10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED MARCH 31, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission File Number 0-19032

ATMEL CORPORATION

(Registrant)

Delaware	77-0051991
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

2325 Orchard Parkway
San Jose, California 95131
(Address of principal executive offices)

(408) 441-0311
(Registrant’s telephone number)

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

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

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

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

On April 30, 2008, the Registrant had 445,542,593 outstanding shares of Common Stock.

ATMEL CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 2008

	Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements		3
Condensed Consolidated Balance Sheets at March 31, 2008 and December 31, 2007		3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and March 31, 2007		4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and March 31, 2007		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3. Quantitative and Qualitative Disclosures About Market Risk		43
Item 4. Controls and Procedures		45
PART II: OTHER INFORMATION
Item 1. Legal Proceedings		45
Item 1A. Risk Factors		47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		61
Item 3. Defaults Upon Senior Securities		61
Item 4. Submission of Matters to a Vote of Security Holders		61
Item 5. Other Information		61
Item 6. Exhibits		61
Signatures		62
Exhibits		63
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

Atmel Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
	2008			2007
	(in thousands, except par value)
ASSETS
Current assets
Cash and cash equivalents	$	308,365		$	374,130
Short-term investments		28,455			55,817
Accounts receivable, net of allowance for doubtful accounts of $3,799 and $3,111, respectively		223,615			209,189
Inventories		348,603			357,301
Assets held for sale		47,414			—
Prepaids and other current assets		99,665			88,781
Total current assets		1,056,117			1,085,218
Fixed assets, net		499,717			579,566
Goodwill		62,865			—
Intangible assets, net		49,758			19,552
Other assets		45,150			18,417
Total assets	$	1,713,607		$	1,702,753
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt	$	135,558		$	142,471
Trade accounts payable		113,335			191,856
Accrued and other liabilities		291,885			266,987
Deferred income on shipments to distributors		21,334			19,708
Total current liabilities		562,112			621,022
Long-term debt less current portion		20,251			20,408
Other long-term liabilities		253,809			237,844
Total liabilities		836,172			879,274
Commitments and contingencies (Note 8)
Stockholders’ equity
Common stock; par value $0.001; Authorized: 1,600,000 shares;
Shares issued and outstanding: 445,516 at March 31, 2008 and 443,837 at December 31, 2007		446			444
Additional paid-in capital		1,204,921			1,193,846
Accumulated other comprehensive income		189,231			153,140
Accumulated deficit		(517,163	)		(523,951	)
Total stockholders’ equity		877,435			823,479
Total liabilities and stockholders’ equity	$	1,713,607		$	1,702,753

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Atmel Corporation

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended
	March 31,			March 31,
	2008			2007
	(in thousands, except per share data)
Net revenues	$	411,237		$	391,313
Operating expenses
Cost of revenues		265,183			251,376
Research and development		66,377			67,299
Selling, general and administrative		63,562			58,059
Acquisition-related charges		3,711			—
Credit from grant repayments		(119	)		—
Restructuring charges		27,908			1,782
Gain on sale of assets		(30,758	)		—
Total operating expenses		395,864			378,516
Income from operations		15,373			12,797
Interest and other income (expense), net		(5,387	)		979
Income from continuing operations before income taxes		9,986			13,776
Benefit from (provision for) income taxes		(3,198	)		15,164
Net income	$	6,788		$	28,940
Basic net income per share:
Net income	$	0.02		$	0.06
Weighted-average shares used in basic net income per share calculations		444,670			488,842
Diluted net income per share:
Net income	$	0.02		$	0.06
Weighted-average shares used in diluted net income per share calculations		447,643			494,198

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Atmel Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended
	March 31,			March 31,
	2008			2007
	(in thousands)
Cash flows from operating activities
Net income	$	6,788		$	28,940
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Depreciation and amortization		33,680			31,940
Loss (gain) on sale or disposal of fixed assets		(30,758	)		17
In-process research and development charges		1,047			—
Other non-cash losses		3,877			428
Provision for doubtful accounts receivable		731			132
Accretion of interest on long-term debt		844			278
Stock-based compensation expense		6,307			3,310
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(11,878	)		10,993
Inventories		18,302			(23,267	)
Current and other assets		1,425			12,732
Trade accounts payable		(89,445	)		(8,027	)
Accrued and other liabilities		17,297			3,736
Deferred income on shipments to distributors		1,626			(1,992	)
Net cash (used in) provided by operating activities		(40,157	)		59,220
Cash flows from investing activities
Acquisitions of fixed assets		(16,672	)		(26,206	)
Proceeds from sale of North Tyneside assets and other assets		81,865			11
Acquisitions of intangible assets		(1,080	)		—
Purchases of short-term investments		(3,783	)		(4,114	)
Sales or maturities of short-term investments		4,425			2,000
Acquisition of Quantum Research Group, net of cash acquired		(89,416	)		—
Net cash used in investing activities		(24,661	)		(28,309	)
Cash flows from financing activities
Principal payments on capital leases and other debt		(9,800	)		(22,806	)
Proceeds from issuance of common stock		4,285			—
Net cash used in financing activities		(5,515	)		(22,806	)
Effect of exchange rate changes on cash and cash equivalents		4,568			1,397
Net increase (decrease) in cash and cash equivalents		(65,765	)		9,502
Cash and cash equivalents at beginning of the period		374,130			410,480
Cash and cash equivalents at end of the period	$	308,365		$	419,982
Supplemental cash flow disclosures:
Interest paid	$	2,622		$	2,314
Income taxes paid, net		5,995			16,893
Supplemental non-cash investing and financing activities disclosures:
Decreases in accounts payable related to fixed asset purchases		(3,523	)		(6,441	)
Increase in accounts payable related to Quantum Research Group acquisition costs		3,661			—

The accompanying notes are an integral part of these Condensed Consolidated Financial statements.

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Atmel Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except per share data, employee data, and where otherwise indicated)

(Unaudited)

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

     These unaudited interim condensed consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to state fairly, in all material respects, the financial position of Atmel Corporation (“the Company” or “Atmel”) and its subsidiaries as of March 31, 2008 and the results of operations and cash flows for the three months ended March 31, 2008 and 2007. All intercompany balances have been eliminated. Because all of the disclosures required by U.S. generally accepted accounting principles are not included, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. The December 31, 2007 year-end condensed balance sheet data was derived from the audited consolidated financial statements and does not include all of the disclosures required by U.S. generally accepted accounting principles. The condensed consolidated statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, nor for the entire year.

     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, the 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. Significant estimates in these financial statements include reserves for inventory, sales return reserves, restructuring charges, stock-based compensation expense, allowances for doubtful accounts, warranty reserves, estimates for useful lives associated with long-lived assets (including intangible assets), asset impairments charges, restructuring charges and certain accrued liabilities and income taxes and tax valuation allowances. Actual results could differ from those estimates.

Inventories

     Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis for raw materials and purchased parts; and an average-cost basis for work in progress and finished goods) or market. Market is based on estimated net realizable value. The Company establishes lower of cost or market reserves and excess and obsolescence reserves. The determination of obsolete or excess inventory requires an estimation of the future demand for the Company’s products and these reserves are recorded when the inventory on hand exceeds management’s estimate of future demand for each product. Once the inventory is written down, a new cost basis is established; however, for tracking purposes, the write-down is recorded as a reserve on the balance sheets. These inventory reserves are not relieved until the related inventory has been sold or scrapped. Inventories are comprised of the following:

	March 31,		December 31,
	2008		2007
	(in thousands)
Raw materials and purchased parts	$	16,991	$	22,996
Work-in-progress		240,116		249,863
Finished goods		91,496		84,442
	$	348,603	$	357,301

Grant Recognition

     Subsidy grants from government organizations are amortized as a reduction of expenses over the period the related obligations are fulfilled. Recognition of future subsidy benefits will depend on Atmel’s achievement of certain capital investment, research and

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development spending and employment goals. The Company recognized the following amount of subsidy grant benefits as a reduction of either cost of revenues or research and development expenses, depending on the nature of the grant:

	Three Months Ended
	March 31,		March 31,
	2008		2007
	(in thousands)
Cost of revenues	$	409	$	297
Research and development expenses		4,959		5,467
Total	$	5,368	$	5,764

     In the three months ended March 31, 2008, the Company made $39,519 in government grant repayments to the UK government in connection with the closure of the North Tyneside, UK manufacturing facility, which was previously accrued as of December 31, 2007. The Company recorded a credit of $119 in grant repayments in the three months ended March 31, 2008 due to changes in certain assumptions in estimating the initial grant liability.

Stock-Based Compensation

     Upon adoption of Statement of Financial Accounting Standards 123R (“SFAS No. 123R”), the Company reassessed its equity compensation valuation method and related assumptions. The Company’s determination of the fair value of share-based payment awards on the date of grant utilizes an option-pricing model, and is impacted by its common stock price as well as a change in assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to: expected common stock price volatility over the term of the option awards, as well as the projected employee option exercise behaviors (expected period between stock option vesting date and stock option exercise date).

     Stock-based compensation expense recognized in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2008 and 2007 included a combination of payment awards granted prior to January 1, 2006 and payment awards granted subsequent to January 1, 2006. For stock-based payment awards granted prior to January 1, 2006, the Company attributes the value of stock-based compensation, determined under SFAS No. 123R, to expense using the accelerated multiple-option approach. Compensation expense for all stock-based payment awards granted subsequent to January 1, 2006 is recognized using the straight-line single-option method. Stock-based compensation expense included in the three months ended March 31, 2008 and 2007 includes the impact of estimated forfeitures.
SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock options granted in periods prior to 2006 were measured based on SFAS No. 123 requirements, whereas stock options granted subsequent to January 1, 2006 are measured based on SFAS No. 123R requirements. See Note 6 for further discussion.

Valuation of Goodwill and Intangible Assets

     The Company reviews goodwill and intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Purchased intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives and are reviewed for impairment under SFAS No. 144, “Accounting for the Impairment of Disposal of Long-Lived Assets). Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and forecasted operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. The Company bases its fair value estimates on assumptions it believes to be reasonable. Actual future results may differ from those estimates.

Recent Accounting Pronouncements

     In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” This standard is intended to improve financial reporting

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by requiring transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under SFAS No 133; and how derivative instruments and related hedged items affect its financial position, financial performance and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of
SFAS No. 161 on its consolidated results of operations and financial condition.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 141R on its consolidated results of operations and financial condition.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective as of the beginning of an entity’s fiscal year that begins after December 31, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 160 on its consolidated results of operations and financial condition.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” Under SFAS No. 159, a company may elect to use fair value to measure eligible items at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. If elected, SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Currently, we have not expanded our financial assets and liabilities that we account for under the fair value option of SFAS No. 159.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial assets and liabilities on financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. FASB Staff Position No. 157-2 (FSP No. 157-2) delays the effective date for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually. The provisions of SFAS No. 157 should be applied prospectively as of the beginning of the fiscal year in which SFAS No. 157 is initially applied, except in limited circumstances. The Company has adopted SFAS No. 157 and FSP No. 157-2) beginning January 1, 2008, and there is no material impact on its condensed consolidated financial statements. See Note 16 for further discussion.

Note 2 BUSINESS COMBINATION

     On March 6, 2008, the Company completed its acquisition of Quantum Research Group Ltd. (“Quantum”), a supplier of capacitive sensing IP and solutions. The Company acquired all outstanding shares as of the acquisition date and Quantum became a wholly-owned subsidiary of Atmel.

     The total purchase price of the acquisition is as follows:

	(in thousands)
Cash	$	88,106
Fair value of common stock issued		405
Direct transaction costs		7,159
Total estimated purchase price	$	95,670

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     Of the $88,106 cash paid on the closing date of the acquisition, $13,000 was placed in an escrow account and will be released 18 months from the closing date upon satisfaction of any outstanding obligations related to certain representations and warranties included in the acquisition agreement. As part of the purchase price, the Company also issued 126 shares of its common stock to a Quantum shareholder, which was valued at $405. The share value used was based on fair value determined by calculating the average closing stock prices from March 4, 2008 to March 8, 2008.

     The allocation of the purchase price to Quantum’s tangible and identifiable intangible assets acquired and liabilities assumed is based on their estimated fair values. Further adjustments may be included in the final allocation of the purchase price of Quantum, if the adjustments are determined within the purchase price allocation period (up to twelve months from the closing date). The excess of the purchase price over the tangible and identifiable intangible assets acquired and liabilities assumed has been allocated to goodwill. Goodwill is not deductible for tax purposes. Goodwill and intangible assets were recorded on the books of an Atmel subsidiary that utilizes the euro as the functional currency.

     The purchase price is allocated as follows as of the closing date of the acquisition:

	March 6,
	2008
	(in thousands)
Goodwill	$	60,599
Other intangible assets		31,002
Tangible assets acquired and liabilities assumed:
Cash and cash equivalents		2,188
Accounts receivable		3,070
Inventory		966
Prepaids and other current assets		149
Fixed assets		455
Trade accounts payable		(1,013	)
Accrued liabilities		(2,793	)
In-process research and development		1,047
	$	95,670

			Cumulative
	March 6,		Translation		March 31,
	2008		Adjustments		2008
	(in thousands)
Goodwill	$	60,599	$	2,266	$	62,865
		60,599		2,266		62,865
Other intangible assets:
Customer relationships		21,482		773		22,255
Developed technology		6,880		258		7,138
Tradename		1,180		44		1,224
Non-compete agreement		990		37		1,027
Backlog		470		18		488
	$	31,002	$	1,130	$	32,132

     The goodwill amount is not subject to amortization. The goodwill is related to the Company’s Microcontroller segment. It is tested for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company has estimated the fair value of other intangible assets using the income approach to value these identifiable intangible assets which are subject to amortization. The

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following table sets forth the components of the identifiable intangible assets subject to amortization as of March 31, 2008, which are being amortized on a straight-line basis:

			Accumulated					Estimated
	Gross Value		Amortization			Net		Useful Life
	(in thousands, except for years)
Customer relationships	$	22,255	$	(371	)	$	21,884	5 years
Developed technology		7,138		(119	)		7,019	5 years
Tradename		1,224		(34	)		1,190	3 years
Non-compete agreement		1,027		(16	)		1,011	5 years
Backlog		488		(488	)		—	< 1 year
	$	32,132	$	(1,028	)	$	31,104

     Customer relationships represent future projected net revenues that will be derived from sales of current and future versions of existing products that will be sold to existing customers. Core developed technology represents a combination of processes, patents and trade secrets developed through years of experience in design and development of the products. Trade name represents the Quantum brand that the Company will continue to use to market the current and future capacitive sensing products. Non-compete agreement represents the fair value to the Company from agreements with certain former Quantum executives to refrain from competition for a number of years. Backlog represents committed orders from customers as of the closing date of the acquisition.

     The Company recorded the following acquisition-related charges in the condensed consolidated statements of operations in the three months ended March 31, 2008:

	Three Months Ended
	March 31, 2008
	(in thousands)
Amortization of intangible assets	$	962
In-process research and development		1,047
Compensation-related expense		1,702
	$	3,711

     The Company recorded amortization of intangible assets of $962 associated with customer relationships, developed technology, trade name, non-compete agreements and backlog.

     The Company recorded a charge of $1,047 associated with acquired in-process research and development (“IPR&D”), in connection with the acquisition of Quantum. The Company’s methodology for allocating the purchase price to IPR&D involves established valuation techniques utilized in the high-technology industry. Each project in process was analyzed by discounted forecasted cash flows directly related to the products expected to result from the subject research and development, net of returns in contributory assets including working capital, fixed assets, customer relationships, trade name, and assembled workforce. IPR&D was expensed upon acquisition because technological feasibility has not been established and no future alternative uses existed. The fair value of technology under development is determined using the income approach, which discounts expected future cash flows to present value. A discount rate of 33% is used for the projects to account for the risks associated with the inherent uncertainties surrounding the successful development of the IPR&D, market acceptance of the technology, the useful life of the technology, the profitability level of such technology and the uncertainty of technological advances, which could impact the estimates recorded. The discount rates used in the present value calculations are typically derived from a weighted-average cost of capital analysis. These estimates did not account for any potential synergies realizable as a result of the acquisition and were in line with industry averages and growth estimates.

     The Company agreed to pay additional amounts to former key executives of Quantum contingent upon continuing employment over a three year period. The Company has agreed to pay up to $32,334, including the value of 5,319 shares of the Company’s common stock. These payments are accrued over the employment period and recorded as compensation expense, calculated on an accelerated

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basis. In the three months ended March 31, 2008, the Company recorded $1,702 of compensation expense as acquisition-related charges in the condensed consolidated statements of operations.

      The Company agreed to make additional payments of $9,560 that is contingent on achieving specified financial objectives in 2008. Of this amount, the Company paid $1,570 in April 2008 for the achievement of the financial objectives in the three months ended March 31, 2008 and was included in goodwill as of March 31, 2008. The remaining amount will be recorded as additional goodwill if and when the financial objectives are achieved in the remainder of 2008.

Pro Forma Results

     Pro forma consolidated statements of operations information has not been presented because Quantum’s financial results are not material to the Company’s condensed consolidated statements of operations for the three months ended March 31, 2008.

Note 3 INVESTMENTS

     Investments at March 31, 2008 and December 31, 2007 primarily comprise corporate equity securities, U.S. and foreign corporate debt securities, guaranteed variable annuities and auction rate securities.

     All marketable securities are deemed by management to be available-for-sale and are reported at fair value. Net unrealized gains or losses that are not deemed to be other than temporary are reported within stockholders’ equity on the Company’s condensed consolidated balance sheets and as a component of accumulated other comprehensive income. Gross realized gains or losses are recorded based on the specific identification method. During the three months ended March 31, 2008, the Company’s gross realized gains or losses on short-term investments were not material. The carrying amount of the Company’s investments is shown in the table below:

	March 31, 2008					December 31, 2007
	Book Value			Fair Value		Book Value			Fair Value
	(in thousands)
Corporate equity securities	$	87		$	1,477	$	87		$	1,542
Auction-rate securities		29,057			27,944		29,075			29,075
Corporate debt securities and other obligations		23,419			24,974		23,817			25,200
	$	52,563		$	54,395	$	52,979		$	55,817
Unrealized gains		3,207					2,900
Unrealized losses		(1,375	)				(62	)
Net unrealized gains		1,832					2,838
Fair value	$	54,395				$	55,817
Amount included in short-term investments				$	28,455				$	55,817
Amount included in other assets					25,940					—
				$	54,395				$	55,817

     In the three months ended March 31, 2008 the Company recorded an impairment of $1,113 related to a decline in the value of auction-rate securities which is recorded as other comprehensive loss. The Company does not believe that the impairment is “other than temporary” due to its intent and ability to hold the securities until they can be liquidated at par value. In the three months ended March 31, 2008 the auctions for the Company’s auction-rate securities have failed and as a result, the securities have become illiquid. The Company concluded that $25,940 of these securities are unlikely to be liquidated within the next twelve months and reclassified these securities to long-term investments, which is included in other assets on the condensed consolidated balance sheets.

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     Contractual maturities (at book value) of available-for-sale debt securities as of March 31, 2008, were as follows:

	(in thousands)
Due within one year	$	4,335
Due in 1-5 years		10,562
Due in 5-10 years		—
Due after 10 years		37,579
Total	$	52,476

     Atmel has classified all investments (excluding auction rate securities) with maturity dates of 90 days or more as short-term as it has the ability to redeem them within the year.

Note 4 INTANGIBLE ASSETS, NET

     Intangible assets, net, consisted of technology licenses and acquisition-related intangible assets as follows:

	March 31,			December 31,
	2008			2007
	(in thousands)
Core/licensed technology	$	104,599		$	102,906
Accumulated amortization		(85,945	)		(83,354	)
Total technology licenses		18,654			19,552
Acquisition-related intangible assets (See Note 2)		32,132			—
Accumulated amortization		(1,028	)		—
Total acquisition-related intangible assets		31,104			—
Total intangible assets, net	$	49,758		$	19,552

     Amortization expense for technology licenses for the three months ended March 31, 2008 and 2007 totaled $1,093 and $1,193, respectively. See Note 2 for discussion of amortization of acquisition-related intangible assets in the three months ended March 31, 2008.

     The following table presents the estimated future amortization of the technology licenses and acquisition-related intangible assets:

	Technology		Acquisition-Related
Years Ending December 31:	Licenses		Intangible Assets		Total
	(in thousands)
2008 (April 1 through December 31)	$	3,254	$	4,869	$	8,123
2009		4,237		6,492		10,729
2010		3,912		6,492		10,404
2011		3,225		6,152		9,377
2012		3,221		6,084		9,305
Thereafter		805		1,015		1,820
Total future amortization	$	18,654	$	31,104	$	49,758

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Note 5 BORROWING ARRANGEMENTS

     Information with respect to Atmel’s debt and capital lease obligations as of March 31, 2008 and December 31, 2007 is shown in the following table:

	March 31,			December 31,
	2008			2007
	(in thousands)
Various interest-bearing notes and term loans	$	5,298		$	6,221
Bank lines of credit		125,000			125,000
Capital lease obligations		25,511			31,658
Total	$	155,809		$	162,879
Less: current portion of long-term debt and capital lease obligation		(135,558	)		(142,471	)
Long-term debt and capital lease obligations due after one year	$	20,251		$	20,408

     Maturities of long-term debt and capital lease obligations are as follows:

Years Ending December 31:	(in thousands)
2008 (April 1 through December 31)	$	136,657
2009		7,635
2010		6,418
2011		5,400
2012		1,298
Thereafter		2,798
		160,206
Less: amount representing interest		(4,397	)
Total	$	155,809

     On March 15, 2006, the Company entered into a five-year asset-backed credit facility for up to $165,000 with certain European lenders. This facility is secured by the Company’s non-U.S. trade receivables. At March 31, 2008, the amount available under this facility was $119,836 based on eligible non-U.S. trade receivables, of which $100,000 was outstanding. Borrowings under the facility bear interest at LIBOR plus 2% per annum (approximately 6.5% at March 31, 2008), while the undrawn portion is subject to a commitment fee of 0.375% per annum. The outstanding balance is subject to repayment in full on the last day of its interest period (every two months). The terms of the facility subject the Company to certain financial and other covenants and cross-default provisions. The Company was not in compliance with certain financial covenants (i.e. fixed charge ratio) as of March 31, 2008. The Company obtained a waiver on May 7, 2008. Commitment fees and amortization of up-front fees paid related to the facility for the three months ended March 31, 2008 and 2007 totaled $326 and $402, respectively, and are included in interest and other income (expenses), net, in the condensed consolidated statements of operations. The outstanding balance under this facility is classified as a bank line of credit in the summary debt table.

     In December 2004, the Company established a $25,000 revolving line of credit with a domestic bank, which has been extended until September 2008. The interest rate on the revolving line of credit is either the domestic bank’s prime rate or LIBOR plus 2%. In September 2005, the Company obtained a $15,000 term loan from the same bank. This term loan matures in September 2008. The interest rate on this term loan is LIBOR plus 2.25% (approximately 7.0% at March 31, 2008). The revolving line of credit is secured by the Company’s U.S. trade receivables. Both the revolving line of credit and both term loans require the Company to meet certain financial ratios and to comply with other covenants on a periodic basis. As of March 31, 2008, the full $25,000 of the revolving line of credit and $2,499 of the term loan was outstanding and are classified as a bank line of credit and interest bearing note in the summary debt table, respectively.

     In February 2005, the Company entered into an equipment financing arrangement in the amount of euro 40,685 ($54,005) which is repayable in quarterly installments over three years. The stated interest rate is EURIBOR plus 2.25%. This equipment financing was collateralized by the financed assets. As of March 31, 2008, the balance outstanding under the arrangement had been repaid. The outstanding balance as of December 31, 2007 of $5,250 was classified as a capital lease in the summary debt table.

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     Of the Company’s remaining $28,310 in outstanding debt obligations as of March 31, 2008, $25,511 are classified as capital lease and $2,799 as interest bearing notes in the summary debt table.

     Included within the Company’s outstanding debt obligations are $147,880 of variable-rate debt obligations where the interest rates are based on either the LIBOR index plus a spread ranging from 2.0% to 2.25% or the short-term EURIBOR index plus a spread ranging from 0.9% to 2.25%. Approximately $127,499 of the Company’s total debt obligations have cross default provisions.

Note 6 STOCK-BASED COMPENSATION

Option and Employee Stock Purchase Plans

     Atmel has one stock option plan — the 2005 Stock Plan (an amendment and restatement of the 1996 Stock Plan). The 2005 Stock Plan was approved by stockholders on May 11, 2005. As of March 31, 2008, of the 56,000 shares authorized for issuance under the 2005 Stock Plan, 4,969 shares of common stock remain available for grant. Under Atmel’s 2005 Stock Plan, Atmel may issue common stock directly, grant options to purchase common stock or grant restricted stock units payable in common stock to employees, consultants and directors of Atmel. Options, which generally vest over four years, are granted at fair market value on the date of the grant and generally expire ten years from that date.

     Activity under Atmel’s 2005 Stock Plan is set forth below:

							Outstanding Options
									Weighted-
							Exercise		Average
	Available			Number of			Price		Exercise Price
	for Grant			Options			per Share		per Share
	(in thousands, except per share data)
Balances, December 31, 2007		6,104			30,782		$	1.68-$24.44	$	5.81
Restricted stock units granted		(635	)		—			—		—
Options granted		(1,463	)		1,463			3.27-3.41		3.31
Options cancelled/expired/forfeited		963			(963	)		1.98-21.47		5.35
Options exercised		—			(303	)		3.00-4.32		2.09
Balances, March 31, 2008		4,969			30,979		$	1.68-24.44	$	5.73

     Stock options exercised in the three months ended March 31, 2008 had an aggregate exercise price of $634. No stock options were exercised in the three months ended March 31, 2007.

Restricted Stock Units

	Number of
	Shares
	(in thousands)
Balances, December 31, 2007		3,968
Units granted		635
Units vested		(88	)
Balances, March 31, 2008		4,515

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			Weighted-Average
	Number of		Fair Value
	Shares		Per Share
	(in thousands, except per share data)
Restricted stock units issued		635	$	3.32

     During the three months ended March 31, 2008, 88 units of restricted stock vested. These vested units had a weighted-average fair value of $3.35 on the vesting dates. The Company has also committed to issue 2,403 of restricted stock units to certain employees in the remainder of 2008 (see Note 8 for further discussion). As of March 31, 2008, total unearned stock-based compensation related to nonvested restricted stock units was approximately $31,686, excluding forfeitures, and is expected to be recognized over a weighted-average period of 3.7 years.

     The following table summarizes the stock options outstanding at March 31, 2008:

Options Outstanding									Options Exercisable
(in thousands, except for price and term data)
			Weighted-								Weighted-
			Average		Weighted-						Average		Weighted-
Range of			Remaining		Average		Aggregate				Remaining		Average		Aggregate
Exercise	Number		Contractual		Exercise		Intrinsic		Number		Contractual		Exercise		Intrinsic
Price	Outstanding		Term (years)		Price		Value		Exercisable		Term (years)		Price		Value
$1.68 - $2.50		3,101		4.58	$	2.09	$	4,298		2,932		4.42	$	2.09	$	4,075
2.62 - 3.32		4,120		7.88		3.20		1,165		1,639		7.08		3.11		602
3.33 - 4.70		1,144		5.10		4.09		2		715		3.68		3.93		2
4.74 - 4.74		3,283		9.35		4.74		—		430		9.38		4.74		—
4.77 - 4.92		3,238		8.84		4.90		—		763		8.46		4.89		—
4.95 - 5.73		4,288		8.37		5.48		—		1,208		7.74		5.45		—
5.75 - 6.27		3,150		5.61		5.83		—		2,206		5.39		5.81		—
6.28 - 6.28		3,451		8.67		6.28		—		917		8.71		6.28		—
6.47 - 12.13		3,544		3.42		8.59		—		3,522		3.41		8.60		—
12.47 - 24.44		1,660		2.17		16.71		—		1,660		2.17		16.71		—
		30,979		6.81	$	5.73	$	5,465		15,992		5.16	$	6.44	$	4,679

     During the three months ended March 31, 2008, the number of stock options that were exercised was 303, which had an intrinsic value of $401. No stock options were exercised in the three months ended March 31, 2007.

     The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Three Months Ended
	March 31,			March 31,
	2008			2007
Risk-free interest rate		2.50	%		4.54	%
Expected life (years)		5.39			5.98
Expected volatility		55	%		64	%
Expected dividend yield		—			—

     The Company’s weighted-average assumptions for the three months ended March 31, 2008 and 2007 were determined in accordance with SFAS No. 123R and are further discussed below.

     The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding and was derived based on an evaluation of the Company’s historical settlement trends, including an evaluation of

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historical exercise and expected post-vesting employment-termination behavior. The expected life of employee stock options impacts all underlying assumptions used in the Company’s Black-Scholes option-pricing model, including the period applicable for risk-free interest and expected volatility.

     The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the Company’s employee stock options.

     The Company calculates the historic volatility over the expected life of the employee stock options and believes this to be representative of the Company’s expectations about its future volatility over the expected life of the option.

     The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

     The weighted-average estimated fair values of options granted in the three months ended March 31, 2008 and 2007 were $1.69 and $3.74, respectively.

Employee Stock Purchase Plan

     Under the 1991 Employee Stock Purchase Plan (“ESPP”), qualified employees are entitled to purchase shares of Atmel’s common stock at the lower of 85 percent of the fair market value of the common stock at the date of commencement of the six-month offering period or at the last day of the offering period. Purchases are limited to 10 percent of an employee’s eligible compensation. There were 1,161 purchases under the ESPP in the three months ended March 31, 2008 at an average price of $3.14 per share. Of the 42,000 shares authorized for issuance under this plan, 8,159 shares were available for issuance at March 31, 2008. There were no purchases under the ESPP in the three months ended March 31, 2007.

     The adoption of SFAS No. 123R did not impact the Company’s methodology to estimate the fair value of share-based payment awards under the Company’s ESPP. The fair value of each purchase under the ESPP is estimated on the date of the beginning of the offering period using the Black-Scholes option pricing model. The following assumptions were utilized to determine the fair value of the Company’s ESPP shares:

	Three Months Ended
	March 31,
	2008
Risk-free interest rate		2.07	%
Expected life (years)		0.50
Expected volatility		40	%
Expected dividend yield		—

     The weighted-average fair value of the rights to purchase shares under the ESPP for offering periods started in the three months ended March 31, 2008 was $0.67. Cash proceeds for the issuance of shares under the ESPP was $3,643 in the three months ended March 31, 2008.

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     The components of the Company’s stock-based compensation expense, net of amounts capitalized in inventory, for the three months ended March 31, 2008 and 2007, are summarized below:

	Three Months Ended
	March 31,			March 31,
	2008			2007
	(in thousands)
Employee stock options	$	3,743		$	3,275
Employee stock purchase plan		447			—
Restricted stock units		2,195			—
Amounts (capitalized in) liquidated from inventory		(78	)		35
	$	6,307		$	3,310

     SFAS No. 123R requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow. The future realizability of tax benefits related to stock compensation is dependent upon the timing of employee exercises and future taxable income, among other factors. The Company did not realize any tax benefit from the stock-based compensation expense incurred in the three months ended March 31, 2008 or 2007, as the Company believes it is more likely than not that it will not realize the benefit from tax deductions related to equity compensation.

     The following table summarizes the distribution of stock-based compensation expense related to employee stock options, restricted stock units and employee stock purchases under SFAS No. 123R in the three months ended March 31, 2008 and 2007, which was recorded as follows:

	Three Months Ended
	March 31,		March 31,
	2008		2007
	(in thousands)
Cost of revenues	$	836	$	526
Research and development		2,745		780
Selling, general and administrative		2,726		2,004
Total stock-based compensation expense, before income taxes		6,307		3,310
Tax benefit		—		—
Total stock-based compensation expense, net of income taxes	$	6,307	$	3,310

     There was no non-employee stock-based compensation expense in the three months ended March 31, 2008 and 2007.

     As of March 31, 2008, total unearned compensation expense related to nonvested stock options was approximately $35,977, excluding forfeitures, and is expected to be recognized over a weighted-average period of 1.7 years.

Note 7 ACCUMULATED OTHER COMPREHENSIVE INCOME

     Comprehensive income is defined as a change in equity of a company during a period, from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. The primary difference between net income and comprehensive income for Atmel arises from foreign currency translation adjustments, unrealized pension gains and losses and unrealized gains on investments.

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     The components of accumulated other comprehensive income at March 31, 2008 and December 31, 2007, net of tax, are as follows:

	March 31,		December 31,
	2008		2007
	(in thousands)
Foreign currency translation	$	186,461	$	149,127
Actuarial gains related to defined benefit pension plans		938		1,175
Net unrealized gains on investments		1,832		2,838
Total accumulated other comprehensive income	$	189,231	$	153,140

     The components of comprehensive income for the three months ended March 31, 2008 and 2007 are as follows:

	Three Months Ended
	March 31,			March 31,
	2008			2007
	(in thousands)
Net income	$	6,788		$	28,940
Other comprehensive income:
Foreign currency translation adjustments		37,334			4,067
Actuarial gain (loss) related to defined benefit pension plans		(237	)		1,589
Unrealized gain (loss) on investments		(1,006	)		7
Other comprehensive income		36,091			5,663
Total comprehensive income	$	42,879		$	34,603

     Foreign currency translation adjustments increased by $37,334 in the three months ended March 31, 2008, compared to $4,067 in the three months ended March 31, 2007 primarily due to a translation adjustment resulting from the significant change in the euro/dollar exchange rate.

Note 8 COMMITMENTS AND CONTINGENCIES

Commitments

     Employment Agreements

     The Company entered into an employment agreement with an executive, effective August 7, 2006. The agreement provides for certain payments and benefits to be provided in the event that the executive is terminated without “cause” or that he resigns for “good reason,” including a “change of control.” The agreement initially called for the Company to issue restricted stock or restricted stock units to the executive on January 2, 2007. However, due to the Company’s non-timely status regarding reporting obligations under the Securities Exchange Act of 1934 (“Exchange Act”), the Company was unable to issue these shares on January 2, 2007. On March 13, 2007, the executive’s agreement was amended to provide for issuing these shares after the Company became current with its reporting obligations under the Exchange Act, or for an amount in cash if the executive’s employment terminates prior to issuance, equal to the portion that would have vested had these shares been issued on January 2, 2007, as originally intended. On July 11, 2007, the Company granted 1,000 restricted stock units (“RSUs”) to the executive pursuant to the employment agreement of August 7, 2006.

     The Company has agreements with certain employees providing for both cash bonuses and issuance of restricted stock units. As of March 31, 2008, the Company has a commitment for future payments of $6,011 in bonus and related payroll taxes and to issue 2,403 RSUs under these agreements.

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     Indemnifications

     As is customary in the Company’s industry, as provided for in local law in the United States and other jurisdictions, the Company’s standard contracts provide remedies to its customers, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of the Company’s products. From time to time, the Company will indemnify customers against combinations of loss, expense, or liability arising from various trigger events related to the sale and the use of the Company’s products and services, usually up to a specified maximum amount. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws permit the indemnification of the Company’s agents. In the Company’s experience, claims made under such indemnifications are rare and the associated estimated fair value of the liability is not material.

     Subject to certain limitations, the Company is obligated to indemnify its current and former directors, officers and employees in connection with the investigation of the Company’s historical stock option practices and related government inquiries and litigation. These obligations arise under the terms of the Company’s certificate of incorporation, its bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify generally means that the Company is required to pay or reimburse the individuals’ reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters. The Company is currently paying or reimbursing legal expenses being incurred in connection with these matters by a number of its current and former directors, officers and employees.

     Purchase Commitments

     At March 31, 2008, the Company had outstanding capital purchase commitments of $1,309. The Company also has a supply agreement obligation with a subsidiary of XbyBus SAS, a French corporation of $14,422 for wafer purchases through the remainder of 2008.

Contingencies

     Litigation

     Atmel currently is party to various legal proceedings. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the results of operations, cash flows and financial position of Atmel. The estimate of the potential impact on the Company’s financial position or overall results of operations or cash flows for the legal proceedings described below could change in the future. The Company has accrued for all losses related to litigation that the Company considers probable and for which the loss can be reasonably estimated.

     In January 2007, the Company received a subpoena from the Department of Justice (“DOJ”) requesting information relating to its past stock option grants and related accounting matters. In August 2006, the Company received Information Document Requests from the Internal Revenue Service (“IRS”) regarding the Company’s investigation into misuse of corporate travel funds and investigation into backdating of stock options. The DOJ and IRS inquiries may require the Company to expend significant management time and incur significant legal and other expenses, which may adversely affect our results of operations and cash flows. The Company cannot predict how long it will take or how much more time and resources it will have to expend to resolve these government inquiries, nor can the Company predict the outcome of these inquiries.

     From July through September 2006, six stockholder derivative lawsuits were filed (three in the U.S. District Court for the Northern District of California and three in Santa Clara County Superior Court) by persons claiming to be Company stockholders and purporting to act on Atmel’s behalf, naming Atmel as a nominal defendant and some of its current and former officers and directors as defendants. The suits contain various causes of action relating to the timing of stock option grants awarded by Atmel. The federal cases were consolidated and an amended complaint was filed on November 3, 2006. On defendants’ motions, this consolidated amended complaint was dismissed with leave to amend, and a second consolidated amended complaint was filed in August 2007. Atmel and the individual defendants have each moved to dismiss the second consolidated amended complaint on various grounds. The motions have been argued and taken under submission by the Court. On February 20, 2008, a seventh stockholder derivative lawsuit was filed in the U.S. District Court for the Northern District of California, which alleges the same causes of action as alleged in the second consolidated amended complaint. This seventh suit was consolidated with the already-pending consolidated federal action and was served on the Company on May 5, 2008. The state derivative cases have also been consolidated. In April 2007, a consolidated derivative complaint was filed in the state court action, and the Company moved to stay it. The court granted Atmel’s motion to stay

19

on June 14, 2007. Atmel believes that the filing of these derivative actions was unwarranted and will continue to vigorously contest them.

     In October 2006, an action was filed in First Instance labour court, Nantes, France on behalf of 46 former employees of Atmel’s Nantes facility, claiming that the sale of the Nantes facility to MHS (XbyBus SAS) in December 2005 was not a valid sale, and that these employees should still be considered employees of Atmel, with the right to claim social benefits from Atmel. The action is for unspecified damages. A hearing took place in October 2007 and in February 2008, to the Court announced that it will appoint an additional, professional judge to decide the matter. Atmel will be required to replead this matter in June 2008. Atmel believes that the filing of this action is without merit and intends to vigorously defend this action.

     In January 2007, Quantum World Corporation filed a patent infringement suit in the United States District Court, Eastern District of Texas naming Atmel as a co-defendant, along with a number of other electronics manufacturing companies. The plaintiff claims that the asserted patents allegedly cover a true random number generator and that the patents are infringed by the manufacture, use importation and offer for sale of certain Atmel products. The suit seeks damages for infringement and recovery of attorneys’ fees and costs incurred. In March 2007, Atmel filed a counterclaim for declaratory relief that the patents are neither infringed nor valid. Atmel believes that the filing of this action is without merit and intends to vigorously defend against this action.

     In March 2006, Atmel filed suit against AuthenTec in the United States District Court, Northern District of California, San Jose Division, alleging infringement of U.S. Patent No. 6,289,114, and on November 1, 2006, Atmel filed a First Amended Complaint adding claims for infringement of U.S. Patent No. 6,459,804 (the “‘804 Patent”). In November 2006, AuthenTec answered denying liability and counterclaimed seeking a declaratory judgment of non-infringement and invalidity, its attorneys’ fees and other relief. In April 2007, AuthenTec filed an action against Atmel for declaratory relief in the United States District Court for the Middle District of Florida that the patents asserted against it by Atmel in the action pending in the Northern District of California are neither infringed nor valid, and amended that complaint in May 2007 to add claims for declaratory relief that the ‘804 Patent is unenforceable, alleged interference with business relationships, and abuse of process. AuthenTec sought declaratory relief and unspecified damages. On June 25, 2007, the action pending in the Middle District of Florida was transferred to the Northern District of California, and has been related to the action Atmel filed. On July 3, 2007, Atmel filed an answer to the claims for declaratory relief that the patents were neither valid nor infringed, and also added counterclaims of infringement. Also on July 3, 2007, Atmel moved to dismiss the remaining claims for declaratory relief that the ‘804 Patent is unenforceable, alleged interference with business relationships, and alleged abuse of process. On August 2, 2007, the parties agreed to the dismissal with prejudice of AuthenTec’s claims for alleged interference with business relationships and alleged abuse of process. The parties also agreed to grant AuthenTec leave to amend its counterclaim to add the claim for alleged unenforceability of the ‘804 Patent. In early 2008, the parties each filed motions seeking summary judgment, and by Order dated May 5, 2008, the Court granted AuthenTec’s motion for summary judgment of noninfringement. Atmel is evaluating this Order and its options to appeal the same.

     On September 28, 2007, Matheson Tri-Gas filed suit in Texas state court in Dallas County against the Company. Plaintiff alleges a claim for breach of contract for alleged failure to pay minimum payments under a purchase requirements contract. Matheson seeks unspecified damages, pre- and post-judgment interest, attorneys’ fees and costs. In late November 2007, Atmel filed its answer denying liability. The Company believes that Matheson’s claims are without merit and intends to vigorously defend this action.

     On January 23, 2008, Isamtek MG (1999) Ltd filed suit in the District Court in Petach Tikva, Israel against Atmel SARL and two other defendants. Isamtek has alleged that Atmel breached its distributor agreement with Isamtek and has alleged breach of duty of care in tort and interference with contractual by the other defendants. Isamtek seeks monetary and declaratory relief as well as presentation of accounts.

     On December 21, 2005, the Company’s recently-acquired subsidiary Quantum Research Group, Ltd (“QRG”) filed suit against Apple Computer Company, Inc. (“Apple”) and Fingerworks, Ltd (“Fingerworks”) in the United States District Court for the District of Maryland, alleging infringement of U.S. Patent No. 5,730,165 (“the ‘165 Patent”) and, on May 11, 2006, QRG filed an Amended Complaint adding Cypress Semiconductor/MicroSystems, Inc. (“Cypress”) as a defendant and asserting additional claims for Defamation, False Light, and Unfair Competition against Cypress. On or about July 31, 2006, Apple and Fingerworks each filed its Answer denying infringement and asserting counterclaims seeking a declaratory judgment of non-infringement and invalidity, as well as an award of costs and attorneys’ fees under 35 U.S.C. Section 285. On or about December 14, 2006, Cypress filed its Answer denying infringement, denying the counts alleging Defamation, False Light, and Unfair Competition, and asserting counterclaims seeking a declaratory judgment of non-infringement and invalidity, as well as an award of costs and attorneys’ fees under 35 U.S.C. Section 285. On June 7, 2007, the Court issued its claim construction ruling and an Order invalidating certain asserted claims of the

20

‘165 Patent. In November 2007, Defendants filed a motion for summary judgment of non-infringement and invalidity of the remaining asserted claims of the ‘165 Patent. At that time, QRG filed a motion for summary judgment of infringement of claim 50 of the ‘165 patent. These motions, along with various procedural and evidentiary motions, are pending. Based upon a Stipulation by the parties, the trial date for this action was extended to October 27, 2008, and the suit was stayed by the Court until at least May 19, 2008, to facilitate settlement discussions. Atmel intends to aggressively defend its intellectual property assets.

     From time to time, the Company may be notified of claims that it may be infringing patents issued to other parties and may subsequently engage in license negotiations regarding these claims.

     Other Contingencies

     The Company recently began investigating a transaction from 2001 involving its Greek subsidiary (which was substantially shut down in 2007). The transaction appears to have been with an entity that was not a legitimate third party vendor, and may have been entered into for an inappropriate purpose. The Company’s investigation of the circumstances surrounding the transaction is ongoing, and it has voluntarily disclosed the existence of its investigation to the Department of Justice and the Securities and Exchange Commission.

     For products and technology exported from the U.S. or otherwise subject to U.S. jurisdiction, the Company is subject to U.S. laws and regulations governing international trade and exports, including, but not limited to the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”) and trade sanctions against embargoed countries and destinations administered by the Office of Foreign Assets Control (“OFAC”), U.S. Department of the Treasury. The Company is working with several agencies to remediate deficiencies in its export compliance procedures. The Company is currently analyzing product shipments and technology transfers, working with U.S. government officials to ensure compliance with applicable U.S. export laws and regulations, and developing an enhanced export compliance system. A determination by the U.S. government that the Company has failed to comply with one or more of these export controls or trade sanctions could result in civil or criminal penalties, including the imposition of significant fines, denial of export privileges, loss of revenues from certain customers, and debarment from U.S. participation in government contracts. Any one or more of these sanctions could have a material adverse effect on the Company’s business, financial condition and results of operations.

     Income Tax Contingencies

     In 2005, the Internal Revenue Service (“IRS”) completed its audit of the Company’s U.S. income tax returns for the years 2000 and 2001 and has proposed various adjustments to these income tax returns, including carry back adjustments to 1996 and 1999. In January 2007, after subsequent discussions with the Company, the IRS revised its proposed adjustments for these years. The Company has protested these proposed adjustments and is currently working through the matter with the IRS Appeals Division.

     In May 2007, the IRS completed its audit of the Company’s U.S. income tax returns for the years 2002 and 2003 and has proposed various adjustments to these income tax returns. The Company has protested all of these proposed various adjustments and is currently working through the matter with the IRS Appeals Division.

     The income tax returns for the Company’s subsidiary in Rousset, France for the 2003, 2004 and 2005 tax years are currently under examination by the French tax authorities. The examination has resulted in an income tax assessment and the Company is currently pursuing administrative appeal of the assessment. While the Company believes the resolution of this matter will not have a material adverse impact on its results of operations, cash flows, or financial position, the outcome is subject to uncertainty.

     In addition, the Company has a tax audit in progress in a U.S. state and various foreign jurisdictions.

