NEC Electronics Co., Ltd. (“HHNEC”) from certain specified events. For purposes of the pro forma financial statements, Parent has assumed that no such specified events have occurred during the periods presented. To the extent Parent becomes obligated to make these payments to Jazz’s former stockholders, the merger consideration would be adjusted by the amount of such payments. The total merger consideration of $260.9 million set forth above differs from the total merger consideration paid by Parent at the closing of $260.1 due to $0.8 million of transaction expense accrued by Jazz in 2007.

(b) Pursuant to the merger agreement, transaction expenses incurred by Jazz in connection with the merger and its terminated public offering were subtracted from the total consideration to Jazz stockholders. As of December 29, 2006, such transaction expenses in connection with the merger and its terminated public offering were approximately $3.5 million.

(c) Under the terms of the merger agreement, the merger consideration will be paid as follows:

5

	(in thousands)
Consideration payable directly to Jazz stockholders	$	213,706
Payment to Jazz stockholder representative (1)		1,000
Payments to Conexant (2)		16,300
Stay bonus and retention payments to certain Jazz employees (3)		2,054
Payments in escrow (4)		27,900
Total merger consideration	$	260,960

(1) Represents amount otherwise distributable to Jazz’s stockholders that will be distributed to and held by the stockholders’ representative to fund its out-of-pocket fees and expenses in connection with its obligations under the merger agreement and the transactions contemplated by the merger agreement.

(2) Represents a $16.3 million payment made to Conexant to redeem 7,583,501 shares of Jazz Class B common stock held by Conexant and as consideration for an amendment to the Wafer Supply Termination Agreement, dated as of June 26, 2006, by and between Jazz and Conexant.

(3) Represents $2.1 million payable by Jazz on or prior to the merger to Jazz employees in connection with certain stay and retention bonus payments.

(4) Upon completion of the merger, $27.9 million of the purchase price was placed in escrow to secure the possible entitlement of Parent to any post-closing reductions to the purchase price based on Jazz’s working capital position and the indemnification obligations of Jazz’s stockholders to Parent and to fund obligations by Jazz to make retention bonus payments following the closing of the merger to certain of its employees.

(d) Estimated fees and expenses include fees of consultants, legal fees and expenses, printing and mailing costs for this proxy statement, SEC and HSR filing fees, financial advisor fees and expenses, financing fees and related expenses, and other miscellaneous expenses directly related to the merger and the transactions contemplated thereby. Excludes approximately $0.4 million of fees and expenses previously paid.

(e) Consists of debt issuance costs in connection with the issuance of convertible senior notes.

(f) In connection with the IPO, Parent agreed to pay the underwriters additional deferred underwriting discounts and commissions of $3.5 million upon the completion of the merger.

(g) Represents payments made to Acquicor’s stockholders that demanded conversion of their shares into a pro rata share of the trust account, net of taxes payable.

Parent has assumed for the purposes of these unaudited pro forma financial statements that the cash payments to be made upon the completion of the merger were funded as follows:

	(in thousands)
Amounts in the trust account (a)	$	133,687
Convertible senior notes (b)		141,223
Total cash payments at completion of merger	$	274,910

(a) Based on $166.7 million in the trust account, including accrued interest on the funds in the trust account (net of accrued taxes) as of December 31, 2006 less $33.0 million of conversion payments.

(b) In December 2006, Parent completed private placements of $166.8 million aggregate principal amount of convertible senior notes. The gross proceeds from the convertible senior notes were placed in escrow pending completion of the merger and were released to Parent upon the completion of the merger.

6

NOTE 2. PRO FORMA ADJUSTMENTS

Adjustments made to the historical financial statements include the following:

a. Reflects payment of the merger consideration and other cash payments made upon the completion of the merger. In addition, on a pro forma basis, approximately $0.5 million of accrued interest (less taxes payable of approximately $0.5 million) would have been converted to cash and used to pay the merger consideration and other cash payments upon the completion of the merger (see notes b and g). Accordingly, the cash payments reflected by note a reconcile with the total cash payments upon completion of the merger discussed in Note 1 as follows:

	(in thousands)
Cash payments reflected in note a on the balance sheet	$	307,938
Parent accrued interest (see note b)		489
Parent income tax payable (see note g)		(483	)
Total cash payments upon completion of merger	$	307,944

b. Reflects the write-off of prepaid management fees by Jazz and the conversion of accrued interest receivable on the funds in the trust account into the cash and cash equivalent held in the trust account upon liquidation thereof in connection with the merger:

