Document:

Exhibit
      10.1

    

    EXECUTION
      COPY

    

    AGREEMENT
      AND PLAN OF MERGER

     

    

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

    

     

    

      RECITALS

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    
      AGREEMENT

    

     

    The
      parties to this Agreement agree as follows:

     

    
      SECTION
        1.  DESCRIPTION
        OF TRANSACTION

       

    

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

     

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

     

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

     

    1.4  Certificate
      of Incorporation and Bylaws; Directors and Officers.

     

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

     

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

     

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

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    1.5  Conversion
      of Shares.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

    (b)  For
      purposes of this Agreement:

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

    

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

     

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

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

    

    1.6  Treatment
      of Company Options.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    1.7  Working
      Capital Adjustment.

     

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

     

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

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

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

     

    (i)  For
      purposes of this Agreement:

     

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

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    1.8  Additional
      Purchase Price Adjustment.

     

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

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    (c)  For
      purposes of this Agreement:

     

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

     

    (ii)  “Fair
      Market Value”
      means:

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

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

     

    (v)  “HHNEC
      Proceeds”
      means:

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    1.10  Exchange
      of Certificates.

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    1.11  Dissenting
      Shares.

     

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

     

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

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      SECTION
        2.  REPRESENTATIONS
        AND WARRANTIES OF THE COMPANY

    

     

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

     

    2.1  Subsidiaries;
      Due Organization; Etc.

     

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

     

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

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    2.3  Capitalization,
      Etc.

     

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

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    2.4  Financial
      Statements; Financial Controls.

     

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

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    2.7  Bank
      Accounts; Receivables; Customers and Suppliers.

     

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

     

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

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    2.8  Equipment;
      Leasehold.

     

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

     

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

     

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

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    2.9   Intellectual
      Property.

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    2.10  Contracts.

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    2.12  Compliance
      with Legal Requirements; Governmental Authorizations.

     

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

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    2.14  Tax
      Matters.

     

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

     

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    

     

    2.15  Employee
      and Labor Matters; Benefit Plans.

     

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

     

    (i)  the
      name
      of such employee;

     

    (ii)  such
      employee’s title; and

     

    (iii)  such
      employee’s annualized base salary.

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        49

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        50

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        51

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        52

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        53

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        54

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        55

        
          

        

      

      
        
        

      

    

     

    2.19  Legal
      Proceedings; Orders.

     

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

     

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

     

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

     

    
      
        
        

      

      
        56

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        57

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    2.22  Vote
      Required.

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        58

        
          

        

      

      
        
        

      

    

     

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

     

    SECTION  
3.
REPRESENTATIONS
      AND WARRANTIES OF PARENT AND MERGER SUB

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        59

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    SECTION
      4. CERTAIN
      COVENANTS OF THE COMPANY

     

    4.1  Access
      and Investigation.

     

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

     

    
      
        
        

      

      
        60

        
          

        

      

      
        
        

      

    

     

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

     

    (c)  During
      the Pre-Closing Period:

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        61

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        62

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        63

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        64

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    (xiii)  make
      any
      material Tax election;

     

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

     

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

     

    4.3  Notification;
      Updates to Disclosure Schedule.

     

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

     

    
      
        
        

      

      
        65

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        66

        
          

        

      

      
        
        

      

    

     

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

     

    SECTION
      5.  ADDITIONAL
      COVENANTS OF THE PARTIES

     

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

     

    
      
        
        

      

      
        67

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    5.4  Parent
      Stockholders’ Meeting.