     While the Company believes that the resolution of these audits will not have a material adverse impact on the Company’s results of operations, cash flows or financial position, the outcome is subject to uncertainties. The Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different that the amounts originally accrued, the increases of decreases are recorded as income tax expense or benefit in the condensed consolidated statements of operations. Income taxes and related interest and penalties due for potential adjustments may result from the resolution of these examinations, and examinations of open U.S. federal, state and foreign tax years.

     The Company’s income tax calculations are based on application of the respective U.S. Federal, state or foreign tax law. The Company’s tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due. To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense.

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     Product Warranties

     The Company accrues for warranty costs based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The majority of products are generally covered by a warranty typically ranging from 90 days to two years.

     The following table summarizes the activity related to the product warranty liability during the three months ended March 31, 2008 and 2007:

	Three Months Ended
	March 31,			March 31,
	2008			2007
	(in thousands)
Balance at beginning of period	$	6,789		$	4,773
Accrual for warranties during the period, net of change in estimates		1,481			2,284
Actual costs incurred		(1,749	)		(1,730	)
Balance at end of period	$	6,521		$	5,327

     Product warranty liability is included in accrued and other liabilities on the condensed consolidated balance sheets.

Guarantees

     During the ordinary course of business, the Company provides standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either the Company or its subsidiaries. As of March 31, 2008, the maximum potential amount of future payments that the Company could be required to make under these guarantee agreements is approximately $13,799. The Company has not recorded any liability in connection with these guarantee arrangements. Based on historical experience and information currently available, the Company believes it will not be required to make any payments under these guarantee arrangements.

Note 9 INCOME TAXES

     For the three months ended March 31, 2008 and 2007, the Company recorded an income tax provision of $3,198 and a tax benefit of $15,164, respectively.

     The provision for income taxes for these periods was first determined using the annual effective tax rate method for Atmel entities that are profitable. Entities that had operating losses with no tax benefit were excluded. As a result, excluding the impact of discrete tax events during the quarter, the provision for income taxes was at a higher consolidated effective rate than would have resulted if all entities were profitable or if losses produced tax benefits.

     Other than the items noted as follows, there were no significant changes in estimates or provision for income taxes in the three months ended March 31, 2008:

     The sale of assets and restructuring charges of a foreign subsidiary as well as in-process research and development costs of Quantum Research Group were treated as discrete events for the three months ended March 31, 2008. Due to a full valuation allowance position in this jurisdiction, there is no tax expense impact associated with these discrete events in the quarter.

     At December 31, 2007, there was no provision for U.S. income tax for undistributed earnings, as it was the Company’s intention to reinvest these earnings indefinitely in operations outside the U.S. For 2008, the Company determined that it would require a portion of undistributed earnings repatriated to the U.S. in the form of a cash dividend. The Company anticipates the cash dividends will be distributed from select foreign subsidiaries, resulting in an estimated withholding tax expense of $6,035. As such, for 2008 the Company changed its position to no longer assert permanent reinvestment of undistributed earnings for select foreign entities.

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     During the quarter ended March 31, 2008 and 2007, the Company recognized a tax benefit of $3,223 and $19,549, respectively, resulting from the refund of unutilized French research tax credits for 2003 and 1999 through 2002, respectively, which were received during the respective periods.

     In 2005, the Internal Revenue Service (“IRS”) proposed adjustments to the Company’s U.S. income tax returns for the years 2000 and 2001. In January 2007, after subsequent discussions with the Company, the IRS revised the proposed adjustments for these years. The Company has protested these proposed adjustments and is currently pursuing administrative review with the IRS Appeals Division.

     In May 2007, the IRS proposed adjustments to the Company’s U.S. income tax returns for the years 2002 and 2003. The Company filed a protest to these proposed adjustments and is pursuing administrative review with the IRS Appeals Division.

     In addition, the Company has various tax audits in progress in a certain U.S. state and foreign jurisdictions. The Company has accrued taxes, and related interest and penalties that may be due upon the ultimate resolution of these examinations and for other matters relating to open U.S. Federal, state and foreign tax years in accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).

     While the Company believes that the resolution of these audits will not have a material adverse impact on the Company’s results of operations, cash flows or financial position, the outcome is subject to uncertainty. Should the Company be unable to reach agreement with the federal, state or foreign tax authorities on the various proposed adjustments, there exists the possibility of an adverse material impact on the results of operations, cash flows and financial position of the Company.

     The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years prior to 1999. Tax years for significant foreign jurisdictions including Germany, France, United Kingdom, and Switzerland are closed through 2002, 2002, 2004 and 2002 respectively; subsequent tax years for these jurisdictions remain subject to tax authority review. Hong Kong tax years are closed for years through 2003 and subsequent tax years remain subject to tax authority review.

     On January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). Under FIN 48, the impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. At December 31, 2007, the Company had $166,180 of unrecognized tax benefits. Unrecognized tax benefits decreased by $3,010 in the three months ended March 31, 2008, primarily related to net benefits of $3,223 recognized relating to the receipt of a tax refund for French research tax credits as noted above.

Note 10 PENSION PLANS

     The Company sponsors defined benefit pension plans that cover substantially all French and German employees. Plan benefits are provided in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. The plans are unfunded. Pension liabilities and charges to expense are based upon various assumptions, updated quarterly, including discount rates, future salary increases, employee turnover, and mortality rates.

     Retirement plans consist of two types of plans. The first plan type provides for termination benefits paid to employees only at retirement, and consists of approximately one to five months of salary. This structure covers the Company’s French employees. The second plan type provides for defined benefit payouts for the remaining employee’s post-retirement life, and covers the Company’s German employees.

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     The aggregate net pension expense relating to the two plan types for the three months ended March 31, 2008 and 2007 are as follows:

	Three Months Ended
	March 31,		March 31,
	2008		2007
	(in thousands)
Service costs-benefits earned during the period	$	548	$	1,097
Interest cost on projected benefit obligation		736		380
Amortization of actuarial loss		58		43
Net pension cost	$	1,342	$	1,520

     Service costs-benefits earned decreased to $548 in the three months ended March 31, 2008 from $1,097 in the three months ended March 31, 2007 primarily due to an increase in the retirement age to 63 years old from 62 years old in Germany during 2007. Interest cost on projected benefit obligation increased to $736 in the three months ended March 31, 2008 from $380 in the three months ended March 31, 2007 primarily due to an increase in interest rates to 6.1% in the three months ended March 31, 2008, compared to 4.7% in the three months ended March 31, 2007 in Germany.

     The Company made $225 and $976 in benefit payments during the three months ended March 31, 2008 and 2007, respectively. The Company expects to make $1,664 in benefit payments in 2008.

     The Company’s pension liability represents the present value of estimated future benefits to be paid. With respect to the Company’s unfunded plans in Europe, during 2008, an increase in inflation rate assumptions used to calculate the present value of the pension obligation resulted in an increase in the pension liability of $587. This increase in liability was offset in part by an increase in discount rate. This resulted in a decrease of $237, net of tax, to accumulated other comprehensive income in stockholders’ equity in the condensed consolidated balance sheets during the three months ended March 31, 2008, in accordance with SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.”

Note 11 OPERATING AND GEOGRAPHICAL SEGMENTS

     The Company designs, develops, manufactures and sells a wide range of semiconductor integrated circuit products. The segments represent management’s view of the Company’s businesses and how it allocates Company resources and measures performance of its major components. In addition, each segment consists of product families with similar requirements for design, development and marketing. Each segment requires different design, development and marketing resources to produce and sell semiconductor integrated circuits. Atmel’s four reportable segments are as follows:

• Application specific integrated circuit (“ASIC”) segment includes custom application specific integrated circuits designed to meet specialized single-customer requirements for their high performance devices in a broad variety of applications. This segment also encompasses a range of products which provide security for digital data, including smart cards for mobile phones, set top boxes, banking and national identity cards. The Company also develops customer specific ASICs, some of which have military applications. This segment also includes products with military and aerospace applications.

• Microcontrollers segment includes a variety of proprietary and standard microcontrollers, the majority of which contain embedded nonvolatile memory and integrated analog peripherals. This segment also includes products with military and aerospace applications. In the three months ended, March 31, 2008, the Company acquired Quantum. Results from the acquired operations are considered complementary to sales of microcontroller products and are included in this segment.

• Nonvolatile Memories segment consists predominantly of serial interface electrically erasable programmable read-only memory (“SEEPROM”) and serial interface Flash memory products. This segment also includes parallel interface Flash memories as well as mature parallel interface EEPROM and EPROM devices. This segment also includes products with military and aerospace applications.

• Radio Frequency (“RF”) and Automotive segment includes products designed for the automotive industry. This segment produces and sells wireless and wired devices for industrial, consumer and automotive applications and it also provides foundry services which produce radio frequency products for the mobile telecommunications market.

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     The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates segment performance based on revenues and income or loss from operations excluding acquisition-related charges, charges for grant repayments, impairment and restructuring charges and gains on sale of assets. Interest and other expenses, net, nonrecurring gains and losses, foreign exchange gains and losses and income taxes are not measured by operating segment.

     The Company’s wafer manufacturing facilities fabricate integrated circuits for segments as necessary and their operating costs are reflected in the segments’ cost of revenues on the basis of product costs. Because segments are defined by the products they design and sell, they do not make sales to each other. The Company does not allocate assets by segment, as management does not use asset information to measure or evaluate a segment’s performance.

Information about Reportable Segments

				Micro-		Nonvolatile		RF and
	ASIC			Controllers		Memories		Automotive		Total
	(in thousands)
Three months ended March 31, 2008
Net revenues from external customers	$	115,039		$	130,660	$	94,993	$	70,545	$	411,237
Segment income (loss) from operations		(6,208	)		9,400		10,165		2,758		16,115
Three months ended March 31, 2007
Net revenues from external customers	$	110,977		$	108,022	$	86,028	$	86,286	$	391,313
Segment income (loss) from operations		(8,758	)		3,136		9,561		10,640		14,579

Reconciliation of Segment Information to Condensed Consolidated Statements of Operations

	Three Months Ended
	March 31,			March 31,
	2008			2007
	(in thousands)
Total segment income from operations	$	16,115		$	14,579
Unallocated amounts:
Acquisition-related charges		(3,711	)		—
Credit from grant repayments		119			—
Restructuring charges		(27,908	)		(1,782	)
Gain on sale of assets		30,758			—
Consolidated income from operations	$	15,373		$	12,797

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     Geographic sources of revenues were as follows:

	Three Months Ended
	March 31,		March 31,
	2008		2007
	(in thousands)
United States	$	61,397	$	49,786
Germany		64,004		56,873
France		37,824		37,923
United Kingdom		5,150		6,992
Japan		24,552		21,999
China, including Hong Kong		86,590		82,882
Singapore		31,317		45,218
Rest of Asia-Pacific		55,374		43,840
Rest of Europe		38,773		41,322
Rest of the World		6,256		4,478
Total net revenues	$	411,237	$	391,313

     No single customer accounted for more than 10% of net revenues in the three months ended March 31, 2008 and 2007.

     Net revenues are attributed to countries based on delivery locations.

     Locations of long-lived assets as of March 31, 2008 and December 31, 2007 were as follows:

	March 31,		December 31,
	2008		2007
	(in thousands)
United States	$	138,061	$	137,334
Germany		36,894		34,337
France		274,092		268,358
United Kingdom		15,116		106,651
Asia-Pacific		31,437		28,541
Rest of Europe		17,597		17,756
Total	$	513,197	$	592,977

     Excluded from the table above for March 31, 2008 is $25,940 of auction-rate securities, which are included in other assets on the condensed consolidated balance sheets. Also, excluded from the table above are goodwill, intangible assets and deferred tax assets.

Note 12 ASSETS HELD FOR SALE

     Under Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”) the Company assesses the recoverability of long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the Company may not be able to recover the asset’s carrying amount. The Company measures the amount of impairment of such long-lived assets by the amount by which the carrying value of the asset exceeds the fair market value of the asset, which is generally determined based on projected discounted future cash flows or appraised values. The Company classifies long-lived assets to be disposed of other than by sale as held and used until they are disposed, including assets not available for immediate sale in their present condition. The Company reports assets to be disposed of by sale as held for sale and recognizes those assets and liabilities on the condensed consolidated balance sheet at the lower of carrying amount or fair value, less cost to sell. Assets classified as held for sale are not depreciated.

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North Tyneside, United Kingdom, and Heilbronn, Germany, Facilities

     On October 8, 2007, the Company entered into definitive agreements to sell certain wafer fabrication equipment and land and buildings at North Tyneside to TSMC and Highbridge for a total of approximately $124,000. The disposal group previously classified as held for sale included all assets (excluding cash and inventory) and liabilities of the North Tyneside legal entity. Upon entering into the agreements noted above, the Company determined that certain equipment and all of the related liabilities were no longer included in the disposal group as they were not being acquired or assumed by the buyer. As a result, the Company reassessed whether the assets to be sold in this transaction continued to meet the criteria for classification as held for sale as of September 30, 2007. The Company concluded that the assets to be sold under the above agreements were no longer available for immediate sale in their present condition as the terms of the these agreements require the Company to perform significant additional steps, including the dismantling, decommissioning and testing of the wafer fabrication equipment before TSMC will accept transfer of title of the purchased equipment, as well as the delivery of a vacated building to Highbridge. The Company had previously expected to sell the assets in the form of the transfer of the legal entity and then enter into a further supply agreement for product wafers with the buyer. However, the agreements noted above require termination of production efforts in order to deliver assets in the condition specified by the buyers. The Company determined that it needed to continue to operate the facility in order to build sufficient inventory as a result of the closure of the North Tyneside facility, and therefore could not deliver the assets to be sold in the conditions specified in the sales agreements until production activity was concluded, which occurred in February 2008. In accordance with SFAS No. 144, the Company determined in the third quarter of 2007 that the assets to be sold to TSMC and Highbridge did not meet the criteria for assets held for sale and were reclassified as held and used, and measured at the lower of their adjusted carrying amounts or fair values less cost to sell as of December 31, 2007. The Company has classified the real property as assets held for sale on the condensed consolidated balance sheets as of March 31, 2008 as manufacturing activity ceased in February 2008. The Company recognized a gain of $30,758 for the sale of the equipment in the three months ended March 31, 2008. The Company received proceeds of $42,951 ($47,414 as or March 31, 2008 due to cumulative translation adjustments) from Highbridge for the closing of the real property portion of the transaction in November 2007. The Company will vacate the facility in the second quarter of 2008.

     The Company announced its intention to sell the fabrication facility in Heilbronn, Germany in December 2006. However, the facility did not meet the criteria for classification as held for sale as of March 31, 2008 and December 31, 2007, due to uncertainties relating to the likelihood of completing the sale within the next twelve months. Long-lived assets of this facility at March 31, 2008 and December 31, 2007 were classified as held and used.

Note 13 RESTRUCTURING CHARGES

     The following table summarizes the activity related to the accrual for restructuring and other charges and loss on sale detailed by event for the three months ended March 31, 2008 and 2007, respectively.

	January 1,							Currency		March 31,
	2008							Translation		2008
	Accrual		Charges		Payments			Adjustment		Accrual
	(in thousands)
Third quarter of 2002
Termination of contract with supplier	$	1,592	$	—	$	—		$	—	$	1,592
Fourth quarter of 2006
Employee termination costs		1,324		17		(767	)		78		652
Fouth quarter of 2007
Employee termination costs		12,759		1,106		(7,527	)		559		6,897
Termination of contract with supplier		—		11,636		(493	)		780		11,923
Other exit related costs		—		15,149		(5,766	)		892		10,275
Total 2008 activity	$	15,675	$	27,908	$	(14,553	)	$	2,309	$	31,339	(1)

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	January 1,							Currency		March 31,
	2007							Translation		2007
	Accrual		Charges		Payments			Adjustment		Accrual
	(in thousands)
Third quarter of 2002
Termination of contract with supplier	$	8,896	$	—	$	(249	)	$	—	$	8,647
Fourth quarter of 2005
Nantes fabrication facility sale		115		—		—			—		115
Fouth quarter of 2006
Employee termination costs		7,490		1,782		(1,743	)		41		7,570
Total 2007 activity	$	16,501	$	1,782	$	(1,992	)	$	41	$	16,332

(1) Accrued restructuring charges are classified within accrued and other liabilities on the condensed consolidated balance sheets and are expected to be paid prior to December 31, 2008.

2008 Restructuring Charges

     In the three months ended March 31, 2008, the Company continued to implement the restructuring initiatives announced in 2006 and 2007 and incurred restructuring charges of $27,908.

     The Company incurred restructuring charges related to the signing of definitive agreements in October 2007 to sell certain wafer fabrication equipment and real property at North Tyneside to TSMC and Highbridge. As a result of this action, this facility will be closed and all of the employees of the facility will be terminated. During the first quarter of 2008, the Company recorded the following restructuring charges:

• Charge of $1,106 related to severance costs resulting from involuntary termination of employees. Employee severance costs were recorded in accordance with SFAS No. 146, “Accounting for Costs Associated with exit or Disposal Activities” (SFAS No. 146”).

• Charges of $15,149 related to equipment removal and facility closure costs. After production activity ceased, the Company utilized employees as well as outside services to disconnect fabrication equipment, fulfill equipment performance testing requirements of the buyer, and perform facility decontamination and other facility closure-related activity. Included in these costs are labor costs, facility related costs, outside service provider costs, and legal and other fees. Equipment removal activities were substantially complete as of March 31, 2008. Building decontamination and closure related costs are expected to be completed by the second quarter of 2008.

• Charges of $11,636 related to contract termination charges, primarily associated with a long term gas supply contract for nitrogen gas utilized in semiconductor manufacturing. The Company is required to pay an early termination penalty including de-installation and removal costs. Other contract termination costs relate to semiconductor equipment support services with minimum payment clauses extending beyond the current period.

2007 Restructuring Activities

     In the three months ended March, 31 2007, the Company continued to implement the restructuring initiative announced in the fourth quarter of 2006 and incurred restructuring charges of $1,782. The charges directly relating to this initiative consist of the following:

• $1,285 in termination benefits recorded in accordance with SFAS No. 112 “Employers’ Accounting for Post Employment Benefits.” These costs related to additional employee severance costs for employees in Europe.

• $497 in severance costs related to the involuntary termination of employees. These employee severance costs were recorded in accordance with SFAS No. 146.

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Note 14 NET INCOME PER SHARE

     Basic net income per share is calculated by using the weighted-average number of common shares outstanding during that period. Diluted net income per share is calculated giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental common shares issuable upon exercise of stock options, upon vesting of restricted stock units and contingent issuable shares for all periods. No dilutive potential common shares were included in the computation of any diluted per share amount when a loss from continuing operations was reported by the Company. The Company utilizes income or loss from continuing operations as the “control number” in determining whether potential common shares are dilutive or anti-dilutive.

     A reconciliation of the numerator and denominator of basic and diluted net income per share is provided as follows:

	Three Months Ended
	March 31,		March 31,
	2008		2007
	(in thousands)
Net income	$	6,788	$	28,940
Weighted-average shares — basic		444,670		488,842
Incremental shares and share equivalents		2,973		5,356
Weighted-average shares — diluted		447,643		494,198
Net income share:
Basic
Net income per share — basic	$	0.02	$	0.06
Diluted
Net income per share — diluted	$	0.02	$	0.06

     The following table summarizes securities which were not included in the “Weighted-average shares — diluted” used for calculation of diluted net income per share, as their effect would have been anti-dilutive:

	Three Months Ended
	March 31,			March 31,
	2008			2007
	(in thousands)
Employee stock options and restricted stock units outstanding		37,668			31,747
Incremental shares and share equivalents		(2,973	)		(5,356	)
Total weighted-average potential shares excluded from per share calculation		34,695			26,391

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Note 15 INTEREST AND OTHER INCOME (EXPENSE), NET

     Interest and other income (expense), net, are summarized in the following table:

	Three Months Ended
	March 31,			March 31,
	2008			2007
	(in thousands)
Interest and other income	$	2,407		$	4,896
Interest expense		(4,025	)		(3,489	)
Foreign exchange transaction losses		(3,769	)		(428	)
Total	$	(5,387	)	$	979

     The increase in foreign transaction losses in the three months ended March 31, 2008 was primarily due to the significant change in the euro/dollar exchange rate.

Note 16 FAIR VALUES OF ASSETS AND LIABILITIES

     On January 1, 2008, the Company adopted Statement of Financial Accounting Standards 157, “Fair Value Measurements,” (SFAS No. 157). The standard defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).” The standard establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. SFAS No. 157, among other things, requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Fair Value Hierarchy

     SFAS No. 157 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

• Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets

• Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

• Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flows models and similar techniques.

Determination of Fair Value

     The Company’s cash and investment instruments, with the exception of auction-rate securities, are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, sovereign government obligations, and money market securities. Such instruments are generally classified within Level 2 of the fair value hierarchy. Auction-rate securities are classified within Level 3 as significant assumptions are not observable in the market. During the three months ended March 31, 2008, the Company recorded an impairment of $1,113 relating to decline in the value of auction-rate securities which is recorded as comprehensive loss. There were no realized gain or losses recorded for these auction-rate securities in the three months ended March 31, 2008. The Company does not believe that the impairment is “other than temporary” due to its intent and ability to hold the securities until they can be liquidated at par value.

     The types of instruments valued based on other observable inputs include corporate debt securities and other obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy.

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     The table below presents the balances of assets measured at fair value on a recurring basis:

	Three Months Ended March 31, 2008
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets
Cash and cash equivalents	$	308,365	$	308,365	$	—	$	—
Corporate equity securities		1,477		1,477		—		—
Auction-rate securities		27,944		—		—		27,944
Corporate debt securities and other obligations		24,974		—		24,974		—
Total	$	362,760	$	309,842	$	24,974	$	27,944

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     You should read the following discussion and analysis in conjunction with the Condensed Consolidated Financial Statements and related Notes thereto contained elsewhere in this Report. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Report and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2007.

FORWARD LOOKING STATEMENTS

     You should read the following discussion of our financial condition and results of operations in conjunction with our Condensed Consolidated Financial Statements and the related “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, particularly statements regarding our outlook for fiscal 2008, our anticipated revenues by geographic area, operating expenses and liquidity, factory utilization, the effect of our strategic transactions, restructuring and other strategic efforts and our expectations regarding the effects of exchange rates and efforts to manage exposure to exchange rate fluctuation. Our actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, risks and uncertainties, including the risk factors set forth in this discussion, and in Item 1A — Risk Factors, and elsewhere in this Form 10-Q and similar discussions in our other filings with the SEC, including our Annual Report on Form 10-K. Generally, the words “may,” “will,” “could,” “would,” “anticipate,” “expect,” “intend,” “believe,” “seek,” “estimate,” “plan,” “view,” “continue,” the plural of such terms, the negatives of such terms, or other comparable terminology and similar expressions identify forward-looking statements. The information included in this Form 10-Q is provided as of the filing date with the SEC and future events or circumstances could differ significantly from the forward-looking statements included herein. Accordingly, we caution readers not to place undue reliance on such statements. Atmel undertakes no obligation to update any forward-looking statements in this Form 10-Q.

OVERVIEW

     We are a leading designer, developer and manufacturer of a wide range of semiconductor products. Our diversified product portfolio includes our proprietary AVR microcontrollers, security and smart card integrated circuits, and a diverse range of advanced logic, mixed-signal, nonvolatile memory and radio frequency devices. Leveraging our broad intellectual property portfolio, we are able to provide our customers with complete system solutions. Our solutions target a wide range of applications in the communications, computing, consumer electronics, storage, security, automotive, military and aerospace markets, and are used in products such as mobile handsets, automotive electronics, GPS systems and batteries.

     We design, develop, manufacture and sell our products. We develop process technologies to ensure our products provide the maximum possible performance. During the three months ended March 31, 2008, we manufactured approximately 93% of our products in our own wafer fabrication facilities.

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     Our operating segments consist of: (1) application specific integrated circuits (ASICs); (2) microcontroller products (Microcontroller); (3) nonvolatile memory products (Nonvolatile Memory); and (4) radio frequency and automotive products (RF and Automotive).

     On March 6, 2008, we acquired Quantum Research Group Ltd. (“Quantum”) for $96 million. The results of operations of Quantum acquired are included in our Microcontroller segment.

     Net revenues increased by 5% to $411 million in the three months ended March 31, 2008, compared to $391 million in the three months ended March 31, 2007. This increase was a result of increased shipments achieved in our Microcontroller and Nonvolatile Memory segments. The increase in net revenues in our Microcontroller segment was primarily driven by growth of our AVR and ARM microcontroller products. The improvement in Nonvolatile Memory was primarily due to increased shipments of Data Flash memory products. The decrease in net revenues in the RF and Automotive segment is primarily related to reduced shipment quantities for BiCMOS foundry products related to communication chipsets for code-division multiple access (“CDMA”) phones.

     Gross margin remained relatively flat at 35.5% in the three months ended March 31, 2008, compared to 35.8% in the three months ended March 31, 2007.

     We generated income from operations of $15 million in the three months ended March 31, 2008, compared to $13 million for the three months ended March 31, 2007.

     Cash used in operating activities totaled $40 million in the three months ended March 31, 2008, compared to cash provided by operating activities of $59 million in the three months ended March 31, 2007. The cash used in operations in the three months ended March 31, 2008 resulted from grant repayments and other restructuring payments of approximately $54 million related to our North Tyneside, UK facility. At March 31, 2008, our cash, cash equivalents and short-term investments totaled $337 million, down from approximately $430 million at December 31, 2007, due to $89 million of cash payments for the Quantum acquisition, $54 million of North Tyneside restructuring payments described above, and a reclassification of $26 million of auction-rate securities to other assets on the condensed consolidated balance sheets as of March 31, 2008. Our total indebtedness decreased to approximately $156 million at March 31, 2008 from $163 million at
December 31, 2007.

RESULTS OF OPERATIONS

	Three Months Ended
	March 31, 2008					March 31, 2007
	(in thousands, except percentage of net revenues)
Net revenues	$	411,237		100.0	%	$	391,313	100.0	%
Gross profit		146,054		35.5	%		139,937	35.8	%
Research and development expenses		66,377		16.1	%		67,299	17.2	%
Selling, general and administrative expenses		63,562		15.5	%		58,059	14.8	%
Acquisition-related charges		3,711		0.9	%		—	—
Credit from grant repayments		(119	)	0.0	%		—	—
Restructuring charges		27,908		6.8	%		1,782	0.5	%
Gain on sale of assets		(30,758	)	-7.5	%		—	—
Income from operations	$	15,373		3.7	%	$	12,797	3.3	%

Net Revenues

     Net revenues increased by 5% to $411 million in the three months ended March 31, 2008, compared to $391 million in the three months ended March 31, 2007. This increase was a result of increased shipments achieved in our Microcontroller and Nonvolatile Memory segments. The increase in net revenues in our Microcontroller segment was primarily driven by growth of our AVR and ARM microcontroller products. The improvement in Nonvolatile Memory was primarily due to increased shipments of Data Flash memory products. The decrease in net revenues in the RF and Automotive segment is primarily related to reduced shipment quantities for BiCMOS foundry products related to communication chipsets for code-division multiple access (“CDMA”) phones.

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Net Revenues — By Operating Segment

     Our net revenues by segment for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 are summarized as follows:

	Three Months Ended
	March 31, 2008		March 31, 2007		Change			% Change
	(in thousands, except for percentages)
ASIC	$	115,039	$	110,977	$	4,062			4	%
Microcontroller		130,660		108,022		22,638			21	%
Nonvolatile Memory		94,993		86,028		8,965			10	%
RF and Automotive		70,545		86,286		(15,741	)		-18	%
Total net revenues	$	411,237	$	391,313	$	19,924			5	%

ASIC

     ASIC segment net revenues increased by 4% or $4 million to $115 million in the three months ended March 31, 2008, compared to $111 million in the three months ended March 31, 2007. ASIC segment net revenues increased in the three months ended March 31, 2008 as smart card product net revenues grew $7 million, or 17%, compared to the three months ended March 31, 2007 due primarily to higher unit volume shipments.

Microcontroller

     Microcontroller segment net revenues increased by 21% or $23 million to $131 million in the three months ended March 31, 2008, compared to $108 million in the three months ended March 31, 2007. The significant growth in net revenues in the three months ended March 31, 2008 compared to the three months ended March 31, 2007 resulted primarily from new customer designs utilizing both our proprietary AVR microcontroller products as well as our ARM-based microcontroller products. AVR microcontroller revenue grew 30% in the three months ended March 31, 2008, while ARM based products grew 26%. Revenue for products acquired from Quantum is included as part of our Microcontroller operating segment.

Nonvolatile Memory

     Nonvolatile Memory segment revenues increased by 10% or $9 million to $95 million in the three months ended March 31, 2008, compared to $86 million in the three months ended March 31, 2007. This increase was primarily due to increased shipments of Data Flash memory products. In addition, revenue related to Serial EEPROM increased by $2 million, offset in part by decreases in the remaining nonvolatile memory families. Markets for our nonvolatile memory products are more competitive than other markets we sell in, and as a result, our memory products are subject to greater declines in average selling prices than products in our other segments. Competitive pressures and rapid obsolescence of products are among several factors causing continued pricing declines in 2008. This product family benefits from significant market share resulting from competitive pricing and a broad range of offerings.

RF and Automotive

     RF and Automotive segment revenues decreased by 18% or $15 million to $71 million in the three months ended March 31, 2008, compared to $86 million in the three months ended March 31, 2007. The decrease in net revenues in the RF and Automotive segment was primarily related to reduced shipment quantities for BiCMOS foundry products related to communication chipsets for CDMA phones partially offset by growth in other automotive products. For the three months ended March 31, 2008, net revenues decreased approximately $17 million for BiCMOS foundry products, offset by a $2 million increase in revenue from other automotive products, when compared to the three months ended March 31, 2007.

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Net Revenues — By Geographic Area

     Our net revenues by geographic areas in the three months ended March 31, 2008 compared to the three months ended March 31, 2007 are summarized as follows (revenues are attributed to countries based on delivery locations):

	Three Months Ended
	March 31, 2008		March 31, 2007		Change		% Change
	(in thousands, except for percentages)
United States	$	61,397	$	49,786	$	11,611		23	%
Europe		145,751		143,109		2,642		2	%
Asia		197,833		193,942		3,891		2	%
Other*		6,256		4,476		1,780		40	%
Total net revenues	$	411,237	$	391,313	$	19,924		5	%

* Primarily includes South Africa and Central and South America

     Sales outside the United States accounted for 85% of our net revenues in the three months ended March 31, 2008, compared to 87% in the three months ended March 31, 2007.

     Our sales in the United States increased by $12 million, or 23%, in the three months ended March 31, 2008, compared to the three months ended March 31, 2007 due to United States based customers increasing deliveries to domestic operations and increased shipments to United States based distributors.

     Our sales in Europe increased by $3 million, or 2%, in the three months ended March 31, 2008, compared to the three months ended March 31, 2007, due to both higher volume shipments of ARM-based microcontrollers and automotive products, as well as higher revenues related to the increase in the value of the euro relative to the U.S. dollar.

     Our sales in Asia increased by $4 million, or 2%, in the three months ended March 31, 2008, compared to the three months ended March 31, 2007, primarily due to higher shipments of Microcontroller and Nonvolatile memory products, but offset by reduced shipments for communication chipsets for CDMA phones.

     The trend over the last several years has been an increase in revenues in Asia (excluding Singapore), while revenues in the United States has either declined or grown at a much slower rate. We believe that part of this shift reflects changes in customer manufacturing trends, with many customers increasing production in Asia due to lower labor costs. Revenues in Asia increased in 2008 compared to 2007, and we expect that Asia revenues will continue to grow more rapidly than other regions in the future. Revenues in Asia may be impacted in the future as we refine our distribution strategy and optimize our distributor base in Asia. It may take time for us to identify financially viable distributors and help them develop high quality support services. There can be no assurances that we will be able to manage this optimization process in an efficient and timely manner.

Impact to Revenues and Costs from Changes to Foreign Exchange Rates

     Changes in foreign exchange rates, primarily the euro, have had a significant impact on our net revenues and operating costs. Net revenues denominated in euro were approximately 21% and 22% in the three months ended March 31, 2008 and 2007, respectively. Costs denominated in euro were 45% and 51% in the three months ended March 31, 2008 and 2007, respectively. Net revenues included 62 million euro in the three months ended March 31, 2008, compared to 67 million in the three months ended March 31, 2007. Operating expenses in euro decreased to approximately 121 million euro in the three months ended March 31, 2008, compared to 147 million euro in operating expenses in the three months ended March 31, 2007. Operating expenses in euro declined by approximately 26 million euro in the three months ended March 31, 2008, compared to the three months ended March 31, 2007 due to lower production activities at the closure of our North Tyneside, UK facility. However, our operating expenses in euros continue to exceed our net revenues in euro. We expect to take additional actions in the future to further reduce this exposure.

     Average exchange rates utilized to translate foreign currency revenues and expenses were 1.47 euro to the dollar in the three months ended March 31, 2008, compared to 1.32 euro to the dollar for the three months ended March 31, 2007.

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     During the three months ended March 31, 2008, changes in foreign exchange rates had an unfavorable impact on operating costs and income from operations. Had average exchange rates remained the same in the three months ended March 31, 2008 as the average exchange rates in effect in the three months ended March 31, 2007 our reported revenues in the three months ended March 31, 2008, would have been $8 million lower. However, as discussed above, our foreign currency expenses exceed foreign currency revenues. For the three months ended March 31, 2008, 49% of our operating expenses were denominated in foreign currencies, primarily the euro. Had average exchange rates in the three months ended March 31, 2008 remained the same as the average exchange rates in the three months ended March 31, 2007, our operating expenses would have been $19 million lower (relating to cost of revenues of $12 million; research and development expenses of $5 million; and sales, general and administrative expenses of $2 million). The net effect resulted in a decrease to income from operations of $11 million as a result of unfavorable exchange rates in effect for the three months ended March 31, 2008, compared to the three months ended March 31, 2007.

Cost of Revenues and Gross Margin

     Our cost of revenues includes the costs of wafer fabrication, assembly and test operations, changes in inventory reserves and freight costs. Our gross margin as a percentage of net revenues fluctuates, depending on product mix, manufacturing yields, utilization of manufacturing capacity, and average selling prices, among other factors.

     Gross margin remained relatively flat at 35.5% in the three months ended March 31, 2008, compared to 35.8% in the three months ended March 31, 2007.

     In the three months ended March 31, 2008, we incurred under-utilization costs as production activity ended at our North Tyneside, UK facility. We expect to achieve improved utilization at the remaining fabrication facilities in future periods. However, these improvements may be offset by the unfavorable impact of changes to foreign exchange rates, primarily the dollar-to-euro exchange rate.

     We receive economic assistance grants in some locations as an incentive to achieve certain hiring and investment goals related to manufacturing operations, the benefit for which is recognized as an offset to related costs. We recognized a reduction to cost of revenues for such grants of $0.4 million and $0.3 million in the three months ended March 31, 2008 and 2007, respectively.

Research and Development

     Research and development (“R&D”) expenses decreased by 1% or $1 million to $66 million in the three months ended March 31, 2008 from $67 million in the three months ended March 31, 2007. R&D expenses decreased by $5 million, primarily due to a decrease in the number of development wafers used in technology development, offset in part by an increase in stock-based compensation of $3 million and non-recurring engineering project costs of $1 million. R&D expenses in the three months ended March 31, 2008 benefited from elimination of certain development programs that were determined to be non-strategic over the last year. However, these savings were unfavorably impacted by approximately $5 million due to adverse foreign exchange rate fluctuations. As a percentage of net revenues, research and development expenses totaled 16% and 17% in the three months ended March 31, 2008 and 2007, respectively.

     We have continued to invest in developing a variety of product areas and process technologies, including embedded CMOS technology, logic and nonvolatile memory to be manufactured at 0.13 and 0.09 micron line widths, as well as investments in SiGe BiCMOS technology to be manufactured at 0.18 micron line widths. We have also continued to purchase or license technology when necessary in order to bring products to market in a timely fashion. We believe that continued strategic investments in process technology and product development are essential for us to remain competitive in the markets we serve. We are continuing to re-focus our R&D resources on fewer, but more profitable development projects.

     We receive R&D grants from various European research organizations, the benefit for which is recognized as an offset to related costs. For both the three months ended March 31, 2008 and 2007, we recognized $5 million in research grant benefits.

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Selling, General and Administrative

     Selling, general and administrative (“SG&A”) expenses increased by 9% or $6 million to $64 million in the three months ended March 31, 2008, from $58 million in the three months ended March 31, 2007. The increase in SG&A expenses in the three months ended March 31, 2008, compared to the three months ended March 31, 2007, was due to increased employee salaries and benefits of $4 million, and stock option compensation charges of $3 million. SG&A expenses in the three months ended March 31, 2008 were unfavorably impacted by approximately $2 million due to foreign exchange rate fluctuations. As a percentage of net revenues, SG&A expenses remained at 15% in the three months ended March 31, 2008, compared to the three months ended March 31, 2007.

Stock-Based Compensation

     Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123R establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award which is computed using a Black-Scholes option valuation model, and is recognized as expense over the employee’s requisite service period.

     Stock-based compensation expense under SFAS 123R was $6 million and $3 million in the three months ended March 31, 2008 and 2007, respectively. Stock-based compensation expense increased in the three months ended March 31, 2008 due to stock option replenishment grants awarded to primarily management-level employees, retention awards for certain key executives, as well as stock options awarded to recently hired executives.

Acquisition-Related Charges

     We recorded total acquisition-related charges of $4 million in the three months ended March 31, 2008 related to the acquisition of Quantum as below:

     We recorded amortization of intangible assets of $1 million associated with customer relationships, developed technology, trade name, non-compete agreements and backlog. These assets are amortized over three to five years. We estimate charges related to amortization of intangible assets of approximately $2 million per quarter for the remaining quarters of 2008.

     We recorded a charge of $1 million associated with acquired in-process research and development (“IPR&D”), in connection with the acquisition of Quantum. Our methodology for allocating the purchase price to IPR&D involves established valuation techniques utilized in the high-technology industry. Each project in process was analyzed by discounted forecasted cash flows directly related to the products expected to result from the subject research and development, net of returns in contributory assets including working capital, fixed assets, customer relationships, trade name, and assembled workforce. IPR&D was expensed upon acquisition because technological feasibility has not been established and no future alternative uses existed. The fair value of technology under development is determined using the income approach, which discounts expected future cash flows to present value. A discount rate of 33% is used for the projects to account for the risks associated with the inherent uncertainties surrounding the successful development of the IPR&D, market acceptance of the technology, the useful life of the technology, the profitability level of such technology and the uncertainty of technological advances, which could impact the estimates recorded. The discount rates used in the present value calculations are typically derived from a weighted-average cost of capital analysis. These estimates did not account for any potential synergies realizable as a result of the acquisition and were in line with industry averages and growth estimates.

     We agreed to pay additional amounts to former key executives of Quantum contingent upon continuing employment over a three year period. We have agreed to pay up to $32 million, including the value of 5.3 million shares of our common stock. These payments are accrued over the employment period and recorded as compensation expense, calculated on an accelerated basis. During the three months ended March 31, 2008, we recorded $2 million of compensation expense as acquisition-related charges. We estimate charges related to these compensation agreements to total approximately $4 million per quarter for the remaining quarters of 2008.

Assets Held for Sale

     Under Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”) we assess the recoverability of long-lived assets with finite useful lives whenever events or changes in circumstances indicate that we may not be able to recover the asset’s carrying amount. We measure the amount of impairment of such long-lived assets by the amount by which the carrying value of the asset exceeds the fair market value of the asset, which is generally determined based on projected discounted future cash flows or appraised values. We classify long-lived assets to be disposed of other than by sale as held and used until they are disposed. We report assets and liabilities to be disposed of by sale as held for sale and

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recognize these assets and liabilities on the condensed consolidated balance sheet at the lower of carrying amount or fair value, less cost to sell. These assets are not depreciated.

North Tyneside, United Kingdom, and Heilbronn, Germany Facilities

     On October 8, 2007, we entered into definitive agreements to sell certain wafer fabrication equipment and land and buildings at North Tyneside to TSMC and Highbridge for a total of approximately $124 million. We recognized a gain of $31 million for the sale of the fabrication equipment in the three months ended March 31, 2008. We received proceeds of $43 million ($47 million as of March 31, 2008 due to cumulative translation adjustments) from Highbridge for the closing of the real property portion of the transaction in November 2007. We will vacate the facility in the second quarter of 2008.

     The Heilbronn, Germany facility did not meet the criteria for classification as held for sale as of March 31, 2008 and December 31, 2007, due to uncertainties relating to the likelihood of completing a sale within the next twelve months. Long-lived assets of this facility at March 31, 2008 and December 31, 2007 were classified as held and used.

Restructuring Charges

     The following table summarizes the activity related to the accrual for restructuring charges detailed by event for the three months ended March 31, 2008 and 2007.

	January 1,							Currency		March 31,
	2008							Translation		2008
	Accrual		Charges		Payments			Adjustment		Accrual
	(in thousands)
Third quarter of 2002
Termination of contract with supplier	$	1,592	$	—	$	—		$	—	$	1,592
Fourth quarter of 2006
Employee termination costs		1,324		17		(767	)		78		652
Fouth quarter of 2007
Employee termination costs		12,759		1,106		(7,527	)		559		6,897
Termination of contract with supplier		—		11,636		(493	)		780		11,923
Other exit related costs		—		15,149		(5,766	)		892		10,275
Total 2008 activity	$	15,675	$	27,908	$	(14,553	)	$	2,309	$	31,339

	January 1,							Currency		March 31,
	2007							Translation		2007
	Accrual		Charges		Payments			Adjustment		Accrual
	(in thousands)
Third quarter of 2002
Termination of contract with supplier	$	8,896	$	—	$	(249	)	$	—	$	8,647
Fourth quarter of 2005
Nantes fabrication facility sale		115		—		—			—		115
Fouth quarter of 2006
Employee termination costs		7,490		1,782		(1,743	)		41		7,570
Total 2007 activity	$	16,501	$	1,782	$	(1,992	)	$	41	$	16,332

2008 Restructuring Charges

     In the first quarter of 2008, we continued to implement the restructuring initiative announced in 2006 and 2007 and incurred restructuring charges of $28 million.

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          We incurred restructuring charges related to the signing of definitive agreements in October 2007 to sell certain wafer fabrication equipment and real property at North Tyneside to Taiwan Semiconductor Manufacturing Company Limited (“TSMC”) and Highbridge Business Park Limited (“Highbridge”). As a result of this action, this facility will be closed and all of the employees of the facility will be terminated. During the first quarter of 2008, the Company recorded the following restructuring charges:

• Charges of $1 million in severance costs resulting from involuntary termination of employees. Employee severance costs were recorded in accordance with SFAS No. 146, “Accounting for Costs Associated with exit or Disposal Activities” (SFAS No. 146”).

• Charges of $15 million related to equipment removal and facility closure costs. After production activity ceased, the Company utilized employees as well as outside services to disconnect fabrication equipment, fulfill equipment performance testing requirements of the buyer, and perform facility decontamination and other facility closure-related activity. Included in these costs are labor costs, facility related costs, outside service provider costs, and legal and other fees. Equipment removal activities were substantially complete as of March 31, 2008. Building decontamination and closure related costs are expected to be completed by the second quarter of 2008.

• Charges of $12 millions related to contract termination charges, primarily associated with a long term gas supply contract for nitrogen gas utilized in semiconductor manufacturing. We are required to pay an early termination penalty including de-installation and removal costs. Other contract termination costs relate to semiconductor equipment support services with minimum payment clauses extending beyond the current period.

     2007 Restructuring Activities

     In the first quarter of 2007, we continued to implement the restructuring initiative announced in the fourth quarter of 2006 and incurred restructuring charges of $2 million. The charges directly relating to this initiative consist of the following:

• $1 million in termination benefits recorded in accordance with SFAS No. 112 “Employers’ Accounting for Post Employment Benefits.” These costs related to additional employee severance costs for employees in Europe.

• $0.5 million in severance costs related to the involuntary termination of employees. These employee severance costs were recorded in accordance with SFAS No. 146.

Interest and Other Income (Expense), Net

     Interest and other income (expense), net, was a net expense of $5 million in the three months ended March 31, 2008, compared to a net income of $1 million in the three months ended March 31, 2007. The change to net expense in the three months ended March 31, 2008 was primarily due to $4 million from foreign currency exchange translation losses as a result of the increase in the euro compared to the US dollar. In addition, interest expense increased $1 million as a result of interest charges resulting from proceeds of $100 million received from our revolving line of credit in December 2007. Interest income also declined from the prior year ago quarter due to lower cash balances following stock repurchase activity in the third quarter of 2007.

     Interest rates on our outstanding borrowings did not change significantly in the three months ended March 31, 2008, as compared to the three months ended March 31, 2007.

Income Taxes

     For the three months ended March 31, 2008 and 2007, we recorded an income tax provision of $3 million and tax benefit of $15 million, respectively.

     The provision for income taxes for these periods was first determined using the annual effective tax rate method for Atmel entities that are profitable. Entities that had operating losses with no tax benefit were excluded. As a result, excluding the impact of discrete tax events during the quarter, the provision for income taxes was at a higher consolidated effective rate than would have resulted if all entities were profitable or if losses produced tax benefits.

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     Other than the items noted as follows, there were no significant changes in estimates or provision for income taxes in the three months ended March 31, 2008:

     The sale of assets and restructuring charges of a foreign subsidiary as well as in-process research and development costs of Quantum were treated as discrete events for the three months ended March 31, 2008. Due to a full valuation allowance position in this jurisdiction, there is no tax expense impact associated with these discrete events in the quarter.