	(in thousands)
Jazz prepaid management fees	$	(150	)
Parent accrued interest		(489	)
Pro forma adjustment	$	(639	)

c. Under the purchase method of accounting, the total purchase price will be allocated to the net tangible and intangible assets acquired and liabilities assumed, based on various estimates of their respective fair values. Parent is determining the estimated fair values of certain assets and liabilities with the assistance of third party valuation specialists and has engaged a third party appraiser to assist management to perform a valuation of all the assets and liabilities in accordance with SFAS No. 141. Parent received preliminary valuation estimates of certain tangible and intangible assets on December 13, 2006. Based on these preliminary valuation estimates, the total purchase price and the estimated transaction costs would be allocated as follows:

7

	Jazz Adjusted Book Value At December 29, 2006			Purchase Price Adjustments Based on Preliminary Valuation (1)		Preliminary Purchase Price Allocation
	(in thousands)
Tangible assets:
Property, plant and equipment, net	$	71,507		$	60,605	$	132,212
Investments		10,000			27,500		37,500
Adjusted other tangible assets, net (2)		105,519			-		105,519
Total adjusted tangible assets, net		187,026			88,105		275,131
Identified intangible assets:
Existing technology		-			9,250		9,250
Patents /core technology rights		-			12,500		12,500
Customer relationships		-			3,000		3,000
Customer backlog		-			2,250		2,250
Trade name		-			4,500		4,500
Non-compete agreements		-			3,000		3,000
Total identified intangible assets		-			34,500		34,500
In-process research and development (3)		-			1,250		1,250
Goodwill (4)		-			37,505		37,505
Total adjusted assets, net		187,026			161,360		348,386
Adjusted Jazz liabilities assumed (5)		(82,618	)		-		(82,618	)
Total preliminary purchase price allocation and estimated transaction costs		104,408			161,360		265,768
Estimated fees and expenses of Parent (6)							4,808
Total merger consideration						$	260,960

(1) For purposes of these pro forma condensed combined financial statements, Parent has used the average of the high and low ranges of preliminary fair value estimates provided by the third party appraiser. The purchase price allocations set forth in these unaudited pro forma condensed combined financial statements are based on preliminary valuation estimates of Jazz’s tangible and intangible assets. The final valuations, and any interim updated preliminary valuation estimates, may differ materially from these preliminary valuation estimates and, as a result, the final allocation of the purchase price may result in reclassifications of the allocated amounts that are materially different from the purchase price allocations reflected herein. Any material change in the valuation estimates and related allocation of the purchase price would materially impact Parent’s depreciation and amortization expenses, the unaudited pro forma condensed combined financial statements and Parent’s results of operations after the merger.

(2) Represents Jazz’s other tangible assets, net as of December 29, 2006, which consists of current assets, restricted cash and other assets, adjusted as follows:

	(in thousands)
Jazz total assets	$	187,627
Property, plant and equipment		(71,507	)
Investments		(10,000	)
Jazz other tangible assets, net	$	106,120
Prepaid management fees (see note f)		(150	)
Termination of Jazz credit line (see note h)		(451	)
Total adjusted Jazz other tangible assets, net	$	105,519

(3) Purchased in-process research and development will be written off immediately upon close of the transaction and is not reflected in the unaudited pro forma condensed combined balance sheet.

8

(4) The portion of the purchase price allocated to goodwill represents the excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired, net of liabilities assumed, and includes estimated Parent fees and expenses of $4.8 million.

(5) Represents Jazz’s liabilities as of December 29, 2006, adjusted as follows:

	(in thousands)
Jazz liabilities	$	82,829
Common stock subject to repurchase (see note k)		(211	)
Total adjusted Jazz liabilities	$	82,618

(6) Estimated fees and expenses include fees of consultants, legal fees and expenses, printing and mailing costs for this proxy statement, SEC and HSR filing fees, financial advisor fees and expenses, financing fees and related expenses, and other miscellaneous expenses directly related to the merger and the transactions contemplated thereby.

d. Reflects an expected write-off in connection with the termination of Jazz's $35 million line of credit with Wachovia, which is expected to be terminated and replaced after the closing of the merger, and the transfer of deferred acquisition costs to purchase allocation and goodwill upon close of the transaction:

	(in thousands)
Termination of Jazz line of credit	$	(451	)
Transfer of Parent deferred acquisition costs		(2,163	)
Pro forma adjustment	$	(2,614	)

e. Reflects payment of deferred underwriting fees. Pursuant to the underwriting agreement entered into by Parent in connection with the IPO, Parent agreed to pay to the underwriters a deferred underwriting fee of approximately $3.5 million upon the consummation of a business combination.

f. Reflects the payment of accrued acquisition fees related to this merger and accrued debt issuance costs relate to the convertible note offering payable at closing:

	(in thousands)
Accrued acquisition expenses	$	(1,798	)
Accrued debt issuance costs		(6,057	)
Pro forma adjustment	$	(7,855	)

g. Reflects the removal of liability for common stock subject to repurchase from Jazz’s other current liabilities and the removal of income taxes payable relating to accrued interest receivables in respect of the funds in the trust account:

	(in thousands)
Jazz liability for common stock subject to repurchase	$	(211	)
Parent income tax payable		(483	)
Pro forma adjustment	$	(694	)

h. Reflects the removal of the converted common stock. As a result of conversions in connection with the stockholder vote relating to the merger, $0.5 million of such common stock has been reclassified as additional paid in capital and holder’s of 5,668,116 shares of Acquicor’s common stock issued in the IPO have been converted into $33.0 million of cash and have been cancelled. After the conversion, these shares will no longer be outstanding.