     

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

     

    
      
        
        

      

      
        68

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        69

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        70

        
          

        

      

      
        
        

      

    

     

    5.8  Additional
      Agreements.

     

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

     

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

     

    5.9  Financing. 

     

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

     

    
      
        
        

      

      
        71

        
          

        

      

      
        
        

      

    

     

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

     

    
      
        
        

      

      
        72

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        73

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        74

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        75

        
          

        

      

      
        
        

      

    

     

    5.14  Indemnification
      of Officers and Directors.

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        76

        
          

        

      

      
        
        

      

    

     

    5.16  Termination
      and Amendment of Certain Agreements.

     

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

     

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

     

    5.17  Board
      of Directors; Management.

     

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

     

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

     

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

     

    
      
        
        

      

      
        77

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        78

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        79

        
          

        

      

      
        
        

      

    

     

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

     

    6.8  Antitrust
      Matters

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        80

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        81

        
          

        

      

      
        
        

      

    

     

    SECTION
      7.  CONDITIONS
      PRECEDENT TO OBLIGATION OF THE
      COMPANY 

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    7.7  Antitrust
      Matters.
      

     

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

     

    
      
        
        

      

      
        82

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    SECTION
      8. TERMINATION 

    

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        83

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        84

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        85

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    SECTION
      9. INDEMNIFICATION,
      ETC.

     

    9.1  Survival
      of Representations, Etc.

     

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

     

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

     

    
      
        
        

      

      
        86

        
          

        

      

      
        
        

      

    

     

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

     

    9.2  Indemnification.

     

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

     

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

     

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

     

    
      
        
        

      

      
        87

        
          

        

      

      
        
        

      

    

     

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

     

    (iv)  any
      inaccuracy in the Closing Payment Schedule;

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        88

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    9.3  Certain
      Limitations.

     

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

     

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

     

    
      
        
        

      

      
        89

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        90

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        91

        
          

        

      

      
        
        

      

    

     

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

     

    
      
        
        

      

      
        92

        
          

        

      

      
        
        

      

    

     

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

     

    9.5  Defense
      of Third Party Claims. 

     

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

     

    
      
        
        

      

      
        93

        
          

        

      

      
        
        

      

    

     

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

     

    
      
        
        

      

      
        94

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        95

        
          

        

      

      
        
        

      

    

     

    9.7  Indemnification
      Claims; Escrow Arrangements.

     

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

     

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

     

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

     

    
      
        
        

      

      
        96

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        97

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        98

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        99

        
          

        

      

      
        
        

      

    

     

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

     

    9.8  Tax
      Matters.

     

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

     

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

     

    
      
        
        

      

      
        100

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        101

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        102

        
          

        

      

      
        
        

      

    

     

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

     

    SECTION
      10. MISCELLANEOUS
      PROVISIONS 

     

    10.1  Stockholders’
      Representative.

     

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

     

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

     

    
      
        
        

      

      
        103

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        104

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        105

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    if
      to Parent:

     

    Acquicor
      Technology Inc.

    4910
      Birch Street, Suite 102

    Irvine,
      CA 92660

    Attention:
      General Counsel 

    Facsimile:
      (949) 266-9020

    

    with
      a
      copy to:

     

    Cooley
      Godward Kronish LLP

    101
      California Street

    San
      Francisco, CA 94111

    Attention:
      Gian-Michele a Marca

    Facsimile:
      (415) 693-2222

    

    if
      to the Company:

     

    Jazz
      Semiconductor, Inc.

    4321
      Jamboree Rd.

    Newport
      Beach, CA 92660

    Attention:
      General Counsel

    Facsimile:
      (949) 435-8455

    

    with
      a
      copy to:

     

    Latham
      & Watkins LLP

    555
      Eleventh Street, NW

    Suite
      1000

    Washington,
      DC 20004-1304

    Attention:
      David Dantzic

       
      Jonn R. Beeson

    Facsimile:
      (202) 637-2201

    

    and
      the
      Stockholders’ Representative.

    

    
      
        
        

      

      
        106

        
          

        

      

      
        
        

      

    

     

    if
      to the Stockholders’ Representative:

     

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

    101
      South
      Tryon St.

    25th
      Floor

    Charlotte,
      NC 28280

    Attention:
      Todd R. Newnam

    Facsimile:
      704-632-0299

    

    with
      a
      copy to:

     

    Latham
      & Watkins LLP

    555
      Eleventh Street, NW

    Suite
      1000

    Washington,
      DC 20004-1304

    Attention:
      David Dantzic

       
      Jonn R. Beeson

    Facsimile:
      (202) 637-2201

    

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

     

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

     

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

     

    10.8  Governing
      Law.

     

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

     

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

     

    
      
        
        

      

      
        107

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    10.11  Waiver.