     At December 31, 2007, there was no provision for U.S. income tax for undistributed earnings, as it was our intention to reinvest these earnings indefinitely in operations outside the U.S. For 2008, we determined that we would require a portion of undistributed earnings repatriated to the U.S. in the form of a cash dividend. We anticipate the cash dividends will be distributed from select foreign subsidiaries, resulting in an estimated withholding tax expense of $6 million. As such, we changed our position to no longer assert permanent reinvestment of undistributed earnings for select foreign entities for the year 2008.

     During the three months ended March 31, 2008 and 2007, we recognized a tax benefit of $3 million and $20 million, respectively, resulting from the refund of unutilized French research tax credits for 2003 and 1999 through 2002, respectively, which were received during the respective periods.

     In 2005, the Internal Revenue Service (“IRS”) proposed adjustments to our U.S. income tax returns for the years 2000 and 2001. In January 2007, after subsequent discussions with us, the IRS revised the proposed adjustments for these years. We have protested these proposed adjustments and are currently pursuing administrative review with the IRS Appeals Division.

     In May 2007, the IRS proposed adjustments to our U.S. income tax returns for the years 2002 and 2003. We filed a protest to these proposed adjustments and are pursuing administrative review with the IRS Appeals Division.

     In addition, we have various tax audits in progress in certain state and foreign jurisdictions. We have accrued taxes, and related interest and penalties that may be due upon the ultimate resolution of these examinations and for other matters relating to open U.S. federal, state and foreign tax years in accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).

     While we believe that the resolution of these audits will not have a material adverse impact on our results of operations, cash flows or financial position, the outcome is subject to uncertainty. Should we be unable to reach agreement with the IRS, U.S. state or foreign tax authorities on the various proposed adjustments, there exists the possibility of an adverse material impact on our results of operations, cash flows and financial position.

     We file income tax returns in the U.S. federal, and various state and foreign jurisdictions. We are no longer subject to U.S. federal and state income tax examinations by tax authorities for years prior to 1999. Tax years for significant foreign jurisdictions including Germany, France, United Kingdom, and Switzerland are closed through 2002, 2002, 2004 and 2002 respectively; subsequent tax years for these jurisdictions remain subject to tax authority review. Hong Kong tax years are closed for years through 2003 and subsequent tax years remain subject to tax authority review.

     On January 1, 2007, we adopted FIN 48. Under FIN 48, the impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. At December 31, 2007, we had $166 million of unrecognized tax benefits. Unrecognized tax benefits decreased by $3 million in the three months ended March 31, 2008, primarily related to net benefits of $3 million recognized relating to the receipt of a tax refund for French research tax credits as noted above.

Liquidity and Capital Resources

     At March 31, 2008, we had $337 million of cash and cash equivalents and short-term investments compared to $430 million at December 31, 2007. Our current ratio, calculated as total current assets divided by total current liabilities, was 1.88 at March 31, 2008, an increase of 0.13 from 1.75 at December 31, 2007. We have reduced our debt obligations to $156 million at March 31, 2008, from $163 million at December 31, 2007. Working capital (total current assets less total current liabilities) increased by $30 million to $494 million at March 31, 2008, compared to $464 million at December 31, 2007 primarily due to classification of North Tyneside real

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property as current assets held for sale on the condensed consolidated balance sheets along with the receipt of $82 million in cash proceeds from the sale of fabrication equipment at our North Tyneside, UK facility.

     Approximately $28 million of our investment portfolio at March 31, 2008 was invested in auction-rate securities. Of the $28 million auction-rate securities, approximately $26 million were reclassified to long-term investments under other assets on the condensed consolidated balance sheets, as they are not expected to be liquidated within the next twelve months, while the remaining $2 million were sold in April 2008.

     Operating Activities: Net cash used in operating activities was $40 million in the three months ended March 31, 2008 compared to $59 million provided by operating activities in the three months ended March 31, 2007. Net cash used in operating activities in the three months ended March 31, 2008 was primarily due to the payment of a government grant liability of approximately $40 million and restructuring costs of $14 million related to the closure of our North Tyneside, UK manufacturing facility, as well as an increase in accounts receivable of $15 million.

     Accounts receivable increased by 7% or $15 million to $224 million at March 31, 2008 from $209 million at December 31, 2007. The average days of outstanding accounts receivable (“DSO”) was 49 days at March 31, 2008, compared to 44 days at December 31, 2007 due to reduced shipment linearity in the three months ended March 31, 2008 and the change in foreign exchange rates compared to the dollar at March 2008, compared to December 2007. Our accounts receivable and DSO are primarily impacted by shipment linearity, payment terms offered, and collection performance. Should we need to offer longer payment terms in the future due to competitive pressures or longer customer payment patterns, our DSO and cash from operating activities would be negatively affected.

     Inventories decreased and provided $18 million of operating cash flows in the three months ended March 31, 2008 compared to $23 million of cash utilized in the three months ended March 31, 2007 as a result of lower manufacturing activity at our North Tyneside, UK fabrication facility. Days of inventory increased slightly to 118 days at March 31, 2008, compared to 117 days at December 31, 2007 due to lower shipment levels in the three months ended March 31, 2008, compared to the three months ended December 31, 2007. Inventories consist of raw wafers, purchased specialty wafers, work-in-process and finished units. We are continuing to take measures to reduce manufacturing cycle times and improve production planning efficiency. However, the strategic need to offer competitive lead times may result in an increase in inventory levels in the future.

     Reduction of accounts payable balances utilized $89 million of operating cash flows in the three months ended March 31, 2008, primarily related to grant repayments of approximately $40 million related to the closure of our North Tyneside, UK manufacturing facility.

     Increases in accrued and other liabilities generated $17 million of operating cash flows in the three months ended March 31, 2008, primarily related to higher legal fees increased restructuring accruals.

     Investing Activities: Net cash used in investing activities was $25 million in the three months ended March 31, 2008, compared to $28 million in the three months ended March 31, 2007. During the three months ended March 31, 2008, we paid approximately $89 million for the acquisition of Quantum, net of cash acquired, and $17 million for capital expenditures, offset in part by $82 million we received from the sale of fabrication equipment from our North Tyneside, UK facility. This compares to approximately $26 million paid for capital expenditures in the three months ended March 31, 2007. We anticipate that expenditures for capital purchases will be between $80 million and $90 million for 2008, which will be used to maintain existing equipment, provide additional testing capacity and, to a limited extent, for equipment to develop advanced process technologies.

     Financing Activities: Net cash used in financing activities was $6 million in the three months ended March 31, 2008, compared to $23 million in the three months ended March 31, 2007. We continued to pay down debt, with repayments of principal balances on capital leases and other debt totaling $10 million in the three months ended March 31, 2008, compared to $23 million in the three months ended March 31, 2007. Issuance of common stock totaled $4 million in the three months ended March 31, 2008. No stock issuance proceeds were received in the three months ended March 31, 2007.

     We believe that our existing balances of cash, cash equivalents and short-term investments, together with anticipated cash flow from operations, equipment lease financing, and other short-term and medium-term bank borrowings, will be sufficient to meet our liquidity and capital requirements over the next twelve months.

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     The increase in cash and cash equivalents in the three months ended March 31, 2008 and 2007 due to the effect of exchange rate changes on cash balances was $5 million and $1 million, respectively. These cash balances were primarily held in certain subsidiaries in euro denominated accounts and increased in value due to the strengthening of the euro compared to the U.S. dollar during these periods.

     During the next twelve months, we expect our operations to generate positive cash flow; however, a significant portion of cash will be used to repay debt and make capital investments. We expect that we will have sufficient cash from operations and financing sources to meet all debt obligations. We made $17 million in cash payments for capital equipment in the three months ended March 31, 2008, and we expect our cash payments for capital expenditures to be between $80 million to $90 million in 2008. Debt obligations outstanding at March 31, 2008, which are classified as short-term, totaled $136 million. During the remainder of 2008 and future years, our capacity to make necessary capital investments will depend on our ability to continue to generate sufficient cash flow from operations and on our ability to obtain adequate financing if necessary.

     There were no material changes in our contractual obligations and rights outside of the ordinary course of business or other material changes in our financial condition in the three months ended March 31, 2008, other than the unrecognized tax benefits associated with the adoption of FIN No. 48. Unrecognized tax benefits at March 31, 2008 were approximately $163 million, the timing of the resolution of which is uncertain.

Off-Balance Sheet Arrangements (Including Guarantees)

     In the ordinary course of business, we have investments in privately held companies, which we review to determine if they should be considered variable interest entities. We have evaluated our investments in these other privately held companies and have determined that there was no material impact on our operating results or financial condition upon our adoption of FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51” (“FIN 46R”). Under FIN 46R certain events can require a reassessment of our investments in privately held companies to determine if they are variable interest entities and which of the stakeholders will be the primary beneficiary. As a result of such events, we may be required to make additional disclosures or consolidate these entities. We may be unable to influence these events.

     During the ordinary course of business, we provide standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either our subsidiaries or us. As of March 31, 2008, the maximum potential amount of future payments that we could be required to make under these guarantee agreements is approximately $14 million. We have not recorded any liability in connection with these guarantee arrangements. Based on historical experience and information currently available, we believe we will not be required to make any payments under these guarantee arrangements.

Critical Accounting Policies and Estimates

     Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Condensed Consolidated Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     We believe that the estimates, assumptions and judgments involved in revenue recognition, allowances for doubtful accounts and sales returns, accounting for income taxes, valuation of inventory, fixed assets, stock-based compensation, restructuring charges and litigation have the greatest potential impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies. Historically, our estimates, assumptions and judgments relative to our critical accounting policies have not differed materially from actual results. The critical accounting estimates associated with these policies are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of our Annual Report on Form 10-K filed with the SEC on February 29, 2008, except for Goodwill and Intangible Assets which is discussed below.

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Valuation of Goodwill and Intangible Assets

     We review goodwill and intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Purchased intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives and are reviewed for impairment under SFAS No. 144, “Accounting for the Impairment of Disposal of Long-Lived Assets). Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and forecasted operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable. Actual future results may differ from those estimates.

Recent Accounting Pronouncements

     In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” This standard is intended to improve financial reporting by requiring transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under SFAS No 133; and how derivative instruments and related hedged items affect its financial position, financial performance and cash flows. We are currently evaluating the potential impact, if any, of the adoption of SFAS No. 161 on our consolidated results of operations and financial condition.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008. We are currently evaluating the potential impact, if any, of the adoption of SFAS No. 141R on our consolidated results of operations and financial condition.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective as of the beginning of an entity’s fiscal year that begins after December 31, 2008. We are currently evaluating the potential impact, if any, of the adoption of SFAS No. 160 on our consolidated results of operations and financial condition.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” Under SFAS No. 159, a company may elect to use fair value to measure eligible items at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. If elected, SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Currently, we have not expanded our financial assets and liabilities that we account for under the fair value option of SFAS No. 159.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial assets and liabilities on financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. FASB Staff Position No. 157-2 (“FSP 157-2) delays the effective date for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually. The provisions of SFAS No. 157 should be applied prospectively as of the beginning of the fiscal year in which SFAS No. 157 is initially applied, except in limited circumstances. We have adopted SFAS No. 157 and FSP No. 157-2 beginning January 1, 2008, and there is no material impact on our condensed consolidated financial statements. See Note 16 of the Notes of the Condensed Consolidated Financial Statements.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

     We maintain investment portfolio holdings of various issuers, types and maturities whose values are dependent upon short-term interest rates. We generally classify these securities as available-for-sale, and consequently record them on the condensed consolidated balance sheet at fair value with unrealized gains and losses being recorded as a separate part of stockholders’ equity. We do not currently hedge these interest rate exposures. Given our current profile of interest rate exposures and the maturities of our investment holdings, we believe that an unfavorable change in interest rates would not have a significant negative impact on our investment portfolio or statements of operations through March 31, 2008. In addition, certain of our borrowings are at floating rates, so this would act as a natural hedge.

     We have short-term debt, long-term debt and capital leases totaling $156 million at March 31, 2008. Approximately $8 million of these borrowings have fixed interest rates. We have $148 million of floating interest rate debt, of which approximately $20 million is euro denominated. We do not hedge against the risk of interest rate changes for our floating rate debt and could be negatively affected should these rates increase significantly. While there can be no assurance that these rates will remain at current levels, we believe that any rate increase will not cause a significant adverse impact to our results of operations, cash flows or to our financial position.

     The following table summarizes our variable-rate debt exposed to interest rate risk as of March 31, 2008. All fair market values are shown net of applicable premium or discount, if any (dollars in thousands):

													Total
													Variable-rate
													Debt
													Outstanding at
	Payments by Due Year												March 31,
	2008*		2009		2010		2011		2012		Thereafter		2008
	(in thousands)
60 day USD LIBOR weighted-average interest rate basis (1) — Revolving line of credit	$	100,000	$	—	$	—	$	—	$	—	$	—	$	100,000
Total of 60 day USD LIBOR rate debt	$	100,000	$	—	$	—	$	—	$	—	$	—	$	100,000
90 day USD LIBOR weighted-average interest rate basis (1) — Revolving line of credit due 2008	$	25,000	$	—	$	—	$	—	$	—	$	—	$	25,000
Total of 90 day USD LIBOR rate debt	$	25,000	$	—	$	—	$	—	$	—	$	—	$	25,000
90 day EURIBOR weighted-average interest rate basis (1) — Capital leases	$	3,820	$	5,093	$	5,093	$	5,093	$	1,282	$	—	$	20,381
Total of 90 day USD LIBOR rate debt	$	3,820	$	5,093	$	5,093	$	5,093	$	1,282	$	—	$	20,381
360 day USD LIBOR weighted-average interest rate basis (1) — Senior secured term loan due 2008	$	2,499	$	—	$	—	$	—	$	—	$	—	$	2,499
Total of 360 day USD LIBOR rate debt	$	2,499	$	—	$	—	$	—	$	—	$	—	$	2,499
Total variable-rate debt	$	131,319	$	5,093	$	5,093	$	5,093	$	1,282	$	—	$	147,880

*	Represents payments due over the nine months remaining for 2008.
(1)	Actual interest rates include a spread over the basis amount.

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     The following table presents the hypothetical changes in interest expense, for the three month period ended March 31, 2008 related to our outstanding borrowings that are sensitive to changes in interest rates as of March 31, 2008. The modeling technique used measures the change in interest expense arising from hypothetical parallel shifts in yield, of plus or minus 50 Basis Points (“BPS”), 100 BPS and 150 BPS (in thousands).

     For the three months ended March 31, 2008:

							Interest Expense
	Interest Expense Given an Interest						with No Change in		Interest Expense Given an Interest
	Rate Decrease by X Basis Points						Interest Rate		Rate Increase by X Basis Points
	150 BPS		100 BPS		50 BPS		(in thousands)		50 BPS		100 BPS		150 BPS
Interest expense	$	2,511	$	3,016	$	3,520	$	4,025	$	4,530	$	5,035	$	5,539

Foreign Currency Risk

     When we take an order denominated in a foreign currency we will receive fewer dollars than we initially anticipated if that local currency weakens against the dollar before we ship our product, which will reduce revenue. Conversely, revenues will be positively impacted if the local currency strengthens against the dollar. In Europe, where we have significant operations have costs denominated in European currencies, costs will decrease if the local currency weakens. Conversely, costs will increase if the local currency strengthens against the dollar. The net effect of unfavorable exchange rates in the three months ended March 31, 2008, compared to the average exchange rates in the three months ended March 31, 2007, resulted in a decrease in income from operations of $11 million (as discussed in this report in Part I, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations). This impact is determined assuming that all foreign currency denominated transactions that occurred in the three months ended March 31, 2008 were recorded using the average foreign currency exchange rates for the same period in 2007. Sales denominated in foreign currencies were 22% and 23% in the three months ended March 31, 2008 and 2007, respectively. Sales denominated in euros were 21% and 22% in the three months ended March 31, 2008 and 2007, respectively. Sales denominated in yen were 1% in the three months ended March 31, 2008 and 2007. Costs denominated in foreign currencies, primarily the euro, were 49% and 55% in the three months ended March 31, 2008 and 2007, respectively.

     We also face the risk that our accounts receivables denominated in foreign currencies will be devalued if such foreign currencies weaken quickly and significantly against the dollar. Approximately 23% and 23% of our accounts receivable were denominated in foreign currencies as of both March 31, 2008 and December 31, 2007, respectively.

     We also face the risk that our accounts payable and debt obligations denominated in foreign currencies will increase if such foreign currencies strengthen quickly and significantly against the dollar. Approximately 42% and 54% of our accounts payable were denominated in foreign currencies as of March 31, 2008 and December 31, 2007, respectively. Approximately 16% and 18% of our debt obligations were denominated in foreign currencies as of March 31, 2008 and December 31, 2007, respectively.

Liquidity and Valuation Risk

     Approximately $28 million of our investment portfolio at March 31, 2008 was invested in highly-rated auction rate securities. Auction rate securities are securities that are structured with short-term interest rate reset dates of generally less than ninety days but with contractual maturities that can be well in excess of ten years. At the end of each reset period, investors can sell or continue to hold the securities at par. These securities are subject to fluctuations in fair value depending on the supply and demand at each auction. If the auctions for the securities we own fail, the investments may not be readily convertible to cash until a future auction of these investments is successful. If the credit rating of either the security issuer or the third-party insurer underlying the investments deteriorates, we may be required to adjust the carrying value of the investment through an impairment charge. During the three months ended March 31, 2008, we recorded an impairment of $1,113 relating to decline in the value of auction-rate securities which is recorded as comprehensive loss. We do not believe that the impairment is “other than temporary” due to our intent and ability to hold the securities until they can be liquidated at par value.

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Item 4. Controls and Procedures

Evaluation of Effectiveness of Disclosure Controls and Procedures

     As of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision of our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such terms are defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities and Exchange Act of 1934 (“Disclosure Controls”). Based on this evaluation our Chief Executive Officer and our Chief Financial Officer have concluded that our Disclosure Controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information we are required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Limitations on the Effectiveness of Controls

     Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our Disclosure Controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Atmel have been detected.

Changes in Internal Control Over Financial Reporting.

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

PART II OTHER INFORMATION

Item 1. Legal Proceedings

     Atmel currently is party to various legal proceedings. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the results of operations, cash flows and financial position of Atmel. The estimate of the potential impact on the Company’s financial position or overall results of operations or cash flows for the legal proceedings described below could change in the future. The Company has accrued for all losses related to litigation that the Company considers probable and for which the loss can be reasonably estimated.

     In January 2007, the Company received a subpoena from the Department of Justice (“DOJ”) requesting information relating to its past stock option grants and related accounting matters. In August 2006, the Company received Information Document Requests from the Internal Revenue Service (“IRS”) regarding the Company’s investigation into misuse of corporate travel funds and investigation into backdating of stock options. The DOJ and IRS inquiries may require the Company to expend significant management time and incur significant legal and other expenses, which may adversely affect our results of operations and cash flows. The Company cannot predict how long it will take or how much more time and resources it will have to expend to resolve these government inquiries, nor can the Company predict the outcome of these inquiries.

     From July through September 2006, six stockholder derivative lawsuits were filed (three in the U.S. District Court for the Northern District of California and three in Santa Clara County Superior Court) by persons claiming to be Company stockholders and purporting to act on Atmel’s behalf, naming Atmel as a nominal defendant and some of its current and former officers and directors as defendants. The suits contain various causes of action relating to the timing of stock option grants awarded by Atmel. The federal cases were consolidated and an amended complaint was filed on November 3, 2006. On defendants’ motions, this consolidated amended complaint was dismissed with leave to amend, and a second consolidated amended complaint was filed in August 2007. Atmel and the individual defendants have each moved to dismiss the second consolidated amended complaint on various grounds. The

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motions have been argued and taken under submission by the Court. On February, 20, 2008, a seventh stockholder derivative lawsuit was filed in the U.S. District Court for the Northern District of California, which alleges the same causes of action as alleged in the second consolidated amended complaint. This seventh suit was consolidated with the already-pending consolidated federal action and was served on the Company on May 5, 2008. The state derivative cases have also been consolidated. In April 2007, a consolidated derivative complaint was filed in the state court action, and the Company moved to stay it. The court granted Atmel’s motion to stay on June 14, 2007. Atmel believes that the filing of these derivative actions was unwarranted and will continue to vigorously contest them.

     In October 2006, an action was filed in First Instance labour court, Nantes, France on behalf of 46 former employees of Atmel’s Nantes facility, claiming that the sale of the Nantes facility to MHS (XbyBus SAS) in December 2005 was not a valid sale, and that these employees should still be considered employees of Atmel, with the right to claim social benefits from Atmel. The action is for unspecified damages. A hearing took place in October 2007 and in February 2008, to the Court announced that it will appoint an additional, professional judge to decide the matter. Atmel will be required to replead this matter in June 2008. Atmel believes that the filing of this action is without merit and intends to vigorously defend this action.

     In January 2007, Quantum World Corporation filed a patent infringement suit in the United States District Court, Eastern District of Texas naming Atmel as a co-defendant, along with a number of other electronics manufacturing companies. The plaintiff claims that the asserted patents allegedly cover a true random number generator and that the patents are infringed by the manufacture, use importation and offer for sale of certain Atmel products. The suit seeks damages for infringement and recovery of attorneys’ fees and costs incurred. In March 2007, Atmel filed a counterclaim for declaratory relief that the patents are neither infringed nor valid. Atmel believes that the filing of this action is without merit and intends to vigorously defend against this action.

     In March 2006, Atmel filed suit against AuthenTec in the United States District Court, Northern District of California, San Jose Division, alleging infringement of U.S. Patent No. 6,289,114, and on November 1, 2006, Atmel filed a First Amended Complaint adding claims for infringement of U.S. Patent No. 6,459,804 (the “’804 Patent”). In November 2006, AuthenTec answered denying liability and counterclaimed seeking a declaratory judgment of non-infringement and invalidity, its attorneys’ fees and other relief. In April 2007, AuthenTec filed an action against Atmel for declaratory relief in the United States District Court for the Middle District of Florida that the patents asserted against it by Atmel in the action pending in the Northern District of California are neither infringed nor valid, and amended that complaint in May 2007 to add claims for declaratory relief that the ‘804 Patent is unenforceable, alleged interference with business relationships, and abuse of process. AuthenTec sought declaratory relief and unspecified damages. On June 25, 2007, the action pending in the Middle District of Florida was transferred to the Northern District of California, and has been related to the action Atmel filed. On July 3, 2007, Atmel filed an answer to the claims for declaratory relief that the patents were neither valid nor infringed, and also added counterclaims of infringement. Also on July 3, 2007, Atmel moved to dismiss the remaining claims for declaratory relief that the ‘804 Patent is unenforceable, alleged interference with business relationships, and alleged abuse of process. On August 2, 2007, the parties agreed to the dismissal with prejudice of AuthenTec’s claims for alleged interference with business relationships and alleged abuse of process. The parties also agreed to grant AuthenTec leave to amend its counterclaim to add the claim for alleged unenforceability of the ‘804 Patent. In early 2008, the parties each filed motions seeking summary judgment, and by Order dated May 5, 2008, the Court granted AuthenTec’s motion for summary judgment of noninfringement. Atmel is evaluating this Order and its options to appeal the same.

     On September 28, 2007, Matheson Tri-Gas filed suit in Texas state court in Dallas County against the Company. Plaintiff alleges a claim for breach of contract for alleged failure to pay minimum payments under a purchase requirements contract. Matheson seeks unspecified damages, pre- and post-judgment interest, attorneys’ fees and costs. In late November 2007, Atmel filed its answer denying liability. The Company believes that Matheson’s claims are without merit and intends to vigorously defend this action.

     On January 23, 2008, Isamtek MG (1999) Ltd filed suit in the District Court in Petach Tikva, Israel against Atmel SARL and two other defendants. Isamtek has alleged that Atmel breached its distributor agreement with Isamtek and has alleged breach of duty of care in tort and interference with contractual by the other defendants. Isamtek seeks monetary and declaratory relief as well as presentation of accounts.

     On December 21, 2005, the Company’s recently-acquired subsidiary Quantum Research Group, Ltd (“QRG”) filed suit against Apple Computer Company, Inc. (“Apple”) and Fingerworks, Ltd (“Fingerworks”) in the United States District Court for the District of Maryland, alleging infringement of U.S. Patent No. 5,730,165 (“the ‘165 Patent”) and, on May 11, 2006, QRG filed an Amended Complaint adding Cypress Semiconductor/MicroSystems, Inc. (“Cypress”) as a defendant and asserting additional claims for Defamation, False Light, and Unfair Competition against Cypress. On or about July 31, 2006, Apple and Fingerworks each filed its Answer denying infringement and asserting counterclaims seeking a declaratory judgment of non-infringement and invalidity, as well as an award of costs and attorneys’ fees under 35 U.S.C. Section 285. On or about December 14, 2006, Cypress filed its Answer

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denying infringement, denying the counts alleging Defamation, False Light, and Unfair Competition, and asserting counterclaims seeking a declaratory judgment of non-infringement and invalidity, as well as an award of costs and attorneys’ fees under 35 U.S.C. Section 285. On June 7, 2007, the Court issued its claim construction ruling and an Order invalidating certain asserted claims of the ‘165 Patent. In November 2007, Defendants filed a motion for summary judgment of non-infringement and invalidity of the remaining asserted claims of the ‘165 Patent. At that time, QRG filed a motion for summary judgment of infringement of claim 50 of the ‘165 patent. These motions, along with various procedural and evidentiary motions, are pending. Based upon a Stipulation by the parties, the trial date for this action was extended to October 27, 2008, and the suit was stayed by the Court until at least May 19, 2008, to facilitate settlement discussions. Atmel intends to aggressively defend its intellectual property assets.

     From time to time, the Company may be notified of claims that it may be infringing patents issued to other parties and may subsequently engage in license negotiations regarding these claims.

     Other Contingencies

     The Company recently began investigating a transaction from 2001 involving its Greek subsidiary (which was substantially shut down in 2007). The transaction appears to have been with an entity that was not a legitimate third party vendor, and may have been entered into for an inappropriate purpose. The Company’s investigation of the circumstances surrounding the transaction is ongoing, and it has voluntarily disclosed the existence of its investigation to the Department of Justice and the Securities and Exchange Commission.

Item 1A. Risk Factors

     In addition to the other information contained in this Form 10-Q, we have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, or results of operation. Investors should carefully consider the risks described below before making an investment decision. The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of their investment. In addition, these risks and uncertainties may impact the “forward-looking” statements described elsewhere in this Form 10-Q and in the documents incorporated herein by reference. They could affect our actual results of operations, causing them to differ materially from those expressed in “forward-looking” statements.

OUR REVENUES AND OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO A VARIETY OF FACTORS, WHICH MAY RESULT IN VOLATILITY OR A DECLINE IN OUR STOCK PRICE.

     Our future operating results will be subject to quarterly variations based upon a wide variety of factors, many of which are not within our control. These factors include:

• the nature of both the semiconductor industry and the markets addressed by our products;

• our transition to a fab-lite strategy;

• our increased dependence on outside foundries and their ability to meet our volume, quality, and delivery objectives, particularly during times of increasing demand along with inventory excesses or shortages due to reliance on third party manufacturers;

• our compliance with U.S. trade and export laws and regulations;

• fluctuations in currency exchange rates and revenues and costs denominated in foreign currencies;

• ability of independent assembly contractors to meet our volume, quality, and delivery objectives;

• success with disposal or restructuring activities, including disposition of our North Tyneside and Heilbronn facilities;

• fluctuations in manufacturing yields;

• third party intellectual property infringement claims;

• the highly competitive nature of our markets;

• the pace of technological change;

• political and economic risks;

• natural disasters or terrorist acts;

• assessment of internal controls over financial reporting;

• ability to meet our debt obligations;

• availability of additional financing;

• potential impairment and liquidity of auction rate securities;

• our ability to maintain good relationships with our customers;

• long-term contracts with our customers;

• integration of new businesses or products;

• our compliance with international, federal and state export, environmental, privacy and other regulations;

• personnel changes;

• business interruptions;

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• system integration disruptions;

• anti-takeover effects in our certificate of incorporation, bylaws, and preferred shares rights agreement;

• changes in accounting rules, such as recording expenses for employee stock option grants;

• foreign pension plans are unfunded and any requirement to fund these plans could negatively impact or cash position;

• acquisition strategy may result in unanticipated accounting charges or otherwise adversely affect or results of operations

• we may not be able to effectively utilize all of our manufacturing capacity;

• disruptions to the availability of raw materials can disrupt our ability to supply products to our customers;

• product liability claims may arise resulting in significant costs and damage to reputation;

• revenues are dependent on selling through distributors;

• audits of our income tax returns, both in the U.S. and in foreign jurisdictions; and

• compliance with economic incentive terms in certain government grants.

     Any unfavorable changes in any of these factors could harm our operating results.

     We believe that our future sales will depend substantially on the success of our new products. Our new products are generally incorporated into our customers’ products or systems at their design stage. However, design wins can precede volume sales by a year or more. We may not be successful in achieving design wins or design wins may not result in future revenues, which depend in large part on the success of the customer’s end product or system. The average selling price of each of our products usually declines as individual products mature and competitors enter the market. To offset average selling price decreases, we rely primarily on reducing costs to manufacture those products, increasing unit sales to absorb fixed costs and introducing new, higher priced products which incorporate advanced features or integrated technologies to address new or emerging markets. Our operating results could be harmed if such cost reductions and new product introductions do not occur in a timely manner. From time to time, our quarterly revenues and operating results can become more dependent upon orders booked and shipped within a given quarter and, accordingly, our quarterly results can become less predictable and subject to greater variability.

     In addition, our future success will depend in large part on continued economic growth generally and on growth in various electronics industries that use semiconductors, including manufacturers of computers, telecommunications equipment, automotive electronics, industrial controls, consumer electronics, data networking equipment and military equipment. The semiconductor industry has the ability to supply more products than demand requires. Our ability to be profitable will depend heavily upon a better supply and demand balance within the semiconductor industry.

THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY CREATES FLUCTUATIONS IN OUR OPERATING RESULTS.

     The semiconductor industry has historically been cyclical, characterized by wide fluctuations in product supply and demand. The industry has also experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles and declines in general economic conditions. The semiconductor industry faced severe business conditions with global semiconductor revenues for the industry declining 32% to $139 billion in 2001, compared to revenues in 2000. The semiconductor industry began to turn around in 2002 with global semiconductor sales increasing modestly by 1% to $141 billion. Global semiconductor sales increased 18% to $166 billion in 2003, 27% to $211 billion in 2004, 8% to $228 billion in 2005, 9% to $248 billion in 2006 and 3% to $256 billion in 2007, and are estimated by the Semiconductor Industry Association to increase 8% to $277 billion in 2008.

     Our operating results have been harmed by industry-wide fluctuations in the demand for semiconductors, which resulted in under-utilization of our manufacturing capacity and declining gross margins. In the past we have recorded significant charges to recognize impairment in the value of our manufacturing equipment, the cost to reduce workforce, and other restructuring costs. Our business may be harmed in the future not only by cyclical conditions in the semiconductor industry as a whole but also by slower growth in any of the markets served by our products.

     The semiconductor industry is increasingly characterized by annual seasonality and wide fluctuations of supply and demand. A significant portion of our revenue comes from sales to customers supplying consumer markets and international sales. As a result, our business may be subject to seasonally lower revenues in particular quarters of our fiscal year. The industry has also been impacted by significant shifts in consumer demand due to economic downturns or other factors, which may result in diminished product demand and production over-capacity. We have experienced substantial quarter-to-quarter fluctuations in revenues and operating results and

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expect, in the future, to continue to experience short term period-to-period fluctuations in operating results due to general industry or economic conditions.

WE COULD EXPERIENCE DISRUPTION OF OUR BUSINESS AS WE TRANSITION TO A FAB-LITE STRATEGY AND INCREASE DEPENDENCE ON OUTSIDE FOUNDRIES, WHERE SUCH FOUNDRIES MAY NOT HAVE ADEQUATE CAPACITY TO FULFILL OUR NEEDS AND MAY NOT MEET OUR QUALITY AND DELIVERY OBJECTIVES OR MAY ABANDON FABRICATION PROCESSES THAT WE REQUIRE.

     As part of our fab-lite strategy, we have reduced and plan to further reduce the number of manufacturing facilities we own. In December 2005, we sold our Nantes, France fabrication facility and the related foundry activities, to XybyBus SAS. In July 2006, we sold our Grenoble, France subsidiary (including the fabrication facility in Grenoble) to e2v technologies plc. In December 2006, we announced our intention to sell our North Tyneside, United Kingdom and Heilbronn, Germany wafer fabrication facilities. In October 2007, we announced that we had entered into agreements for the sale of certain wafer equipment and real property in North Tyneside, United Kingdom. As a result of the sale (or planned sale) of such fabrication facilities, we will be increasingly relying on the utilization of third-party foundry manufacturing and assembly and test capacity. As part of this transition we must expand our foundry relationships by entering into new agreements with third-party foundries. If these agreements are not completed on a timely basis, or the transfer of production is delayed for other reasons, the supply of certain of our products could be disrupted, which would harm our business. In addition, difficulties in production yields can often occur when transitioning to a new third-party manufacturer. If such foundries fail to deliver quality products and components on a timely basis, our business could be harmed.

     Implementation of our new fab-lite strategy will expose us to the following risks:

• reduced control over delivery schedules and product costs;

• manufacturing costs that are higher than anticipated;

• inability of our manufacturing subcontractors to develop manufacturing methods appropriate for our products and their unwillingness to devote adequate capacity to produce our products;

• possible abandonment of fabrication processes by our manufacturing subcontractors for products that are strategically important to us;

• decline in product quality and reliability;

• inability to maintain continuing relationships with our suppliers;

• restricted ability to meet customer demand when faced with product shortages; and

• increased opportunities for potential misappropriation of our intellectual property.

     If any of the above risks are realized, we could experience an interruption in our supply chain or an increase in costs, which could delay or decrease our revenue or harm our business.

     We expect to increase our utilization of outside foundries to expand our capacity in the future, especially for high volume commodity type products and certain aggressive technology ASIC products. Reliance on outside foundries to fabricate wafers involves significant risks, including reduced control over quality and delivery schedules, a potential lack of capacity, and a risk the subcontractor may abandon the fabrication processes we need from a strategic standpoint, even if the process is not economically viable. We hope to mitigate these risks with a strategy of qualifying multiple subcontractors. However, there can be no guarantee that any strategy will eliminate these risks. Additionally, since most of such outside foundries are located in foreign countries, we are subject to certain risks generally associated with contracting with foreign manufacturers, including currency exchange fluctuations, political and economic instability, trade restrictions and changes in tariff and freight rates. Accordingly, we may experience problems in timelines and the adequacy or quality of product deliveries, any of which could have a material adverse effect on our results of operations.

     The terms on which we will be able to obtain wafer production for our products, and the timing and volume of such production will be substantially dependent on future agreements to be negotiated with semiconductor foundries. We cannot be certain that the agreements we reach with such foundries will be on terms reasonable to us. Therefore, any agreements reached with semiconductor foundries may be short-term and possibly non-renewable, and hence provide less certainty regarding the supply and pricing of wafers for our products.

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     During economic upturns in the semiconductor industry we will not be able to guarantee that our third party foundries will be able to increase manufacturing capacity to a level that meets demand for our products, which would prevent us from meeting increased customer demand and harm our business. Also during times of increased demand for our products, if such foundries are able to meet such demand, it may be at higher wafer prices, which would reduce our gross margins on such products or require us to offset the increased price by increasing prices for our customers, either of which would harm our business and operating results.

WE BUILD SEMICONDUCTORS BASED ON FORECASTED DEMAND, AND AS A RESULT, CHANGES TO FORECASTS FROM ACTUAL DEMAND MAY RESULT IN EXCESS INVENTORY OR OUR INABILITY TO FILL CUSTOMER ORDERS ON A TIMELY BASIS WHICH MAY HARM OUR BUSINESS

     We schedule production and build semiconductor devices based primarily on our internal forecasts, as well as non-binding forecasts from customers for orders which may be cancelled or rescheduled with short notice. Our customers frequently place orders requesting product delivery in a much shorter period than our lead time to fully fabricate and test devices. Because the markets we serve are volatile and subject to rapid technological, price, and end user demand changes, our forecasts of unit quantities to build may be significantly incorrect. Changes to forecasted demand from actual demand may result in us producing unit quantities in excess of orders from customers, which could result in the need to record additional expense for the write-down of inventory, negatively affecting gross margin and results from operations.

     As we transition to increased dependence on outside foundries, we will have less control over modifying production schedules to match changes in forecasted demand. If we commit to obtaining foundry wafers and cannot cancel or reschedule commitments without material costs or cancellation penalties, we may be forced to purchase inventory in excess of demand, which could result in a write-down of inventories negatively affecting gross margin and results of operations.

     Conversely, failure to produce or obtain sufficient wafers for increased demand could cause us to miss revenue opportunities and, if significant, could impact our customers’ ability to sell products, which could adversely affect our customer relationships, and thereby materially adversely affect our business, financial condition and results of operations.

OUR INTERNATIONAL SALES AND OPERATIONS ARE SUBJECT TO APPLICABLE LAWS RELATING TO TRADE AND EXPORT CONTROLS, THE VIOLATION OF WHICH COULD ADVERSELY AFFECT OUR OPERATIONS.

     For products and technology exported from the U.S. or otherwise subject to U.S. jurisdiction, we are subject to U.S. laws and regulations governing international trade and exports, including, but not limited, to the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”) and trade sanctions against embargoed countries and destinations administered by the Office of Foreign Assets Control (“OFAC”), U.S. Department of the Treasury. We have discovered shortcomings in our export compliance procedures. We are currently analyzing product shipments and technology transfers, working with U.S. government officials to ensure compliance with applicable U.S. export laws and regulations, and developing an enhanced export compliance system. A determination by the U.S. government that we have failed to comply with one or more of these export controls or trade sanctions could result in civil or criminal penalties, including the imposition of significant fines, denial of export privileges, and debarment from U.S. participation in government contracts. Any one or more of these sanctions could have a material adverse effect on our business, financial condition and results of operations.

WE ARE EXPOSED TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES THAT COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS AND CASH FLOWS, AND REVENUES AND COSTS DENOMINATED IN FOREIGN CURRENCIES COULD ADVERSELY IMPACT OUR OPERATING RESULTS WITH CHANGES IN THESE FOREIGN CURRENCIES AGAINST THE DOLLAR.

     Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results and cash flows. Our primary exposure relates to operating expenses in Europe, where a significant amount of our manufacturing is located.

     When we take an order denominated in a foreign currency we will receive fewer dollars than we initially anticipated if that local currency weakens against the dollar before we ship our product, which will reduce revenue. Conversely, revenues will be positively impacted if the local currency strengthens against the dollar. In Europe, where our significant operations have costs denominated in

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European currencies, costs will decrease if the local currency weakens. Conversely, costs will increase if the local currency strengthens against the dollar. The net effect of unfavorable exchange rates for the three months ended March 31, 2008, compared to the average exchange rates for the three months ended March 31, 2007, resulted in a decrease in income from operations of $11 million (as discussed in Part I, Item 2 of this report). This impact is determined assuming that all foreign currency denominated transactions that occurred in the three months ended March 31, 2008 were recorded using the average foreign currency exchange rates for the same period in 2007. Sales denominated in foreign currencies were 22% and 23% for the three months ended March 31, 2008 and 2007, respectively. Sales denominated in euros were 21% and 22% for the three months ended March 31, 2008 and 2007, respectively. Sales denominated in yen were 1% for the three months ended March 31, 2008 and 2007. Costs denominated in foreign currencies, primarily the euro, were 49% and 55% for the three months ended March 31, 2008 and 2007, respectively.

     We also face the risk that our accounts receivables denominated in foreign currencies will be devalued if such foreign currencies weaken quickly and significantly against the dollar. Approximately 23% and 23% of our accounts receivable are denominated in foreign currency as of both March 31, 2008 and December 31, 2007, respectively.

     We also face the risk that our accounts payable and debt obligations denominated in foreign currencies will increase if such foreign currencies strengthen quickly and significantly against the dollar. Approximately 42% and 54% of our accounts payable were denominated in foreign currency as of March 31, 2008 and December 31, 2007, respectively. Approximately 16% and 18% of our debt obligations were denominated in foreign currency as of March 31, 2008 and December 31, 2007, respectively.

WE DEPEND ON INDEPENDENT ASSEMBLY CONTRACTORS WHICH MAY NOT HAVE ADEQUATE CAPACITY TO FULFILL OUR NEEDS AND WHICH MAY NOT MEET OUR QUALITY AND DELIVERY OBJECTIVES.

     We currently manufacture a majority of the wafers for our products at our fabrication facilities, and the wafers are then sorted and tested at our facilities. After wafer testing, we ship the wafers to one of our independent assembly contractors located in China, Indonesia, Japan, Malaysia, the Philippines, South Korea, Taiwan or Thailand where the wafers are separated into die, packaged and, in some cases, tested. Our reliance on independent contractors to assemble, package and test our products involves significant risks, including reduced control over quality and delivery schedules, the potential lack of adequate capacity and discontinuance or phase-out of the contractors’ assembly processes. These independent contractors may not continue to assemble, package and test our products for a variety of reasons. Moreover, because our assembly contractors are located in foreign countries, we are subject to certain risks generally associated with contracting with foreign suppliers, including currency exchange fluctuations, political and economic instability, trade restrictions, including export controls, and changes in tariff and freight rates. Accordingly, we may experience problems in timelines and the adequacy or quality of product deliveries, any of which could have a material adverse effect on our results of operations.

WE FACE RISKS ASSOCIATED WITH DISPOSAL OR RESTRUCTURING ACTIVITIES.

     As part of our fab-lite strategy, in December 2006, we announced plans to sell our Heilbronn, Germany, and North Tyneside, United Kingdom, manufacturing facilities. In October 2007, we announced that we had entered into agreements for the sale of certain wafer fabrication equipment and real property in North Tyneside, United Kingdom. However, reducing our wafer fabrication capacity involves significant potential costs and delays, particularly in Europe, where the extensive statutory protection of employees imposes substantial restrictions on their employers when the market requires downsizing. Such costs and delays include compensation to employees and local government agencies, requirements and approvals of governmental and judicial bodies, and the potential requirement to repay governmental subsidies. We may experience labor union or workers council objections, or other difficulties, while implementing a reduction of the number of employees. Significant difficulties that we experience could harm our business and operating results, either by deterring needed headcount reduction or by the additional employee severance costs resulting from employee reduction actions in Europe relative to America or Asia.

     We continue to evaluate the existing restructuring and asset impairment reserves related to previously implemented restructuring plans. As a result, there may be additional restructuring charges or reversals or recoveries of previous charges. However, we may incur additional restructuring and asset impairment charges in connection with additional restructuring plans adopted in the future. Any such restructuring or asset impairment charges recorded in the future could significantly harm our business and operating results.

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IF WE ARE UNABLE TO IMPLEMENT NEW MANUFACTURING TECHNOLOGIES OR FAIL TO ACHIEVE ACCEPTABLE MANUFACTURING YIELDS, OUR BUSINESS WOULD BE HARMED.

     Whether demand for semiconductors is rising or falling, we are constantly required by competitive pressures in the industry to successfully implement new manufacturing technologies in order to reduce the geometries of our semiconductors and produce more integrated circuits per wafer. We are developing processes that support effective feature sizes as small as 0.13-microns, and we are studying how to implement advanced manufacturing processes with even smaller feature sizes such as 0.065-microns.

     Fabrication of our integrated circuits is a highly complex and precise process, requiring production in a tightly controlled, clean environment. Minute impurities, difficulties in the fabrication process, defects in the masks used to print circuits on a wafer or other factors can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. Whether through the use of our foundries or third party manufacturers, we may experience problems in achieving acceptable yields in the manufacture of wafers, particularly during a transition in the manufacturing process technology for our products.

     We have previously experienced production delays and yield difficulties in connection with earlier expansions of our wafer fabrication capacity or transitions in manufacturing process technology. Production delays or difficulties in achieving acceptable yields at any of our fabrication facilities or at the fabrication facilities of our third party manufacturers could materially and adversely affect our operating results. We may not be able to obtain the additional cash from operations or external financing necessary to fund the implementation of new manufacturing technologies.

WE MAY FACE THIRD PARTY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT COULD BE COSTLY TO DEFEND AND RESULT IN LOSS OF SIGNIFICANT RIGHTS.

     The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which on occasion have resulted in significant and often protracted and expensive litigation. We have from time to time received, and may in the future receive, communications from third parties asserting patent or other intellectual property rights covering our products or processes. In the past, we have received specific allegations from major companies alleging that certain of our products infringe patents owned by such companies. In order to avoid the significant costs associated with our defense in litigation involving such claims, we may license the use of the technologies that are the subject of these claims from such companies and be required to make corresponding royalty payments, which may harm our operating results.

     We have in the past been involved in intellectual property infringement lawsuits, which harmed our operating results and are currently involved in intellectual property infringement lawsuits, which may harm our future operating results. We are currently involved in several intellectual property infringement lawsuits. Although we intend to vigorously defend against any such lawsuits, we may not prevail given the complex technical issues and inherent uncertainties in patent and intellectual property litigation. Moreover, the cost of defending against such litigation, in terms of management time and attention, legal fees and product delays, could be substantial, whatever the outcome. If any patent or other intellectual property claims against us are successful, we may be prohibited from using the technologies subject to these claims, and if we are unable to obtain a license on acceptable terms, license a substitute technology, or design new technology to avoid infringement, our business and operating results may be significantly harmed.

     We have several cross-license agreements with other companies. In the future, it may be necessary or advantageous for us to obtain additional patent licenses from existing or other parties, but these license agreements may not be available to us on acceptable terms, if at all.

OUR MARKETS ARE HIGHLY COMPETITIVE, AND IF WE DO NOT COMPETE EFFECTIVELY, WE MAY SUFFER PRICE REDUCTIONS, REDUCED REVENUES, REDUCED GROSS MARGINS, AND LOSS OF MARKET SHARE.