9

i. Reflects the elimination of Jazz historical equity accounts upon the completion of the merger, offset by the reclassification of Parent common stock subject to conversion (reflecting Parent common stock that was not converted into a pro rata portion of the trust account):

	(in thousands)
Elimination of Jazz additional paid in capital	$	(162,347	)
Reclassification of Parent common stock subject to conversion to additional paid in capital		477
Pro forma adjustment	$	(161,870	)

j.   Reflects the elimination of Jazz historical deficit, offset by the write-off of the preliminary valuation of in process research and development intangible asset:

	(In thousands)
Elimination of Jazz historical deficit	$	51,520
Write-off of preliminary valuation of in-process research and development intangible asset		(1,250	)
Pro forma adjustment	$	50,270

k. Reflects adjustment for increased depreciation expense resulting from the preliminary valuation of property, plant and equipment, amortized over a five year period. Jazz has historically depreciated its property, plant and equipment over useful lives between 3 and 8 years. For purposes of the unaudited pro forma condensed combined financial statements, Parent has assumed five years as an average of the useful lives for all property, plant and equipment.

l. Reflects adjustment for increased amortization expense resulting from the preliminary valuation of intangible assets, amortized as follows:

Intangible Assets	Increased Value(1)		Useful Life		Year ended December 31, 2006
Existing technology	$	9,250		7	$	1,321
Patents/core technology rights		12,500		7		1,786
Customer relationships		3,000		7		429
Customer backlog		2,250		1		2,250
Trade name		4,500		3		1,500
Non-compete agreements		3,000		2		1,500
Total	$	34,500			$	8,786

(1) Represents the amount by which the valuation estimates exceeds the amounts set forth on Jazz’s consolidated balance sheet as of December 29, 2006.

The final valuations may result in reclassifications of the allocated amounts, which may materially impact operating expenses.

m. Reflects interest expense in connection with the financing for the merger, based on the financing terms described in Note 1, the elimination of interest income on the funds in the trust account, as the trust account would not have existed if the transaction had been consummated on the first day of the period, and amortization expense related to the $6.1 million of debt issuance costs. Interest expense reflects $166.8 million principal amount of convertible senior notes outstanding.

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	Year ended December 31, 2006
	(in thousands)
Estimated interest on convertible senior notes	$	(13,340	)
Adjustment for interest earned on trust account		(4,935	)
Adjustment for amortization of convertible senior note debt issuance costs		(1,171	)
Total interest adjustments	$	(19,446	)

n. Reflects elimination of $0.5 million in income tax expenses in respect of interest earned on the funds in the trust account. Management has not determined the impact of the merger on Jazz’s deferred tax assets. Accordingly, no other adjustment has been made to deferred tax assets or income tax provision.

In addition, as of December 29, 2006, Jazz had federal tax net operating loss, or NOL, carryforwards of approximately $93.5 million available to reduce taxable income in future years. These NOL carryforwards will begin to expire in 2008, unless previously utilized. Jazz also had state NOL carryforwards at December 29, 2006 of approximately $79.4 million, which will begin to expire in 2013, unless previously utilized. At December 29, 2006, Jazz had a $37.1 million deferred tax asset related to these net operating loss carryforwards. Due to uncertainty as to its ability to realize these deferred tax assets, Jazz recorded a full valuation allowance. Jazz's ability to utilize its NOL carryforwards will become subject to substantial annual limitations if it undergoes an ownership change as defined under Section 382 of the Internal Revenue Code. The merger will result in an ownership change of Jazz as defined under Section 382, which may jeopardize Jazz's ability to use some or all of its NOL carryforwards following the completion of the merger. However, management has not made a determination of the impact of the merger on Jazz's ability to use its NOL carryforwards.

o.   Reflects the conversion of 5,668,116 shares of our outstanding common stock into a pro rata share of the trust account and the redemption of 1,873,738 common shares held by Acquicor Management LLC and our outside directors at a redemption price of $0.0047 per share.

	Year ended December 31, 2006
	(in thousands)
Weighted average shares outstanding as of December 31, 2006		28,444
Adjustment for conversion of IPO shares and redemption of insider shares		(5,993	)
Adjusted weighted average shares outstanding		22,451

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