     

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

     

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

     

    
      
        
        

      

      
        108

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    10.16  Construction.

     

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

     

    
      
        
        

      

      
        109

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    [Remainder
      of page intentionally left blank]

     

    
      
        
        

      

      
        110

        
          

        

      

      
        
        

      

    

    

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

       

      
        	 	 	 
	 	
                ACQUICOR
                  TECHNOLOGY INC.,

                a
                  Delaware corporation

              
	 
 	 
 	 
 
	 	By:  	/s/ Gilbert
                F. Amelio 
	 	
                 

                Name:  

              	
                
Gilbert
                F. Amelio 
	 	
                 

                Title:

              	
                
Chairman
                and CEO
                

              

      

       

      
        
          	 	 	 
	 	
                  
                    JOY
                      ACQUISITION CORP.,

                    a
                      Delaware corporation

                  

                
	 
 	 
 	 
 
	 	By:  	/s/ Gilbert
                  F. Amelio 
	 	
                   

                  Name:  

                	
                  
Gilbert
                  F. Amelio 
	 	
                   

                  Title:

                	
                  
Chairman
                  and CEO
                  

                

        

         

        
          	 	 	 
	 	
                  JAZZ
                    SEMICONDUCTOR, INC.,

                  a
                    Delaware corporation

                
	 
 	 
 	 
 
	 	By:  	/s/
                  Shu Li 
	 	
                   

                  Name:   

                	
                  
Shu
                  Li
	 	 

                  Title:

                	
                  
CEO 
	 	
                   

                	
                  

                

        

        
           

          
            	 	 	 
	 	
                    
                      TC
                        GROUP, L.L.C.,

                      as
                        the Stockholders’ Representative

                    

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

                  
	 	 	 
	 	By:	/s/ Claudius E. Watts II 
	 	
                     

                    Name:  

                  	
                    
Claudius
                    E. Watts II 
	 	 

                    Title:

                  	
                    
Managing
                    Director 
	 	
                     

                  	
                    

                  

          

        

      

      
        
          
          

        

        
          1

          
            

          

        

         

      

      

      EXHIBIT
        A

       

      CERTAIN
        DEFINITIONS

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

      
        
          
          

        

        
          1

          
            

          

        

         

      

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

      
        
          
          

        

        
          2

          
            

          

        

         

      

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

      
        
          
          

        

        
          3

          
            

          

        

         

      

       

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

       

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

       

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

       

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

       

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

       

      Encumbrance.
        “Encumbrance”
        shall mean any lien, pledge, hypothecation, charge, mortgage, security interest,
        encumbrance, claim, option, right of first refusal, preemptive right, community
        property interest or restriction of any nature (including any restriction
        on the
        voting of any security, any restriction on the transfer of any security or
        other
        asset, any restriction on the receipt of any income derived from any asset,
        any
        restriction on the use of any asset and any restriction on the possession,
        exercise or transfer of any other attribute of ownership of any
        asset).

      
        
          
          

        

        
          4

          
            

          

        

         

      

       

      Entity.
        “Entity”
        shall mean any corporation (including any non-profit corporation), general
        partnership, limited partnership, limited liability partnership, joint venture,
        estate, trust, company (including any limited liability company or joint
        stock
        company), branch office, firm or other enterprise, association, organization
        or
        entity.

       

      Environment.
        “Environment”
        shall mean any soil, land surface or subsurface strata, surface waters
        (including navigable waters, ocean waters, streams, ponds, drainage basins,
        and
        wetlands), groundwaters, drinking water supply, stream sediments, ambient
        air
        (including indoor air), plant and animal life, and any other environmental
        medium or natural resource.