     We compete in markets that are intensely competitive and characterized by rapid technological change, product obsolescence and price decline. Throughout our product line, we compete with a number of large semiconductor manufacturers, such as AMD, Cypress, Freescale, Fujitsu, Hitachi, IBM, Infineon, Intel, LSI Logic, Microchip, Philips, Renesas, Samsung, Sharp, Spansion, STMicroelectronics, Texas Instruments and Toshiba. Some of these competitors have substantially greater financial, technical, marketing and management resources than we do. As we have introduced new products we are increasingly competing directly with these companies, and we may not be able to compete effectively. We also compete with emerging companies that are attempting to sell products in specialized markets that our products address. We compete principally on the basis of the technical innovation and performance of our products, including their speed, density, power usage, reliability and specialty packaging alternatives, as well as on price and product availability. During the last several years, we have experienced significant price competition in several business

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segments, especially in our nonvolatile memory segment for EPROM, Serial EEPROM, and Flash memory products, as well as in our commodity microcontrollers and smart cards. We expect continuing competitive pressures in our markets from existing competitors and new entrants, new technology and cyclical demand, which, among other factors, will likely maintain the recent trend of declining average selling prices for our products.

     In addition to the factors described above, our ability to compete successfully depends on a number of factors, including the following:

• our success in designing and manufacturing new products that implement new technologies and processes;

• our ability to offer integrated solutions using our advanced nonvolatile memory process with other technologies;

• the rate at which customers incorporate our products into their systems;

• product introductions by our competitors;

• the number and nature of our competitors in a given market;

• the incumbency of our competitors at potential new customers;

• our ability to minimize production costs by outsourcing our manufacturing, assembly and testing functions; and

• general market and economic conditions.

     Many of these factors are outside of our control, and we may not be able to compete successfully in the future.

WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE.

     The average selling prices of our products historically have decreased over the products’ lives and are expected to continue to do so. As a result, our future success depends on our ability to develop and introduce new products which compete effectively on the basis of price and performance and which address customer requirements. We are continually designing and commercializing new and improved products to maintain our competitive position. These new products typically are more technologically complex than their predecessors, and thus have increased potential for delays in their introduction.

     The success of new product introductions is dependent upon several factors, including timely completion and introduction of new product designs, achievement of acceptable fabrication yields and market acceptance. Our development of new products and our customers’ decision to design them into their systems can take as long as three years, depending upon the complexity of the device and the application. Accordingly, new product development requires a long-term forecast of market trends and customer needs, and the successful introduction of our products may be adversely affected by competing products or by technologies serving the markets addressed by our products. Our qualification process involves multiple cycles of testing and improving a product’s functionality to ensure that our products operate in accordance with design specifications. If we experience delays in the introduction of new products, our future operating results could be harmed.

     In addition, new product introductions frequently depend on our development and implementation of new process technologies, and our future growth will depend in part upon the successful development and market acceptance of these process technologies. Our integrated solution products require more technically sophisticated sales and marketing personnel to market these products successfully to customers. We are developing new products with smaller feature sizes, the fabrication of which will be substantially more complex than fabrication of our current products. If we are unable to design, develop, manufacture, market and sell new products successfully, our operating results will be harmed. Our new product development, process development, or marketing and sales efforts may not be successful, our new products may not achieve market acceptance, and price expectations for our new products may not be achieved, any of which could harm our business.

OUR OPERATING RESULTS ARE HIGHLY DEPENDENT ON OUR INTERNATIONAL SALES AND OPERATIONS, WHICH EXPOSES US TO VARIOUS POLITICAL AND ECONOMIC RISKS.

     Sales to customers outside the U.S. accounted for 85% and 87% of net revenues in the three months ended March 31, 2008 and 2007, respectively. We expect that revenues derived from international sales will continue to represent a significant portion of net revenues. International sales and operations are subject to a variety of risks, including:

• greater difficulty in protecting intellectual property;

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• reduced flexibility and increased cost of staffing adjustments, particularly in France and Germany;

• longer collection cycles;

• potential unexpected changes in regulatory practices, including export license requirements, trade barriers, tariffs and tax laws, environmental and privacy regulations; and

• general economic and political conditions in these foreign markets.

     Further, we purchase a significant portion of our raw materials and equipment from foreign suppliers, and we incur labor and other operating costs in foreign currencies, particularly at our French and German manufacturing facilities. As a result, our costs will fluctuate along with the currencies and general economic conditions in the countries in which we do business, which could harm our operating results.

     Approximately 22% and 23% of our net revenues in the three months ended March 31, 2008 and 2007 were denominated in foreign currencies. Operating costs denominated in foreign currencies, primarily the euro, were approximately 49% and 55% of total operating costs in the three months ended March 31, 2008 and 2007, respectively.

OUR OPERATIONS AND FINANCIAL RESULTS COULD BE HARMED BY NATURAL DISASTERS OR TERRORIST ACTS.

     Since the terrorist attacks on the World Trade Center and the Pentagon in 2001, certain insurance coverage has either been reduced or made subject to additional conditions by our insurance carriers, and we have not been able to maintain all necessary insurance coverage at a reasonable cost. Instead, we have relied to a greater degree on self-insurance. For example, we now self-insure property losses up to $10 million per event. Our headquarters, some of our manufacturing facilities, the manufacturing facilities of third party foundries and some of our major vendors’ and customers’ facilities are located near major earthquake faults and in potential terrorist target areas. If a major earthquake or other disaster or a terrorist act impacts us and insurance coverage is unavailable for any reason, we may need to spend significant amounts to repair or replace our facilities and equipment, we may suffer a temporary halt in our ability to manufacture and transport products and we could suffer damages of an amount sufficient to harm our business, financial condition and results of operations.

A LACK OF EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING COULD RESULT IN AN INABILITY TO ACCURATELY REPORT OUR FINANCIAL RESULTS, WHICH COULD LEAD TO A LOSS OF INVESTOR CONFIDENCE IN OUR FINANCIAL REPORTS AND HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE.

     Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed. We have in the past discovered, and may in the future discover, deficiencies in our internal controls. Evaluations of the effectiveness of our internal controls in the future may lead our management to determine that internal control over financial reporting is no longer effective. Such conclusions may result from our failure to implement controls for changes in our business, or deterioration in the degree of compliance with our policies or procedures.

     A failure to maintain effective internal control over financial reporting, including a failure to implement effective new controls to address changes in our business could result in a material misstatement of our consolidated financial statements or otherwise cause us to fail to meet our financial reporting obligations. This, in turn, could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

OUR DEBT LEVELS COULD HARM OUR ABILITY TO OBTAIN ADDITIONAL FINANCING, AND OUR ABILITY TO MEET OUR DEBT OBLIGATIONS WILL BE DEPENDENT UPON OUR FUTURE PERFORMANCE.

     As of March 31, 2008, our total debt was $156 million, compared to $163 million at December 31, 2007. Our debt-to-equity ratio was 0.95 and 1.07 at March 31, 2008 and December 31, 2007, respectively. Increases in our debt-to-equity ratio could adversely affect our ability to obtain additional financing for working capital, acquisitions or other purposes and make us more vulnerable to industry downturns and competitive pressures.

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     Certain of our debt facilities contain terms that subject us to financial and other covenants. We were not in compliance with certain financial covenants as of March 31, 2008. We obtained a waiver in May 2008. We were in compliance with all of these covenants as of December 31, 2007.

     From time to time our ability to meet our debt obligations will depend upon our ability to raise additional financing and on our future performance and ability to generate substantial cash flow from operations, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. If we are unable to meet debt obligations or otherwise are obliged to repay any debt prior to its due date, our available cash would be depleted, perhaps seriously, and our ability to fund operations harmed. In addition, our ability to service long-term debt in the U.S. or to obtain cash for other needs from our foreign subsidiaries may be structurally impeded, as a substantial portion of our operations are conducted through our foreign subsidiaries. Our cash flow and ability to service debt are partially dependent upon the liquidity and earnings of our subsidiaries as well as the distribution of those earnings, or repayment of loans or other payments of funds by those subsidiaries, to the U.S. parent corporation. These foreign subsidiaries are separate and distinct legal entities and may have limited or no obligation, contingent or otherwise, to pay any amount to us, whether by dividends, distributions, loans or any other form.

WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE.

     We intend to continue to make capital investments to support new products and manufacturing processes that achieve manufacturing cost reductions and improved yields. We may seek additional equity or debt financing to fund operations, strategic transactions, or other projects. The timing and amount of such capital requirements cannot be precisely determined at this time and will depend on a number of factors, including demand for products, product mix, changes in semiconductor industry conditions and competitive factors. Additional debt or equity financing may not be available when needed or, if available, may not be available on satisfactory terms.

A SUBSTANTIAL PORTION OF OUR SHORT-TERM INVESTMENT PORTFOLIO IS INVESTED IN AUCTION-RATE SECURITIES. FAILURES IN THESE AUCTIONS MAY AFFECT OUR LIQUIDITY, WHILE RATING DOWNGRADES OF THE SECURITY ISSUER AND/OR THE THIRD-PARTIES INSURING SUCH INVESTMENTS MAY REQUIRE US TO ADJUST THE CARRYING VALUE OF THESE INVESTMENTS THROUGH AN IMPAIRMENT CHARGE.

     Approximately $28 million of our investment portfolio at March 31, 2008 is invested in auction rate securities, of which $2 million was sold in April 2008. Auction rate securities are securities that are structured with short-term interest rate reset dates of generally less than ninety days but with contractual maturities that can be well in excess of ten years. At the end of each reset period, investors can sell or continue to hold the securities at par. These securities are subject to fluctuations in fair value depending on the supply and demand at each auction. If the auctions for the securities we own fail, the investments may not be readily convertible to cash until a future auction of these investments is successful. If the credit rating of either the security issuer or the third-party insurer underlying the investments deteriorates, we may be required to adjust the carrying value of the investment through an impairment charge.

     During the three months ended March 31, 2008, we recorded an impairment of $1,113 relating to decline in the value of auction-rate securities which is recorded as comprehensive loss. We do not believe that the impairment is “other than temporary” due to our intent and ability to hold the securities until they can be liquidated at par value.

PROBLEMS THAT WE EXPERIENCE WITH KEY CUSTOMERS OR DISTRIBUTORS MAY HARM OUR BUSINESS.

     Our ability to maintain close, satisfactory relationships with large customers is important to our business. A reduction, delay, or cancellation of orders from our large customers would harm our business. The loss of one or more of our key customers, or reduced orders by any of our key customers, could harm our business and results of operations. Moreover, our customers may vary order levels significantly from period to period, and customers may not continue to place orders with us in the future at the same levels as in prior periods.

     We sell many of our products through distributors. Our distributors could experience financial difficulties or otherwise reduce or discontinue sales of our products. Our distributors could commence or increase sales of our competitors’ products. In any of these cases, our business could be harmed. Our sales terms for European distributors generally include very limited rights of return and stock rotation privileges. However, as we evaluate how to refine our distribution strategy, we may need to modify our sales terms or

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make changes to our distributor base, which may impact our future revenues in this region. It may take time for us to convert systems and processes to support modified sales terms. In addition, revenues in Asia may be impacted in the future as we refine our distribution strategy and optimize our distributor base in this region. It may take time for us to identify financially viable distributors and help them develop high quality support services. There can be no assurances that we will be able to manage these changes in an efficient and timely manner, or that our net revenues, result of operations and financial position will not be negatively impacted as a result.

WE ARE NOT PROTECTED BY LONG-TERM CONTRACTS WITH OUR CUSTOMERS.

     We do not typically enter into long-term contracts with our customers, and we cannot be certain as to future order levels from our customers. When we do enter into a long-term contract, the contract is generally terminable at the convenience of the customer. In the event of an early termination by one of our major customers, it is unlikely that we will be able to rapidly replace that revenue source, which would harm our financial results.

OUR FAILURE TO SUCCESSFULLY INTEGRATE BUSINESSES OR PRODUCTS WE HAVE ACQUIRED COULD DISRUPT OR HARM OUR ONGOING BUSINESS.

     We have from time to time acquired, and may in the future acquire additional, complementary businesses, facilities, products and technologies. For example, we acquired Quantum Research Group on March 6, 2008 for $96 million. Achieving the anticipated benefits of an acquisition depends, in part, upon whether the integration of the acquired business, products or technology is accomplished in an efficient and effective manner. Moreover, successful acquisitions in the semiconductor industry may be more difficult to accomplish than in other industries because such acquisitions require, among other things, integration of product offerings, manufacturing operations and coordination of sales and marketing and research and development efforts. The difficulties of such integration may be increased by the need to coordinate geographically separated organizations, the complexity of the technologies being integrated, and the necessity of integrating personnel with disparate business backgrounds and combining two different corporate cultures.

     The integration of operations following an acquisition requires the dedication of management resources that may distract attention from the day-to-day business, and may disrupt key research and development, marketing or sales efforts. The inability of management to successfully integrate any future acquisition could harm our business. Furthermore, products acquired in connection with acquisitions may not gain acceptance in our markets, and we may not achieve the anticipated or desired benefits of such transactions.

WE ARE SUBJECT TO ENVIRONMENTAL REGULATIONS, WHICH COULD IMPOSE UNANTICIPATED REQUIREMENTS ON OUR BUSINESS IN THE FUTURE. ANY FAILURE TO COMPLY WITH CURRENT OR FUTURE ENVIRONMENTAL REGULATIONS MAY SUBJECT US TO LIABILITY OR SUSPENSION OF OUR MANUFACTURING OPERATIONS.

     We are subject to a variety of international, federal, state and local governmental regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing processes. Increasing public attention has been focused on the environmental impact of semiconductor operations. Although we have not experienced any material adverse effect on our operations from environmental regulations, any changes in such regulations or in their enforcement may impose the need for additional capital equipment or other requirements. If for any reason we fail to control the use of, or to restrict adequately the discharge of, hazardous substances under present or future regulations, we could be subject to substantial liability or our manufacturing operations could be suspended.

     We also could face significant costs and liabilities in connection with product take-back legislation. We record a liability for environmental remediation and other environmental costs when we consider the costs to be probable and the amount of the costs can be reasonably estimated. The EU has enacted the Waste Electrical and Electronic Equipment Directive, which makes producers of electrical goods, including computers and printers, financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. The deadline for the individual member states of the EU to enact the directive in their respective countries was August 13, 2004 (such legislation, together with the directive, the “WEEE Legislation”). Producers participating in the market became financially responsible for implementing these responsibilities beginning in August 2005. Our potential liability

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resulting from the WEEE Legislation may be substantial. Similar legislation has been or may be enacted in other jurisdictions, including in the United States, Canada, Mexico, China and Japan, the cumulative impact of which could be significant.

WE DEPEND ON CERTAIN KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL MAY SERIOUSLY HARM OUR BUSINESS.

     Our future success depends in large part on the continued service of our key technical and management personnel, and on our ability to continue to attract and retain qualified employees, particularly those highly skilled design, process and test engineers involved in the manufacture of existing products and in the development of new products and processes. The competition for such personnel is intense, and the loss of key employees, none of whom is subject to an employment agreement for a specified term or a post-employment non-competition agreement, could harm our business.

BUSINESS INTERRUPTIONS COULD HARM OUR BUSINESS.

     Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan. In addition, business interruption insurance may not be enough to compensate us for losses that may occur and any losses or damages incurred by us as a result of business interruptions could significantly harm our business.

SYSTEM INTEGRATION DISRUPTIONS COULD HARM OUR BUSINESS.

     We periodically make enhancements to our integrated financial and supply chain management systems. This process is complex, time-consuming and expensive. Operational disruptions during the course of this process or delays in the implementation of these enhancements could impact our operations. Our ability to forecast sales demand, ship products, manage our product inventory and record and report financial and management information on a timely and accurate basis could be impaired while we are making these enhancements.

PROVISIONS IN OUR RESTATED CERTIFICATE OF INCORPORATION, BYLAWS AND PREFERRED SHARES RIGHTS AGREEMENT MAY HAVE ANTI-TAKEOVER EFFECTS.

     Certain provisions of our Restated Certificate of Incorporation, our Bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. Our board of directors has the authority to issue up to 5 million shares of preferred stock and to determine the price, voting rights, preferences and privileges and restrictions of those shares without the approval of our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control, by making it more difficult for a third party to acquire a majority of our stock. In addition, the issuance of preferred stock could have a dilutive effect on our stockholders. We have no present plans to issue shares of preferred stock.

     We also have a preferred shares rights agreement with Equiserve Trust Company, N.A., as rights agent, dated as of September 4, 1996, amended and restated on October 18, 1999 and amended as of November 7, 2001, which gives our stockholders certain rights that would likely delay, defer or prevent a change of control of Atmel in a transaction not approved by our board of directors.

CHANGES IN STOCK OPTION ACCOUNTING RULES MAY ADVERSELY IMPACT OUR REPORTED OPERATING RESULTS, OUR STOCK PRICE, AND OUR ABILITY TO OFFER COMPETITIVE COMPENSATION ARRANGEMENTS WITH OUR EMPLOYEES.

     In December 2004, the FASB issued SFAS No. 123R, which is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”), and supersedes our previous accounting under APB No. 25.

     We adopted SFAS No. 123R effective January 1, 2006, using the modified prospective transition method and our consolidated financial statements as of and for the years ended December 31, 2007 and 2006 are based on this method. In accordance with the modified prospective transition method, our consolidated financial statements for prior periods have not been restated to reflect the impact of SFAS No. 123R.

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     We have elected to adopt FSP No. FAS 123(R)-3 to calculate our pool of windfall tax benefits.

     SFAS No. 123R requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest will be recognized as expense over the requisite service periods in our consolidated statements of operations. Prior to January 1, 2006, we accounted for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25 as allowed under SFAS No. 123 (and further amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123”). Under the intrinsic value method, stock-based compensation expense was recognized in our consolidated statements of operations for stock based awards granted to employees when the exercise price of these awards was less than the fair market value of the underlying stock at the date of grant.

     Income from continuing operations for the three months ended March 31, 2008 and 2007 was reduced by stock-based compensation expenses of $6 million and $3 million, respectively. These charges were calculated in accordance with SFAS No. 123R.

     The implementation of SFAS No. 123R has resulted in lower reported operating results, net income, and earnings per share, which could negatively impact our future stock price. In addition, this could impact our ability to utilize employee stock plans to reward employees, and could result in a competitive disadvantage to us in attracting or retaining employees in the future.

OUR FOREIGN PENSION PLANS ARE UNFUNDED, AND ANY REQUIREMENT TO FUND THESE PLANS IN THE FUTURE COULD NEGATIVELY IMPACT OUR CASH POSITION AND OPERATING CAPITAL.

     We sponsor defined benefit pension plans that cover substantially all our French and German employees. Plan benefits are managed in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. Pension benefits payable totaled $59 and $53 million at March 31, 2008 and December 31, 2007. The plans are non-funded, in compliance with local statutory regulations, and we have no immediate intention of funding these plans. Benefits are paid when amounts become due, commencing when participants retire. Cash funding for benefits paid in 2007 was approximately $1 million, and we expect to pay $2 million in 2008. Should legislative regulations require complete or partial funding of these plans in the future, it could negatively impact our cash position and operating capital.

OUR ACQUISITION STRATEGY MAY RESULT IN UNANTICIPATED ACCOUNTING CHARGES OR OTHERWISE ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, AND RESULT IN DIFFICULTIES IN ASSIMILATING AND INTEGRATING THE OPERATIONS, PERSONNEL, TECHNOLOGIES, PRODUCTS AND INFORMATION SYSTEMS OF ACQUIRED COMPANIES OR BUSINESSES, OR BE DILUTIVE TO EXISTING STOCKHOLDERS.

     A key element of our business strategy includes expansion through the acquisitions of businesses, assets, products or technologies that allow us to complement our existing product offerings, expand our market coverage, increase our skilled engineering workforce or enhance our technological capabilities. Between January 1, 1999 and December 31, 2007, we acquired two companies and certain assets of three other businesses. We continually evaluate and explore strategic opportunities as they arise, including business combination transactions, strategic partnerships, and the purchase or sale of assets, including tangible and intangible assets such as intellectual property. For example, on March 6, 2008, we completed the purchase of Quantum Research Group Ltd. (“Quantum”), a developer of capacitive sensing IP and solutions for user interfaces.

     Acquisitions may require significant capital infusions, typically entail many risks, and could result in difficulties in assimilating and integrating the operations, personnel, technologies, products and information systems of acquired companies or businesses. We have in the past and may in the future experience delays in the timing and successful integration of an acquired company’s technologies and product development through volume production, unanticipated costs and expenditures, changing relationships with customers, suppliers and strategic partners, or contractual, intellectual property or employment issues. In addition, key personnel of an acquired company may decide not to work for us. The acquisition of another company or its products and technologies may also require us to enter into a geographic or business market in which we have little or no prior experience. These challenges could disrupt our ongoing business, distract our management and employees, harm our reputation and increase our expenses. These challenges are magnified as the size of the acquisition increases. Furthermore, these challenges would be even greater if we acquired a business or entered into a business combination transaction with a company that was larger and more difficult to integrate than the companies we have historically acquired.

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     Acquisitions may require large one-time charges and can result in increased debt or contingent liabilities, adverse tax consequences, additional stock-based compensation expense, and the recording and later amortization of amounts related to certain purchased intangible assets, any of which items could negatively impact our results of operations. In addition, we may record goodwill in connection with an acquisition and incur goodwill impairment charges in the future. Any of these charges could cause the price of our common stock to decline. Beginning January 1, 2009, the accounting for future business combinations will change. We expect that the new requirements will have an impact on our consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions we consummate after the effective date.

     Acquisitions or asset purchases made entirely or partially for cash may reduce our cash reserves. We may seek to obtain additional cash to fund an acquisition by selling equity or debt securities. Any issuance of equity or convertible debt securities may be dilutive to our existing stockholders.

     We cannot assure you that we will be able to consummate any pending or future acquisitions or that we will realize any anticipated benefits from these acquisitions. We may not be able to find suitable acquisition opportunities that are available at attractive valuations, if at all. Even if we do find suitable acquisition opportunities, we may not be able to consummate the acquisitions on commercially acceptable terms, and any decline in the price of our common stock may make it significantly more difficult and expensive to initiate or consummate additional acquisitions.

WE MAY NOT BE ABLE TO EFFECTIVELY UTILIZE ALL OF OUR MANUFACTURING CAPACITY, WHICH MAY NEGATIVELY IMPACT OUR BUSINESS.

     The manufacture and assembly of semiconductor devices requires significant fixed investment in manufacturing facilities, specialized equipment, and a skilled workforce. If we are unable to fully utilize our own fabrication facilities due to decreased demand, significant shift in product mix, obsolescence of the manufacturing equipment installed, lower than anticipated manufacturing yields, or other reasons, our operating results will suffer. Our inability to produce at anticipated output levels could include delays in the recognition of revenue, loss of revenue or future orders, customer-imposed penalties for failure to meet contractual shipment deadlines.

     Our operating results are also adversely affected when we operate at production levels below optimal capacity. Lower capacity utilization results in certain costs being charged directly to expense and lower gross margins. During 2007, we lowered production levels significantly at our North Tyneside, United Kingdom manufacturing facility to avoid building more inventory than we were forecasting orders for. As a result, operating costs for these periods were higher than in prior periods negatively impacting gross margins. We closed our North Tyneside in the first quarter of 2008. In addition, other Atmel manufacturing facilities could experience similar conditions requiring production levels to be reduced below optimal capacity levels. If we are unable to operate our manufacturing facilities at optimal production levels, our operating costs will increase and gross margin and results from operations will be negatively impacted.

DISRUPTIONS TO THE AVAILABILITY OF RAW MATERIALS CAN DISRUPT OUR ABILITY TO SUPPLY PRODUCTS TO OUR CUSTOMERS, WHICH COULD SERIOUSLY HARM OUR BUSINESS.

     The manufacture of semiconductor devices requires specialized raw materials, primarily certain types of silicon wafers. We generally utilize more than one source to acquire these wafers, but there are only a limited number of qualified suppliers capable of producing these wafers in the market. The raw materials and equipment necessary for our business could become more difficult to obtain as worldwide use of semiconductors in product applications increases. We have experienced supply shortages from time to time in the past, and on occasion our suppliers have told us they need more time than expected to fill our orders. Any significant interruption of the supply of raw materials could harm our business.

WE COULD FACE PRODUCT LIABILITY CLAIMS THAT RESULT IN SIGNIFICANT COSTS AND DAMAGE TO REPUTATION WITH CUSTOMERS, WHICH WOULD NEGATIVELY IMPACT OUR OPERATING RESULTS.

     All of our products are sold with a limited warranty. However, we could incur costs not covered by our warranties, including additional labor costs, costs for replacing defective parts, reimbursement to customers for damages incurred in correcting their defective products, costs for product recalls, or other damages. These costs could be disproportionately higher than the revenue and profits we receive from the sales of these devices.

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     Our products have previously experienced, and may in the future experience, manufacturing defects, software or firmware bugs, or other similar defects. If any of our products contains defects or bugs, or has reliability, quality or compatibility problems, our reputation may be damaged and customers may be reluctant to buy our products, which could materially and adversely affect our ability to retain existing customers and attract new customers. In addition, these defects or bugs could interrupt or delay sales or shipment of our products to our customers.

     We have implemented significant quality control measures to mitigate this risk; however, it is possible that products shipped to our customers will contain defects or bugs. In addition, these problems may divert our technical and other resources from other development efforts. If any of these problems are not found until after we have commenced commercial production of a new product, we may be required to incur additional costs or delay shipments for revenue which would negatively affect our business, financial condition and results of operations.

OUR REVENUES ARE DEPENDENT ON SELLING THROUGH DISTRIBUTORS.

     Sales through distributors accounted for 47% and 43% of our net revenues in the three months ended March 31, 2008 and 2007, respectively. We market and sell our products through third-party distributors pursuant to agreements that can generally be terminated for convenience by either party upon relatively short notice to the other party. These agreements are non-exclusive and also permit our distributors to offer our competitors’ products. We are dependent on our distributors to supplement our direct marketing and sales efforts. If any significant distributor or a substantial number of our distributors terminated their relationship with us or decided to market our competitors’ products over our products, our ability to bring our products to market would be negatively impacted, we may have difficulty in collecting outstanding receivable balances, and we may incur other charges or adjustments resulting in material adverse impact to our revenues and operating results.

     Additionally, distributors typically maintain an inventory of our products. For certain distributors, we have signed agreements which protect the value of their inventory of our products against price reductions, as well as provide for rights of return under specific conditions. In addition, certain agreements with our distributors also contain standard stock rotation provisions permitting limited levels of product returns. We defer the gross margins on our sales to these distributors, until the applicable products are re-sold by the distributors. However, in the event of an unexpected significant decline in the price of our products or significant return of unsold inventory, we may experience inventory write-downs, charges to reimburse costs incurred by distributors, or other charges or adjustments which could harm our revenues and operating results.

THE OUTCOME OF CURRENTLY ONGOING AND FUTURE AUDITS OF OUR INCOME TAX RETURNS, BOTH IN THE U.S. AND IN FOREIGN JURISDICTIONS, COULD HAVE AN ADVERSE EFFECT ON OUR NET INCOME (LOSS) AND FINANCIAL CONDITION.

     We are subject to continued examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. While we believe that the resolution of these audits will not have a material adverse impact on our results of operations, cash flows or financial position, the outcome is subject to uncertainties. If we are unable to obtain agreements with the tax authority on the various proposed adjustments, there could be an adverse material impact on our results of operations, cash flows and financial position.

IF WE ARE UNABLE TO COMPLY WITH ECONOMIC INCENTIVE TERMS IN CERTAIN GOVERNMENT GRANTS, WE MAY NOT BE ABLE TO RECEIVE OR RECOGNIZE GRANT BENEFITS OR WE MAY BE REQUIRED TO REPAY GRANT BENEFITS PREVIOUSLY PAID TO US AND RECOGNIZE RELATED CHARGES, WHICH WOULD ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL POSITION.

     We receive economic incentive grants and allowances from European governments targeted at increasing employment at specific locations. The subsidy grant agreements typically contain economic incentive and other covenants that must be met to receive and retain grant benefits. Noncompliance with the conditions of the grants could result in the forfeiture of all or a portion of any future amounts to be received, as well as the repayment of all or a portion of amounts received to date. For example, we recently paid $40 million of government grants as a result of closing our North Tyneside manufacturing facility. In addition, we may need to record charges to reverse grant benefits recorded in prior periods as a result of changes to our plans for headcount, project spending, or

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capital investment at any of these specific locations. If we are unable to comply with any of the covenants in the grant agreements, our results of operations and financial position could be materially adversely affected.

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

     On March 6, 2008, in connection with our acquisition of Quantum, we issued 125,915 shares of our common stock to a former Quantum shareholder in exchange for such shareholder’s shares of Quantum. The issuance of such shares was exempt from registration pursuant to Regulation S promulgated under the Securities Act of 1933, as amended. See Note 2 to the condensed consolidated financial statements for more information regarding the issuance of such shares.

Item 3. Defaults Upon Senior Securities

     None.

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

     None.

Item 5. Other Information

     Amendment of Material Agreement

     On May 7, 2008, the parties to the Facility Agreement, dated as of March 15, 2006, by and among Atmel Corporation, Atmel Sarl, Atmel Switzerland Sarl, the financial institutions listed therein, and Bank of America, N.A., as facility agent and security agent (the “Agreement”), entered into a waiver letter. Pursuant to the waiver letter, the parties to the Agreement waived (i) Atmel Corporation’s obligation not to permit the “Fixed Charge Coverage Ratio,” as defined in the Agreement, to fall below 1.10:1 for the fiscal quarter ended March 31, 2008, and (ii) any “Event of Default,” as defined in the Agreement, that occurred prior to the date of the waiver letter resulting from the failure to comply with the Fixed Charge Coverage Ratio. In connection with the waiver letter, we paid the facility agent a waiver fee in the amount of $75,000, as well as certain costs and expenses required by the Agreement. Bank of America, N.A. has provided, and in the future may provide banking and related services to Atmel.

Item 6. Exhibits

     The following Exhibits have been filed with, or incorporated by reference into, this Report:

3.1	Amended and Restated Bylaws of Atmel Corporation as of April 9, 2008 (which is incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on April 15, 2008).
10.1*	Share Purchase Agreement, dated February 6, 2008, by and among Atmel Corporation, Atmel UK Holdings Limited, QRG Limited and Mr. Harald Phillip.
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*	Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission.

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SIGNATURES

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

	ATMEL CORPORATION (Registrant)
May 12, 2008	/s/ STEVEN LAUB
	Steven Laub
	President & Chief Executive Officer (Principal Executive Officer)
May 12, 2008	/s/ ROBERT AVERY
	Robert Avery
	Vice President Finance & Chief Financial Officer (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

3.1	Amended and Restated Bylaws of Atmel Corporation as of April 9, 2008 (which is incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on April 15, 2008).
10.1*	Share Purchase Agreement, dated February 6, 2008, by and among Atmel Corporation, Atmel UK Holdings Limited, QRG Limited and Mr. Harald Phillip.
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*	Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission.

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EX-10.1

Exhibit 10.1

NOTE: Information in this document marked with an “[*]” has been omitted and filed
separately with the Commission. Confidential Treatment has been requested with respect to
the omitted portions.

SHARE PURCHASE AGREEMENT

by and among

ATMEL U.K. HOLDINGS LIMITED,

ATMEL CORPORATION,

AND

MR. HARALD PHILIPP

Dated as of 6 February 2008

Herbert Smith LLP

TABLE OF CONTENTS

1	DEFINITIONS	4
2	SHARE PURCHASE	19
3	CONDITIONS	20
4	EXCHANGE AND BRING DOWN	21
5	CONDUCT PRIOR TO THE CLOSING DATE	24
6	CLOSING	34
7	REPRESENTATIONS AND WARRANTIES OF THE SELLER	35
8	INDEMNIFICATION AND LIMITATION OF CLAIMS	66
9	REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE BUYER	73
10	TERMINATION	74
11	ADDITIONAL AGREEMENTS	76
12	CONFIDENTIALITY OBLIGATIONS	77
13	NON-COMPETITION; NON-SOLICITATION	79
14	PARENT GUARANTEE	81
15	GENERAL	81
Schedules
1A.	Registered holders of Company Shares at the date of this Agreement
1B.	Registered holders of Company Shares at the Closing Date
1C.	Details of Optionholders
2.	Co-Inventors, Critical Consultants, Critical Employees, Important Consultants and Important Employees
3.	Escrow Account
4.	Deferred Consideration
5.	Specified Retention

Documents in the Agreed Terms

1. The application for the approval of the transaction contemplated by this Agreement by the German Federal Cartel Office (Bundeskartellamt) pursuant to Section 40 of the German Act on Restraints of Competition (Gesetz gegen Wettbewerbsbeschraenkungen) to be submitted pursuant to clause 3.2.1.

2

2.	The Tax Deed.
3.	Design Rights Transfer Agreement.
4.	The Option Proposal Letters.

i	EMI version.
ii	[*] version.
iii	[*] version.
iv	Unapproved version.

5. The Optionholder Decision Forms.

i	EMI version.
ii	[*] version.
iii	[*] version.
iv	Unapproved version.

6.	The Buyer’s Solicitors’ Undertaking.
7.	The Seller’s Solicitors’ Undertaking.
8.	Written resignation of Directors and Company Secretary.
9.	The Deed of Appointment and Retirement of EBT Trustees.
10.	The template Confirmation Letter in respect of the Important Consultants.
11.	The template Important Employer Employment Contract.

[*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

3

SHARE PURCHASE AGREEMENT

THIS SHARE PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of 6 February, 2008 by and among Atmel U.K. Holdings Limited, a company incorporated in England and Wales and registered under the number 4018933 (the “Buyer”), Atmel Corporation, a corporation organised under the laws of the State of Delaware (the “Parent”), and Mr Harald Philipp of [*](the “Seller”) (each, a “Party” and collectively, the “Parties”). [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

A.	The Seller and the Minority Shareholders own and the Optionholders hold options to acquire Company Shares.
B.	The Buyer wishes to purchase the entire issued and to be issued share capital of the Company.
C.	On even date herewith, the Buyer has entered into the Minority Shareholders’ Agreements, pursuant to which the Buyer will purchase all of the issued Company Shares held by the Minority Shareholders.
D.	Pursuant to this Agreement, the Buyer wishes to acquire all the Company Shares held by the Seller.

In consideration of the foregoing premises, and the mutual covenants, agreements, representations and warranties set forth herein, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and accepted, and intending to be legally bound hereby, the Parties hereto hereby agree as follows:

1	DEFINITIONS
1.1	Certain Defined Terms.
	For all purposes of and under this Agreement, the following capitalised terms shall have the following respective meanings:
	“Action” shall mean any action, claim, proceeding, suit, hearing, litigation, audit or investigation (whether civil, criminal, administrative, judicial or investigative), or any appeal therefrom.
	“Actual Tax” means the amount of capital gains tax in the United Kingdom actually payable by the Seller on the Purchase Consideration (excluding for these purposes any adjustments to the Purchase Consideration under clauses 8.6 to 8.9) but provided that such amount shall not exceed 18% of the Purchase Consideration (excluding for these purposes any adjustments to the Purchase Consideration under clauses 8.6 to 8.9).
	“Affiliate” means with respect to any Person, any other Person, whether or not existing on the date hereof, controlling, controlled by or under common control with such first Person. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
	“Ancillary Agreements” shall mean each of:

(a) the Ireland Agreement;

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(b)	the IP Transfer Agreements;
(c)	the Non Quarry Entity Amending Agreements;
(d)	the Consents;
(e)	the Critical Employee Employment Contracts;
(f)	the Confirmation Letters;
(g)	the Minority Shareholders’ Agreements;
(h)	the Disclosure Letter;
(i)	the Tax Deed;
(j)	the Escrow Account Instruction Letter;
(k)	the Important Employee Employment Contracts;
(l)	the Option Decision Forms;
(m)	the Option Proposal Letters; and
(n)	the Irish IP Licence.

“Bring Down Date” means the earlier of:

(a)	12.00 am three (3) Business Days after the earlier of (i) the date on which notification is received by the Seller, pursuant to clause 3.3, of satisfaction of the condition set out in clause 3.1 and (ii) the date on which the condition set out in clause 3.1 is waived pursuant to clause 3.5; and
(b)	12.00 am on the Business Day which is three (3) Business Days following expiry of the time period referred to in clause 3.1.2 (irrespective of whether any decision has been taken the authority referred to in that clause),

or such other date as the Parties may agree in writing.

“Business Day” shall mean each day that is not a Saturday, Sunday or other day on which the Buyer or the Company is closed for business or banking institutions located in San Francisco, California, Dublin, Republic of Ireland, or London, United Kingdom are authorised or obligated by applicable Law or executive order to close.

“Buyer’s Solicitors” means Herbert Smith LLP of Exchange House, Primrose Street, London, EC2A 2HS, UK.

“Buyer’s Solicitors’ Undertaking” shall mean the undertaking of the Buyer’s Solicitor in the agreed terms.

“Claim” means any Indemnity Claim, Tax Deed Claim or Warranty Claim.

“Closing” means completion of this Agreement in accordance with clause 6.

“Closing Date” means that date upon which Closing occurs.

5

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

“Co-Inventors” means the individuals whose names are specified in Part 1 of Schedule 2 hereof.

“Company” shall mean QRG Limited, a company incorporated in England and Wales and registered under the number 3540505.

“Company Board” shall mean the board of directors of the Company.

“Company Business” shall mean the business of owning, exploiting, developing, manufacturing, making commercially available, marketing, distributing, selling, importing for resale or licensing out of the Company Products and the Company Intellectual Property.

“Company Employee” shall mean any current Employee of any QRG Group Entity.

“Company Employee Plan” shall mean any plan, program, policy, practice, contract, agreement or other arrangement, whether written or unwritten, providing for compensation, severance, redundancy pay, termination pay, change in control, bonus, deferred compensation, performance awards, share or share-related awards, profit-share, welfare benefits, fringe benefits, payroll practice or other employee benefits or remuneration, of any kind including, without limitation, for the provision of retirement, death, disability, life assurance, medical, sickness, permanent ill health or similar benefits, or incentivisation or retention of any kind, whether written or unwritten, funded or unfunded of any QRG Group Entity in relation to any Company Employee or any former Employee of any QRG Group Entity, including the Company Options.

“Company Intellectual Property” shall mean any and all Intellectual Property Rights that are owned by or exclusively licensed to any QRG Group Entity including without limitation all Intellectual Property Rights transferred or purported to be transferred to any QRG Group Entity pursuant to any IP Transfer Agreement (regardless of the effectiveness or validity of any such agreement).

“Company Material Adverse Effect” shall mean any change, event, circumstance, effect or development that, individually or taken together with any other change, event, circumstance, effect or development is, or could reasonably be expected to be or become, materially adverse to (i) the condition (financial or otherwise), properties, assets (including intangible assets), Liabilities, business, operations or results of operations of the QRG Group Entities taken as a whole, or (ii) the effective transfer to the Buyer, pursuant to this Agreement and the Ancillary Agreements, of the entire issued and to be issued share capital of the Company, provided however that any adverse change, event, circumstance or effect arising from or related to conditions generally affecting (A) the industry in which such entity or its subsidiaries operate (provided that such conditions do not affect such entity disproportionately as compared to such entity’s competitors) or (B) the global securities markets or the world economy (provided that such conditions do not affect such entity disproportionately as compared to such entity’s competitors), shall not be taken into account in determining whether a Company Material Adverse Effect has occurred or could reasonably be expected to occur.

“Company Option” shall mean each EMI Option and each Unapproved Option, and “Company Options” means all of them.

“Company Products” shall mean all products and services developed (including products and services for which development is substantially completed), manufactured, made commercially available, marketed, distributed, sold, imported for resale or licensed out by or

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on behalf of any QRG Group Entity (and their predecessor Entities) in the last five (5) years and all products and services which any QRG Group Entity intends at the date of this Agreement to manufacture, make commercially available, market, distribute, sell, import for resale, or license out within twelve (12) months after the date hereof.

“Company Registered Intellectual Property” shall mean all Registered Intellectual Property that has been registered or filed in the name of any QRG Group Entity or that is or was Company Intellectual Property.

“Company Share” shall mean each issued ordinary share, ordinary “A” share (including any ordinary share or ordinary “A” share subject to a share warrant to bearer), each such share with a nominal value of one hundredth of a penny sterling in the capital of the Company, fully paid or credited as fully paid, and any other issued shares in the capital of the Company, and “Company Shares” shall mean all of them.

“Company Source Code” shall mean software and other code that is, or is capable of being rendered into human readable and understandable form or is intended to be compiled into machine readable or object code form and that is owned or created by any QRG Group Entity, and “Company Source Code” shall include netlists, RTL and GDSII files, Gerber files, and similar code used in connection with the design or manufacture of Company Products.

“Confidentiality Agreement” has the meaning set out in clause 12.1.1.

“Confirmation Letter” means the letter in respect of each Critical Consultant and Important Consultant confirming that such consultant agrees to continue to be engaged on the terms of their existing consultancy agreement and the non-disclosure agreement, each letter and non-disclosure agreement signed by the relevant Critical Consultant or Important Consultant in the form of the template letter in the agreed terms.

“Confirmatory Assignment” means a short form assignment in the agreed terms relating to the Intellectual Property Rights transferred to the Company pursuant to the Philipp IP Transfer Agreement.

“Consents” means:

(a)	the written consent in the agreed terms of [*] to the acquisition of the entire issued share capital of the Company by the Buyer as required pursuant to the software licence agreement between the Company and [*] dated 26 May 2006; and
(b)	the written consent in the agreed terms of [*] to the acquisition of the entire issued share capital of the Company by the Buyer as required pursuant to licence agreement between the Company and [*] dated 29 November 2007.
	[Information marked [*] in this section has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

“Consolidated Group” shall mean an affiliated, consolidated, combined, unitary or other group for Tax purposes (including any arrangement for group or consortium relief or similar arrangement).

“Contract” shall mean any mortgage, indenture, lease, contract, covenant, plan, insurance policy or other contract, agreement, instrument, arrangement, understanding or commitment, permit, concession, franchise or licence (whether written or oral).

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“Critical Consultants” means the individuals whose names are specified in part 2 of Schedule 2.

“Critical Employees” means the individuals whose names are specified in part 3 of Schedule 2.

“Critical Employee Employment Contracts” means employment contracts in respect of each of the Critical Employees signed in each case by the relevant Critical Employee;

“Data Protection Laws” shall mean: (i) all applicable Laws, regulations, regulatory requirements and/or codes of practice in connection with the processing of personal data including, but not limited to, the UK Data Protection Act 1998; and (ii) all relevant European data protection and privacy Laws including, but not limited to, Directive 95/46/EC on the processing of personal data and the free movement of such data.

“Deferred Consideration” means the sum of US$[*] represented in the form and payable in accordance with the terms of this Agreement and Schedule 4 hereof in particular. [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

“Design Rights Transfer Agreement” means the agreement between (1) Mr [*] and (2) the Company in the agreed terms pursuant to which Mr [*] irrevocably transferred to the Company the Intellectual Property Rights referred to therein. [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

“Disclosure Documents” means the true and complete copies of documents listed in the schedule of documents annexed to the Disclosure Letter.

“Disclosure Letter” means the disclosure letter of the same date as this Agreement and delivered by the Seller to the Buyer in final form (together with the Disclosure Documents), the receipt of which has been acknowledged by the Buyer in writing.

“Distribution Amount” means the Escrow Amount and any net interest thereon less (i) any amounts paid to the Buyer pursuant to clause 8.5 from the Escrow Amount and (ii) the Holdback Amount.

“Domain Name Transfer Agreement” means the agreement between (1) Mr [*] and (2) the Company dated 5 February 2008 pursuant to which Mr [*] irrevocably transferred to the Company the internet domain name registrations referred to therein. [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

“EBT” means the QRG Employee Benefit Trust created by deed dated 30 September 2004.

“EMI Options” means the Enterprise Management Incentive options granted by the trustees of the EBT to certain of the Optionholders over 687,000 Company Shares as specified in Part 3 of Schedule 1B.

“EMI Optionholders” means the individuals who have been granted EMI Options and who are specified in Part 1 of Schedule 1C.

“Employee” shall mean, with respect to any Entity, an employee, advisor, consultant, independent contractor or director of such Entity and its Subsidiaries, including any individual

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within the definition of “employee” or “worker” in section 230 of the UK Employment Rights Act 1996.

“Employee Agreement” shall mean each management, employment, severance, secondment, separation, settlement, consulting, consultancy, contractor, relocation, repatriation, expatriation, loan, visa, work permit or other agreement, or contract (including, any offer letter, heads of terms or any other agreement providing for remuneration or compensation or benefits) between any QRG Group Entity and any Company Employee, including any contract within section 230(2) or 230(3)(b) of the UK Employment Rights Act 1996.

“Entity” shall mean any Person that is not a natural person.

“Environmental Laws” shall mean all Laws binding upon the QRG Group Entities concerning pollution or protection of the environment, including without limitation all those relating to the, generation, handling, transportation, treatment, storage, disposal, distribution, labelling, discharge, release, threatened release, control, or cleanup of any actual or threatened emissions, seepages, discharges, escapes, releases or leaks of pollutants, contaminants, and Hazardous Materials.

“Environmental Permit” means any licence, consent, authorisation, certification, registration or Permit required under Environmental Laws.

“Escrow Account” shall mean an interest-bearing deposit account in the joint names of the Buyer’s Solicitors and the Seller’s Solicitors to be opened at the Escrow Bank and operated in accordance with this Agreement, in particular Schedule 3 hereto.

“Escrow Account Instruction Letter” means the letter in the agreed terms instructing the Buyer’s Solicitors and the Seller’s Solicitors to open and operate the Escrow Account from the (1) the Buyer and the Seller to (2) the Buyer’s Solicitor and the Seller’s Solicitors.

“Escrow Amount” means the sum of US$12,999,999.94.

“Escrow Bank” shall mean Coutts & Co. of 440, Strand, London WC2R OQS.

“Escrow Release Date” shall mean the date of the eighteen (18)-month anniversary of the Closing Date or if and to the extent of any Holdback Amount such later date on which such Holdback Amount is released pursuant to Schedule 3.

“GAAP” shall mean United Kingdom Generally Accepted Accounting Principles applicable to Smaller Entities applied by the Company on a consistent basis.

“Generally Commercially Available Code” shall mean any generally commercially available software in executable code form (other than development tools and development environments) licensed to the Company or any of its Subsidiaries on a perpetual license basis for a single up-front licence fee, for a cost of not more than £5,000 for a perpetual licence per user or work station, and not more than £25,000 in the aggregate for all perpetual licences for all users and work stations.

“Governing Documents” shall mean the charter, organisational and other documents by which any Entity establishes its legal existence or which govern its internal affairs, the rights, preferences, and privileges of its shares, share, quotas or other forms of equity interest, or its authority to issue any such shares, share, quotas or other forms of equity interest, and shall include: (i) in respect of a corporation, its certificate or articles of incorporation and memorandum or articles of association and/or its bylaws; and (ii) in respect of a partnership,

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its certificate of partnership and its partnership agreement, in each case, as amended to the date hereof.

“Governmental Entity” shall mean any supranational, national, state, municipal, local or foreign government, any court, arbitrator, administrative agency, commission or other governmental official, authority or instrumentality, in each case whether domestic or foreign, any share exchange or similar self-regulatory organisation or any quasi-governmental or private body exercising any regulatory, taxing or other governmental or quasi-governmental authority.

“Hazardous Material” shall mean any amount of any substance that has been designated by any Governmental Entity or by applicable Environmental Laws to be radioactive, toxic, hazardous or otherwise a danger to health, reproduction or the environment, including but not limited to, PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as hazardous substances but excluding office and janitorial supplies properly and safely maintained in accordance with applicable Laws.

“Health and Safety Law” means all applicable Laws, regulations, directives, statutes, subordinate legislation, common law, civil codes and other national or local laws, all judgments, Orders, instructions, or awards of any court or competent authority and all guidance notes and approved codes of practice which apply or relate to health and safety of humans.

“Holdback Amount” has the meaning given in clause 8.5.7.

“HMRC” shall mean Her Majesty’s Revenue and Customs.

“Important Consultants” means the individuals whose names are set out in Part 4 of Schedule 2.

“Important Employees” means the individuals whose names are set out in Part 5 of Schedule 2.

“Important Employee Employment Contracts” means employment contracts in respect of each of the Important Employees in the form of the template letter in the agreed terms.

“Indebtedness” shall mean, with respect to any Person, (a) all obligations of such Person for borrowed money, whether current or funded, secured or unsecured, (b) all obligations of such Person for the deferred purchase price of any property or services (other than trade accounts payable arising in the ordinary course of the business of such Person), (c) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of a default may be limited to repossession or sale of such property), (d) all obligations of such Person secured by a purchase money mortgage or other lien to secure all or part of the purchase price of property subject to such mortgage or lien, (e) all obligations under leases which shall have been or should be, in accordance with GAAP or other generally accepted accounting principles as applicable to such Person, recorded as capital leases in respect of which such Person is liable as lessee, (f) any obligation of such Person in respect of bankers’ acceptances, (g) any obligations secured by Liens on property acquired by such Person, whether or not such obligations were assumed by such Person at the time of acquisition of such property, (h) all obligations of a type referred to in clauses (a), (b), (c), (d), (e), (f) or (g) above which is directly or indirectly guaranteed by such Person or which it has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which it has otherwise assured a credit against loss, and (i) any re-financings of any of the foregoing obligations.

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“Indemnified Parties” means the Buyer, the other members of the Parent Group, the Company and each of its Subsidiaries and their respective Representatives, and “Indemnified Party” means any of them.

“Indemnity Claim” means any claim by the Buyer against the Seller pursuant to clause 8.1.

“Information Technology Systems” shall mean all communications systems and computer systems used by QRG Group Entities including all hardware, Software and websites but excluding networks generally available to the public.

“Initial Consideration” means the sum in cash of US$[*]. [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

“Intellectual Property Rights” shall mean collectively, all of the following intangible legal rights in any and all jurisdictions throughout the world, whether or not filed, perfected, registered or recorded: (i) all United States and foreign patents and utility models and applications therefor and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations in part thereof, and equivalent or similar rights anywhere in the world in inventions and discoveries including without limitation invention disclosures (“Patents”); (ii) all trade secret and corresponding rights in Know-how (“Trade Secrets”); (iii) all copyrights, copyright registrations and applications therefor, moral rights and all other rights corresponding thereto in work of authorship throughout the world (“Copyrights”); (iv) all industrial designs, design rights and any registrations and applications therefor throughout the world; (v) mask works, mask work registrations and applications therefor, and all other rights corresponding thereto throughout the world, including but not limited to semiconductor topography rights (“Mask Works”); (vi) all rights in World Wide Web addresses and domain names and applications and registrations therefor, all trade names, logos, get-up, common law Trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world (“Trademarks”); (vii) any other rights in or to Technology; and (viii) any similar, corresponding or equivalent rights to any of the foregoing.

“IP Transfer Agreements” means (i) the Philipp IP Transfer Agreement; (ii) the Domain Name Transfer Agreement; (iii) the Design Rights Transfer Agreement and (iv) each of the agreements between (1) each of the Co-Inventors and (2) the Company dated 5 February 2008 pursuant to which the Seller and each of the Co-Inventors irrevocably transferred to the Company all Intellectual Property Rights referred to therein.

“Ireland Agreement” means the agreement between the (1) Seller and Mrs Philipp and (2) the Company dated 1 February 2008 pursuant to which the Seller and Mrs Philipp transferred the legal title to the entire issued share capital of QRG Ireland to the Company.

“Irish IP Licence” shall mean the software distribution and licence agreement between the Company and QRG Ireland dated 5 February 2008 pursuant to which QRG Ireland was granted a non-exclusive licence of certain Company Intellectual Property.

“IRS” shall mean the United States Internal Revenue Service.

“ITEPA” shall mean the Income Tax (Earnings and Pensions) Act 2003.

“Know how” shall mean all know how, Trade Secrets and confidential information, in any form (including paper, electronically stored data, magnetic media, film and microfilm) including without limitation financial and technical information, drawings, formulae, test results or reports, project reports and testing procedures, information relating to the working of any

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product, process, invention, improvement or development, instruction and training manuals, tables of operating conditions, information concerning intellectual property portfolio and strategy, market forecasts, lists or particulars of customers and suppliers, sales targets, sales statistics, prices, discounts, margins, future business strategy, tenders, price sensitive information, market research reports, information relating to research and development and business development and planning reports and any information derived from any of them.

“Law” shall mean any law (including common law), statute, rule, regulation, ordinance, directive, decree, code, award, Order, or other pronouncement having the effect of law of any country or state, or of any Governmental Entity, including, for the avoidance of doubt, any law relating to anti-competitive agreements or practice or behaviour or similar matter.

“Leading Junior Counsel” means a barrister as recognised by the legal profession as being a specialist in respect of the subject matter of the claim in question and having at least 10 years’ call and ability to provide an opinion on any Payment Notice.

“Lease Agreement” has the meaning given in clause 7.16.2.

“Leased Real Property” has the meaning given in clause 7.16.2.

“Liability” shall mean any debt, liability, commitment or obligation of any kind, character or nature whatsoever, whether known or unknown, secured or unsecured, fixed, absolute, contingent or otherwise, and whether due or to become due.

“Lien” shall mean any lien, pledge, charge, claim, mortgage, right of first refusal, licence, limitation in voting interest, security interest or other encumbrance of any sort.

“Long Stop Date” means 30 June 2008.

“Losses” all losses, damages, costs and expenses (including, debts, demands, suits, claims, actions, assessments, liabilities, judgments, reasonable expenses of investigation and the reasonable fees and expenses of counsel and other professionals properly incurred in connection with investigating, defending against or settling any of the foregoing).

“Specified Retention” has the meaning given in Schedule 5 hereto.

“Minority Shares” means the [*] Company Shares which will be held, at the Closing Date, by the Minority Shareholders as set out in Part 2 of Schedule 1B. [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

“Minority Shareholders” means the several persons who hold Company Shares and whose names and addresses are set out in Part 2 of Schedule 1B.

“Minority Shareholders’ Agreements” means the agreements dated the same date as this Agreement between the (1) each of the Minority Shareholders and (2) the Buyer.

“Mrs Philipp” means Mrs Kathleen Philipp of [*]. [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

“Non Quarry Entity Amending Agreements” means certified copies of the following documents:

in respect of QRG Mauritius:

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(a)	an electronic copy of the certificate issued by the competent authority evidencing the registration of the change of name of QRG Mauritius to New Philipp Securities Limited;
(b)	the Termination Agreement duly executed by the parties thereto;

in respect of QRG Singapore:

(c) an electronic copy of the certificate issued by the competent authority evidencing the registration of the change of name of QRG Singapore to Philipp Holdings Pte. Ltd;

in respect of QRG US:

(d) an electronic copy of a certificate of dissolution issued by the State of Delaware.

“Notional Tax” means the amount of Tax that would have been payable by the Seller on the Purchase Consideration (excluding for these purposes any adjustments to the Purchase Consideration under clauses 8.6 to 8.9) had Closing occurred on 5 April 2008, provided that such amount shall be assumed to be at least 15% of the Purchase Consideration (excluding for these purposes any adjustments to the Purchase Consideration under clauses 8.6 to 8.9).

“Open Source” shall mean any open source, public source or freeware software, or any modification or derivative thereof, including any version of any software licensed pursuant to any GNU General Public Licence (GPL), GNU Lesser General Public Licence (LGPL), Mozilla Public Licence (MPL), BSD Licences, the Artistic Licence, the Netscape Public Licence, the Sun Community Source Licence (SCSL), the Sun Industry Standards Licence (SISL), the Apache Licence or other software that is licensed pursuant to a Licence that purports to require the distribution of, or access to, source code, or purports to restrict the Licencee’s ability to charge for distribution of, or to use of such software for commercial purposes, or that purports to impose any notice requirements with respect to the distribution or licensing of such software or derivatives thereof.

“Option Decision Form” means the irrevocable forms of notice of exercise and undertaking to sell the Company Options in the agreed terms.

“Optionholders” means EMI Optionholders and the Unapproved Optionholders.

“Option Proposal Letters” means the forms of letters to Optionholders in the agreed terms.

“Option Shares” means (a) the 687,000 Company Shares which are the subject of the EMI Options and; (b) the 247,000 ordinary shares with a nominal value of one hundredth of a penny sterling each in the capital of the Company to be issued fully paid or credited as fully paid which are the subject of the Unapproved Options.

“Order” shall mean any writ, judgment, decree, award, ruling, injunction, decision or similar order of any Governmental Entity or any undertaking or commitment given to such Governmental Entity, in each case whether preliminary or final.

“Parent Group” shall mean the Parent and each of its Subsidiaries and Affiliates.

“Permits” shall mean permits, Licences, variances, clearances, consents, commissions, franchises, exemptions, orders and approvals from Governmental Entities.

“Permitted Liens” shall mean (i) liens for Taxes and other similar governmental charges and assessments which are not yet due and payable, or which are being contested in good faith and for which adequate reserves have been established, (ii) liens of landlords and liens of

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carriers, warehousemen, mechanics and materialmen and other like liens arising in the ordinary course of business consistent with past practice for sums not yet due and payable, and (iii) security given in the ordinary course of business consistent with past practice to any public utility, Governmental Entity or other statutory or public authority having jurisdiction over the QRG Group Entities, and (iv) the Out-Licence (as defined in clause 7.18.15) entered into in the ordinary course and set forth in the Disclosure Letter.

“Person” shall mean any individual, corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint share company), firm or other enterprise, association, organisation, Entity or Governmental Entity.

“Philipp IP Transfer Agreement” means the agreement between (1) the Seller and (2) the Company dated 5 February 2008, pursuant to which the Seller irrevocably transferred to the Company all Intellectual Property Rights referred to therein.

“Purchase Consideration” shall mean consideration on the basis described herein equal to US$[*] (as may be reduced in accordance with this Agreement). [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

“QRG Mauritius” means Quantum Technology Management Limited (a company registered in Mauritius) whose registered office is at 608 St James Court, St Denis Street, Port Louis, Mauritius.

“QRG Group Entity” shall mean the Company and each of its Subsidiaries and Affiliates and each Entity that is an Affiliate of the Seller (which term shall include QRG Ireland but such term shall for the avoidance of doubt exclude QRG Mauritius, QRG Singapore, QRG US and [*]) which is directly or indirectly involved in the performance of the Company Business (which term shall include the Seller where applicable), and “QRG Group Entities” means all of them. [*] Certain information in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

“QRG Ireland” means Quantum Research Group Limited (a company registered in Ireland with company number 430052) whose registered office is at 70 Sir John Rogerson’s Quay, Dublin 2, Ireland.

“QRG Singapore” means QRG Research Pte. Ltd., a company incorporated under the laws of the Republic of Singapore with company number 200602694W.

“QRG US” means QRG Corp, a corporation incorporated pursuant to the laws of the State of Delaware, USA.

“Registered Intellectual Property” shall mean Intellectual Property Rights that have been registered, filed, certified or otherwise registered, perfected or recorded with or by any Governmental Entity or other public or quasi public legal authority, including any domain names registrations.

“Representatives” shall mean with respect to any Person, its Affiliates and the shareholders, employees, officers, directors, investment bankers, attorneys, accountants, agents and authorised representatives of such Person or its Affiliates.

“Seller’s Shares” means the [*] Company Shares which are held by or in respect of which the Seller is in possession of a share warrant to bearer (i) as at the date hereof as set out in part 1 of Schedule 1A and (ii) as at Closing as set out in Part 2 of Schedule 1A. [Information

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marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

“Seller’s Solicitors” means Shoosmiths of Russell House, 1550 Parkway, Solent Business Park, Whiteley, Fareham, Hampshire PO15 7AG, UK.

“Specified Warranties” means the following Warranties:

(e)	Clause 7.1 (Authority; Ownership)
(f)	Clause 7.2 (Non-contravention)
(g)	Clause 7.4 (Legal Ownership of Shares);
(h)	Clause 7.6 (Capitalisation);
(i)	Clause 7.10 (No Undisclosed Liabilities);
(j)	Clause 7.14 (Tax Matters);
(k)	Clause 7.17 (Assets);
(l)	Clause 7.18 (Intellectual Property); and
(m)	Clause 7.24 (Litigation).

“Software” means all software used in connection with the business of any QRG Group Entity, including Generally Commercially Available Code and firmware that relates to or is comprised in hardware, together with all supporting documentation and materials necessary to enable a user to make full use of the functionality of, or to administer effectively, such software and firmware.

“Subsidiary” shall mean, with respect to any Person, any Entity, whether or not existing on the date hereof, in which such Person (or another Subsidiary of such Person) (i) beneficially owns (A) at least fifty percent (50%) of either the voting power or equity interests of such Entity, (B) the right to receive at least fifty percent (50%) of the net assets of such Entity available for distribution to the holders of equity interests upon a liquidation or dissolution of such Entity or (C) a general or managing partnership interest in such Entity and/or (ii) holds any share(s) in such Entity and controls the composition of its board of directors.

“Taper Relief” shall be construed in accordance with the use of such term in the Taxation of Chargeable Gains Act 1992.

“Taxation” or “Tax” means all forms of tax, duty, rate, levy, charge, instalment or other imposition, assessment, liability or withholding whenever and by whatever authority imposed and whether of the United Kingdom, Ireland or elsewhere, including (without limitation) any tax on gross or net income profit or gains (including income tax required to be deducted or withheld from or accounted for in respect of any payment), corporation tax, advance corporation tax, capital gains tax, capital transfer tax, value added tax, stamp duty, capital duty, stamp duty reserve tax, stamp duty land tax, PAYE, national insurance, pay related social insurance and other similar contributions, any liability arising under Section 419, Section 703 or Section 747 of the Taxes Act and any other taxes, duties, rates, levies, charges, imposts or withholdings corresponding to, similar to, in the nature of, replaced by or replacing any of them together with any interest, penalty, surcharge or fine in connection with any taxation, and any liability to make a payment by way of reimbursement, recharge, indemnity, damages connected in any way with any taxation and regardless of whether any

15

such taxes, duties, rates, levies, charges, imposts, withholdings, interest, penalties or fines are chargeable directly or primarily against or attributable directly or primarily to a QRG Group Entity or any other person and of whether any amount in respect of any of them is recoverable from any other person.

“Taxes Act” means the Income and Corporation Taxes Act 1988.

“Tax Authority” shall have the meaning given to that term in the Tax Deed.

“Tax Deed” shall mean the tax deed of covenant in the agreed terms to be entered into between (1) the Seller and (2) the Buyer.

“Tax Deed Claim” means any claim by the Buyer against the Seller under the Tax Deed.

“Tax Relief” means (i) any relief, loss, allowance, exemption, set-off or credit in respect of any Taxation; (ii) any deduction in computing income, profits or gains for the purposes of any Taxation; or (iii) any right to repayment of Taxation including any repayment supplement or interest in respect of tax.

“Tax Return” shall mean returns, estimates, amendments, information statements, elections, forms, transfer pricing or other technical studies and reports, and any attachments, appendices or addenda thereto relating to any and all Taxes, and including any workpapers or other documents upon which any of the foregoing are based.

“Tax Warranties” shall mean the warranties contained in clause 7.14.

“TCA” shall mean the Taxes Consolidation Act, 1997, of Ireland.

“Technology” shall mean any or all of the following: (i) works of authorship, including computer programs in any form, including but not limited to, source code and object code, whether embodied in software, firmware or otherwise, development tools, documentation, designs, files, records, data, Netlists, GDSII files, and Gerber files, and all media on which any of the foregoing is recorded, and semiconductor Mask Works; (ii) inventions (whether or not patentable), improvements, and technology; (iii) proprietary and confidential information, Trade Secrets and Know-how; (iv) databases, data compilations and collections, customer lists and technical data; (v) logos, trade names, trade dress, Trademarks and service marks; (vi) domain names, Web addresses and sites; (vii) tools, methods and processes; and (viii) all instantiations and disclosures of the foregoing in any form and embodied in any media, and all documentation related to the foregoing.

“Termination Agreement” shall mean the termination agreement dated 5 February 2008 for a number of consultancy agreements and licences, namely a licence deed between [*] and QRG Mauritius, a patent application licence between the Seller and [*], a Philipp Consultancy Agreement between [*] and the Seller, a QRG Consultancy Agreement between [*] and the Seller, and a Secondary Rights Licence between [*] and the Company, all dated 11 June 2001. [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

“Territories” shall mean all of the countries in which any QRG Group Entity sells products or provides services as at the Closing Date (or has sold products or provided services within the eighteen (18) month period up to and including the Closing Date), together with any countries in relation to which any QRG Group Entity has made investments as at the Closing Date with a view to providing products or services in those countries, including, without limitation, England and/or Scotland and/or Wales and/or Northern Ireland and/or the Republic of Ireland

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and/or Singapore and/or Bulgaria and/or Taiwan and/or China and/or South Korea and/or Germany and/or USA and/or Japan.

	“Third Party Expenses” shall mean any (i) fees, expenses and disbursements of legal, accounting and financial advisors incurred or agreed to be incurred by a Party (or required by any officer, director or shareholder of such Party to be incurred by such Party) in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, (ii) any third party fees and expenses incurred or agreed to be incurred by a Party (or required by any officer, director or shareholder of such Party to be incurred by such Party) in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, including any consulting fees and expenses and any payments in relation to cancelled or exchanged Company Options, and (iii) any stay-on bonus, transaction completion bonus or other similar payment made or required to made to the Company Employees on or after the Closing as a result of the transactions contemplated hereby, which payment is made pursuant to an agreement entered into by any QRG Group Entity prior to the Closing unless agreed to after the date hereof in writing by the Buyer.
	“Top Customers” has the meaning given in clause 7.19.1.
	“Top Distributors” has the meaning given in clause 7.19.2.
	“Top Licencees” has the meaning given in clause 7.19.2.
	“Top Suppliers” has the meaning given in clause 7.19.3.
	“Transferred Intellectual Property Rights” shall mean, with respect to any Person, all Intellectual Property Rights assigned or transferred or purported to be assigned or transferred to the Company by such Person pursuant to the IP Transfer Agreements (regardless of the effectiveness or validity of such agreements).
	“Unapproved Optionholders” means the individuals who have been granted Unapproved Options and who are specified in part 2 of Schedule 1C.
	“Unapproved Options” means the options granted by the Company over 247,000 ordinary shares with a nominal value of one hundredth of a penny sterling each in the capital of the Company specified in part 2 of Schedule 1C of which 137,000 will be issued fully paid or credited as fully paid following the exercise of Unapproved Options.
	“Undertaking” means an undertaking in the agreed terms from the Buyer’s Solicitors addressed to the Seller’s Solicitors in respect of the documents to be delivered pursuant to clause 4.2.1b).
	“Warranty Claim” means a claim by the Buyer against the Seller for breach of any of the Warranties.
	“Warranties” means the representations and warranties set out in clause 7 and Schedule 4 of this Agreement, and “Warranty” means any of them.
	“Waste” means any discarded, unwanted, broken, spoiled or surplus substance, material or article, and includes waste as defined under any Environmental Laws.
1.2	Interpretations; General Provisions

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1.2.1	When a reference is made in this Agreement to a clause or a Schedule, such reference shall be to a clause or a Schedule to this Agreement unless otherwise indicated.
1.2.2	The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”.
1.2.3	The headings set forth in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
1.2.4	A document in the “agreed terms” is a reference to that document in the form approved by each Party and initialled by, or on behalf of, each of them for the purpose of identification.
1.2.5	All references in this Agreement to the Subsidiaries of a Person shall be deemed to include all direct and indirect Subsidiaries of such Person.
1.2.6	Any Dollar or Pound Sterling thresholds set forth herein shall not be used as a benchmark for determination of what is or is not “material” or a “Company Material Adverse Effect” under this Agreement.
1.2.7	The phrase “in the ordinary course of business consistent with past practice”, or other similar phrase, shall mean in the ordinary course of the operation of the Company Business consistent with past practice, in each case, taking the QRG Group Entities as a whole (and not the ordinary course of business of any particular QRG Group Entity).
1.2.8	Unless otherwise specifically provided, all references in this Agreement to “Dollars” and “$” shall mean means United States Dollars; all references to “Pounds Sterling” or “£” shall refer to the common currency of the United Kingdom, and all references to “Euros” or “€” shall refer to the common currency of the European Union. Any thresholds set forth herein which are expressed in Pounds Sterling shall be deemed to refer to such amount(s) in any currency or currencies whatsoever which would equate to such amount expressed in Pounds Sterling.
1.2.9	As used in this Agreement, the singular or plural number shall be deemed to include the other whenever the context so requires.
1.2.10	References to dates which do not fall on a Business Day shall be construed as references to the immediately subsequent Business Day.
1.2.11	References to time of day shall be a reference to London time.
1.2.12	If a period of time is specified and runs from a given day or the day of an act or event, it shall be calculated exclusive of that day.
1.2.13	The Parties hereto agree that they have been represented by legal counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any Law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document shall be construed against the party drafting such agreement or document.
1.2.14	With respect to clause 7 hereof, the following shall apply:

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a)	where any warranty is qualified by the expression “to the Seller’s knowledge” or “so far as the Seller is aware”, or any similar expression, such warranty shall be deemed to include an additional statement that it has been made after due, diligent and careful enquiry by the Seller, and that the Seller has used his reasonable endeavours to ensure that all information given in such warranty is true, complete and accurate in all respects (which shall include, for such purpose, making diligent enquiries of the directors and members of management of all relevant QRG Group Entities);
b)	the Seller shall as soon as reasonably practicable disclose any matter or thing which arises or of which he becomes aware after entering into this Agreement which is a breach of any of the Warranties (or which will or may be a breach of any Warranty when such Warranty is repeated at the Bring Down Date or Closing (as appropriate));
c)	the Seller acknowledges that, in entering into this Agreement, the Buyer and the Parent have relied upon prior representations by the Seller in terms of the Warranties;
d)	the Seller shall not (if a claim is made against him in connection with this Agreement) make any claim against any QRG Group Entity or any person who prior to the date hereof was a director, employee, agent (excluding for the avoidance of doubt professional advisers appointed by any QRG Group Entity prior to the date hereof by) or officer of any QRG Group Entity (other than in relation to fraud or fraudulent concealment on the part of any such director, employee, agent or officer) and on whom he may have relied before agreeing to any term of this Agreement or authorizing any statement in the Disclosure Letter. The Seller acknowledges that he has no rights to make any such claim; and
e)	each of the Warranties shall be construed as a separate warranty and except where this Agreement expressly provides otherwise, each warranty is not limited by the other provisions of this Agreement, including the other Warranties.

2	SHARE PURCHASE
2.1	The Share Purchase

2.1.1	At the Closing and subject to and upon the terms and conditions of this Agreement, the Buyer shall purchase from the Seller and the Seller shall sell, convey, transfer, assign and deliver to the Buyer, with full title guarantee free and clear of all Liens, encumbrances or other defects of title, the Seller’s Shares.
2.1.2	The Seller waives and agrees to procure the waiver of any restrictions on transfer, including pre emption rights, which may exist in relation to any Company Shares.

2.2	The Purchase Consideration
	The consideration for the Seller’s Shares shall be the Purchase Consideration which shall be satisfied as follows:

2.2.1 the payment by the Buyer to the Seller on the Closing Date of the Initial Consideration;

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2.2.2	the payment by the Buyer to the Seller of the Specified Retention on and subject to the terms set out in Schedule 5;
2.2.3	the payment by the Buyer into the Escrow Account on the Closing Date of the Escrow Amount in accordance with clause 6.4 and thereafter such amount shall be dealt with on and subject to the terms set out in Schedule 3; and
2.2.4	the payment and delivery by the Buyer to the Seller of the Deferred Consideration on and subject to the terms set out in Schedule 4.

	The Parties acknowledge and agree that the Purchase Consideration represents the same proportion of US$129,999,999.35 (being the amount of consideration payable in aggregate by the Buyer for the entire issued and to be issued share capital of the Company under this Agreement, the Minority Shareholders’ Agreements and the Option Decision Forms taken together) as the Seller’s Shares represent of 20,189,000 Company Shares (being the total number of Company Shares which the Seller represents in clause 7.6.2 will be issued and outstanding on the Closing Date). Without prejudice to the other terms of this Agreement, the Seller agrees that the Purchase Consideration shall be reduced if and to the extent that the true number of Company Shares issued and outstanding on the Closing Date exceeds 20,189,000. In particular, the Seller agrees to indemnify, defend and hold harmless the Buyer from any cost of acquiring shares in the capital of the Company subject to Company Options granted by the Company to (i) [*] on 14 November 2007 and (ii) to [*] on 15 January 2008, or, in each case, from any Losses arising in connection with such Company Options. [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]
2.3	No Further Ownership Rights in Company Shares
	The amounts paid and consideration otherwise delivered in respect of the transfer of the Seller’s Shares in accordance with the terms of this Agreement shall be deemed to be full satisfaction of all rights pertaining to such Seller’s Shares or any other Company Shares or any warrants or other instruments or interests in the capital of the Company which the Seller holds or which would entitle the Seller to purchase or have issued to him shares or other interests in the capital of the Company.
3	CONDITIONS
3.1	Condition to Closing
	Closing is subject to and conditional upon either:

3.1.1	the approval of the transaction contemplated by this Agreement by the German Federal Cartel Office (Bundeskartellamt) pursuant to Section 40 of the German Act on Restraints of Competition 1998 (Gesetz gegen Wettbewerbsbeschraenkungen) with no restrictions attached to such approval or, where such approval is granted with restrictions attached, on terms satisfactory to the Buyer; or
3.1.2	the expiry of the time period after which such consent is deemed to have been granted under the German Act on Restraints of Competition 1998 without a decision having been taken by that authority.

3.2 Satisfaction of the Condition

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3.2.1

The Buyer shall use all reasonable endeavours to submit to the German Federal Cartel Office (Bundeskartellamt) the application for approval of the transaction in the agreed terms within three (3) Business Days of the date hereof and in any event shall so submit such application as promptly as practicable after the date of this Agreement (taking into account for example but without limitation the need of the Parties to correct factual inaccuracies in such application before its submission).

3.2.2

Unless and until the condition set out in clause 3.1 has been waived in accordance with clause 3.5, the Parties shall use all their respective reasonable endeavours to procure the satisfaction of the condition set out in clause 3.1, as soon as possible following the date of this Agreement.

3.3	Notification of Satisfaction of Condition
	The Buyer shall notify the Seller of the satisfaction of the condition set out in clause 3.1 as soon as possible after the Buyer becomes aware that the condition has been satisfied and in any event within two (2) Business Days of so becoming aware.
3.4	Failure to satisfy the Condition
	If the condition set out in clause 3.1:

3.4.1	becomes impossible to satisfy on or before the Long Stop Date and has not been waived in accordance with clause 3.5 within two (2) Business Days of the Buyer becoming aware of such condition having become impossible to satisfy; or
3.4.2	has not been satisfied by the Long Stop Date and has not been waived in accordance with clause 3.5,

	this Agreement shall terminate and the provisions of clause 10.3 shall apply.
3.5	Waiver
	Waiver of the condition in clause 3.1 (in whole or in part) is permitted at any time by mutual agreement between the Parties, acting reasonably.
4	EXCHANGE AND BRING DOWN
4.1	Exchange

4.1.1	Exchange shall occur immediately following the signature of this Agreement.
4.1.2	On the date of this Agreement, the Seller shall deliver to the Buyer:

a) certified copies of the following documents duly executed by the parties thereto:

i	the Ireland Agreement and a certified copy of the register of members of QRG Ireland;
ii	the IP Transfer Agreements (other than the Design Rights Transfer Agreement);

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iii	the Confirmatory Assignment;
iv	the Critical Employee Employment Contracts (signed by each Critical Employee but not the Company);
v	the Confirmation Letters for each Critical Consultant (signed by each Critical Consultant but not by the Company; and
vi	the Irish IP Licence;

b) the following documents:

i	the Minority Shareholders’ Agreements duly executed by each Minority Shareholder;
ii	the Disclosure Letter duly executed by the Seller and the Disclosure Documents; and
iii	the Escrow Account Instruction Letter duly executed by the Seller and the Seller’s Solicitors.
iv	written confirmation from the Seller’s Solicitors certifying that each or the Minority Shareholders were informed of the identity of the Seller and the purchase price to be received for their Company Shares and thereafter granted their respective authority to the Seller’s Solicitors to release to the Buyer on behalf of such Minority Shareholders the Minority Shareholders’ Agreements duly executed by such Minority Shareholders;

4.1.3 On the date of this Agreement, the Buyer shall deliver to the Seller:

a) certified copies of the following documents:

i	a written resolution of the Directors of the Buyer authorising the execution of this Agreement; and
ii	minutes of a meeting of the board of directors of Parent authorising the execution of this Agreement; and

b) the following documents:

i	the Minority Shareholders’ Agreements duly executed by the Buyer;
ii	the Disclosure Letter duly executed by the Buyer; and
iii	the Escrow Account Instruction Letter duly executed by the Buyer and the Buyer’s Solicitors.

4.1.4 As soon as reasonably practicable and in no event later than three (3) Business Days after the date hereof, the Seller shall cause the Company to despatch:

a)	the Option Proposal Letters and the Option Decision Forms to the Optionholders;
b)	the Confirmation Letters in respect of the Important Consultants to such consultants; and

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c) the Important Employee Employment Contracts to the Important Employees.

4.2 Bring Down

4.2.1 On the Bring Down Date the Seller shall deliver to the Buyer:

a) the following documents:

i	each Important Employee Employment Contract as has at the Bring Down Date been executed by the relevant Important Employee;
ii	each Confirmation Letter as has at the Bring Down Date been executed by the relevant Important Consultant;
iii	in respect of each Optionholder, other than [*] and [*], an Option Decision Form duly executed by such Optionholder; [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]
iv	the Non Quarry Entity Amending Agreements; and
v	each executed IP Transfer Agreement (other than the Philipp IP Transfer Agreement but including the Design Rights Transfer Agreement) duly notarised;
vi	the executed Philipp IP Transfer Agreement duly notarised and legalised by apostille;
vii	six (6) executed original copies of the Confirmatory Assignment, each duly notarised and legalised by apostille;

b) duly executed but, if the Bring Down Date precedes the Closing Date, undated:

i	transfers in respect of all of the Seller’s Shares held by the Seller in registered form, all of the Minority Shares and all of the Option Shares resulting from the exercise of Company Options in each case duly executed by or on behalf of the relevant shareholder in favour of the Buyer together with definitive share certificates for them showing the name of the relevant shareholder as the registered holder (or a full express indemnity in case of any certificate found to be missing);
ii	written resignations of all directors and the company secretaries of each QRG Group Entity in the agreed terms;
iii	deed of amendment, appointment and retirement relating to the QRG Employee Benefit Trust in the agreed terms; and
iv	the Tax Deed duly executed on behalf of the Seller; and

c) the following additional documents:

i the appropriate forms to amend the mandates given by the Company and QRG Ireland to its bankers;

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ii	certificates of incorporation, common seals and all statutory and minute books (which shall be written up to, but not including, the Bring Down Date) of the Company and QRG Ireland together with all unused share certificate forms; and
iii	all share warrants to bearer in respect of such of the Seller’s Shares as are held by the Seller by way of such warrants to bearer as set forth in Schedule 1B Part 1.

4.2.2

If the Bring Down Date precedes the Closing Date, the Buyer shall procure the delivery on the Bring Down Date of the Buyer’s Solicitors’ Undertaking to the Seller’s Solicitors.

4.2.3

The Parties acknowledge that, if the Bring Down Date precedes the Closing Date, the documents listed in clause 4.2.1b) shall be held by the Buyer’s Solicitors (in accordance with the terms of the Buyer’s Solicitors’ Undertaking) in escrow pending Closing at which time they shall be released to the Buyer without any further instruction or other action of the Seller, the Minority Shareholders or any other party in accordance with clause 6.1.

5 CONDUCT PRIOR TO THE CLOSING DATE

5.1 Conduct of Business of the Company

Except with the prior written consent of the Buyer (such consent not to be unreasonably withheld or delayed) or as expressly required by this Agreement during the period from the date of this Agreement and continuing until the earlier of the date of the termination of this Agreement or the Closing Date, the Seller agrees to the fullest extent possible in his capacity as a shareholder and/or director of the Company and/or relevant QRG Group Entity to cause:

5.1.1	the Company to operate the Company Business and to cause each QRG Group Entity to conduct its business, in the ordinary course consistent with past practices and in compliance with all Laws applicable, so as to maintain the Company Business as a going concern and with a view to profit;
5.1.2	each QRG Group Entity to:

a)	pay all Indebtedness and Taxes of such QRG Group Entity on their due date for payment, subject to good faith disputes with respect to such Indebtedness and Taxes pursuant to appropriate proceedings and for which adequate reserves have been established; and
b)	to the extent consistent with past practices, use reasonable endeavours to keep available the services of the present officers of each QRG Group Entity and the Company Employees and, in respect of the Critical Employees, use reasonable endeavours to procure that none of the Critical Employees takes any action to terminate, revoke or otherwise repudiate their acceptance of the Critical Employee Agreements and that none of the Critical Consultants takes any action to terminate, revoke or otherwise repudiate their acceptance of the Confirmation Letters;
c)	preserve the relationships of each QRG Group Entity with customers, suppliers, distributors, licensors, licensees and others having business dealings with them; and

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d) promptly undertake all actions and execute all documents, including any necessary registrations, recordations or filings with applicable authorities, including but not limited to the United States Patent and Trademark Office, United Kingdom Intellectual Property Office and the European Patent Office or any equivalent authority anywhere in the world, to record and confirm the transfer of ownership of the Transferred Intellectual Property Rights to the Company;

5.1.3 the QRG Group Entities not to:

a)	engage in or enter into any significant transaction or commitment, or relinquish any material right (outside the ordinary course of the Company’s business consistent with past practice), acquire or agree to acquire by merging or consolidating with, by purchasing any assets or equity securities of, by entering into a demerger transaction or by participating in any other type of corporate restructuring, any business or any Entity or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the Company Business;
b)	pass any resolution by the members of a QRG Group Entity in a general meeting unless required for the purpose of facilitating the transactions contemplated by this Agreement;
c)	make or agree to make any capital expenditure exceeding £25,000 individually or £50,000 in the aggregate;
d)	cause or permit any amendments to any QRG Group Entity’s Governing Documents, unless such amendment is required by Law or is required for the purpose of facilitating the transactions contemplated by this Agreement;
e)	pay, discharge or satisfy, in an amount in excess of £5,000 in any one case, or £20,000 in the aggregate, any claim, Liability, loan or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice of Liabilities reflected or reserved against in the Company Balance Sheet or the Financial Statements;
f)	adopt, amend or fail to maintain any Company Employee Plan or enter into any new employment contract or new consultancy agreement or offer to employ or engage any person at an annual salary or rate of remuneration in excess of £25,000;
g)	revalue any assets of the QRG Group Entities, or adopt or change any of the QRG Group Entities auditors, accounting policies or accounting procedures, including with respect to reserves for excess or obsolete inventory, doubtful accounts or other reserves, depreciation or amortisation policies or rates, billing and invoicing policies, or payment or collection policies or practices, except insofar as may have been required by GAAP or required to change any assumption underlying, or method of calculating, any debts, creditors, contingency or other reserve;
h)	make or change any Tax election, adopt or change any Tax accounting method (including depreciation rates and valuation methods), enter into any closing agreement or Tax ruling, settle or compromise any Tax claim or assessment, consent to any extension or waiver of the limitation period

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	applicable to any Tax claim or assessment, or file any income or other material Tax Return or any amended Tax Return unless such Tax Return has been provided to the Buyer for review in accordance with the Tax Deed;
i)	declare, set aside, or pay any dividends on or make any other distributions (whether in cash, share or property) in respect of any Company Shares or any capital share of any QRG Group Entity, or split, combine or reclassify any Company Shares or any capital share of any QRG Group Entity or issue or authorise the issuance of any other securities in respect of, convertible into, or carrying a right to subscribe for in lieu of or in substitution for Company Shares or any shares in the capital of any QRG Group Entity, or repurchase, redeem or otherwise acquire, directly or indirectly, any Company Shares or shares of any shares in the capital of any QRG Group Entity (or options, warrants or other rights exercisable therefore), except in accordance with the agreements evidencing Company Options;
j)	terminate (unless the contract has come to an end by effluxion of time) or extend, or materially amend, waive, materially modify, or materially breach the terms of, any Material Contract (or agree to do so), (ii) terminate or extend, or amend, waive, modify or breach the terms of any IP Transfer Agreement, Critical Employee Employment Contract or Confirmation Letter, or Ancillary Agreement (or agree to do so), or (iii) enter into any Contract which would have been required to have been specifically disclosed in the Disclosure Letter had such Contract been entered into prior to the date hereof;
k)	enter into any Contract or assume any Liability which is incapable of being terminated within three (3) months;
l)	enter into or amend, waive or modify the terms of any Contract pursuant to which any other party is granted marketing, distribution, development manufacture or similar rights of any type or scope with respect to any Company Products, other than in the ordinary course of the Company Business consistent with past practice;
m)	enter into any Contract to purchase or sell any interest in real property, grant any security interest in real property, enter into any Contract to lease, sublease, licence or other occupancy agreement with respect to any real property or alter, amend, modify or terminate (unless the relevant Lease Agreement has terminated by effluxion of time) any of the terms of any Lease Agreements;
n)	otherwise than in the ordinary course of business remove or allow to be removed from any Leased Real Property of any of the QRG Group Entities any plant and machinery;
o)	enter into any licence or distribution agreement or arrangement which is exclusive and/or incapable of being terminated on less than six (6) months’ notice, or any joint venture, strategic alliance, outbound original equipment manufacturing or joint marketing or any similar arrangement or agreement affecting materially the business situation of the Quarry Group;
p)	enter into or renew or extend any Contracts or arrangements that limit or restrict any QRG Group Entity, or that could, after the Closing, limit or restrict the Buyer or any of its Affiliates, from engaging or competing in any line of

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	business or in any geographic area or that involve exclusive terms of any kind;
q)	incur any Indebtedness or guarantee any Indebtedness for borrowed money or issue or sell any debt securities or guarantee any debt securities or other obligations of others or create a Lien over any of its assets;
r)	grant any advance, deposit or loans to others or purchase debt securities of others or cancel, release or assign any indebtedness owed to any QRG Group Entity other than in the ordinary course of business;
s)	initiate, compromise, settle, waive or release any right or claim under, or file any pleadings in relation to, any action other than to enforce its rights under this Agreement in the ordinary course of business consistent with past practice;
t)	issue, grant, deliver, sell or authorise or propose the issuance, grant, delivery or sale of, purchase or propose the purchase of, any Company Shares or other shares in the capital of any QRG Group Entity or any securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue or purchase any such shares or other convertible securities, other than (i) issuances of Company Shares pursuant to exercises of Company Options in accordance with their terms, and (ii) repurchases at cost of Company Shares upon termination of a service provided and pursuant to the terms of a Contract existing on the date hereof and listed in the Disclosure Letter;
u)	save in respect of taking action to allow the Unapproved Options granted to [*], [*] and [*] to vest in full immediately prior to Closing, take any action to accelerate the vesting schedule of any Company Options; [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]
v)	sell or licence or transfer to any Person any rights to any Company Intellectual Property or execute any Contract with respect to the Company Intellectual Property with any Person (other than non-exclusive licences to customers of any QRG Group Entity entered into in the ordinary course of business consistent with past practice);
w)	buy or licence the Intellectual Property Rights of any Person, other than licences for Generally Commercially Available Code;
x)	enter into any Contract with respect to the development of any Intellectual Property Rights with a third party (other than Contracts with Company Employees and professional services Contracts with customers, in each case in the ordinary course of business consistent with past practice);
y)	fail to renew or fail to take all reasonable action to defend or preserve any Intellectual Property Rights;
z)	change pricing or royalties set or charged by the Company or any of its Subsidiaries to its customers or distributors or agree to any material change in pricing or royalties set or charged by Persons who are suppliers or manufacturers of the Company Products (other than changes in pricing or royalties made in the ordinary course of business consistent with past practice);

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aa)	disclose or agree to disclose to any Person any Know-how of any QRG Group Entity other than required by Law or pursuant to the terms of any Contract with customers;
bb)	pay or agree to pay any bonus or special remuneration to any director or Company Employee, or increase, or otherwise change (or agree to increase or otherwise change) the salary, bonus, wage rates or other compensation payable (including any equity-based compensation) payable or to become payable to any officer, director, employee or consultant, other than (i) pursuant to an Employee Agreement or Company Employee Plan (as required by such Plan) outstanding on the date hereof and specifically disclosed in the Disclosure Letter or (ii) as required by applicable Law (other than in the ordinary course of business consistent with past practice in an individual amount not more than £2,000 or, in aggregate, not to exceed £20,000);
cc)	make any declaration, payment or commitment or obligation of any kind for the payment (whether in cash, or equity or otherwise) of a severance payment, change in control payment, termination payment, redundancy payment, bonus or other additional salary or compensation to any such person in excess of £5,000;
dd)	terminate the contract of employment of or consultancy agreement of any Company Employees, or intentionally encourage any of the Company Employees to resign from or terminate their consultancy agreements with any QRG Group Entity (for the avoidance of doubt, this restriction shall not prevent any QRG Group Entity from summarily dismissing any Company Employees or from terminating any consultancy agreement on grounds of gross negligence);
ee)	appoint any attorneys, agents or, except in the ordinary course of business consistent with past practice and subject to pro forma non-disclosure obligations previously agreed with the Buyer, technical sub-contractors;
ff)	vary to any material extent any terms of any Company insurance policies, knowingly take any action which may invalidate any of its policies of insurance or take out any additional or replacement policies of insurance (other than renewals of the Company insurance policies on substantially the same terms as those in force at the date of this Agreement;
gg)	enter into any transaction with any Person otherwise than on an arm’s-length basis;
hh)	make any proposal for the winding-up or liquidation of any QRG Group Entity;
ii)	adopt or participate in any pension scheme (other than its existing pension schemes) or amend any of its existing pension schemes or review any such scheme or vary or cease contributions made to any such scheme save as required by the Buyer; or
jj)	take, commit or agree in writing or otherwise to take, any of the actions described in clauses 5.1.3(a) to (ii), inclusive.

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5.2 Procedures for Requesting the Buyer Consent

5.2.1	If any QRG Group Entity desires to take an action, which action would be prohibited pursuant to clause 5.1 without the written consent of the Buyer, prior to taking such action the Seller or the relevant QRG Group Entity may request such written consent by sending an e-mail or facsimile to:
	Patrick Reutens, Chief Legal Officer
	Telephone: +1 (408) 436-[*]
	Facsimile: +1 (408) 436-[*]
	E-mail address: [*]@atmel.com
	The person set forth in this clause 5.2.1 above has authority to grant and may grant consent on behalf of the Buyer to the taking of any action which would otherwise be prohibited pursuant to clause 5.1 by e-mail or such other notice that complies with the provisions of clause 15.6.
5.2.2	If any QRG Group Entity desires to take action, which action would be prohibited pursuant to clauses 5.1.3(c), (e) or (f) without the written consent of the Buyer, prior to taking such action, the Seller or the relevant QRG Group Entity may request such written consent by sending an e-mail or facsimile to both:
	Patrick Reutens, Chief Legal Officer
	Telephone: +1 (408) 436-[*]
	Facsimile: +1 (408) 436-[*]
	E-mail address: [*]@atmel.com
	and
	Peter Jones, Managing Director
	Telephone: +44 (0) 1344 [*]
	Facsimile: +44 (0) 1344 [*]
	E-mail address: [*]@atmel.com
	[*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.
	Either person set forth in this clause 5.2.2 above has authority to grant and may grant consent on behalf of the Buyer to the taking of any action which would otherwise be prohibited pursuant to clause 5.1.3(c), (e) or (f) only by email or such other notice that complies with the provision of clause 15.6.