       

      Environmental,
        Health, and Safety Liabilities. “Environmental,
        Health, and Safety Liabilities” shall mean any cost, damages, expense,
        liability, obligation, or other responsibility arising from or under
        Environmental Law or Occupational Safety and Health Law.

       

      Environmental
        Law. “Environmental
        Law” shall mean any Legal Requirement relating to the protection of human health
        and safety, natural resources or the environment, including related to
        pollution, contamination, cleanup, preservation, protection, and reclamation
        of
        the Environment; and (ii) any Release or Threatened Release of any hazardous
        materials, including investigation, monitoring, clean up, removal, treatment,
        or
        any other action to address such Release or Threatened Release.

       

      ERISA.
“ERISA”
        shall mean the Employee Retirement Income Security Act of 1974, as
        amended.

       

      Escrow
        Agent. “Escrow
        Agent” shall mean Citibank, N.A. or U.S Bank National Association or another
        escrow agent reasonably acceptable to Parent and Stockholders’
Representative.

       

      Escrow
        Agreement. “Escrow
        Agreement” shall mean the escrow agreement to
        be
        entered into among Parent, the Stockholders’ Representative and the Escrow Agent
        on the Closing Date, substantially in the form of Exhibit
        E
        to the
        Agreement.

       

      Escrow
        Participant. “Escrow
        Participant” shall mean each Non-Dissenting Stockholder and each holder of an
        In-the-Money Company Option that is unexercised and outstanding immediately
        prior to the Effective Time.

       

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

       

      Facilities.
        “Facilities”
        shall mean any real property or interest in real property that is being used
        or
        has been used by the Company and all buildings, structures or other improvements
        thereon.

      
        
          
          

        

        
          5

          
            

          

        

         

      

       

      Foreign
        Plan. “Foreign
        Plan” shall mean:
        (a)
        any Acquired Company Employee Plan or Acquired Company Employee Agreement
        mandated by a Governmental Body outside the United States; (b) any Acquired
        Company Employee Plan that is subject to any of the Legal Requirements of
        any
        jurisdiction outside the United States; and (c) any Acquired Company Employee
        Plan that covers or has covered any Acquired Company Employee while such
        employee is or was performing services outside of the United States; provided,
        however, that a “Foreign Plan” shall not include an Acquired Company Employee
        Plan sponsored by any Governmental Body.

       

      GAAP.
        “GAAP”
        shall mean generally accepted accounting principles in the United
        States.

       

      Governmental
        Authorization. “Governmental
        Authorization” shall mean any: (a) permit, license, certificate, franchise,
        permission, clearance, registration, qualification or authorization issued,
        granted, given or otherwise made available by or under the authority of any
        Governmental Body or pursuant to any Legal Requirement; or (b) right under
        any
        Acquired Company Contract with any Governmental Body.

       

      Governmental
        Body. “Governmental
        Body” shall mean any:
        (a) nation,
        state, commonwealth, province, territory, county, municipality, district
        or
        other jurisdiction of any nature;
        (b) federal,
        state, local, municipal, foreign or other government; or (c) governmental
        or quasi-governmental authority of any nature (including any governmental
        division, department, agency, commission, instrumentality, official,
        organization, unit, body or Entity, and any court or other
        tribunal).

       

      Government
        Bid. “Government
        Bid” shall mean any quotation, bid or proposal submitted to any Governmental
        Body or any proposed prime contractor or higher-tier subcontractor of any
        Governmental Body.

       

      Government
        Contract. “Government
        Contract” shall mean any prime contract, subcontract, letter contract, purchase
        order or delivery order executed or submitted to or on behalf of any
        Governmental Body or any prime contractor or higher-tier subcontractor, or
        under
        which any Governmental Body or any such prime contractor or subcontractor
        otherwise has or may acquire any right or interest.

       

      HSR
        Act.
“HSR
        Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
        amended.

       

      Indemnitor.
        “Indemnitor”
        shall mean: (a) in the case of an indemnification claim made by a Parent
        Indemnitee, the Stockholders’ Representative; and (b) in the case of an
        indemnification claim made by a Company Indemnitee, Parent.

       

      Indemnitees.
        “Indemnitees”
        shall mean the Parent Indemnitees and the Company Indemnitees.

       

      Indemnity
        Escrow Fund. “Indemnity
        Escrow Fund” shall mean the escrow fund established pursuant to the Escrow
        Agreement primarily for purposes of securing Parent’s indemnification rights
        pursuant to Section 9 of the Agreement.

      
        
          
          

        

        
          6

          
            

          

        

         

      

       

      Intellectual
        Property. “Intellectual
        Property” shall mean algorithms, APIs, apparatus, databases, data collections,
        development tools, diagrams, formulae, inventions (whether or not patentable),
        know-how, logos, marks (including brand names, product names, logos and
        slogans), mask works, methods, network configurations and architectures,
        processes, proprietary information, protocols, schematics, semiconductor
        devices, specifications, software, software code (in any form, including
        source
        code and executable or object code), subroutines, techniques, user interfaces,
        URLs, web sites, works of authorship and other forms of technology (whether
        or
        not embodied in any tangible form and including all tangible embodiments
        of the
        foregoing, such as instruction manuals, laboratory notebooks, prototypes,
        samples, studies and summaries).

       

      Intellectual
        Property Rights.
        “Intellectual Property Rights” shall mean all past, present, and future rights
        of the following types, which may exist or be created under the laws of any
        jurisdiction in the world: (a) rights associated with works of authorship,
        including exclusive exploitation rights, copyrights, moral rights and mask
        works; (b) trademark and trade name rights and similar rights; (c) trade
        secret rights; (d) patent and industrial property rights; (e) other proprietary
        rights in Intellectual Property; and (f) rights in or relating to registrations,
        renewals, extensions, combinations, divisions and reissues of, and applications
        for, any of the rights referred to in clauses “(a)” through “(f)”
above.

       

      In-the-Money
        Company Option. “In-the-Money
        Company Option” shall mean a Company Option having a per share exercise price
        equal to or greater than the Common Residual Per Share Amount (it being
        understood that whether a Company Option is an In-the-Money Company Option
        shall
        be determined on an iterative basis by initially calculating the Common Residual
        Per Share Amount without taking account of outstanding Company Options,
        recalculating the Common Residual Per Share Amount taking into account the
        outstanding Company Options with a per share exercise price that is less
        than
        the initially calculated Common Residual Per Share Amount and then repeating
        this process until no additional Company Options become In-the-Money Company
        Options as a result of such calculation). 

       

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

       

      Key
        Stockholders. “Key
        Stockholders” shall mean Carlyle Partners III, LP, Carlyle High Yield Partners,
        LP, CP III Coinvestment, LP, Conexant and RF Micro Devices, Inc.

       

      Knowledge
        of the Company.
        “Knowledge of the Company” shall mean the actual knowledge of any of the
        following individuals: Shu Li; Brent Jensen; Harsha Tank; Carolyn Follis;
        Theodore Zhu; Marco Racanelli; Dan Lynch; Nabil Alali; Jeff McHenry; Bala
        Govender; and Andrew Chan. 

       

      Knowledge
        of Parent.
        “Knowledge of Parent” shall mean, following the Effective Time, the actual
        knowledge of any of the following individuals as long as they remain employed
        by
        Parent or its Subsidiaries or their respective successors: Paul Pittman,
        Allen
        Grogan, Shu Li; Brent Jensen; Harsha Tank; and Carolyn Follis.

      
        
          
          

        

        
          7

          
            

          

        

         

      

       

      Lease
        Agreement. “Lease
        Agreement” shall mean any real property lease, sublease, license, occupancy
        agreement or other contractual obligation that grants the right of use or
        occupancy of any of the real property leased to any of the Acquired
        Companies.