5.3 No Solicitation

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5.3.1 Until the earlier of (i) the Closing Date, or (ii) the date of termination of this Agreement, the Seller shall not, and shall procure, to the fullest extent possible in his capacity as shareholder and/or director of the Company and/or relevant QRG Group Entity, that no QRG Group Entity shall, directly or indirectly, take any of the following actions with any party other than the Buyer to:

a)	solicit, initiate, participate in or encourage any negotiations or discussions with respect to any offer or proposal to acquire all or any portion of the business, properties or technologies of the Seller or any QRG Group Entity, or five per cent (5%) or more of the Company Shares or of share capital of any other QRG Group Entity, whether by merger, purchase of assets, purchase or issuance of shares or rights to acquire shares, tender offer, or otherwise (a “Competing Transaction”), or effect any such transaction;
b)	disclose any material information not customarily disclosed to any Person concerning the business, technologies or properties of any QRG Group Entity, or afford to any Person access to any QRG Group Entity’s properties, technologies, books or records, other than in the ordinary course of business consistent with past practice (but in no event in connection with or in relation to a Competing Transaction);
c)	assist or cooperate with any Person to make any proposal regarding a Competing Transaction; or
d)	enter into any agreement with any Person providing for a Competing Transaction.

5.3.2 In the event that the Company or the Seller has received or becomes aware of, prior to the Closing Date or the date of termination of this Agreement of:

a)	any offer, proposal, or request, direct or indirect, of the type referred to in clause 5.3.1a), 5.3.1c) or 5.3.1d) above; or
b)	any request for disclosure or access as referenced in clause 5.3.1b) above,

the Seller shall ensure, to the fullest extent possible in his capacity as a shareholder and/or director of the Company and/or relevant QRG Group Entity, that the Company and any other QRG Group Entity shall immediately:

c)	suspend any discussions with such Person with regard to such offers, proposals, or requests; and
d)	notify the Buyer thereof, including information as to the identity of the Person making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as the Buyer may reasonably request.

5.4 Remedy for Breach of Clause 5.3

The Parties agree that irreparable harm would occur in the event that the provisions of clause 5.3 were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed by the Parties that the Buyer shall be entitled to an immediate injunction or injunctions, without the necessity of proving the inadequacy of money damages as a remedy and without the necessity of posting any bond or other security, to prevent breaches of the provisions of clause 5.3 and to enforce specifically the terms and provisions hereof in

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any court having jurisdiction, this being in addition to any other remedy to which the Buyer may be entitled at Law or in equity. Without limiting the foregoing or precluding the possibility of other material breaches, it is understood that any violation of the restrictions set forth in clause 5.3 shall be deemed to be a material breach of this Agreement by the Seller.

5.5 Covenant Not To Transfer

5.5.1 Subject to the provisions of clause 5.5.2, the Seller agrees not to, directly or indirectly, without the prior written consent of the Buyer do any of the following:

a)

offer for sale, sell, transfer, tender, pledge, hypothecate, assign or otherwise dispose of, grant or enter into any Contract, option, commitment or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, tender, pledge, hypothecation, assignment or other disposition of, any or all of the Company Shares, Company Options (or any interest therein) or any other share in the capital of the Company or of any other QRG Group Entity or any right or interest therein, over or to receive such; or

b)

except as contemplated by this Agreement and any Ancillary Agreements, grant any proxies or powers of attorney, deposit any Company Shares, Company Options or any other share in the capital of the Company or of any other QRG Group Entity or any right or interest therein, over or to receive such, into a voting trust or enter into a voting agreement with respect to any Company Shares or Company Options or any other share in the capital of the Company or of any other QRG Group Entity or any right or interest therein, over or to receive such.

5.5.2 Nothing in clause 5.5.1 shall prevent or preclude the Seller from issuing, allotting or transferring or procuring the issue, allotment or transfer of any Company Shares for the purpose of satisfying any Company Option exercised pursuant to an Option Decision Form.

5.6 Access to Information

5.6.1 Subject to the provisions of clause 5.6.2 and the terms of the Confidentiality Agreement, the Seller shall, to the fullest extent possible, in his capacity as shareholder and/or director of the Company, procure that the Company afford the Buyer and its Representatives, reasonable access during the period from the date hereof and the earlier of (i) the Closing Date; or (ii) the date of termination of this Agreement to:

a)	all of the properties, books, Contracts, commitments and records of the QRG Group Entities, including all Company Intellectual Property (including access to design processes and methodologies);
b)	all other information concerning the business, properties and personnel (including all Critical Employees, Critical Consultants, Important Employees and Important Consultants) of the QRG Group Entities as the Buyer may reasonably request;
c)	during normal business hours, including all Critical Employees, Critical Consultants, Important Employees and Important Consultants to the extent necessary to communicate with such employees in connection with the offers of employment, consultancy terms and the extension of benefits to such employees and consultants;

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d)	all other documents, records or other information (including with respect to any Actions instituted by any QRG Group Entity) as the Buyer may reasonably request; and
e)	copies of internal financial statements (including Tax Returns and supporting documentation) promptly upon request.

5.6.2 Subject to the provisions of clause 5.6.3, the Seller shall not be obliged to procure that the Company afford the Buyer and its Representatives access to the items referred to in clause 5.6.1 if and to the extent that such action:

a)	is prohibited or restricted by applicable Law; or
b)	would unreasonably interfere with the ordinary running of the Company Business or breach any Contract of the Company or QRG Ireland.

5.6.3 If the Seller is prohibited or restricted by applicable Law (including antitrust Laws) from complying with the provisions of clause 5.6.1 then the Buyer and the Seller each agree to use reasonable endeavours to establish a process that, through use of steps such as targeted redactions, provision of information to their respective counsel to review and summarise for the Buyer or use of a “clean room” environment for analysis and review of information by joint integration teams, in coordination with their respective counsel and the Seller, shall procure that the QRG Group Entities will provide the Buyer with timely access to the fullest extent possible to the substance of the information described in this clause 5.6.1 in a manner that allows the QRG Group Entities to comply with applicable Law.

5.7 Regulatory Filings; Reasonable Efforts

5.7.1	Subject to the provisions of clause 5.7.4, as promptly as practicable following the date of this Agreement and prior to Closing, each of the Buyer and the Seller shall make (or cause to be made) all filings, notices, petitions, statements, registrations, submissions of information, application or submission of other documents required by any Governmental Entity in connection with the transactions contemplated hereby.
5.7.2	Subject to the provisions of clause 5.7.4, each of the Parties hereto will cause all documents that it is responsible for filing with any Governmental Entity pursuant to clause 5.7.1 to comply in all material respects with all applicable Laws and will promptly supply the other Parties with any information that may reasonably be required in order to effectuate any such filings or any amendment or supplement thereto.
5.7.3	Subject to the provisions of clause 5.7.4, in the period prior to Closing, the Buyer and the Seller shall each use reasonable endeavours to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things reasonably necessary, proper or advisable to complete and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including the satisfaction of the condition set forth in clause 3.1.
5.7.4	Notwithstanding anything to the contrary contained in this Agreement, no Party shall be required to:

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a)	agree to any licence, sale or other disposition or holding separate (through establishment of a trust or otherwise) of any shares of its share capital or of any of its businesses, assets or properties, its Subsidiaries or Affiliates; or
b)	agree to the imposition of any limitation on the ability of the Parent, its Subsidiaries or Affiliates or any QRG Group Entity to conduct their respective businesses or own any capital share or assets or to acquire, hold or exercise full rights of ownership of their respective businesses and, in the case of the Buyer, the Company Business; or
c)	agree to the imposition of any impediment on the Parent, its Subsidiaries or Affiliates or any QRG Group Entity under any statute, rule, regulation, executive order, decree, Order or other legal restraint governing competition, monopolies or restrictive trade practices; or
d)	litigate with any Governmental Entity.

5.7.5 The Buyer and the Seller will notify each other promptly upon the receipt of and the Seller shall, to the fullest extent possible in his capacity as shareholder and/or director of any QRG Group Entity, cause the QRG Group Entities to notify the Buyer promptly upon receipt of:

a)	any comments from any officials of any Governmental Entity in connection with any filings made pursuant hereto;
b)	any request by any officials of any Governmental Entity for amendments or supplements to any filings made pursuant to, or information provided to comply in all material respects with any Law;
c)	any Action pending or, to its knowledge, threatened against such party hereto that challenges or may challenge the transactions contemplated by this Agreement; and
d)	any notice or other communication from any Person alleging that the Consent of such Person is or may be required in connection with the transactions contemplated by this Agreement.

5.8 Consents

Each of the Buyer and the Seller shall use their reasonable endeavours to obtain the Consents prior to Closing but it is acknowledged by the Buyer that obtaining the Consents is not a condition of Closing and the Buyer shall have no right to terminate or rescind this Agreement by reason of the failure to obtain any such Consents.

5.9 Option Exercise Board Meeting

No later than three (3) Business Days after the date hereof the Seller shall procure that the following business is transacted at a meeting of the directors of the Company and at which the directors of the Company shall:

5.9.1	permit the exercise of the Company Options on the day prior to the Closing Date;
5.9.2	shall approve the full vesting of the Company Options granted to Mr [*], Mr [*] and Mr [*]; and [Information marked [*] in this paragraph has been omitted and filed

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	separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]
5.9.3	shall approve the form and despatch of the Option Proposal Letters and Option Decision Forms to Optionholders.

5.10 Notarisation

Without prejudice to the requirements of clause 4.1.2a)ii, the Seller shall use all reasonable endeavours to deliver to the Buyer prior to Closing in duly notarised and legalised by apostille form such of the other IP Transfer Agreements as had not been delivered to the Buyer in notarised form on the Bring Down Date.

6 CLOSING

6.1 Closing; Time and Location

Unless this Agreement has lapsed, has been rescinded or has been terminated pursuant to clause 10, the Closing will take place pursuant to clause 3.3 at the offices of the Buyer’s Solicitors no more than three (3) Business Days following the earlier of (i) the date of service by the Buyer of the notification of the satisfaction of the condition set out in clause 3.1, and (ii) the date of the waiver of such condition pursuant to clause 3.5, unless another time and/or place is agreed upon in writing by the Buyer and the Seller.

6.2 Completion of this Agreement

At Closing:

6.2.1	the Agreement shall complete; and
6.2.2	the documents listed in clause 4.2.1b) shall be unconditionally and irrevocably released to the Buyer.

6.3 Board Resolutions of the Company

At Closing, the Seller shall procure that the following business is transacted at a meeting of the directors of the Company and at which:

6.3.1 the directors of the Company shall approve:

a) the:

i	registration of the issue and transfers of the Option Shares to the Optionholders upon exercise of the Company Options; and
ii	the entry of the Optionholders in the register of members of the Company subject only to the transfers being presented duly stamped; and

b) the:

i registration of the transfer of the Seller’s Shares, the Minority Shares and the Option Shares as contemplated by this Agreement, the Minority Shareholders’ Agreements and the Option Decision Forms;

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ii the entry of the Buyer in the register of members of the Company, in each case subject only to the transfers being presented duly stamped; and

6.3.2 any person nominated by the Buyer for appointment as a director or company secretary of the Company or QRG Ireland shall be so appointed.

6.4 Buyer’s Obligations.

At Closing, the Buyer shall:

6.4.1 pay the Initial Consideration to the following bank account:

• Bank Name: The Royal Bank of Scotland plc

• Address: Threadneedle Street, London

• Account Name: Shoosmiths Client US Dollar Account

• Swift Code: [*]

• IBAN Code: [*]

[Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

6.4.2	pay the Escrow Amount to the Escrow Account; and
6.4.3	deliver to the Seller the duly executed Tax Deed.

6.5 Seller’s Default at Closing

6.5.1	The Buyer shall not be obliged to complete this Agreement unless the Seller complies in full with his obligations contained in clauses 4.2.1 and 6.3.
6.5.2	If the Seller does not comply with any of his obligations contained in clauses 4.2.1 and 6.3 on the relevant dates, the Buyer may:

a)	defer Closing with respect to some or all of the Company Shares (including for the avoidance of doubt Company Shares to be issued pursuant to the exercise of Company Options) to a date selected by the Buyer being not more than seven (7) days after the intended Closing Date;
b)	proceed to Closing as far as practicable (including, at the Buyer’s option, completion of the purchase of some only of the Company Shares (including for the avoidance of doubt Company Shares to be issued pursuant to the exercise of Company Options)) and in any case without prejudice to its rights under this Agreement, the Minority Shareholders’ Agreements or the Option Decision Forms; or
c)	rescind this Agreement without liability to the Seller whereupon clause 10 shall apply.

7 REPRESENTATIONS AND WARRANTIES OF THE SELLER

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The Seller hereby represents and warrants to the Buyer as at the date of this Agreement and as at Closing in the terms of clauses 7.1 to 7.4 inclusive. The Seller hereby represents and warrants to the Buyer as at the date of this Agreement and as at the Bring Down Date in the terms of clauses 7.1 to 7.35 inclusive.

7.1 Authority; Ownership

7.1.1

The Seller has full power and authority, including any necessary spousal consent required by applicable Law, and legal capacity to execute and deliver this Agreement and any Ancillary Agreements to which he is a party and to perform his obligations hereunder and thereunder.

7.1.2

Each of this Agreement and each Ancillary Agreement to which the Seller is a party has been or will by Closing be duly and validly executed and delivered by the Seller and, assuming the due authorisation, execution and delivery hereof and thereof by the Buyer and each other counterparty thereto, constitutes a legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with their respective terms.

7.2 Non-Contravention

The execution and delivery by the Seller of this Agreement and each Ancillary Agreement to which the Seller is a party does not, and the performance by the Seller of his obligations hereunder and thereunder and the completion by the Seller of the transactions contemplated hereby and thereby do not and will not, so far as the Seller is aware, conflict with or result in a violation or breach of any Governing Documents, Law or order applicable to, or Contract binding upon, the Seller or any of his assets and properties.

7.3 Necessary Approvals and Consents

To the Seller’s knowledge, no consents, notices, Permits, action, waivers, approvals, orders, authorisations, registrations, declarations or filings with any Governmental Entity are required to be given to, or obtained by, the Seller in connection with the completion of the Sale of the Seller’s Shares or other transactions contemplated by this Agreement or any Ancillary Agreements except for any approval(s) under foreign antitrust laws.

7.4 Legal Ownership of Shares

7.4.1	The Seller is the sole legal and beneficial owner of the Seller’s Shares free and clear of all Liens.
7.4.2	No third party has a legal or beneficial interest in or a right to acquire or vote any of the Seller’s Shares.
7.4.3	The Seller has the full power and authority to vote the Seller’s Shares, free and clear of any Liens and any pre-emptive rights, rights of first refusal, options or other voting, purchase or sale rights that have not been heretofore waived. The Seller’s Shares constitute all of the Company Shares owned legally or beneficially by the Seller.
7.4.4	The Seller’s Shares will be at all times from the date of this Agreement until the earlier of the termination of this Agreement in accordance with clause 10 hereof or Closing be legally and beneficially owned and held by the Seller, free and clear of any and all Liens and any pre-emptive rights, rights of first refusal, options or other voting, purchase or sale rights that have not been heretofore waived.

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7.5 Organisation.

7.5.1	Each QRG Group Entity is a company duly incorporated, validly existing and in good standing (to the extent such concept is applicable) under the Laws of its jurisdiction of incorporation, and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as is currently conducted.
7.5.2	Each QRG Group Entity is duly qualified or licensed as a foreign corporation to do business, and is in good standing (to the extent such concept is applicable) in each jurisdiction where the character or location of its assets or properties (whether owned, leased or licensed) or the nature of its activities make such qualification or licensing necessary to the conduct of the Company Business as currently conducted, except where the failure of which would not be material to the QRG Group Entities or any of them individually.
7.5.3	The Disclosure Documents contain a true and correct copy of the Governing Documents of each QRG Group Entity.
7.5.4	None of the respective boards of directors of the QRG Group Entities have approved or proposed any amendment to any of the Governing Documents of the respective QRG Group Entities. The QRG Group Entities have complied with all provisions in their respective Governing Documents and have not entered into any ultra vires transactions.
7.5.5	The Disclosure Letter lists the directors and officers, along with details of their addresses, of each of the QRG Group Entities as at the date hereof.
7.5.6	The Disclosure Letter lists (i) each QRG Group Entity and its jurisdiction of organisation and (ii) every jurisdiction in which a QRG Group Entity has Employees or facilities or otherwise has conducted its business since inception. The operations being conducted by each QRG Group Entity are not now and have never been conducted under any other name other than those listed in the Disclosure Letter.
7.5.7	No QRG Group Entity has any Subsidiaries or any ownership interests or interests in the share capital or other securities of any other Entity. None of QRG Singapore, QRG Mauritius or QRG US has ever conducted any business, has any Liabilities or is directly or indirectly involved in the Company Business.
7.5.8	No QRG Group Entity uses on its stationery or vehicles, or otherwise carries on business under, any name other than their corporate names and “Quantum Research Group”.

7.6 Capitalisation.

7.6.1

The authorised share capital of the Company is £3,000.20, of which as at the date of this Agreement 10,738,836 ordinary shares with a nominal value of one hundredth of a penny each and 2,000 ordinary “A” shares with a nominal value of one hundredth of a penny each are issued and outstanding. A further 9,311,164 ordinary shares each with a nominal value of one hundredth of a penny sterling in the capital of the Company are subject to a warrant or warrants to bearer.

7.6.2

As at the date of this Agreement, all Company Shares issued and outstanding are held with full legal and beneficial title by, and all warrants to bearer in respect of

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	Company Shares are in the possession of, the Persons with respect to the number of shares and share warrants to bearer set forth in Schedule 1A. As at the Closing Date, all Company Shares issued and outstanding shall be held with full legal and beneficial title by, and all share warrants to bearer in respect of Company Shares shall be in the possession of, the Persons with respect to the number of shares and share warrants to bearer set forth in Schedule 1B.
7.6.3	As at the date of this Agreement, each holding of shares and share warrants to bearer specified in Schedule 1A is represented in the register of members of the Company and there is no current entry in, or entry required to be made in, the register of members of the Company not represented in Schedule 1A. As at the Closing Date, each holding of shares and share warrants to bearer specified in schedule 1B shall be represented in the register of members of the Company and there shall be no entry in, or entry required to be made in the register of members of the Company as at Closing not represented in Schedule 1B. All Company Shares are duly authorised, validly issued and fully paid and are not subject to pre-emptive rights created by statute, the Governing Documents, or any Contract to which any QRG Group Entity, or any of their respective assets, is a party or by which it is bound.
7.6.4	There are no Company Shares that are subject to a repurchase or redemption right, save as provided for in the Company’s Governing Documents. There are no declared or accrued but unpaid dividends in respect of any Company Shares and the dividend paid to holders of Company Shares on December 17, 2007 was properly declared, authorized and paid in compliance with applicable Law. The Company has no other capital stock authorised, issued or outstanding.
7.6.5	The authorised share capital of QRG Ireland is €1,000,000 divided into 1,000,000 ordinary shares with a nominal value of €1 each (each a “QRG Ireland Share”), of which one QRG Ireland Share is issued and outstanding.
7.6.6	QRG Ireland is a wholly-owned subsidiary of the Company, and the Company is recorded as the sole member of QRG Ireland in the register of members of QRG Ireland and has good title to the issued QRG Ireland Share which is free of all charges, liens and other encumbrances.
7.6.7	The sole issued QRG Ireland Share is duly authorised, validly issued and fully paid and is not subject to pre-emptive rights created by statute, the Governing Documents, or any Contract to which any QRG Group Entity, or any of their respective assets, is a party or by which it is bound. There are no issued QRG Ireland Shares that are subject to a repurchase or redemption right, save as provided for in QRG Ireland’s Governing Documents. There are no declared or accrued but unpaid dividends with respect to any QRG Ireland Shares. As of the date hereof, QRG Ireland has no other capital stock authorised, issued or outstanding.
7.6.8	No QRG Group Entity has at any time repaid or redeemed any share of any class of its share capital or otherwise reduced or agreed to reduce any class of its share capital, or carried out any transaction having the effect of a reduction of capital; made or resolved or agreed to make any issue of shares or other securities by way of capitalisation of profits or reserves; or given any financial assistance in contravention of any applicable Laws.
7.6.9	All outstanding shares of any QRG Group Entity have been issued or repurchased (in the case of shares that were outstanding and repurchased by the relevant

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QRG Group Entity or any shareholder thereof) in compliance with all applicable Laws, and were issued, transferred and repurchased (in the case of shares that were outstanding and repurchased by the relevant QRG Group Entity or any shareholder thereof) in accordance with any right of first refusal or similar right or limitation, including those in the Governing Documents. All outstanding Company Options have been granted in compliance with all applicable Laws.

7.6.10	Except in respect of the Company Options, no QRG Group Entity has ever adopted, sponsored or maintained any share option plan or any other plan or agreement providing for equity compensation to any Person. As of the date hereof, the Company has granted Company Options over 934,000 ordinary shares in the capital of the Company in respect of which 247,000 such shares are issuable upon the exercise of outstanding, unexercised Unapproved Options. In addition, 1,001,018 ordinary shares in the capital of the Company have been issued to the Seller and Mrs. Philipp (as trustees of the EBT) for transfer to beneficiaries of the EBT upon the exercise by the Company Employees of outstanding unexercised EMI Options and in the provision of other benefits to beneficiaries of the EBT. True and complete copies of forms of all agreements and instruments relating to the Company Options are contained in the Disclosure Documents and such agreements and instruments have not been amended, modified or supplemented, and there are no agreements to amend, modify or supplement such agreements or instruments from the forms thereof contained in the Disclosure Documents.
7.6.11	No shares in the capital of the Company or any other QRG Group Entity are issuable other than pursuant to the Unapproved Options. There are no options, warrants, calls, rights, convertible securities, commitments or agreements of any character, written or oral, (i) to which the Company, or any of its respective assets, is a party or is bound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares or obligating the Company to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement, or (ii) which would require any other QRG Group Entity to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any equity interests in such QRG Group Entity or which would obligate such QRG Group Entity to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are no outstanding or authorised share appreciation, phantom share, profit participation, or other similar, rights with respect to any QRG Group Entity.
7.6.12	There are no powers of attorney given by any QRG Group Entity except any given incidental to and for the purposes only for enforcement of any security.
7.6.13	Except as contemplated hereby, there are no voting trusts, proxies, or other agreements or understandings with respect to the voting share of any QRG Group Entity and there are no agreements to which any QRG Group Entity is a party relating to the registration, sale or transfer (including agreements relating to rights of first refusal, co-sale rights or “drag along” rights) of any of its shares.

7.7 Authority and Enforceability

7.7.1 Each QRG Group Entity has all requisite power and authority and has been duly authorised to enter into any Ancillary Agreements to which it is a party and to perform its obligations hereunder and thereunder.

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7.7.2 Each of the Ancillary Agreements to which any QRG Group Entity is a party have been or will prior to Closing have been duly executed and delivered by such QRG Group Entity, and assuming the due authorisation, execution and delivery by the other parties thereto, constitute the valid and binding obligations of such QRG Group Entity, as applicable, enforceable against each of them in accordance with their respective terms.

7.8 No Conflict

The execution and delivery of this Agreement by the Parties hereto do not, and the completion by the parties hereto of the transactions contemplated by this Agreement shall not, (a) conflict with, or result in any violation or breach of, any provision of any QRG Group Entity’s Governing Documents, (b) conflict with in any material respect, or result in any material violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any material benefit) under, require a consent or waiver under, constitute a change in control under, require the payment of a penalty or increased fees under or result in the imposition of any Liens over any QRG Group Entity’s assets under, any of the terms, conditions or provisions of any Contract to which any QRG Group Entity is a party or by which any of them or any of their assets are bound, or (c) conflict with or violate, in any material respect, any Permit, Order or Law applicable to any QRG Group Entity or any of their respective properties or assets.

7.9 Financial Statements

7.9.1 The Disclosure Letter and the Disclosure Documents contain true, accurate and complete copies of:

a)	the Company’s audited balance sheets as of December 31, 2004, 2005 and 2006 and the related profit and loss accounts and trading profit and loss accounts for the financial years ended December 31, 2004, 2005 and 2006 (including the related notes and independent auditors reports thereon) (the “Annual Financial Statements”),
b)	the Company’s unaudited balance sheets as of November 30, 2007 and December 31, 2007 and the related unaudited statements of income and shareholders’ equity for the twelve (12) month period ended and December 31, 2007 (the “Unaudited 2007 Financial Information”);
c)	QRG Ireland’s unaudited balance sheets as of November 30 2007 and December 31, 2007 and the related unaudited statements of profit and loss and trial balance for the period beginning January 1, 2007 and ending December 31, 2007 (the “QRG Ireland Financial Statements”) and
d)	the pro forma unaudited combined balance sheet as of December 31, 2007 of the Company and QRG Ireland, (together with the Annual Financial Statements, the Unaudited 2007 Financial Information and the Monthly Financial Statements, the “Financial Statements”).

For the purposes hereof, the unaudited consolidated balance sheet of the Company as of November 30, 2007 is referred to as the “Company Balance Sheet” and November 30, 2007 is referred to as the “Company Balance Sheet Date.” The Financial Statements (i) have been prepared from, are in accordance with and accurately reflect the books and records of the Company and QRG Ireland, as appropriate; (ii) were prepared in accordance with GAAP (or in the case of QRG

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Ireland, the generally accepted accounting principles applicable thereto), applied on a consistent basis during the periods invoiced (except as may be indicated in the notes thereto); and (iii) fairly present, in all material respects, the financial position and the income and shareholders’ equity (subject, in the case of the Unaudited 2007 Financial Information and the QRG Ireland Financial Statements, to normal year-end adjustments, none of which is expected to be material) of the Company and QRG Ireland as of the times and for the periods referred to therein.

7.9.2

Each QRG Group Entity maintains accurate books and records reflecting its assets and liabilities and maintains proper and adequate internal accounting controls that provide assurance that (i) transactions are executed with management’s authorisation, (ii) transactions are recorded as necessary to permit preparation of their financial statements and to maintain accountability for their assets, (iii) access to its assets is permitted only in accordance with management’s authorisation, (iv) the reporting of its assets is compared with existing assets at regular intervals, and (v) accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current and timely basis.

7.9.3

None of the QRG Group Entities nor, to the knowledge of the Seller, any Representative of any QRG Group Entity has received or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the relevant QRG Group Entity or its respective internal accounting controls, including any complaint, allegation, assertion or claim that the relevant QRG Group Entity has engaged in questionable accounting or auditing practices.

7.10 No Undisclosed Liabilities

No QRG Group Entity has any Liabilities (whether or not required to be disclosed in, reflected in or reserved against in the consolidated balance sheets of any QRG Group Entity in accordance with GAAP or other generally accepted accounting principles applicable to such QRG Group Entity) other than (a) Liabilities reflected in the Company Balance Sheet or the QRG Ireland Financial Statements, as appropriate, and (b) normal or recurring Liabilities incurred since the Company Balance Sheet Date in the ordinary course of business consistent with past practice that are not material to the QRG Group Entities, taken as a whole. Each reserve established by any QRG Group Entity (i) is reflected on the Company Balance Sheet or the QRG Ireland Financial Statements (as appropriate), and (ii) has been established in accordance with GAAP or other generally accepted accounting principles applicable to such Entity and is adequate for the purposes for which such reserve was established.

7.11 Borrowings, Grants and Loans to Directors

7.11.1 No QRG Group Entity has outstanding any obligation for the payment or repayment of money, whether present or future, actual or contingent, in respect of (i) monies borrowed or raised, (ii) any recourse to a company selling or discounting receivables in respect of receivables sold or discounted, (iii) moneys raised under any bond, note, share, or other security; (iv) moneys raised under or in respect of acceptance credit and documentary credit facilities, (v) the acquisition cost of assets or services to the extent payable after the time of acquisition or possession, (vi) rental payments under chattel leases and hire purchase agreements, or (vii) any guarantee, indemnity or other assurance against or arrangement intended to prevent or limit loss in respect of any

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bligation for the payment or repayment of money described above, any such obligation being referred to below as a “Borrowing”.

7.11.2	No QRG Group Entity has subsisting over the whole or any part of its present or future revenues or assets any Lien or other security interest or any other agreement or arrangement having a similar effect, other than Permitted Liens.
7.11.3	No Borrowing of any QRG Group Entity has become or is now due and payable, and no demand or other notice requiring the payment or repayment of money before its normal or originally stated maturity has been received by any member of the QRG Group Entities.
7.11.4	No event or circumstance has occurred, or, so far as the Seller is aware, may occur with the giving of notice or lapse of time determination of materiality or satisfaction of any other condition, such as to entitle any person to require the payment or repayment of any Borrowing before its normal or originally-stated maturity or which is or shall be such as to terminate, cancel or render incapable of exercise any entitlement to draw money or otherwise exercise the rights of any QRG Group Entity under an agreement relating to Borrowing.
7.11.5	No QRG Group Entity has done or agreed to do anything as a result of which (i) any investment grant or other grant or any subsidy received by any QRG Group Entity is or, so far as the Seller is aware, may be liable to be refunded wholly or partly, or (ii) any application made by any QRG Group Entity for such a grant or subsidy shall or may be refused wholly or partly, and, so far as the Seller is aware, neither the signature nor the performance of this Agreement or any of the transactions contemplated herein shall have any such result.
7.11.6	There is not outstanding (i) any loan made by any QRG Group Entity to, or debt owing to any QRG Group Entity by, the Seller or any director of any QRG Group Entity or any person connected with any of them, or (ii) any agreement or arrangement to which any QRG Group Entity is a party and in which the Seller or any director of any QRG Group Entity or any person connected with any of them is interested.

7.12 No Changes

Since the Company Balance Sheet Date, the business of each QRG Group Entity has been conducted in the ordinary course of business consistent with past practice and there has not been, occurred or arisen:

7.12.1	any event, occurrence, development or state of circumstances or facts that has had or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect; or
7.12.2	any action to be taken or failed to be taken by any QRG Group Entity that, if taken during the period from the date hereof until the Bring Down Date would constitute a breach of clause 5.1.3 c), clause 5.1.3 e), clause 5.1.3 bb) or clause 5.1.3 cc).

7.13 Accounts Receivable

7.13.1 The Disclosure Letter contains a list of all accounts receivable, whether billed or unbilled, of the QRG Group Entities as of the Company Balance Sheet Date, together with an ageing schedule (of only billed accounts receivable) indicating a

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range of days elapsed since original invoice, and none of such accounts receivable have been re-invoiced since the original invoice date.

7.13.2 All of the accounts receivable, whether billed or unbilled, of the QRG Group Entities arose in the ordinary course of business, are carried at values determined in accordance with GAAP or other generally accepted accounting principles applicable to such QRG Group Entities, are not subject to any valid set off or counterclaim, do not represent obligations for goods sold on consignment, on approval or on a sale or return basis or subject to any other repurchase or return arrangement and to the Seller’s knowledge are collectible except to the extent of provisions therefor set forth in the Company Balance Sheet (which receivables are recorded in accordance with GAAP or other generally accepted accounting principles applicable to such QRG Group Entities). No Person has any Lien on any accounts receivable of the QRG Group Entities, and no request or agreement for deduction or discount has been made with respect to any accounts receivable of the QRG Group Entities. The aggregate accounts receivable reflected in the Disclosure Letter are, to the Seller’s knowledge, collectible, less any reserves adequately taken into account and set forth in the Company Balance Sheet.

7.14 Tax Matters

7.14.1	Each QRG Group Entity has (i) prepared and submitted on time to the relevant Tax Authority all required Tax Returns relating to any and all Taxes concerning or attributable to or payable by such QRG Group Entity and/or their respective operations, and such Tax Returns are true and correct in all material respects (including all required disclosures) and have been completed in accordance with applicable Law, and (ii) duly paid all Taxes required to be paid (the latest date for payment of which is prior to the Closing Date), whether or not shown to be due on such Tax Returns. All material Tax records required to be maintained by the QRG Group Entities have been properly maintained and are up to date. None of the QRG Group Entities have been or are liable to pay any penalty, fine, interest, surcharge or similar amount in relation to Tax and so far as the Seller is aware there are no facts or circumstances which are likely to cause any of them to be liable to pay any such penalty, fine, interest, surcharge or similar amount.
7.14.2	The QRG Group Entities have paid or withheld with respect to their Employees and other third parties and any related Person, all Taxes required to be paid or withheld (the due date for payment of which is prior to the Closing Date), and have duly paid any such withheld Taxes over to the appropriate authorities.
7.14.3	There are no claims for unpaid Taxes outstanding, assessed or proposed against any QRG Group Entity nor has any QRG Group Entity executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax.
7.14.4	No audit or other examination of any Tax Return of any QRG Group Entity (other than an audit or other examination of a routine nature) or has been carried out in the last six years or is presently in progress, and no QRG Group Entity has been notified of any request for such an audit or other examination and to the Seller’s knowledge there are no facts which are likely in the Seller’s reasonable opinion to give rise to any such examination, audit, other administrative proceeding, litigation or Lien over any asset of any QRG Group Entity. No request for an exchange of information regarding Tax relating to any QRG Group Entity or in relation to the Company Business has been made by any Governmental Entity.

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7.14.5	No QRG Group Entity has any Liabilities for unpaid Taxes which have not been accrued or reserved on the Company Balance Sheet or QRG Ireland Financial Statements or otherwise accrued or reserved, as appropriate, whether asserted or unasserted, contingent or otherwise and no QRG Group Entity has incurred any Liability for Taxes since the Company Balance Sheet Date other than in the ordinary course of business consistent with past practice. Each of the QRG Group Entities has duly submitted all elections, claims and disclaimers which have been assumed to have been made in the Company Balance Sheet or QRG Ireland Financial Statements or otherwise (whether on the face of the document or otherwise).
7.14.6	The Company has made available to the Buyer or its Representatives prior to the date hereof copies of all Tax Returns for the QRG Group Entities filed for the last six (6) years, and all correspondence with any Tax Authority and any assessments made by any Tax Authority in respect of the QRG Group Entities.
7.14.7	There are no Liens on the assets of the QRG Group Entities relating or attributable to Taxes other than Liens for Taxes not yet due and payable.
7.14.8	No QRG Group Entity has (i) ever been a member of a Consolidated Group, (ii) ever been a party to any Tax sharing, indemnification or allocation agreement, (iii) any Liability for the Taxes of any Person (other than another QRG Group Entity) as a result of being or ceasing to be included in a Consolidated Group, as a transferee or successor, by Contract or otherwise, or (iv) ever been a party to any joint venture, partnership or other arrangement that could be treated as a partnership for Tax purposes.
7.14.9	No QRG Group Entity has been a party to any transaction or series of transactions which is or forms part of a scheme which has as a main purpose the avoidance of Tax and none of the provisions of Part 33, Chapter 2 TCA apply to any transaction or arrangement involving any QRG Group Entity.
7.14.10	No QRG Group Entity is subject to Tax in any jurisdiction other than its country of incorporation or formation by virtue of having a permanent establishment or other place of business or by virtue of having a source of income in that jurisdiction or otherwise. No claim has ever been made by any Governmental Entity that a QRG Group Entity is or may be subject to Taxation in a jurisdiction where such QRG Group Entity does not file Tax Returns. Each QRG Group Entity is resident for tax purposes in the countries in which they were incorporated and nowhere else.
7.14.11	The Company has provided to the Buyer all documentation relating to, and is in full compliance with all material terms and conditions of, any Tax exemption, Tax holiday, advance pricing agreement, Tax ruling or other special Tax regime or Tax reduction agreement, arrangement or order (“Tax Incentive”) with respect to the QRG Group Entities and any Tax Authority. The completion of the Share Purchase and the other transactions contemplated by this Agreement will not have any adverse effect on the continued validity and effectiveness of any such Tax Incentive. The Disclosure Letter contains a description of the material terms and conditions of each Tax Incentive. Neither in the current financial year nor in the preceding six (6) financial years has any QRG Group Entity claimed, utilised or requested exemptions or deferrals in relation to Tax, including exemptions or deferrals of Tax relating to reorganisations or mergers.
7.14.12	Each QRG Group Entity is in compliance in all material respects with all applicable transfer pricing Laws, including the maintenance of contemporaneous

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	documentation substantiating the transfer pricing practices and methodology of such QRG Group Entity, and no QRG Group Entity has acquired or disposed of any asset, supplied or received any service or entered into any transaction otherwise than by way of bargain at arm’s-length.
7.14.13	No QRG Group Entity has performed any activities which are exempt from VAT, including any foreign equivalents of VAT, and no reduced deduction of input VAT on received deliveries and services and on any import has taken place. Each QRG Group Entity is only registered for VAT purposes, including any foreign equivalents of VAT, in the jurisdiction in which it is incorporated, and no QRG Group Entity is or has ever been a member of a group for VAT purposes.
7.14.14	All interest and other sums payable under any obligation incurred by any QRG Group Entity have been wholly allowable as deductions in computing the income of such QRG Group Entity for Tax purposes.
7.14.15	The signing and completion of this Agreement will not have any adverse Tax consequences for any QRG Group Entity and no relief, exemption or allowance has been claimed by any QRG Group Entity for Tax purposes which will or may become liable to forfeiture on the Closing Date or any time thereafter or as a result of the Closing.
7.14.16	All clearances obtained by the Company have been properly obtained and all information supplied to HM Revenue and Customs or other appropriate authority in connection with such clearances was complete and accurate in all material respects and any transaction for which such clearance was obtained has been carried out only in accordance with the terms of the clearance given therefor and the application on which the clearance was based.
7.14.17	No Liability for Tax would be incurred (or would be incurred but for the availability of any relief, allowance, deduction or credit) by any QRG Group Entity on a disposal by it of all or any of its assets for:

a)	in the case of each asset owned by the Company at the Company Balance Sheet Date, a consideration equal to the value attributed to that asset in preparing the Company Balance Sheet; or
b)	in the case of any asset acquired by the Company since the Company Balance Sheet Date or owned by any other QRG Group Entity, a consideration equal to the consideration given for the asset.

7.14.18	Nothing has been done in circumstances such that Section 30 of the Taxation of Chargeable Gains Act 1992 (“TCGA”) has an effect in relation to the disposal of an asset by any QRG Group Entity.
7.14.19	Neither the Company nor any other person has made any claims and/or elections that will affect the chargeable gain or allowable loss which would arise in the event of a disposal after Closing by any QRG Group Entity of any of its assets.
7.14.20	No QRG Group Entity has made a claim under Sections 24, 48 or 280 of the TCGA or under Sections 38, 597 or 1005 TCA or made any elections under Sections 171A or 179A TCGA or paragraph 66 Schedule 29 Finance Act 2002 and so far as the Seller is aware no QRG Group Entity has entered into any transactions or arrangements which give rise to a liability under Sections 590, 616, 623, 625, 623A, 626 or 630 too 638 TCA.

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7.14.21	No QRG Group Entity has disposed of any asset for a deferred or contingent consideration within the last three years an amount of which is still outstanding.
7.14.22	The Disclosure Letter sets out particulars of all the intangible fixed assets of all QRG Group Entities to which Schedule 29 Finance Act 2002 applies.
7.14.23	The Disclosure Letter gives details of all claims for and disclaimers of capital allowances, (including book values and Tax written down values) and of the manner in which such allowances have been given to the extent that such claims or disclaimers have not been disclosed in the Tax Returns made available to the Buyer in the Disclosure Letter.
7.14.24	No QRG Group Entity has since the Company Balance Sheet Date, done or omitted to do or agreed to do, or permitted to be done, any act as a result of which there has been or will be a balancing charge under the Capital Allowances Act 2001 (“CAA”) or under TCA or a withdrawal of first year allowances or recovery of excess relief within Chapter 11 of Part 2 of the CAA or within Part 9 TCA.
7.14.25	No QRG Group Entity has incurred any expenditure on the provision of machinery or plant for leasing (the meaning of which is, for this purpose, as extended by Section 105 of the CAA).
7.14.26	No QRG Group Entity has made any election under Section 83 of the CAA (short life assets) nor is taken to have made such an election under Section 89(4) thereof.
7.14.27	No QRG Group Entity has issued or created any securities, interests in securities or securities options to which Chapters 2, 3, 3A, 3B, 3C, 3D, 4 or 5 Part 7 of ITEPA apply.
7.14.28	No QRG Group Entity has made any payment to which Section 225 ITEPA applies and QRG Ireland has not made any payment to which Section 127 TCA applies.
7.14.29	As at the date of this Agreement, no Company Employee is or may become entitled to receive (whether or not by way of exercise of an option granted to him) at any time after the execution of this Agreement any amount to which Section 696 ITEPA and any regulations made thereunder may apply (income provided in other ways).
7.14.30	No QRG Group Entity has made any repayment of share capital (to which in the case of the Company Section 210 of the Taxes Act applies) or issued any share capital paid up otherwise than by the receipt of new consideration within the meaning of Part VI of the Taxes Act or Part 6 TCA.
7.14.31	No QRG Group Entity has been concerned in any exempt distribution within Section 213 of the Taxes Act within the period of six (6) years preceding the Bring Down Date.
7.14.32	No QRG Group Entity has issued any security (within the meaning of Section 254(1) of the Taxes Act) outstanding on the Bring Down Date in circumstances such that any interest or other payment payable in respect of it may be treated as a distribution under Section 209 of the Taxes Act.
7.14.33	During all accounting periods ending within six (6) years preceding the date hereof and the current accounting period no QRG Group Entity has done anything so as

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	to give rise to an assessment under Section 419 (as extended by Section 422) of the Taxes Act (loans to participators, etc).
7.14.34	No QRG Group Entity is nor has any such entity ever been subject to the Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999.
7.14.35	No liability to Taxation or non trading deficit would arise for a QRG Group Entity from any loan relationships to which it is party being repaid to the extent of the amounts shown in respect of such loan relationships in the books of that entity at the date hereof and at the Bring Down Date.
7.14.36	All borrowings by or advances by a QRG Group Entity reflected in the Company Balance Sheet constitute loan relationships of that entity and are not relationships to which Sections 92 (convertible securities), 93 (relationships linked to chargeable assets), 94 (indexed gilts), 95 (gilt strips) or 96 (other gilts) of the Finance Act 1996 apply or have applied.
7.14.37	No interest or other amounts treated as a credit or claimed as a debit by the a QRG Group Entity (including imputed interest under Sections 770 to 773 of the Taxes Act) remains unpaid and no such debits, save where they relate to unpaid interest, are prevented from being deducted in computing the taxable profits of a QRG Group Entity for whatever reason, including, without limitation because a relationship is for an unallowable purpose as defined in paragraph 13 of Schedule 9 to the Finance Act 1996.
7.14.38	No loan relationship of a QRG Group Entity constitutes a relevant discounted security as defined in paragraph 3 of Schedule 13 to the Finance Act 1996.
7.14.39	No QRG Group Entity is a “large company” within the meaning of regulation 3 of the Corporation Tax (Instalment Payment) Regulations 1998 (S1 1998/3175).
7.14.40	No QRG Group Entity is nor has such an entity ever been a close company or a close investment company for the purposes of the Taxes Act in the last seven (7) years and QRG Ireland is not and never has been a close company as defined in Part 13 TCA and the provisions of Section 434-439 TCA do not and never have applied to any transaction entered into or circumstance existing in QRG Ireland.
7.14.41	No claims have been or could have been made by a QRG Group Entity under Section 36 of the Value Added Tax Act 1994 (“VATA”) in the last three (3) years (refund of Tax in cases of bad debts).
7.14.42	No QRG Group Entity holds an interest in any buildings or land in respect of which it has made an election to waive the exemption to value added tax in accordance with the provisions of paragraph 2 of Schedule 10 to the VATA or Section 7 of the Value Added Tax Act 1972 of Ireland, nor are any QRG Group Entities contractually committed (contingently or otherwise) to receive any supply in respect of which such an election has been made.
7.14.43	All documents in the possession or under the control of any QRG Group Entity or to the production of which any QRG Group Entity is entitled which are necessary to establish the title of any QRG Group Entity to any asset or to effect registration in respect of the holding of an asset or to produce the relevant instrument as evidence in civil proceedings or in a hearing before an arbitrator or referee and which, in the United Kingdom, Ireland or elsewhere, attract either stamp duty or

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	transfer Tax or require to be stamped with a particular stamp denoting that no duty is chargeable or that the document has been produced to the appropriate authority, have been duly and properly stamped or the transfer Tax duly paid; and no such documents which are outside the United Kingdom would attract stamp duty if they were brought into the United Kingdom. If this warranty is untrue with respect to any document and in the reasonable opinion of the Buyer it is necessary to procure stamping of such document, the Seller shall pay to the Buyer on demand by way of liquidated damages an amount equal to any unpaid stamp duty and any interest or penalties payable in respect thereof.
7.14.44	No QRG Group Entity is party to a contract for the sale of an estate or interest in land to which Section 115 Finance Act 2002 applies.
7.14.45	There are no circumstances in which any QRG Group Entity will or may after Closing be liable to pay an amount of stamp duty or stamp duty land tax, submit a stamp duty land transaction return or a stamp duty land tax self certificate in respect of any transaction entered into or action taken prior to Closing.
7.14.46	The activities carried on by QRG Ireland are trading activities and all income arising from those activities are taxable under Case I of Schedule D, TCA. The trade of QRG Ireland is carried on in Ireland and QRG Ireland is liable to corporation tax in Ireland at a rate of 12.5%.
7.14.47	There is no unsatisfied liability to capital acquisitions tax attached or attributable to the shares in QRG Ireland or any of the assets of the QRG Ireland and the said shares and assets are not subject to a charge in favour of the Irish Revenue Commissioners and the entering into this Agreement will not give rise to a charge to capital acquisitions tax.
7.14.48	QRG Ireland has properly operated the PAYE system of deduction and of accounting to the Irish Revenue Commissioners (and all similar systems to the appropriate authority in any other jurisdiction) for Taxes chargeable on the remuneration of its employees (deemed or otherwise) and has properly operated Social Welfare and Pay Related Social Insurance deductions (both employer’s and employees’) deductions (or their equivalent in any other jurisdiction) and has no liability in respect thereof and has maintained all material records appropriate for the purposes thereof.
7.14.49	Any and all stamp duty that was chargeable on the issue of the Company Bearer Warrants and any other bearer warrants that have ever been issued by the Company has been paid in full.
7.14.50	The trustees of the EBT, being the Seller and Mrs Kathleen Philipp acting as trustees of the EBT in their individual capacities (i) have at all times since the establishment of the EBT been resident for tax purposes in the UK and nowhere else and (ii) and will continue to be resident for tax purposes in the UK and nowhere else until the Seller and Mrs Kathleen Philipp cease to be the trustees of the EBT.

7.15 Restrictions on Business Activities

There is no Contract (non competition or otherwise) or Order to which any QRG Group Entity is a party or otherwise binding upon any QRG Group Entity which has the effect of prohibiting or impairing any business practice of any QRG Group Entity or the Company Business, or otherwise limiting the freedom of any QRG Group Entity to engage in any line of business or

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to compete with any Person. Without limiting the generality of the foregoing, no QRG Group Entity has entered into any Contract under which any QRG Group Entity is restricted from selling, licensing, manufacturing or otherwise distributing any of its Company Intellectual Property or Company Products.

7.16 Title to Properties; Absence of Liens and Encumbrances

7.16.1	No QRG Group Entity owns any real property or has any option or right to acquire any ownership interest in any real property nor has any QRG Group Entity ever owned any real property.
7.16.2	The Disclosure Letter sets forth a list of all leases, lease guaranties, subleases, agreements for the leasing, use or occupancy of, or otherwise granting a right in or relating to all real property currently leased, subleased or licensed by or from any QRG Group Entity or otherwise used or occupied by any QRG Group Entity for the operation of their respective businesses (the “Leased Real Property”), including all amendments, terminations and modifications thereof (“Lease Agreements”); and there are no other Lease Agreements for real property affecting the Leased Real Property or to which any QRG Group Entity is bound. There is not, under any of such Lease Agreements, any existing default by any QRG Group Entity (or to the Seller’s knowledge, any default by any lessor of any Leased Real Property under any of such Lease Agreements) nor so far as the Seller is aware, is there any event or circumstance existing which with notice or lapse of time, or both, would constitute a default under any such Lease Agreements). The Lease Agreements are valid and effective in accordance with their respective terms, subject to Laws of general application relating to bankruptcy, insolvency and the relief of debtors. The QRG Group Entities currently occupy all of the Leased Real Property for the operation of their businesses and there are no other parties occupying, or with a right to occupy, the Leased Real Property.
7.16.3	So far as the Seller is aware, neither the operation of any QRG Group Entity on the Leased Real Property nor such Leased Real Property, including the improvements thereon, violate in any material respect any applicable building code, zoning requirement or statute relating to such property or operations thereon, and any such non violation is not dependent on so called non conforming use exceptions.
7.16.4	Each QRG Group Entity has good and marketable title to, and in the case of leasehold interests, valid leasehold interest in all of its tangible properties and assets and Leased Real Property, free and clear of all Liens except permitted Liens.
7.16.5	Each QRG Group Entity has performed all of their obligations under any termination agreements pursuant to which any of them have terminated any leases, subleases, licences or other occupancy agreements for real property that are no longer in effect and no QRG Group Entity has any continuing liability with respect to such terminated agreements. The Disclosure Letter sets forth the tangible properties and assets, real (other than the Leased Real Property disclosed in the Disclosure Letter), personal and mixed, used and/or held for use in the conduct of the Company Business with an individual value of more than £25,000.

7.17 Assets

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7.17.1	The QRG Group Entities own or have valid leasehold interests in or valid rights under Contract to use, all their respective assets used in connection with the Company Business as currently conducted free and clear of all Liens, except Permitted Liens. The assets owned or leased by the QRG Group Entities and currently used by the QRG Group Entities in the conduct of the operation of the Company Business (including, without limitation, the assets and properties reflected on the Financial Statements) are adequate and sufficient, in all material respects, for the operation of the Company Business as currently conducted. For purposes of clarity, this clause 7.17.1 does not relate to real property (such items being the subject of clause 7.16) or intellectual property (such items being the subject of clause 7.18).
7.17.2	Upon the completion of the transactions contemplated by this Agreement (including, for the avoidance of doubt, the QRG Ireland Agreement), the Buyer will own through the Company and its Subsidiaries all assets, rights and interests as are necessary to enable the Buyer to operate the Company Business in the same manner as it has been and is currently operated by the QRG Group Entities.
7.17.3	None of the QRG Group Entities has, within the past twenty-four (24) months ending at the date hereof, acquired any assets on terms which were not a bargain at arm’s-length.

7.18 Intellectual Property

7.18.1	The Disclosure Letter (i) lists all Company Registered Intellectual Property, (ii) lists any material actions that the Seller is or should reasonably be aware of that must be taken by any QRG Group Entity within sixty (60) days of the date of this Agreement with respect to any of the foregoing, including the payment of any registration, maintenance or renewal fees or the filing of any documents, applications or certificates, and (iii) lists any proceedings or actions before any court or tribunal (including the United States Patent and Trademark Office (the “PTO”), the European Patent Office (the “EPO”) or equivalent authority anywhere in the world) to which any QRG Group Entity is a party and in which claims are raised relating to the validity, enforceability, scope, ownership or infringement of any of the Company Intellectual Property.
7.18.2	All documents required to be filed and fees required to be paid (or which will be required to be filed or paid on or before the Bring Down Date) in connection with the Company Registered Intellectual Property have been or will have been duly filed or paid, as the case may be, for the purposes of maintaining such Company Registered Intellectual Property and no QRG Group Entity or the Seller has received any notice or is aware that any circumstances exist where any application for registration required might not proceed to grant.
7.18.3	All Company Registered Intellectual Property is valid, subsisting and enforceable.
7.18.4	Other than Intellectual Property Rights licensed to any QRG Group Entity under an In-Licence (as defined in clause 7.18.14), the Company Intellectual Property includes all Intellectual Property Rights that are used in or necessary to the conduct of the Company Business as it currently is conducted by the QRG Group Entities, including the design, development, manufacture, use, marketing, import for resale, distribution, licensing out and sale of any Company Product (to the extent such activities are currently being conducted by the QRG Group Entities).

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7.18.5	None of the Company Intellectual Property Rights are jointly owned by the Company and any third Person.
7.18.6	No Person, including any current or former employee or shareholder of any QRG Group Entity, has retained or has been granted, or has the right to be granted, ownership of or the right to license or sublicense any Company Intellectual Property.
7.18.7	Without limiting the foregoing:

a)	the Intellectual Property Rights that were assigned and transferred absolutely to the Company pursuant to the Philipp IP Transfer Agreements constitute all Intellectual Property Rights that were created or invented, as the case may be, or that were owned, in whole or in part, by the Seller, or in which the Seller has had any right or any ownership interest and that are material to, or related to, the Company Business or any Company Product, including such rights which came into existence at any time after the date which is the earlier of (1) the date the Seller ceased employment with any third party but the Company and (2) the date of formation of the Company; and
b)	the Intellectual Property Rights that were assigned and that transferred absolutely to the Company pursuant to other IP Transfer Agreements constitute all Intellectual Property Rights that were created or invented, as the case may be, or that are owned by, in whole or in part, any other Person that has been associated with the Company (including any Co-Inventor) or in which any such other Person had right or any ownership interest and that are material to, the Company Business or any Company Product, including such rights which came into existence at any time after the date on which such Person commenced their employment or consultancy relationship with the Company.
c)	The Company owns, without restriction or Lien of any kind other than the Permitted Liens, all right, title and interest in and to the Transferred Intellectual Property Rights.

7.18.8	A QRG Group Entity is the sole and exclusive owner of each item of Company Intellectual Property, free and clear of any Liens other than Permitted Liens. A QRG Group Entity has the sole and exclusive right to bring a claim or suit against a third party for infringement or misappropriation of the Company Intellectual Property. No Person other than a QRG Group Entity is entitled to, or has any current, future or contingent right (i) to any fees, payment, compensation, or other amounts with respect to any Company Intellectual Property, including with respect to the sale, licensing, or damages for the infringement, of any such Company Intellectual Property; or to any Technology or Intellectual Property Rights therein developed by or for a QRG Group Entity.
7.18.9	To the knowledge of the Seller, no Person is infringing or misappropriating any Company Intellectual Property.
7.18.10	The QRG Group Entities and the Seller have taken all steps that are reasonably required to protect the Trade Secret rights in their Know-how and to protect the Trade Secret rights in the Know-how provided by any other Person to any QRG Group Entity.

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7.18.11	To the Seller’s knowledge there have been no material unauthorised intrusions or breaches of the security of Information Technology Systems used in connection with the operation of any QRG Group Entity or unauthorised disclosure of material Know-how.
7.18.12	So far as the Seller is aware, the operation of the Company Business as it has been conducted and is currently conducted by QRG Group Entities, including the design, development, use, import, branding, advertising, promotion, marketing, manufacture, sale or licensing out of any Company Product or Technology, has not and does not infringe or misappropriate any Intellectual Property Rights of any third Person, violate any right (including any right to privacy or publicity) of any third party, or constitute unfair competition or trade practices under the Laws of any jurisdiction. No QRG Group Entity has received notice from any Person claiming that such operation or any act, or any Company Product, Technology used by any QRG Group Entity infringes or misappropriates any Intellectual Property Rights of any Person or constitutes unfair competition or trade practices under the Laws of any jurisdiction.
7.18.13	Neither this Agreement nor the transactions contemplated by this Agreement, will so far as the Seller is aware, result in (i) any QRG Group Entity or the Buyer or any Affiliate, granting to any third Person any right to or with respect to any Intellectual Property Rights owned by, or licensed to, any of them (other than rights granted by any QRG Group Entity on or prior to the date hereof to Company Intellectual Property), (ii) any QRG Group Entity, or the Buyer or any of its Affiliates, being bound by, or subject to, any non compete or other material restriction on its freedom to engage in, participate in, operate or compete in any line of business, or (iii) any QRG Group Entity being obligated to pay any royalties or other licence fees with respect to Intellectual Property Rights of any third Person in excess of those currently payable by any QRG Group Entity.
7.18.14	The Disclosure Letter lists all Contracts to which any one or more of the QRG Group Entities is a party that grants to any of them a licence, ownership rights, an option to, or other rights in or to any Technology or Intellectual Property Rights owned in whole or in part by a third Person (collectively, “In-Licences”), other than Contracts pursuant to which the relevant QRG Group Entity has received a licence to Generally Commercially Available Code, for less than £25,000 per annum and which software is not incorporated into a Company Product.
7.18.15	The Disclosure Letter lists all Contracts, to which any QRG Group Entity is a party under which any of them grants any third Person (including any end-user or customer) or any other QRG Group Entity a licence or other rights in or to any Company Intellectual Property or other Intellectual Property Rights, (collectively, “Out-Licences”; together with the In-Licences, the “IP Licences”), other than non-exclusive licences to customers for Company Products pursuant to a Company’s standard form agreements (copies of which have been made available to the Buyer prior to the date hereof).
7.18.16	No QRG Group Entity is in breach of, nor has any QRG Group Entity failed in any material respect to perform under, any IP Licence and, to the knowledge of the Seller, no other party to any such IP Licence is in material breach thereof or has failed to perform in any material respect thereunder.
7.18.17	Except as set forth in the Disclosure Letter, all IP Licences will, so far as the Seller is aware, continue in force to the benefit of the Company after the Closing without the need for approval by any Person. The completion of the transactions

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	contemplated by this Agreement, including the completion of the acquisition of the Company Shares by the Buyer will not of themselves violate or result in the breach, modification, termination or suspension of any IP Licence.
7.18.18	To the knowledge of the Seller there are no disputes between any QRG Group Entity or any Co-Inventor and any third Person under any IP Licence.
7.18.19	No (i) government funding; (ii) facilities of a university, college, other educational institution or research centre; or (iii) funding (other than general funds raised by the Company) from any Person was used specifically for the development of any Company Intellectual Property.
7.18.20	No QRG Group Entity has committed to or is obligated or bound to grant a licence or other rights to any current or future Company Intellectual Property to any third Person, including any obligations that may result from any QRG Group Entity’s participation in any standards body or similar organisation.
7.18.21	No QRG Group Entity has used or incorporated Open Source into, or combined Open Source with, any Company Product or Technology that would subject any Company Product or Technology or Company Intellectual Property to the terms of an Open Source Licence.
7.18.22	No Company Source Code has been placed in escrow and no QRG Group Entity is required or would be obligated to place any Company Source Code into escrow or to release Company Source Code to any third person.
7.18.23	All Information Technology Systems are: (i) legally and beneficially owned by a QRG Group Entity or, in relation to Software, are owned by or licensed to a QRG Group Entity; (ii) in the exclusive possession and control of a QRG Group Entity; and (iii) free from any charge, mortgage or encumbrance and are not the subject of any agreement for lease, hire, hire purchase, sale on deferred terms or any other similar arrangement. The source code for all Software, other than Generally Commercially Available Code, is either held by a QRG Group Entity or in escrow on behalf of a QRG Group Entity.
7.18.24	The Information Technology Systems: (i) are in satisfactory working order and are fit for the purpose for which they are being used; (ii) are supported by technically competent and trained employees and contractors and have appropriate security, back-ups, disaster recovery arrangements and hardware and software support and maintenance to minimise the risk of any error, breakdown, failure or security breach occurring and to ensure that if such event does occur it does not cause a disruption to the business of any QRG Group Entity; (iii) are configured and maintained to minimise the effects of bugs, viruses, logic bombs, trojan horses and other destructive programs or scripts; and (iv) have not suffered any error, breakdown, failure or security breach in the last twelve (12) months which has caused material disruption or damage to the business of any QRG Group Entity. Each QRG Group Entity holds all the rights necessary to use the Information Technology Systems in the manner in which they are currently used by that Entity.
7.18.25	To the extent that any QRG Group Entity has collected personal data with respect to a third party, all collection, storage, use and dissemination of such information has been in material compliance with all Data Protection Laws, the Company’s policies and obligations and, in particular, all QRG Group Entities: (i) have complied with or validly refused all requests from data subjects to access, change or delete personal data; and (ii) have agreements which are materially in

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	compliance with relevant Data Protection Laws in place with all persons processing personal data on their behalf. There have been no orders made against any QRG Group Entity for the rectification, erasure or destruction of data under any Data Protection Laws; there have been no warrants issued under any Data Protection Laws authorising any government entity or agent to enter the premises of any QRG Group Entity and all personal data kept in the databases of any QRG Group Entity is necessary for the conduct of the Company Business as currently carried on, accurate in all material respects and up to date.
7.18.26	Each QRG Group Entity has made notifications or is registered as required under all applicable Data Protection Laws in respect of personal data processed by it. No QRG Group Entity has received a notice of breach by it of any applicable Data Protection Laws and in particular has not received an enforcement notice, an information notice or a special information notice under the UK Data Protection Act 1998. No individual has, to the knowledge of the Seller, been awarded compensation from any QRG Group Entity under any applicable Data Protection Laws in particular, (A) no individual is making a claim for such compensation from any QRG Group Entity; and (B) to the Seller’s knowledge there are no circumstances which are likely to give rise to such a claim.
7.18.27	The Disclosure Letter lists all Company Products. No customer or other Person has asserted or threatened to assert any claim against any QRG Group Entity (i) under or based upon any warranty provided by or on behalf of any QRG Group Entity, or (ii) under or based upon any other warranty relating to any Company Product. All Company Products do and when sold by the relevant QRG Group Entity did, conform to all applicable warranties and specifications.

7.19 Customers: Suppliers

7.19.1	The Disclosure Letter sets forth a complete list of, and the aggregate Pounds Sterling value of sales made or services provided to, the twenty (20) largest customers (the “Top Customers”) of the QRG Group Entities, taken as a whole, within each of the most recently-completed financial year and the current financial year-to-date based on the gross revenues of the QRG Group Entities during such period.
7.19.2	The Disclosure Letter sets forth a complete list of, and the aggregate gross revenue from, the top ten (10) distributors and/or sales representatives (the “Top Distributors”) and top three (3) licencees (the “Top Licencees”) of the QRG Group Entities, taken as a whole, within each of the most recently-completed financial year and the current financial year-to-date based on consolidated gross revenues of the QRG Group Entities during such period.
7.19.3	The Disclosure Letter sets forth a complete list of, and the aggregate consolidated payments to, the top five (5) suppliers, including without limitation foundries (the “Top Suppliers”), of the QRG Group Entities, taken as a whole within each of the most recently-completed financial year and the current financial year-to-date based on consolidated payments of the QRG Group Entities during such period.
7.19.4	No Top Customer, Top Distributor, Top Licencee or Top Supplier has cancelled or otherwise terminated or materially and adversely modified, or to the knowledge of the Seller threatened to cancel or otherwise terminate or materially and adversely modify, its relationship with any QRG Group Entity. None of the QRG Group Entities has received any notice, nor does the Seller have knowledge, that any Top Customer, Top Distributor, Top Licencee or Top Supplier (i) intends to cancel

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or otherwise materially and adversely modify its relationship with any QRG Group Entity on account of the transactions contemplated by this Agreement or otherwise, or (ii) is threatened with bankruptcy or insolvency or is, or is reasonably likely to become, otherwise unable to purchase or provide goods or services, as appropriate, from the QRG Group Entities consistent with past custom and practice.

7.19.5

There is no existing material dispute between any QRG Group Entity, on the one hand, and any customer, representative, agent or other contractor, distributor, reseller, manufacturer, dealer or partner, including those listed in the Disclosure Letter, on the other hand. To the knowledge of the Seller, none of the QRG Group Entities has granted or agreed to provide any sales, trade or product promotion allowances, rebates or similar product promotions or incentives, and no QRG Group Entity has any Liability or obligation with respect to any of the foregoing, except as set forth in the Disclosure Letter. Except as set forth in the Disclosure Letter and other than sales commissions payable to Company Employees in the ordinary course of business, there is no agreement or other arrangement which would obligate any QRG Group Entity to make any payment or pay any commission to any broker, independent contractor or other Person in connection with the sale of Company Products or otherwise.

7.20	Material Contracts
	The Disclosure Letter sets forth a true, correct and complete list of all Contracts and other agreements to which any QRG Group Entity is a party or by which any QRG Group Entity or any of their respective properties or assets are bound, of the following types:

7.20.1	any Lease Agreements;
7.20.2	any Employee Agreement and/or employment or consulting Contract with any executive officer or Company Employee of any QRG Group Entity earning an annual salary or consultancy fee in excess of £30,000;
7.20.3	any Contract currently in effect with any former officer, director, member or shareholder (or group of members or shareholders) of any QRG Group Entity;
7.20.4	any Contract with a third party consultant or contractor, sales representative, or agent to which any QRG Group Entity is a party under which such QRG Group Entity made any payments in excess of £25,000 in the aggregate within the preceding twelve (12) month period;
7.20.5	any Contract with any Top Customer, Top Distributor, Top Licensee and Top Supplier;
7.20.6	any Contract under which a third party has been engaged, hired or compensated by or on behalf of any QRG Group Entity to provide any services or assistance with respect to the design, development, testing or manufacture of any Company Product (or any part thereof) or to author any Company Source Code;
7.20.7	any Contract limiting the right of any QRG Group Entity, or requiring payments to a Third Party in order to engage in any line of business; to exercise, use, modify, maintain, support, transfer, Licence, distribute, exploit or enforce any Company Intellectual Property or Company Products; or to compete with any Person in any line of business;

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7.20.8	any Contract of which the Seller has knowledge to which any Company Employee (including any consultant any QRG Group Entity) is bound that in any manner purports to restrict the future operation of the Company Business from operating as it does at the date hereof or to assign to any other Person such Company Employee’s rights to any Company Intellectual Property;
7.20.9	any joint venture, partnership and other Contract (however named) involving a sharing of profits, losses, costs or Liabilities by any QRG Group Entity with any other Person;
7.20.10	any power of attorney relating to any QRG Group Entity that is currently effective and outstanding;
7.20.11	any Contract containing a written performance warranty for the Company Products that is materially different from the standard warranties for such Company Products;
7.20.12	any Contract (A) relating to the disposition or acquisition by any QRG Group Entity after the date of this Agreement (or prior to the date of this Agreement that has any remaining material obligations) of any business, line of business, operations, real property or assets not in the ordinary course of business, (whether by merger, sale of capital share or membership interests, sale of assets or otherwise), or (B) pursuant to which any QRG Group Entity has any ownership interest in any other Person or other business enterprise;
7.20.13	any Contract to which any QRG Group Entity is a party of guarantee, indemnity or suretyship or any contract to secure any obligations of any person, including any director of any QRG Group Entity or any Company Employee;
7.20.14	any mortgages, indentures, guarantees, loans or credit agreements, security agreements or other Contracts relating to the borrowing of money or extension of credit, other than accounts receivables and payables in the ordinary course of business;
7.20.15	any Contract with a customer, which to the Seller’s knowledge will or is reasonably likely to result in a Loss to any QRG Group Entity;
7.20.16	all Contracts under which any third Person, including any Person engaged in semiconductor manufacturing, testing or packaging, has supplied or provided, or has agreed to supply or provide, any product, device, component or service related to any Company Product to any QRG Group Entity or to a third party on behalf of any QRG Group Entity.

Such contracts described in clauses 7.20.1 to 7.20.16, are referred to in this Agreement as the “Material Contracts”.

7.21 No Breach

7.21.1 Assuming the due authorisation and execution of all the parties (other than the applicable QRG Group Entity) thereto, all Material Contracts and Ancillary Agreements to which any QRG Group Entity is a party are valid, binding and in full force and effect, except as enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganisation, moratorium and other Laws affecting the rights of creditors generally and general equitable principles (whether considered in a proceeding in equity or at Law).

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7.21.2	No QRG Group Entity has breached or is in breach of any provision of any Material Contract or Ancillary Agreement, except in each case for those breaches which, individually or in the aggregate, would not reasonably be expected to be material to the QRG Group Entities taken as a whole.
7.21.3	To the knowledge of the Seller, no Person who is party to any Material Contract or Ancillary Agreement, has breached or is in breach (or would be in breach but for the requirements of notice or lapse of time) of any provision of, any Material Contract or Ancillary Agreement.
7.21.4	Except as set out in the Disclosure Letter, no Material Contract requires the obtaining of any consent, approval, notation or waiver of any third party in connection with the transactions contemplated by this Agreement, and so far as the Seller is aware, no Material Contract shall or may be terminated as a result of this Agreement.
7.21.5	No QRG Group Entity has released or waived any material right under any Material Contract or Ancillary Agreement.
7.21.6	To the knowledge of the Seller, none of the Material Contracts or Ancillary Agreements is subject to any claims, charges, set offs or defences.
7.21.7	Except as set out in the Disclosure Letter, as of the date hereof, there are no new Contracts which are being actively negotiated and which would be required to be disclosed in the Disclosure Letter against the warranty set out at clause 7.20 of this Agreement.

7.22 Interested Party Transactions

7.22.1 No officer or director or, to the knowledge of the Seller, any other shareholder of any QRG Group Entity (nor any immediate family member of any such person, or any Entity in which any such person has or has had an interest) (each, an “Interested Party”), has or has had, directly or indirectly:

a)	any interest in any Entity which furnished or sold, or furnishes or sells, services, products, or technology that the QRG Group Entity’s furnish or sell, or proposes to furnish or sell;
b)	any interest in any Entity that purchases from or sells or furnishes to any QRG Group Entity, any goods or services; or
c)	any interest in, or is a party to, any Contract to which any QRG Group Entity is a party;

provided, however, that ownership of no more than three per cent. (3%) of the outstanding voting share of a publicly-traded corporation shall not be deemed to be an “interest in any Entity” for purposes of this clause 7.22.1.

7.22.2

All transactions pursuant to which any Interested Party has purchased any services, products, or technology from, or sold or furnished any services, products or technology to, the QRG Group Entities that were entered into on or after the inception of the applicable QRG Group Entity have been on an arms length basis on terms no less favourable to such QRG Group Entity than would be available from an unaffiliated party.

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7.23 Compliance: Permits

7.23.1	No QRG Group Entity is, nor so far as the Seller is aware, has in the past five (5) years been, in conflict with, or in default or in violation of, in any material respect, any Law applicable to the QRG Group Entities or by which the QRG Group Entities or any of their respective businesses, properties or assets is bound or affected.
7.23.2	There is no Order binding upon any QRG Group Entity which has or would reasonably be expected to have the effect of prohibiting or materially impairing the Company Business.
7.23.3	Each QRG Group Entity holds, to the extent required by Law, all material Permits that are necessary for the operation of the Company Business as currently conducted and to permit the QRG Group Entities to own and use their assets in the manner in which they own and use such assets currently (collectively, “Company Permits”).
7.23.4	The Disclosure Letter lists all of the Company Permits.
7.23.5	To the knowledge of the Seller, no suspension or cancellation of any of the Company Permits is pending or threatened. The QRG Group Entities are in compliance, in all material respects, with the terms of the Company Permits. The QRG Group Entities, as applicable, hold all Company Permits that are material and necessary for the current conduct, ownership, use or operation of the QRG Group Entities, their respective assets and the Company Business.

7.24 Litigation

7.24.1	Except as set forth in the Disclosure Letter, there is no Action pending, or to the knowledge of the Seller, threatened, against any QRG Group Entity, their respective properties (tangible or intangible) or any of their officers or directors or any person for whose acts or defaults any QRG Group Entity is vicariously liable or in respect of which any QRG Group Entity is liable to indemnify any party whatsoever, nor to the knowledge of the Seller are there any presently existing facts or circumstances that would constitute a reasonable basis therefor.
7.24.2	There is no investigation or other proceeding pending or, to the knowledge of the Seller, threatened, against any of the QRG Group Entities, any of their respective properties (tangible or intangible) or any of their officers or directors (in their capacities as such) or in respect of which any QRG Group Entity is liable to indemnify any party concerned, by or before any Governmental Entity, nor to the knowledge of the Seller are there any presently existing facts or circumstances that would constitute a reasonable basis for a successful claim to be brought against any QRG Group Entity.
7.24.3	The Disclosure Letter lists all Actions initiated by any QRG Group Entity or the Seller against any Person.
7.24.4	So far as the Seller is aware, no QRG Group Entity nor any of their officers or employees nor any person for whose acts or defaults any QRG Group Entity is vicariously liable has by any act or default committed (a) any criminal or unlawful act in connection with the Company Business, other than minor road traffic offences, (b) any breach of trust in relation to the Company Business or any QRG Group Entity, or (c) any breach of contract or statutory duty or tortious act which

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could entitle a third Person to terminate any contract to which any QRG Group Entity is a party.

7.24.5

The Disclosure Letter sets forth a list of the documents (copies of which are included in the Disclosure Documents) which represent the entire understanding, and constitute the whole agreement in relation to the engagement by the Seller and the QRG Entities of Mr [*]. These documents supersede any other arrangement between the parties thereto with respect to their subject matter. [Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

7.25 Books and Records

The registers of members of each QRG Group Entity contain complete and accurate records of the members of such QRG Group Entity. The minute books of the Company and QRG Ireland, all of which are contained in the Disclosure Documents, constitute true, correct and complete records of all meetings held of, and corporate action taken by, the shareholders, the Company Board and the board of directors of QRG Ireland, and no meeting of any such shareholders has been held for which minutes have not been prepared or that are not contained in such minute books.

Each QRG Group Entity has made and kept (and the Company has made available to the Buyer prior to the date hereof) business records, financial books and records, personnel records, ledgers, sales accounting records, tax records and related work papers and other books and records of the QRG Group Entities (the “Books and Records”) which materially reflect the business activities of the QRG Group Entities. No QRG Group Entity has engaged in any transaction, maintained any bank account or used any corporate funds except as reflected in its normally maintained Books and Records. The Books and Records have been maintained in accordance with sounds business practices. At the Closing, the minute books and other Books and Records of each QRG Group Entity will be in the possession of the Company.

7.26 Environmental Matters

7.26.1	Each QRG Group Entity has complied, in all material respects, with Environmental Laws.
7.26.2	So far as the Seller is aware, there are no circumstances in relation to the QRG Group Entities which give rise or could give rise or have given rise to any civil, criminal, administrative or other action, claim, suit, complaint, proceeding, investigation, decontamination, remediation or expenditure by any person or competent authority under Environmental Laws in relation to any matter including any current or former Leased Real Properties.
7.26.3	So far as the Seller is aware, each QRG Group Entity has obtained and there are in full force and effect and each QRG Group Entity has at all times complied in all material respects with all Environmental Permits necessary for the Company Business.
7.26.4	At no time has any QRG Group Entity received any notice or intimation alleging a breach of the terms of an Environmental Permit or alleging any other breach of Environmental Laws.

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7.26.5	No QRG Group Entity has received, generated, handled, used, stored, treated, transported, kept, deposited or disposed of Waste contrary to Environmental Laws at, on or under the Leased Real Property.
7.26.6	Except as would not be reasonably expected to result in material Liability to any QRG Group Entity, no amount of any Hazardous Material is present in, on or under any property, including the land and the improvements, ground water and surface water thereof, that any QRG Group Entity has at any time owned, operated, occupied or leased.
7.26.7	No QRG Group Entity has exposed any Company Employee or others to Hazardous Materials in violation of any Law or in a manner that would result in material Liability to any QRG Group Entity, nor has any QRG Group Entity disposed of, transported, sold, or manufactured any product containing a Hazardous Material (any or all of the foregoing being collectively referred to herein as “Hazardous Materials Activities”) in violation of any Environmental Laws. No QRG Group Entity has received any notice from any Governmental Entity regarding any actual or alleged violation of Environmental Laws, or any liabilities or potential liabilities for investigation costs, cleanup costs, response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees under Environmental Laws. To the Seller’s knowledge, no QRG Group Entity has disposed of or released any Hazardous Material so as to give rise to Liability for investigation costs, cleanup costs, response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees under Environmental Laws, or otherwise violated any Environmental Laws.
7.26.8	Each QRG Group Entity has been at all times and is currently in material compliance with the European Union Directive 2002/95/EC on the restriction of the use of certain hazardous substances in electrical and electronic equipment and all other similar Laws and has received certifications from its suppliers that they are similarly in compliance.
7.26.9	No QRG Group Entity has entered into any agreement that may require it to guarantee, reimburse, pledge, defend, hold harmless or indemnify any other party with respect to Liabilities arising out of or relating to the Hazardous Materials Activities of any QRG Group Entity or any third Person.

7.27 Health and Safety Law

7.27.1	Each QRG Group Entity has complied in all material respects with Health and Safety Law, and, so far as the Seller is aware, there are no circumstances which could give rise or have given rise to a material breach of Health and Safety Law or any civil, criminal or administrative action, claim, suit, proceeding or investigation by any person or other competent authority under Health and Safety Law.
7.27.2	So far as the Seller is aware, all risk assessments, reviews, reports and audits required by Health and Safety Law have been properly carried out and the recommendations contained in the relevant documents have been implemented.

7.28 Employee Benefit Plans and Compensation

7.28.1 The Disclosure Letter lists each Company Employee Plan and each Employee Agreement, and all staff handbooks, policies and procedures currently in force as of the date of this Agreement and applicable to the Company Employees.

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7.28.2	To the extent that any Company Employee Plan existed in the past, so far as the Seller is aware, no QRG Group Entity has any subsisting liability in respect of it.
7.28.3	No QRG Group Entity operates a Company Employee Plan which provides defined benefits (by reference to earnings or otherwise) on retirement, death or disability, or a defined contribution arrangement in connection with which there is a stated intention to provide a particular level of benefit.
7.28.4	No QRG Group Entity has made any plan or commitment to establish any new Company Employee Plan or Employee Agreement, to modify any Company Employee Plan or Employee Agreement (except to the extent required by Law or to conform any such Company Employee Plan or Employee Agreement to the requirements of any applicable Law, or as required by this Agreement), or to adopt or enter into or contribute or agree to contribute to, any Company Employee Plan or Employee Agreement.
7.28.5	The Disclosure Letter lists as of the date hereof, all of the Employees of the QRG Group Entities, and on a per person basis, the salary, notice period, holiday entitlement, bonus accrued for, royalties payable to and contributions payable in respect of each such Employee.
7.28.6	To the Seller’s knowledge, no QRG Group Entity or any Critical Employee or Critical Consultant or Important Employee or Important Consultant intends to terminate his or her employment or engagement for any reason.
7.28.7	The Disclosure Letter lists as of the date hereof each consultant, independent contractor, agency worker and other contingent or temporary worker used by any QRG Group Entity and a description of the remuneration arrangements applicable to each.
7.28.8	The Company has made available to the Buyer prior to the date hereof:

a)	correct and complete copies of all documents embodying each Company Employee Plan and each Employee Agreement including, without limitation, all amendments thereto and all related trust documents;
b)	if any QRG Group Entity is liable to contribute to a Company Employee Plan, the most recent annual and periodic accounting of such Company Employee Plan assets;
c)	all material written agreements and contracts relating to each Company Employee Plan, including administrative service agreements and group insurance contracts;
d)	all communications material to any Company Employee relating to any Company Employee Plan and any proposed Company Employee Plan;

in each case, relating to any amendments, terminations, establishments, increases or decreases in contributions or benefits, acceleration of payments or vesting schedules or other events which would result in any Liability to any QRG Group Entity; and

e) all correspondence to or from any governmental agency relating to any Company Employee Plan.

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7.28.9	Each QRG Group Entity has performed all material obligations required to be performed by them under, is not in default or violation of, and the Seller has no knowledge of any default or violation by any other party to, any Company Employee Plan.
7.28.10	Each Company Employee Plan has been established, registered, qualified, amended, funded, invested and administered in material compliance with the terms of any document that affects such activity in respect of such Company Employee Plan and so far as the Seller is aware there is no reason why such status of each Company Employee Plan will or may cease, and each Company Employee Plan is in material compliance with applicable Laws.
7.28.11	In relation to each Company Employee plan, so far as the Seller is aware, no event has occurred and no condition exists that would subject any QRG Group Entity to any Tax, fine, Lien, penalty or other Liability imposed by applicable Laws.
7.28.12	Each Company Employee Plan can be amended, terminated or otherwise discontinued after the effective time in accordance with its terms, without Liability to the Parent, the Buyer, the Company and each of their Subsidiary or Affiliates (other than ordinary administration expenses).
7.28.13	Each QRG Group Entity has made timely all contributions and other payments required by and due under the terms of each Company Employee Plan.
7.28.14	No Company Employee Plan has unfunded Liabilities, that as of the effective time, will not be offset by insurance or fully accrued.
7.28.15	All death in service (or life assurance) benefits under the Company Employee Plans are fully insured and all premiums by way of insurance which are payable in respect of the Company Employee Plans and the rates at which such premiums are payable and any discrepancy in the amounts currently payable in respect of individual members of the Company Employee Plans have been made available to the Buyer prior to the date hereof.
7.28.16	No Company Employee Plan exists or has been proposed or has been agreed to operate that, except as may otherwise be required pursuant to applicable Law, as a result of the execution of this Agreement or the transactions contemplated herein (whether alone or in connection with any subsequent event(s)), could:

a)	result in severance pay or any increase in severance pay upon any termination of employment or consultancy after the date of this Agreement;
b)	accelerate the time of payment or vesting or result in any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or result in any other material obligation pursuant to, any of the Company Employee Plans;
c)	limit or restrict the right of any QRG Group Entity to merge, amend or terminate any of the Company Options or Company Employee Plans; or
d)	cause any QRG Group Entity to record additional compensation expense on its income statement with respect to any outstanding share option or other equity-based award.

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7.28.17 There is no agreement, plan, provision, arrangement or other contract covering the Seller or any Company Employee or any former Employee of any QRG Group Entity that, considered individually or considered collectively with any other such agreements, plans, provisions, arrangements or other contracts:

a)

will, or could reasonably be expected to, give rise directly or indirectly to the payment of any amount that would be characterised as a “parachute payment” within the meaning of Section 280G(b)(1) of the Code; or

b)

is conditional on a change of control of any QRG Group Entity or any other Entity (howsoever defined and to include without limitation a disposal of all or substantially all of the business and assets of the relevant company) entitling the individual to terminate his Employee Agreement or such other agreement without notice or to treat himself as dismissed or released from any obligation or to receive any payment or additional period of notice whatsoever.

7.28.18	There is no agreement, plan, provision, arrangement or other contract by which any QRG Group Entity is bound to compensate any Company Employee for excise taxes paid pursuant to Section 4999 of the Code.
7.28.19	The Disclosure Letter lists all persons who are believed by the Company or the Seller to be “disqualified individuals” (within the meaning of Section 280G of the Code and the regulations promulgated thereunder) as determined as of the date hereof.
7.28.20	Each QRG Group Entity is in material compliance with all applicable Laws, collective bargaining agreements and arrangements, extension orders and binding customs in relation to employment, employment practices, terms and conditions of employment, employee safety and health, wages and working hours, in respect of the Company Employees and any former Employee of any QRG Group Entity, and in each case:

a)	has withheld and reported all amounts required by Law or by agreement to be withheld and reported with respect to wages, salaries and other payments to such Employees (including PAYE and other withholding tax, national insurance contributions and other social security deductions, where appropriate);
b)	is not liable for any arrears of wages, severance pay or any Taxes or any penalty for failure to comply with any of the foregoing; and
c)	is not liable for any payment to any trust or other fund governed by or maintained by or on behalf of any Governmental Entity, with respect to unemployment compensation benefits, social security or other benefits or obligations for such Employees (other than routine payments to be made in the normal course of business and consistent with past practice).

7.28.21 There are no Actions, grievances, disputes, suits, claims or administrative matters (including, without limitation, any complaints made under any internal disputes procedure maintained in respect of any Company Employee Plan and any references to any governmental agency) in progress, or so far as the Seller is aware pending, threatened or reasonably anticipated by or against any QRG Group Entity or any of the Company Employees or any former Employee of and QRG Group Entity relating to any such Employee, Employee Agreement or Company Employee Plan.

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7.28.22	There have been no such Actions, grievances, disputes, suits, claims or administrative matters in the last two (2) years.
7.28.23	So far as the Seller is aware, there are no pending or threatened or reasonably-anticipated claims or Actions or disputes against any QRG Group Entity or the EBT trustee under any worker’s compensation policy or long term sickness or disability policy.
7.28.24	The Disclosure Letter lists all Liabilities of all of the QRG Group Entities to any Company Employee that result from the termination by such QRG Group Entity or the Buyer of such Company Employee’s employment or provision of services, a change of control of any QRG Group Entity (howsoever defined), or a combination thereof.
7.28.25	Each QRG Group Entity has classified all individuals who perform services for it correctly under any Company Employee Plans as common law employees, independent contractors, leased employees or workers.
7.28.26	No Company Employee has given or been given notice of termination of his/her Employee Agreement.
7.28.27	There are no trade unions, staff association, European Work Councils or other body representing all or some of the Company Employees.

7.29 Company Options

7.29.1	All necessary returns of information relating to the Company Options have been made to the revenue authorities in any relevant jurisdiction within the appropriate time limits.
7.29.2	All the legislative conditions of Sections 527 to 541 and Schedule 5 to ITEPA required for the grant of the EMI Options were satisfied at the date of grant.
7.29.3	All EMI Options were granted with an exercise price equal to the market value at the date of grant of the shares under option.
7.29.4	The market value of the shares under the EMI Options at the date of grant was agreed with HMRC on each date of grant for the EMI Options.
7.29.5	The grants of the EMI Options were reported to HMRC within the prescribed statutory time limits.
7.29.6	No disqualifying events (within the meaning of Sections 533 to 539 ITEPA) have taken place in relation to any of the EMI Options.
7.29.7	No withholding liability or social security charge will arise for any QRG Group Entity in any jurisdiction in connection with the exercise of the Unapproved Options.

7.30 Insurance

7.30.1 The Disclosure Letter lists all insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of the QRG Group Entities, including the type of coverage, the carrier, the amount of coverage, the term and the annual premiums of such policies (each a “Company Insurance Policy”).

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7.30.2	There is no claim by any QRG Group Entity pending under any of the Company Insurance Policies as to which coverage has been questioned, denied or disputed or that the Seller has a reason to believe will be denied or disputed by the underwriters of such Company Insurance Policies or bonds.
7.30.3	There is no pending claim for which its total value (inclusive of defence expenses) is expected to exceed the policy limits under any Company Insurance Policy.
7.30.4	All premiums due and payable under all Company Insurance Policies have been paid and, so far as the Seller is aware, each QRG Group Entity is otherwise in material compliance with the terms of such Company Insurance Policies.
7.30.5	The Company Insurance Policies (or other policies and bonds providing substantially similar coverage) have been in effect for the past three (3) years and remain in full force and effect.
7.30.6	The Seller has no knowledge of threatened termination of, or premium increase with respect to, any of the Company Insurance Policies.

7.31

Export Control Laws and Economic Sanctions

Each QRG Group Entity has at all material times conducted, in all material respects, their export and re-export transactions in accordance with all applicable export and re-export Laws, including United Kingdom Laws, United States Laws, and the Laws of each country from which it exports or re-exports its products, technologies, software or services, or where it otherwise conducts business. Without limiting the foregoing:

7.31.1	each QRG Group Entity has obtained all required export and re-export licences, authorisations, orders, approvals, waivers, declarations and any other consents from the appropriate Governmental Entity for (i) the export and re-export, including tangible and intangible exports and re-exports, of its products, services, software and technologies and (ii) any releases, whether tangible or intangible, of its technologies to any Persons (“Export Approvals”);
7.31.2	each QRG Group Entity is in compliance, in all material respects, with the terms of all Export Approvals;
7.31.3	there are no pending or, to the knowledge of the Seller, threatened claims against any QRG Group Entity with respect to such Export Approvals;
7.31.4	to the knowledge of the Seller, there are no presently existing facts or circumstances pertaining to any QRG Group Entity’s export or re-export activities that would constitute a reasonable basis for any future claims by any Governmental Entity or Person with respect to such Export Approvals; and
7.31.5	any business of each QRG Group Entity, including exports and re-exports of products, software, technology and services that they conduct with persons in or within Cuba, Iran, Syria, Sudan, North Korea and Burma, is not, so far as the Seller is aware, in violation of the economic and trade sanctions administered by the U.S. Department of Treasury’s Office of Foreign Assets Control and so far as the Seller is aware, would not be in violation of the said Laws should the acquisition of the Company Shares be completed pursuant to this Agreement. The QRG Group Entities have not participated in and do not, so far as the Seller is aware, participate in any foreign boycotts that are not sanctioned by the United States, including the Arab League Boycott of Israel.

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7.32	Brokers’ and Finders’ Fees; Third Party Expenses
	The Disclosure Letter sets out a list of any Liability for Third Party Expenses or brokerage or finders’ fees or agents’ commissions, fees related to investment banking or similar advisory services or any similar charges incurred or to be incurred by or assumed by the QRG Group Entities in connection with this Agreement or any transaction contemplated hereby.
7.33	Corrupt Practices
	No QRG Group Entity has on the one hand, nor so far as the Seller is aware have any of their officers, directors, employees, shareholders, agents on the other hand, directly or indirectly:

7.33.1 made or attempted to make any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of what form, whether in money, property, or services:

a)	to obtain favourable treatment for the Company Business or Contracts secured;
b)	to pay for favourable treatment for business or Contracts secured;
c)	to obtain special concessions or for special concessions already obtained; or
d)	in violation of any requirement of Law.

7.33.2 established or maintained any fund or asset that has not been recorded in the books and records of the QRG Group Entities.

7.34 Insolvency

7.34.1	No order has been made and no resolution has been passed for the winding up of, or a provisional liquidator to be appointed in respect of, any QRG Group Entity, and no petition has been presented and no meeting has been convened for the purposes of winding up any QRG Group Entity.
7.34.2	No administrator, examiner or liquidator has been appointed in respect of any QRG Group Entity and no steps intended to result in such an appointment have been taken.
7.34.3	No receiver which expression shall include an administrative receiver has been appointed in respect of any QRG Group Entity.
7.34.4	None of the QRG Group Entities is insolvent or unable to pay its debts and none of QRG Group Entities have stopped paying its debts as they fall due.
7.34.5	No voluntary arrangement under any applicable Law has been proposed in respect of any QRG Group Entity.

7.35	Complete Copies of Materials
	The Company has provided to the Buyer prior to the date hereof true and complete copies of each Material Contract and each of the other documents listed or referred to in the Disclosure Letter and any amendments thereto.
8	INDEMNIFICATION AND LIMITATION OF CLAIMS

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8.1 Indemnities of Seller

8.1.1 Subject to the limits set forth in this clause 8, from and after Closing, the Seller agrees to indemnify, defend and hold harmless the Buyer from and in respect of any Losses that the Indemnified Parties may suffer, sustain or become subject to, directly or indirectly, as a result of, in connection with, relating or incidental to or by virtue of any allegation of:

a)	any breach of the Specified Warranties (in each case interpreting any limitation therein as to materiality or “Material Adverse Affect” solely as requiring the Loss in respect of which indemnification is sought to be an amount not less than that set out in clause 8.3.1b) and as such disregarding the same for the purposes of determining whether there has been a breach of any such Specified Warranty);
b)	any breach of any representation, warranty or covenant of any Optionholder or Minority Shareholder in any Option Decision Form or Minority Shareholder Agreement;
c)	any breach by the Seller of any covenant, undertaking or other agreement of such Person contained in clause 5.1, 5.3, 5.5, 5.7 or 11.2 of this Agreement; or
d)	any fraud on the part of any Seller with respect to this Agreement, any Ancillary Agreement or any certificate or other instrument delivered pursuant hereto or thereto.