       

      Legal
        Proceeding. “Legal
        Proceeding” shall mean any action, suit, litigation, arbitration, proceeding
        (including any civil, criminal, administrative, investigative or appellate
        proceeding), hearing, inquiry, audit, examination or investigation commenced,
        brought, conducted or heard by or before, or otherwise involving, any court
        or
        other Governmental Body or any arbitrator or arbitration panel.

       

      Leased
        Properties. “Leased
        Properties” shall mean any real property subject to a leasehold interest of the
        Acquired Companies. 

       

      Legal
        Requirement. “Legal
        Requirement” shall mean any federal, state, local, municipal, foreign or other
        ordinance, regulation, law, statute, constitution or principal of common
        law,
        and any enforceable judicial interpretation thereof, including any resolution,
        code, edict, decree, rule, order, award, ruling or requirement issued, enacted,
        adopted, promulgated, implemented or otherwise put into effect by or under
        the
        authority of any Governmental Body. 

       

      Material
        Adverse Effect. “Material
        Adverse Effect” shall mean any change, event, effect, claim, circumstance or
        matter that (considered together with all other changes, effects, claims,
        circumstances or matters) has materially and adversely affected, or would
        reasonably be expected to materially and adversely affect: (a) the business,
        financial condition, properties, assets, liabilities or results of operations
        of
        the Company and its Subsidiaries taken as a whole; or (b) Parent’s right to own,
        or to receive dividends or other distributions with respect to, the stock
        of the
        Surviving Corporation; provided,
        however,
        that
        none of the following, in and of itself, either individually or in the
        aggregate, shall be deemed to constitute a Material Adverse Effect: (i) any
        change or event attributable to conditions generally affecting the semiconductor
        wafer fabrication or semiconductor design industries in which the Company
        participates, provided that such change or event does not have a materially
        disproportionate impact on the Company and its Subsidiaries, taken as a whole;
        (ii) any change or event attributable to conditions generally affecting the
        general economy as a whole, provided that such change or event does not have
        a
        materially disproportionate impact on the Company and its Subsidiaries, taken
        as
        a whole; (iii) the failure of the Company to meet projections of earnings,
        revenues or other financial measures; (iv) the announcement of the Agreement
        and
        the pendency of the Contemplated Transactions, including any impact thereof
        on
        relationships, contractual or otherwise, with customers, suppliers,
        distributors, consultants or employees; or (v) the taking by the Company
        of any
        action required to be taken by the Company by the Agreement (other than actions
        contemplated by Section 4.2).

       

      Non-Dissenting
        Stockholder. “Non-Dissenting
        Stockholder” shall mean each Stockholder that does not perfect his or its
        appraisal rights under the DGCL and is otherwise entitled to receive the
        applicable consideration for such Stockholders shares of Company Capital
        Stock
        pursuant to Section 1.5
        of the
        Agreement.

      
        
          
          

        

        
          8

          
            

          

        

         

      

       

      Occupational
        Safety and Health Law. “Occupational
        Safety and Health Law” shall mean any Legal Requirement designed to provide safe
        and healthful working conditions and to reduce occupational safety and health
        hazards.

       

      Order.
        “Order”
        shall mean any order,
        writ, injunction, judgment or decree.

       

      Parent
        Indemnitees. “Parent
        Indemnitees”
        shall mean the following Persons:
        (a) Parent;
        (b) Parent’s
        current and future Subsidiaries (including the Surviving
        Corporation);
        (c) the
        respective directors, officers, employees and other agents of the Persons
        referred to in clauses “(a)” and “(b)” above; and
        (d) the
        respective successors and assigns of the Persons referred to in clauses “(a)”,
“(b)” and “(c)” above; provided,
        however,
        that
        the Stockholders shall not be deemed to be Parent
        Indemnitees.