8.1.2	The Seller shall not have any right of contribution, indemnification or right of advancement from the Indemnified Persons with respect to any Loss claimed by the Buyer.
8.1.3	Nothing in this Agreement shall limit the right of Buyer or the Parent to pursue any other remedy under this Agreement or any Ancillary Agreement against the parties hereto or thereto.

8.2 Time Limits

8.2.1

Other than in respect of fraud, the Seller shall have no liability for any Indemnity Claim or any Warranty Claim (other than a Claim in respect of the Tax Warranties) unless the Buyer gives to the Seller written notice containing a summary of the Claim as far as it is known to the Buyer at such time on or before the date which is eighteen (18) months after the Closing Date.

8.2.2

Other than in respect of fraud, the Seller shall have no liability for any Claim with respect to any breach or inaccuracy of any of the Tax Warranties or any Tax Deed Claim unless the Buyer gives to the Seller written notice containing a summary of the Claim as far as it is known to the Buyer at such time on or before the sixth anniversary of the end of the accounting period for the Company in which the Closing Date falls.

8.3 Monetary Limits

8.3.1 Notwithstanding anything to the contrary contained in this Agreement the Seller shall have no liability for any Warranty Claim or Indemnity Claim (other than in respect of fraud or of any inaccuracy in or breach of the representations and

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Warranties set out in clause 7.1 (Authority; Ownership), clause 7.2 (Non-contravention), clause 7.4 (Legal Ownership of Shares) or clause 7.6 (Capitalisation) and other than for indemnification under clauses 8.1.1c) or 8.1.1d)) unless:

a)	the aggregate amount (without duplication) of Losses of the Indemnified Parties with respect thereto exceeds $750,000 (the “Basket Amount”), in which case the Buyer shall be entitled to be indemnified for all such Losses, including both those below and in excess of the Basket Amount; and
b)	the Loss relating to the individual Warranty Claim or Indemnity Claim, or series of related Warranty Claims and/or Indemnity Claims that are based primarily on a similar set of operative facts, is greater than $20,000.

8.3.2 The maximum aggregate liability of the Seller in respect of

a)	all Warranty Claims other than those which relate to the Specified Warranties shall be the amount in US dollars equal to US$38,999,999.81;
b)	all Indemnity Claims and any Warranty Claim in each case relating to the Warranties in clause 7.18 (Intellectual Property) only shall be the amount in US dollars US$64,999,999.68;
c)	(subject to clause a) and b)) all Claims shall be an amount in US dollars equal to the Purchase Consideration.

8.3.3 Any payments required to be made to the Buyer pursuant to Claims with respect to Losses shall be made by:

a)	resort to the Escrow Amount (which shall be fully available to satisfy any and all Claims for Losses); and / or
b)	by seeking recourse to the Seller,

provided, however, that, notwithstanding the foregoing or anything that may be deemed to be to the contrary contained herein, it is hereby acknowledged and agreed that any amounts payable to the Seller in respect of the Deferred Consideration whether in cash or shares of common stock of the Parent shall be subject to a contractual right of set-off in the terms set forth in Schedule 4 against any Losses in respect of which the Buyer serves a valid Payment Notice (as defined in clause 8.5.1) in accordance with and subject to the further terms of clause 8.5 or has made a Tax Deed Claim.

8.3.4 Any payment made by the Seller in respect of any Claim shall be and shall be deemed a reduction in the Purchase Consideration.

8.4 Other Limits

8.4.1 The Seller shall have no liability in respect of any Warranty Claim or any Indemnity Claim (other than in respect of the Tax Warranties (except in the case of clause 8.4.1(a)) and the Warranties given in clause 7.4 (Legal Ownership of Shares) or clause 7.6 (Capitalisation)) to the extent that:

a) the fact, matter, or circumstance giving rise to such Warranty Claim has been fairly disclosed in the Disclosure Letter (including by reference to a specific

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	Disclosure Document) with sufficient detail to enable the Buyer to understand the nature and scope of the matters purportedly disclosed;
b)	provision or reserve has been made expressly and properly made for the liability in question in the Company Balance Sheet;
c)	the Buyer has recovered damages from the Seller for the same liability elsewhere under the Agreement or any Ancillary Agreement or any document executed pursuant to this Agreement;
d)	it would not have arisen but for any voluntary act or omission of a QRG Entity, the Buyer or any member of the Parent Group after Closing which the relevant entity ought reasonably to have known would give rise to such breach but excluding any act:

i	carried out pursuant to a legally binding obligation entered into on or before Closing (including any Contract) or imposed by any legislation coming into force before or on Closing;
ii	occurring in the ordinary course of business as carried on by a QRG Entity prior to Closing;
iii	pursuant to an obligation imposed by any Law, regulation or requirement having the force of law;
iv	taking place with the written approval of the Seller or in accordance with the terms of this Agreement or any Ancillary Agreement or any document executed pursuant to this Agreement; or
v	which would not have given rise to the liability in question had there been no breach of such Warranty;

e)

the liability in question arises or is increased as a result of or is attributable to the passing or coming into force of, or any change in, or any change in interpretation of any Law, rule, regulation, policy, directive or government policy, or any administrative practice or any guidance of any government, governmental department, agency or regulatory body occurring after the Closing Date and not actually or prospectively in force at the Closing Date and having retrospective effect; or

f)

it has been paid or discharged before the Closing Date.

8.4.2	The Buyer shall take or procure the taking of all such reasonable steps as are required by applicable Law in order to mitigate any Loss it suffer as a result of a breach of the Warranties by the Seller.
8.4.3	Notwithstanding anything to the contrary herein, the Parties agree and acknowledge that the Buyer may bring an indemnity claim under clauses 8.1.1 c), 8.1.1 d) and a Tax Deed Claim notwithstanding the fact the Buyer had actual knowledge of any breach, event or circumstance.
8.4.4	If the Buyer has a Warranty Claim, a Tax Deed Claim and an Indemnity Claim it may make a Warranty Claim, a Tax Deed Claim and an Indemnity Claim but any payment made by the Seller in respect of:

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a)	a Warranty Claim shall be taken into account in assessing the Buyer’s loss in respect of the Tax Deed Claim and/or an Indemnity Claim;
b)	a Tax Deed Claim shall be taken into account in assessing the Buyer’s loss in respect of a Warranty Claim and/or an Indemnity Claim; and
c)	an Indemnity Claim shall be taken into account in assessing the Buyer’s loss in respect of a Warranty Claim and/ or a Tax Deed Claim.

8.4.5 The restrictions in this clause 8 shall in no way be exclusive limitations and shall not prevent the Seller from relying on any other provisions of this Agreement or any legal principle with a view to limiting his liability hereunder.

8.5 Claims Procedures

8.5.1	In the event that the Buyer has a bona fide Claim (that is not a Tax Deed Claim), the Buyer may send a written notice to the Seller stating that it has a right to receive payment and specifying in reasonable detail the basis for its Claim, as well as the Losses relating thereto (which, if not determinable at such time, may be a reasonable good faith estimate thereof) (a “Payment Notice”).
8.5.2	The failure to so notify the Seller shall not relieve the Seller of any liability, except to the extent the Seller demonstrates that the defence of such action is materially prejudiced thereby.
8.5.3	The Seller shall deliver a written notice to the Buyer within fifteen (15) Business Days after receipt of the Payment Notice specifying in reasonable detail any objections to the Payment Notice.
8.5.4	If the Seller does so notify the Buyer of such an objection to the Payment Notice:

a)	the Seller shall cause to be paid to the Buyer subject to the terms and conditions of this Agreement the amount designated in such Payment Notice that is not subject to dispute, if any; and
b)	the parties shall in good faith attempt for ten (10) Business Days to resolve their differences with respect to the Claim that is the subject of the Payment Notice and the amount designated in such Payment Notice that is subject to dispute.

8.5.5	If a dispute remains as to the Claim that is the subject of the Payment Notice or any amount designated in such Payment Notice following the expiry of such ten (10)-Business Day period, the dispute shall be resolved by the ruling of a court of competent jurisdiction.
8.5.6	If, within fifteen (15) Business Days following receipt of a Payment Notice, the Seller has not notified the Buyer of any objection to such Payment Notice, the Seller shall cause to be paid to the Buyer the amount designated in such Payment Notice subject to the terms of this Agreement.
8.5.7	Subject to and in accordance with the terms and conditions of Schedule 3, upon the Escrow Release Date, any remaining portion of the Escrow Amount shall promptly be delivered to the Seller; provided, however, that such portion of the Escrow Amount shall not be so delivered with respect to, and to the extent of, any amount (such amount (together with the interest thereon), the “Holdback

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Amount”) as is reasonably necessary to satisfy any unsatisfied Claims that have been either specified in a Payment Notice delivered to the Seller or in respect of which a claim has been made under the Tax Deed, in either case on or prior to the Escrow Release Date, or otherwise with respect to any Claims for Losses relating to facts and circumstances existing on or prior to the Escrow Release Date. As soon as any such Claims have been resolved (any such resolved claim, a “Resolved Claim”), the Seller and the Buyer shall deliver to the Seller’s Solicitors and the Buyer’s Solicitors (as in each case defined in Schedule 3) a written notice executed by both Parties instructing them to deliver to the Seller the Distribution Amount (after deducting the amount required to be distributed pursuant to the resolution of the Resolved Claims, if any, to the Buyer) in accordance with the terms and conditions of this Agreement.

8.5.8

In the event that the Seller disputes the amount of the Holdback Amount (an “Estimate”) then the Seller and the Buyer shall obtain an opinion of a Leading Junior Counsel in respect of the Payment Notice in question or, in the event that the Payment Notice in question relates to an accounting or Taxation matter or there is no Payment Notice as the Claim is one in respect of which a claim has been made under the Tax Deed, the Seller and the Buyer shall obtain an opinion in relation to the Payment Notice, or the amount of the Claim where there is no Payment Notice, from a partner in an international firm of chartered accountants with experience in the relevant area (in each case as expert and not as arbitrator) (the “Expert”). For the avoidance of doubt, such Expert shall be selected by agreement between the Buyer and the Seller or, failing agreement within seven (7) days upon the application of either the Buyer or the Seller, by the Chairman for the time being of the Bar Council or, as appropriate, by the President for the time being of the Institute of Chartered Accountants in England and Wales. The Expert shall receive submissions from the Parties in such form as he may request. The Seller and the Buyer shall jointly instruct the Expert to provide an opinion on whether the Buyer has established a reasonable basis for its claim together with his or her estimate of an amount reasonably necessary to satisfy such claim (which shall include all Losses suffered and reasonably likely to be suffered in connection with such claim) on the basis of the information presented to him (“Expert’s Estimate”). Immediately following receipt of the Expert’s opinion, the disputed Estimate shall be resolved in the amount of the Expert’s Estimate and any amount by which the Holdback Amount exceeds the Expert’s Estimate (together with the interest thereon) shall be treated as a Resolved Claim.

8.5.9

In the event that any claim, action or proceeding is made, brought or initiated by any third party against an Indemnified Party giving rise to a Warranty Claim or an Indemnity Claim (other than in respect of clause 7.14 (Tax Matters)), the Buyer shall, as promptly as practicable, so notify the Seller in writing, specifying in reasonable detail, to the extent then known by the Buyer, the basis of the Indemnified Party’s belief that such claim, action or proceeding gives rise to a Warranty Claim or an Indemnity Claim (the “Third Party Claim Notice”). The failure to so notify the Seller shall not relieve the Seller of any liability, except to the extent the Seller demonstrates that the defence of such action is materially prejudiced thereby. Without prejudice to clause 8.1 the Buyer shall have the right in its sole discretion, but not the obligation, to assume the defence of any such claim, action or proceeding and to defend, in good faith, any such claim, action or proceeding, and the Seller shall have the right (at its expense), but not the obligation, to participate in (but not control), the defence of any such third-party claim, action or proceeding. If the Buyer fails to assume the defence of such third party claim in accordance with this clause 8.5.9 within thirty (30) days after receipt of notice of such claim pursuant hereto, the Seller shall (upon delivering notice to

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such effect to the Buyer) have the right to undertake the defence of such third party claim, and the Seller shall be liable for any resulting settlement of such third party claim and for any final judgment with respect thereto (subject to any right of appeal), if any, but only to the full extent otherwise provided in this Agreement. In the event the Seller assumes the defence of the claim pursuant to this clause 8.5.9, the Seller shall keep the Indemnified Party reasonably informed of the progress of any such defence or settlement, and in the event the Buyer assumes the defence of the claim pursuant to this clause 8.5.9, the Buyer shall keep the Seller reasonably informed of the progress of any such defence or settlement. So long as the Seller is defending any such third-party claim, the Buyer shall not settle such third-party claim without the prior written consent of the Seller, which consent shall not be unreasonably withheld or delayed. The Seller may not settle or compromise such third-party claim without the prior written consent of the Buyer, which consent shall not be unreasonably withheld or delayed; provided, that notwithstanding the foregoing, the Buyer shall be entitled not to consent, in its sole discretion, to any proposed settlement or compromise that (i) does not include a provision whereby the plaintiff or claimant in the matter releases the Buyer from all Liability with respect thereto (which shall be in form and substance satisfactory to the Buyer or (ii) would obligate the Buyer to pay or be liable for an amount related thereto in excess of the amount then available for indemnification hereunder. The Buyer shall make available to the Seller all records and other materials reasonably required for use in contesting any third-party claim, subject to any privileged or confidential information. The Buyer shall use commercially reasonable efforts to cooperate with the Seller in the defence of all such claims.

8.6	Limited Indemnity
	Subject to clauses 8.7, 8.8 and 8.9 below, if:

(a)	the condition set out in clause 3.1 is satisfied or waived only after the Bring Down Date and Closing takes place on a date on or before the Long Stop Date; and
(b)	the Actual Tax exceeds the Notional Tax,

	the Buyer shall pay to the Seller, by way of adjustment to the Purchase Consideration, an amount equal to the difference between the Actual Tax and the Notional Tax at least three (3) Business Days before the latest day on which the Seller can pay the Actual Tax to HMRC in order to avoid a liability to interest or penalties accruing.
8.7	The Buyer shall not be liable to make a payment under clause 8.6 above to the extent that:

(a)	the difference between the Actual Tax and the Notional Tax does not arise wholly and directly as a result of the withdrawal of Taper Relief on the disposals of assets, as announced on 9 October 2007 in the Pre-Budget Report 2007; or
(b)	the Seller has not served a written notice on the Buyer within ten (10) Business Days following Closing giving such details (and any supporting evidence) of the Seller’s increased Liability to Tax as the Seller then has.

8.8	The Buyer shall not be liable to make a payment under clause 8.6 above if the delay or deferral of the Closing Date to a date on or after 6 April 2008 is to any extent attributable to an act, omission, default or breach of this Agreement by the Seller or any Affiliate of the Seller.
8.9	If any payment becomes due from the Buyer under clause 8.6 above and the Seller either:

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(a)	is immediately entitled at the due date for the making of that payment to recover from some other person (including, without limitation, any Tax Authority) any sum in respect of Actual Tax or to any credit against Actual Tax, in either case resulting in a reduction in the amount of Actual Tax actually payable by the Seller; or
(b)	becomes entitled at some subsequent date to make such a recovery or to receive such credit,

the Seller shall promptly notify the Buyer of its entitlement and shall take all appropriate steps to enforce that recovery or to obtain such credit (keeping the Buyer fully informed of the progress of any action taken) and shall account to the Buyer for whichever is the lesser of:

i	the amount of the reduction in the amount of Actual Tax actually payable; and
ii	the amount paid by the Buyer pursuant to clause 8.6.

9	REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE BUYER
9.1	Representation and Warranties
	Each of the Buyer and the Parent hereby, jointly and severally, represents and warrants to the Seller as at the date of this Agreement and at Closing as follows:

9.1.1 Organisation

The Parent is a corporation duly organised, validly existing and in good standing under the laws of the State of Delaware. The Buyer is a corporation duly organised and validly existing under the laws of England and Wales.

9.1.2 Authority and Enforceability

a)	The Parent and the Buyer have full power and authority to enter into this Agreement and any Ancillary Agreements to which the Parent or the Buyer is a party and to perform its obligations hereunder and thereunder.
b)	The execution and delivery of this Agreement and any Ancillary Agreements to which the Parent or the Buyer is a party and the completion of the purchase of the Company Shares and the other transactions contemplated hereby and thereby have been duly authorised by all necessary corporate action on the part of the Parent and the Buyer, and no further corporate action is required on the part of the Parent or the Buyer to authorise this Agreement or any Ancillary Agreements to which the Parent or the Buyer is a party, or the transactions contemplated hereby and thereby.
c)	This Agreement and each of the Ancillary Agreements to which the Parent or the Buyer is a party have been duly executed and delivered by the Parent or the Buyer, as applicable, and assuming the due authorisation, execution and delivery by the other Parties hereto and thereto, constitute the valid and binding obligations of the Parent and the Buyer, as applicable, enforceable against each of them in accordance with their respective terms.

9.1.3 No Conflict

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The execution and delivery of this Agreement by the Parent and the Buyer does not, and the completion by the Parent and the Buyer of the purchase of the Company Shares and the other transactions contemplated by this Agreement shall not:

a)	conflict with, or result in any violation or breach of, any provision of the Parent’s Governing Documents or the Buyer’s Governing Documents;
b)	conflict in any material respect with, or result in any material violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any material benefit) under, require a consent or waiver under, constitute a change in control under, require the payment of a penalty or increased fees under or result in the imposition of any Liens on the Parent’s or the Buyer’s assets under, any of the terms, conditions or provisions of any Contract to which the Company or any of its Subsidiaries is a party or by which any of them or any of their assets are bound; or
c)	conflict with or violate, in any material respect, any Permit, Order or Law applicable to the Company or any of its Subsidiaries or any of its or their respective properties or assets.

9.1.4 Consents

So far as the Parent and the Buyer are concerned, no consent, approval, Action, licence, Permit, Order, certification, concession, franchise or authorisation of, or registration, declaration, notice or filing with, any Governmental Entity is required by or with respect to the Parent or the Buyer in connection with the execution, delivery and performance of this Agreement by the Parent or the Buyer, as applicable, or the completion by the Parent and the Buyer of the purchase of the Company Shares and the other transactions contemplated by this Agreement except for any approval(s) under foreign antitrust laws.

9.1.5 Financial Means

The Buyer has, or will have at Closing, sufficient funds to pay the Purchase Consideration pursuant to the terms of this Agreement.

9.2	Limitation
	Neither the Buyer nor the Parent shall have any liability for any claim with respect to any breach or inaccuracy of any of the representations and warranties of Buyer and Parent set forth in this clause 9, or in any certificate or other instrument delivered pursuant to this Agreement, unless the Seller gives to the Buyer or the Parent (as the case may be) written notice containing a summary of the claim as far as it is known to the Seller at such time on or before the Escrow Release Date.
10	TERMINATION
10.1	Termination before Closing
	This Agreement may be terminated (without prejudice to any accrued rights, obligations and claims) prior to the Closing upon written notice to the other Parties as follows:

10.1.1 by the mutual written consent of the Buyer and the Seller; or

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10.1.2 by either:

a)	the Buyer, if there has been a material breach on the part of the Seller of the covenants set out in clause 5; or
b)	the Seller, if there has been a material breach on the part of the Buyer or the Parent in the representations or warranties set forth in clause 9;

in each case, if capable of cure, which is not cured on or before the earlier of Closing and ten (10) Business Days after the relevant party has been notified in writing by the other of the intent to terminate this Agreement pursuant to this clause 10.1.2.

10.2	Termination before Bring Down Date
	This Agreement may be terminated by the Buyer (without prejudice to any accrued rights, obligations and claims) prior to and including the Bring Down Date upon written notice to the Seller as follows:

10.2.1	if in the period from the date of this Agreement to the Bring Down Date there has been a material breach on the part of the Seller of the Warranties;
10.2.2	on the occurrence of an event which in the reasonable opinion of the Buyer is likely to have a Company Material Adverse Effect on the Company; or
10.2.3	if:

a) any Critical Consultant or any Critical Employee:

i	ceases to be a Company Employee or consultant of the Company (as appropriate) other than in the case of the death of such employee or consultant; or
ii	gives or is given notice to terminate their employment or consultancy with the Company (as appropriate); or
iii	takes any action to terminate, revoke, repudiate or otherwise to withdraw his acceptance of terms stipulated in their respective Critical Employee Employment Contract or Confirmation Letter;

b) any Important Consultant or Important Employee:

i	ceases to be a Company Employee or a consultant of the Company (as appropriate) other than in the case of the death of such employee or consultant; or
ii	gives or is given notice to terminate his employment or consultancy with the Company (as appropriate); or
iii	takes any action to terminate, revoke, repudiate or otherwise to withdraw his acceptance of terms stipulated in their respective Important Employee Employment Contracts or Confirmation Letter.

and, in aggregate, three (3) or more Important Employees or Important Consultants are within one or more of clauses 10.2.3b)i, 10.2.3b)ii or 10.2.3b)iii above,

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	in each case if capable of cure, is not cured on or before the earlier of the Bring Down Date and ten (10) Business Days after the Seller has been notified in writing by the Buyer of its intent to terminate this Agreement pursuant to this clause 10.2.
10.3	Effect of Termination

10.3.1

In the event of termination of this Agreement as permitted by clause 3.4, 10.1 or 10.2, this Agreement shall become void and of no further force and effect, except for the following provisions, which shall remain in full force and effect: clause 1 (Definitions) to the extent applicable, this clause 10, clause 12 (Confidentiality Obligations), clause 14 (Parent Guarantee), clause 15.3 (Transaction Expenses), clause 15.6 (Notices), clause 15.7 (No Third Party Beneficiaries), clause 15.8 (Entire Agreement), clause 15.9 (Governing Law), clause 15.10 (Assignment), clause 15.11 (Counterparts) and clause 15.12 (Severability).

10.3.2

Nothing in this clause 10 shall be deemed to release any party from any liability for breach by such party of the terms and provisions of this Agreement prior to any such termination or to impair the right of any Party to compel specific performance by any other party of its obligations under this Agreement.

11	ADDITIONAL AGREEMENTS
11.1	Release of Claims

11.1.1

Subject to the provisions of clause 11.1.2, the Seller, effective upon the Closing, on his own behalf and on behalf of each of his successors and assigns (collectively, the “Releasor Parties”) and in the Seller’s capacity as a holder of Company Shares and as a present or former director, manager, officer or employee of any QRG Group Entity, effective as of Closing, does hereby unconditionally, irrevocably and absolutely release and forever discharge each QRG Group Entity and their respective predecessors, successors, joint ventures, assigns, past and present members, shareholders, directors, managers, officers, employees, Affiliates and Representatives, in their capacities as such (collectively the “Released Parties”), from any and all Loss or Liability, in each case arising from the Releasor Party’s status as a past or present member, director, manager, officer or employee of such QRG Group Entity (including, without limitation, any employment, member or fiduciary duty claims against such QRG Group Entity) in connection with any transaction, affair or occurrence, whether in Law, equity or otherwise, whether known or unknown, suspected or unsuspected, that Releasor Party now has, has ever had or at any time could have asserted against any of the Released Parties arising from such matters (collectively, the “Released Claims”).

11.1.2

Notwithstanding anything to the contrary contained herein, the release set out in clause 11.1.1 shall not operate to discharge or release the Released Parties from, and the Released Claims shall in no event include:

a)	any rights or claims any of the Releasor Parties may have under this Agreement or any of the Ancillary Agreements; or
b)	any rights or claims that a Releasor Party may have against any Released Party in any capacity other than as specified in clause 11.1.1 (including under any Contract such party may have with any Released Party in such other capacity).

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11.1.3 Each Releasor Party hereby irrevocably agrees, effective as of the Closing Date, to refrain from, directly or indirectly, asserting any claim or demand or commencing (or allowing to be commenced on such Releasor Party’s behalf) any suit, action or proceeding of any kind, in any agency, court or before any tribunal, against any Released Party based upon any Released Claim.

11.2	Notification of Certain Matters
	The Seller, the Parent or the Buyer, as the case may be, shall promptly upon becoming aware (but in any event within two (2) Business Days) give notice to all other Parties of:

a)

the occurrence of any event that causes any representation or warranty of the Seller, the Parent or the Buyer respectively and as the case may be, contained in this Agreement to be untrue or inaccurate at the Closing Date or at any date prior thereto if the Representation or Warranty was given at such date by reference to the facts and circumstances then existing; and

b)

any failure of the Seller, the Parent or the Buyer, as the case may be, to comply with this Agreement or any Ancillary Agreement to which they are a party hereunder; provided, however, that the delivery of any notice pursuant to this, clause 11.2 shall not limit or otherwise affect any remedies available to the Party receiving such notice. No disclosure by the Seller, the Parent or the Buyer pursuant to this clause 11.2, however, shall be deemed to amend or supplement the Disclosure Letter or prevent or cure any misrepresentations, breach of warranty or breach of covenant.

12 CONFIDENTIALITY OBLIGATIONS

12.1.1 Existing Confidentiality Agreement

The terms and conditions of this Agreement and any other Ancillary Agreements shall be considered confidential information subject to the confidentiality obligations of the Buyer and Seller, as set forth in the Mutual Non-Disclosure Agreement dated as of February 7, 2007 between the Parent and the Company, as amended by Amendment to Mutual Non-Disclosure Agreement dated November 27, 2007 (the “Confidentiality Agreement”).

12.1.2 Public Disclosure

a)

The Seller shall not (and shall use reasonable endeavours to cause each QRG Group Entity and his and their respective Representatives not to) directly or indirectly, issue any statement or communication to any third party (other than its agents that are bound by confidentiality restrictions) regarding the subject matter of this Agreement or the transactions contemplated hereby, including, if applicable, the termination of this Agreement and the reasons therefor, without the consent of the Buyer (such consent not to be unreasonably withheld or delayed).

b)

The Parent shall not and shall procure that each member of the Parent Group shall not, directly or indirectly, issue any statement or communication to any third party (other than its agents that are bound by confidentiality restrictions) regarding the subject matter of this Agreement or the transactions contemplated hereby, including, if applicable, the termination of this Agreement and the reasons therefor, without the consent of the Seller (such consent not to be unreasonably withheld or delayed).

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c) The restrictions set out in clause 12.1.2 shall be subject to any Party’s obligation to comply with applicable Laws and the rules of the Nasdaq Global Select Market, any successor or stock exchange operated by the Nasdaq Stock Market LLC or any successor thereto, and any other relevant stock exchange or regulatory body.

12.1.3 Seller’s Obligations

a) In addition, the Seller recognises that by reason of his ownership of Company Shares prior to the Closing and information provided by the Parent and the Buyer to the Company and the Seller in connection with the transactions contemplated by this Agreement, the Seller has acquired and will acquire Confidential Information (as defined below), the use or disclosure of which could cause the Parent or the Buyer or any of its Affiliates substantial loss and damages that may not be readily calculated and for which no remedy at Law would be adequate. Accordingly, the Seller covenants and agrees and shall cause his Affiliates to covenant and agree with the Buyer that the Seller and his Affiliates will not at any time, except in performance of his obligations to the Buyer, directly or indirectly, use, disclose or publish, or permit other Persons (including Affiliates and Subsidiaries of the Seller) to disclose or publish, any Confidential Information, or use any such information in a manner detrimental to the interests of the Buyer or the Parent or any of their Affiliates, unless:

i	such information becomes generally known to the public through no fault of the Seller or his Affiliates; or
ii	the disclosing party is advised in writing by Leading Junior Counsel that disclosure is required by applicable Law or the order of any Governmental Entity of competent jurisdiction under applicable Law.

b) Prior to disclosing any information pursuant to clause 12.1.3(a), sub-clauses (i) to (ii) above, such Person shall give prior written notice thereof to the Buyer and provide the Buyer with the opportunity to contest such disclosure and shall cooperate with the Buyer’s efforts to prevent such disclosure.

12.1.4 Definition of Confidential Information

In clause 12.1.3 and 13.1.1, the term “Confidential Information” includes information that has not been disclosed to the public or to the trade with respect to the Buyer’s or any QRG Group Entity’s present or future business, operations, employees and/or consultants services, products, research, inventions, discoveries, drawings, designs, plans, processes, models, technical information, facilities, methods, trade secrets, copyrights, software, source code, systems, patents, policies, procedures, manuals, specifications, any other intellectual property, confidential reports, price lists, pricing formulas, customer lists, financial information (including the revenues, costs, or profits associated with any of the Buyer’s or the Company’s products or services), business plans, lease structure, projections, prospects, opportunities or strategies, acquisitions or mergers, advertising or promotions, personnel matters, legal matters, any other confidential and proprietary information, and any other information not generally known outside the Buyer or the Company that may be of value to the Buyer or the Company or their respective Affiliates but excludes any information already properly in the public domain. In clauses 12.1.3 and 13.1.1, “Confidential Information” also includes confidential and proprietary

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information and trade secrets that third parties entrust to the Buyer or the Company in confidence.

13 NON-COMPETITION; NON-SOLICITATION

13.1.1 Non-Competition

Subject to the provisions of clause 13.1.2 for a period of three (3) years from the Closing Date, neither the Seller nor any of his controlled Subsidiaries (together the “Agreeing Persons”) shall not anywhere in the Territories, directly or indirectly, for any such Agreeing Persons or on behalf of or in conjunction with or through or by means of any other Person, be engaged or employed or involved or in any way interested, including (without prejudice to the generality of the foregoing) as an officer, director, manager, member, worker, trustee, shareholder, beneficiary, owner, partner, joint venture, investor, employee, independent contractor, agent, consultant, advisor, representative or otherwise in any executive, sales, marketing, research or technical capacity (except, if applicable, such Agreeing Person’s capacity as a Company Employee), in any business involving developing, selling, manufacturing, distributing or marketing any product or service, or in any other business that competes directly or indirectly or is likely to compete, directly or indirectly, with the Company Business as of the date of this Agreement; save to the extent that such Agreeing Person demonstrates to the reasonable satisfaction of the Company Board that his duties or work are not likely to involve disclosure or use of any of the Confidential Information as defined in clause 12.1.4 possessed by such Agreeing Person (“Competing Business”).

13.1.2 Exception to Clause 13.1.1

Such Agreeing Person may purchase or otherwise acquire up to three percent (3%) (in the aggregate) of any class of the securities of any Competing Business (but may not otherwise participate in the activities of such Competing Business) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the U.S. Securities Exchange Act of 1934, as amended.

13.1.3 Non-Solicitation of Employees

For a period of three (3) years from the Closing Date, none of the Agreeing Persons shall, directly or indirectly, for such Agreeing Person or on behalf of or in conjunction with or through or by means of any other Person, employ or engage, or solicit or canvass or approach or entice away or endeavour to solicit, canvass or approach or entice away, or receive or accept the performance of services by, any Company Employee employed in an executive, sales, marketing, research or technical capacity; provided, however, that the foregoing shall not apply:

a)	to responses to or follow-up hiring in respect of general solicitations or advertisements for job positions not specifically directed to such Company Employees; or
b)	to any such Company Employee whose employment is terminated by the Buyer after the Closing Date or who terminates his or her employment with the Buyer without any solicitation directly or indirectly from any such Person.

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13.1.4 Non-Solicitation of Goods and Services

For a period of three (3) years from the Closing Date, none of the Agreeing Persons shall, directly or indirectly, for such Agreeing Person or on behalf of or in conjunction with or through or by means of any other Person:

a)	solicit the business of any Person who is a customer of the Company Business with respect to goods or services or products similar to or related to the Company Business and who at any time during the twelve (12) months up to and including the Closing Date was provided with goods or services by any QRG Group Entity;
b)	cause, induce or attempt to cause or induce any customer, supplier, licencee, licensor, franchisee, consultant or other business relation of the Buyer or the Company to cease doing business with the Buyer or the Company or interfere with its relationship with the Company; or
c)	accept orders for or supply or cause orders to be accepted for or cause to be supplied goods or services or products similar to or related to the Company Business to any Person who was provided with goods or services by any QRG Group Entity at any time during the twelve (12) months up to and including the Closing Date.

13.1.5 Reasonableness of Covenants

The Parties agree that the foregoing covenants in this clause 13 impose a reasonable restraint on the Agreeing Persons in light of the activities and operations of the QRG Group Entities on the date of the execution of this Agreement and the current plans of the Buyer and its Affiliates.

13.1.6 “Blue Pencil” Test

If any provision contained in this clause 13 shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this clause 13, but this clause 13 shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. It is the intention of the Parties that if any of the restrictions or covenants contained herein is held to cover a geographic area or to be for a length of time which is not permitted by applicable Law, or in any way construed to be too broad or to any extent invalid, such provision shall not be construed to be null, void and of no effect, but to the extent such provision would be valid or enforceable under applicable Law, a court of competent jurisdiction shall construe and interpret or reform this clause 13 to provide for a covenant having the maximum enforceable geographic area, time period and other provisions (not greater than those contained herein) as shall be valid and enforceable under such applicable Law.

13.1.7 Remedies

The Seller acknowledges that the Buyer and its Affiliates would be irreparably harmed by any breach of this clause 13 and that there may not be adequate remedy at Law or in damages to compensate the Buyer and its Affiliates for any such breach. The Seller agrees that the Buyer and its Affiliates shall be entitled to such injunctive relief requiring specific performance by the Agreeing Persons of this clause 13, and the Agreeing Persons consent to the entry thereof.

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13.1.8 Severability

All of the covenants in this clause 13 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of the Agreeing Persons against Buyer or its Affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defence to the enforcement by the Buyer or its Affiliates of such covenants. The Parties expressly acknowledge that the terms and conditions of this clause 13 are independent of the terms and conditions of any other agreements including, but not limited to, any employment agreements entered into in connection with this Agreement.

14	PARENT GUARANTEE
14.1	Liability for Payment of Purchase Consideration
	The Parent, as primary obligor, hereby absolutely, unconditionally and irrevocably guarantees to the Seller the proper and punctual performance of any and all obligations of the Buyer pursuant to this Agreement and any of the Ancillary Agreements. The Parent as primary obligor unconditionally and irrevocably agrees to indemnify and keep indemnified the Seller against all Losses sustained by the Seller flowing from any non payment or default of any kind by the Buyer under or pursuant to this Agreement.
14.2	Parent Liability
	The Parent’s liability in respect of the guarantee in clause 14.1 shall not be discharged or impaired by:

14.2.1	any amendment to or variation of this Agreement and any of the Ancillary Agreements or departure from any of their terms, or any assignment of any of them or any part of any of them, or any document entered into under this Agreement or any of the Ancillary Agreements; or
14.2.2	any release of, or granting of time or other indulgence to the Buyer or any third party, or the existence or validity of any other security taken by the Seller in relation to this Agreement or the Ancillary Agreements or any enforcement of or failure to enforce or the release of any such security; or
14.2.3	any winding-up, dissolution, reconstruction, arrangement or reorganisation, legal limitation, incapacity or lack of corporate power or authority or other circumstances of, or any change in the constitution or corporate identity or loss of corporate identity by the Buyer or any other person (or any act taken by the Seller in relation to any such event); or
14.2.4	any other act, event, neglect or omission whatsoever (whether or not known to the parties to this Agreement) which would or might (but for this clause) operate to impair or discharge the Parent’s liability under this clause or any obligation of the Buyer or to afford the Parent or the Buyer any legal or equitable defence.

15	GENERAL
15.1	Further Assurances
	At any time after Closing, at no cost to the Buyer and without further consideration, the Seller shall:

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15.1.1	execute and deliver (or cause to be executed and delivered) to the Buyer such other instruments of sale, transfer, conveyance, assignment and confirmation; and
15.1.2	provide such materials and information; and
15.1.3	take such other actions as the Buyer may reasonably deem necessary or desirable,

in order to effectively transfer, convey and assign to the Buyer legal and beneficial title to, all of the Company Shares and to assist the Buyer in exercising all rights with respect thereto and otherwise to cause the Seller to fulfil its obligations under this Agreement. In this regard the Seller shall execute, acknowledge and deliver all such further conveyances, notices, releases and acquittances and such other instruments, and shall take such further actions, as may be reasonably necessary or appropriate to transfer and deliver to the Buyer and its Affiliates and their successors and assigns, all of the Company Shares intended to be conveyed to the Buyer under this Agreement or any Ancillary Agreement and to otherwise make effective the transactions contemplated hereby and thereby.

15.2

Effect of Closing

15.2.1	The terms of this Agreement (insofar as not performed at Closing and subject as specifically otherwise provided in this Agreement) shall continue in force after and notwithstanding Closing.
15.2.2	The remedies of the Buyer in respect of any breach of the Warranties shall continue to subsist notwithstanding Closing. The Buyer agrees that rescission shall not be available as a remedy for breach of this Agreement after Closing and agrees not to claim that remedy.

15.3	Transaction Expenses
	Whether or not the transactions contemplated by this Agreement are completed, all Third Party Expenses shall be the obligation of the respective Party incurring such fees and expenses.
15.4	Amendment
	This Agreement may only be amended by the Parties hereto by execution of an instrument in writing validly executed by the Parties. Any such amendment of this Agreement effectuated in accordance with this clause 15.4 shall be binding on the Parties.
15.5	Waiver
	Neither any failure nor any delay by any Party in exercising any right, power or privilege under this Agreement or any of the Ancillary Agreements will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable Law:

15.5.1 no claim or right arising out of this Agreement or any Ancillary Agreements can be discharged by one Party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by all of the other Parties;

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15.5.2

no waiver that may be given by a Party will be applicable except in the specific instance for which it is given; and

15.5.3

no notice to or demand on one Party will be deemed to be a waiver of any obligation of that Party or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement or any Ancillary Agreements. Any extension or waiver by any Party of any provision hereto shall be valid only if set forth in an instrument in writing signed on behalf of such Party.

15.6

Notices

All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if served personally or by commercial messenger or courier service on the Party to whom notice is to be given, or on the fifth day after mailing if mailed to the Party to whom notice is to be given, by fax or first class mail registered or certified, postage prepaid, and properly addressed as follows:

15.6.1 If to the Buyer or the Parent:

Atmel Corporation

2325 Orchard Parkway, San Jose, CA 95131

Facsimile: +1 408 436 [*]

Attention: Chief Legal Officer

[Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

with a copy (which shall not constitute notice) to:

Wilson Sonsini Goodrich & Rosati, Professional Corporation

Professional Corporation

650 Page Mill Road

Palo Alto, CA 94304, USA

Facsimile: +1 650 493-6811

Attention:      John Fore, Lawrence M. Chu and Selwyn B. Goldberg

and

Herbert Smith LLP

Exchange House

Primrose Street

London EC2A 2HS, UK

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Facsimile: +44 207 374 0888

Attention:      Christopher Rees and Gavin Williams

15.6.2 If to the Seller:

Mr. Harald Philipp

[*]

[Information marked [*] in this paragraph has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.]

with a copy (which shall not constitute notice) to:

Shoosmiths

Russell House, 1550 Parkway, Solent Business Park, Whiteley, Fareham, Hampshire PO15 7AG, UK

Facsimile: +44 1489 616 957

Attention: Sean Wright and Stephen Porter

15.7	No Third Party Beneficiaries.
	No provision of this Agreement, the Ancillary Agreements, and the documents and instruments and other agreements among the Parties hereto referenced is intended, or will be interpreted, to provide to nor create for any third-party beneficiary rights or any other rights of any kind in any client, customer, affiliate, shareholder, employee or partner of any party hereto or any other Person including, but not limited to, any rights under the Contracts (Rights of Third Parties) Act 1999 or (other than in relation to the Critical Employee Employment Contracts and the Important Employee Employment Contracts) any rights of employment for any specified period and/or any employee benefits, in favour of any Person, union, association, Company Employee, other Employee, contractor or other Entity, other than the parties to those document and their respective successors and permitted assigns, and all provisions hereof will be personal solely among the parties to such documents.
15.8	Entire Agreement

15.8.1 This Agreement, the Ancillary Agreements, the Confidentiality Agreements and the documents and instruments and other agreements among the Parties hereto referenced herein constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings both written and oral, among the Parties with respect to the subject matter hereof.

15.9 Governing Law

15.9.1	This Agreement shall be governed by and construed in accordance with English law.
15.9.2	Each Party irrevocably agrees that the Courts of England shall have exclusive jurisdiction in relation to any claim, dispute or difference concerning this Agreement and any matter arising therefrom.

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15.9.3 Each Party irrevocably waives any right that it may have to object to an action being brought in an inconvenient forum, or to claim that these courts do not have jurisdiction.

15.10	Assignment
	This Agreement, the Exhibits hereto, the Ancillary Agreements, and the documents and instruments and other agreements among the Parties hereto referenced herein shall not be assigned by operation of law or otherwise without the prior written consent of all the Parties hereto or, as the case may be, thereto.
15.11	Counterparts
	This Agreement may be signed by the Parties in counterparts and the signature pages combined shall create a document binding on all Parties.
15.12	Severability
	If any provision of the Agreement is held to be invalid or unenforceable at Law, that provision will be reformed as a valid provision to reflect as closely as possible the original provision giving maximum effect to the intent of the Parties, or if that cannot be done, will be severed from the Agreement without affecting the validity or enforceability of the remaining provisions.
15.13	Withholding Rights

15.13.1	Any payments made by or due from any Party pursuant to the terms of this Agreement shall be free and clear of all taxation whatsoever save only for any deductions or withholdings required by Law.
15.13.2	If any deductions or withholdings are required by Law from any payments made by or due from the Seller, or any payments made by or due from the Seller, under this Agreement are liable for Taxation (whether in the hands of the Buyer or a QRG Group Entity or otherwise), or would have been liable for Taxation but for the utilisation of any Tax Relief in respect of such liability, the Seller shall be liable under this clause 15.13 to pay to the Buyer or other relevant Indemnified Party as the case may be, to which the payments are made or due under the terms of this Agreement such further sums as will ensure that the aggregate of the sums paid or payable under this clause 15.13 and the remainder of the Agreement shall, after deducting therefrom all deductions or withholdings from, or Taxation liabilities in respect of, such sums, leave the Seller or other relevant Indemnified Party with the same amount as it would have been entitled to receive under this Agreement but for this clause 15.13 in the absence of any such deductions, withholdings or Taxation liabilities.
15.13.3	If any deductions or withholdings are required by Law from any payments made by or due from the Buyer under clause 8.6, or any payments made by or due from the Buyer under clause 8.6 are liable for Taxation (whether in the hands of the Buyer or otherwise), or would have been liable for Taxation but for the utilisation of any Tax Relief in respect of such liability, the Buyer shall be liable under this clause 15.13.3 to pay to the Seller such further sums as will ensure that the aggregate of the sums paid or payable under this clause 15.13.3 and those payable under clause 8.6 shall, after deducting thereform all deductions or withholdings from, or taxation liabilities in respect of, such sums, leave the Seller with the same amount as he would have been entitled to receive under clause 8.6

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but for this clause 15.13.3 in the absence of any such deductions, withholdings or Taxation liabilities.

15.14

Default Interest

If any Party defaults in the payment when due of any sum payable under this Agreement (whether determined by agreement or pursuant to an order of a court or otherwise), the liability of the relevant party shall be increased to include interest on such sum from the date when such payment is due until the date of actual payment (as well after as before judgement) at a rate per annum of 4% above the base rate from time to time of The Royal Bank of Scotland plc. Such interest shall accrue from day to day and be compounded quarterly.

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IN WITNESS WHEREOF this Agreement has been duly executed as a deed by the Parties hereto as of the date first above written.

Executed as a deed for and on behalf of
ATMEL U.K.
HOLDINGS LIMITED
acting by a director	/s/ Steve Laub
and its secretary/two directors	Director
	/s/ Patrick Reutens
	Director/Secretary
Executed as a deed for and on behalf of
ATMEL CORPORATION
acting by a duly authorised
signatory
	/s/ Steve Laub
	CEO
	(position)
Signed as a deed by
MR HARALD PHILIPP	/s/ Harald Philipp
in the presence of:
Signature of witness:	/s/ Sean Wright
(NAME AND ADDRESS	SEAN WRIGHT
IN BLOCK CAPITALS)	1550 PARKWAY FREEHAM
Occupation	Solicitor

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OMITTED ATTACHMENTS TO THE SHARE PURCHASE AGREEMENT

The following attachments to the Share Purchase Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Atmel hereby undertakes to provide to the Securities and Exchange Commission copies of such documents upon request; provided, however, that Atmel reserves the right to request confidential treatment for portions of any such documents.

ATTACHMENT	DESCRIPTION
Schedule 1A	Registered Holders of Company Shares at the date of this Agreement
Schedule 1B	Registered holders of Company Shares at the Closing Date
Schedule 1C	Details of Optionholders
Schedule 2	Co-Inventors, Critical Consultants, Critical Employees, Important Consultants and Important Employees
Schedule 3	Escrow Account
Schedule 4	Deferred Consideration
Schedule 5	Specified Retention

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Steven Laub, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Atmel Corporation;

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

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

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

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

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

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

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

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

Date: May 12, 2008	/s/ STEVEN LAUB
	Steven Laub
	President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Robert Avery, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Atmel Corporation;

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

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

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

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

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

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

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

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

Date: May 12, 2008	/s/ ROBERT AVERY
	Robert Avery
	Vice President Finance & Chief Financial Officer

EX-32.1

Exhibit 32.1

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

     I, Steven Laub, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Atmel Corporation on Form 10-Q for the quarterly period ended March 31, 2008 (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Atmel Corporation.

May 12, 2008	By:	/s/ STEVEN LAUB
		Steven Laub
		President & Chief Executive Officer

EX-32.2

Exhibit 32.2

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

     I, Robert Avery, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Atmel Corporation on Form 10-Q for the quarterly period ended March 31, 2008 (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Atmel Corporation.

May 12, 2008	By:	/s/ ROBERT AVERY
		Robert Avery
		Vice President Finance & Chief Financial Officer