       

      Permitted
        Encumbrance. “Permitted
        Encumbrance” means (i) mechanics, materialmen’s and warehousemen liens and
        similar Encumbrances with respect to any amounts not yet due and payable
        or
        which are being contested in good faith through appropriate proceedings,
        (ii)
        Encumbrances for Taxes, assessments or similar charges not yet due and payable
        or which are being contested in good faith through appropriate proceedings
        and
        for which adequate reserves have been made to the extent required by GAAP,
        (iii)
        Encumbrances to secure the payment of workers’ compensation, employment
        insurance or other social security obligations of the Acquired Companies
        in the
        ordinary course of business, (iv) Encumbrances on goods in transit incurred
        pursuant to documentary letters of credit, (v) Encumbrances securing rental
        payments under capital lease agreements, (vi) Encumbrances arising in favor
        of
        the United States Government as a result of progress payment clauses contained
        in any Government Contract, (vii) easements, covenants, rights of way,
        restrictions, encroachments and other minor defects or irregularities in
        title,
        in each case that do not and will not interfere in any material respect with
        the
        uses of the real property to which they apply, and (viii) Encumbrances created
        by the Loan and Security Agreement with Wachovia Capital Finance Corporation
        (Western), (ix) restrictions on transfer imposed by securities laws or other
        Legal Requirements and (x) other Encumbrances arising in the ordinary course
        of
        business and that do not (in any case or in the aggregate) materially detract
        from the value of the assets subject thereto or materially impair the use
        of
        such assets by the Acquired Companies, other than Intellectual Property licenses
        or covenants-not-to-sue granted in, to, or under any Acquired Company IP.
        

      

      Person.
        “Person”
        shall mean any individual, Entity or Governmental Body.

       

      Process
        Technology. “Process
        Technology” shall mean (i) process steps used in the fabrication of wafers,
        including process technologies for digital CMOS, standard analog CMOS, advanced
        analog CMOS, RF CMOS, high-voltage CMOS, bipolar CMOS, silicon-germanium
        bipolar
        CMOS, and bipolar CMOS double-diffused metal oxide semiconductor; or (ii)
        any
        improvement to, or new design of, manufacturing tools used to fabricate wafers;
        or (iii) any layout optimization carried out to enhance yield and performance
        by
        design-for-manufacturing rules, optical proximity correction, and other
        techniques.

       

      Proxy
        Statement. “Proxy
        Statement” shall mean the proxy statement to be sent to Parent’s stockholders in
        connection with the Parent Stockholders’ Meeting.

      
        
          
          

        

        
          9

          
            

          

        

         

      

       

      Registered
        IP. “Registered
        IP” shall mean all Intellectual Property Rights that are registered, filed or
        issued under the authority of, with or by any Governmental Body, including
        all
        patents, registered copyrights, registered mask works and registered trademarks
        and all applications for any of the foregoing.

       

      Release.
        “Release”
        shall mean any spilling, leaking, emitting, discharging, depositing, escaping,
        leaching, dumping, or other releasing into the Environment, whether intentional
        or unintentional.

       

      Required
        Parent Merger Stockholder Vote. “Required
        Parent Merger Stockholder Vote” shall mean (i) an affirmative vote by a majority
        of the shares of Parent’s common stock issued in connection with Parent’s
        initial public offering consummated on March 17, 2006 (such common stock,
        “Parent
        IPO Shares”)
        voted
        at a duly convened meeting to approve the Merger, and (ii) holders of less
        than
        20% in interest of the Parent IPO Shares both vote against the Merger and
        demand
        that Parent convert such shares into cash.

       

      Representatives.
        “Representatives”
        shall mean officers, directors, employees, partners, agents, attorneys,
        accountants, advisors and representatives.

       

      SEC.
        “SEC”
        shall mean the United States Securities and Exchange Commission.

       

      Securities
        Act. “Securities
        Act” shall mean the Securities Act of 1933, as amended.

       

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

       

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

       

      Stock
        Appreciation Rights.
        “Stock
        Appreciation Rights”
shall
        mean the
        rights issued under the Company Stock Appreciation Rights Plan.

      

      Stockholders’
        Representative Expense Fund. “Stockholders’
        Representative Expense Fund” shall mean the escrow fund established pursuant to
        the Escrow Agreement for purposes of funding the activities of the Stockholders’
Representative hereunder. 

       

      Subsidiary.
        An
        Entity shall be deemed to be a “Subsidiary” of another Person if such Person
        directly or indirectly owns or purports to own, beneficially or of record:
        (a)
        an amount of voting securities of other interests in such Entity that is
        sufficient to enable such Person to elect at least a majority of the members
        of
        such Entity’s board of directors or other governing body; or (b) at least 50% of
        the outstanding equity or financial interests of such Entity.

       

      Tax.
        “Tax”
        shall mean any federal, state, local, foreign or other tax (including any
        income
        tax, franchise tax, capital gains tax, gross receipts tax, value-added tax,
        surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use
        tax,
        property tax, business tax, withholding tax or payroll tax), levy, assessment,
        tariff, duty (including any customs duty), deficiency or fee, and any related
        charge or amount (including any fine, penalty or interest), imposed, assessed
        or
        collected by or under the authority of any Governmental Body.

      
        
          
          

        

        
          10

          
            

          

        

         

      

       

      Tax
        Return. “Tax
        Return” shall mean any return (including any information return), report,
        statement, declaration, estimate, schedule, notice, notification, form,
        election, certificate or other document or information, and any amendment
        to any
        of the foregoing, filed with or submitted to, or required to be filed with
        or
        submitted to, any Governmental Body in connection with the determination,
        assessment, collection or payment of any Tax or in connection with the
        administration, implementation or enforcement of or compliance with any Legal
        Requirement relating to any Tax.

      

      Threat
        of Release. “Threat
        of Release” shall mean a substantial likelihood of a Release that may require
        action in order to prevent or mitigate damage to the Environment that may
        result
        from such Release.

      

      Transaction
        Expense. “Transaction
        Expense” shall mean any out-of-pocket fee, cost, expense, payment, expenditure
        or liability paid or payable by any Acquired Company (including legal fees
        and
        expenses, accounting fees and expenses and financial advisory fees and expenses,
        but excluding employee salaries and amounts paid to independent contractors
        hired by an Acquired Company to perform services similar to those regularly
        performed by employees of the Acquired Companies) whether incurred prior
        to the
        date of the Agreement, during the Pre-Closing Period or at or after the
        Effective Time, that relates to: (a) the participation in or response to
        the
        investigation, review and inquiry conducted by Parent and its Representatives
        with respect to the business of the Acquired Companies (and the furnishing
        of
        information to Parent and its Representatives in connection with such
        investigation and review); (b) the negotiation, preparation, drafting, review,
        execution, delivery or performance of the Agreement (including the Disclosure
        Schedule) or any certificate, opinion, Contract or other instrument or document
        delivered or to be delivered in connection with any of the Contemplated
        Transactions; (c) the preparation and submission of any filing or notice,
        including the Proxy Statement, required to be made or given in connection
        with
        any of the Contemplated Transactions, or the obtaining of any Consent required
        to be obtained in connection with any of the Contemplated Transactions; (d)
        the
        consummation of the Merger or any of the other Contemplated Transactions;
        or (e)
        the possible initial public offering of securities of the Company, including
        the
        preparation, drafting and filing of the Company’s Registration Statement on Form
        S-1 and any amendments thereto; provided,
        however,
        that:
        (i) any out-of-pocket fees and expenses (other than the fees and expenses
        of
        counsel) incurred by the Company or its stockholders solely in connection
        with
        Parent’s preparation of the Proxy Statement shall not constitute Transaction
        Expenses; (ii) if an opinion of the Company’s outside counsel is requested by
        Parent solely for purposes of preparing the Proxy Statement, the fees and
        expenses of counsel incurred to prepare such opinion would not constitute
        a
        Transaction Expense; and (iii) in no event will amounts paid to an Acquired
        Company’s independent accountant in connection with the audit of its annual
        financial statements or review of its quarterly financial statements, in
        each
        case that has taken place in the ordinary course of business consistent with
        past practice, constitute Transaction Expenses. Without limiting the generality
        of the foregoing, “Transaction Expenses” shall include any fees that are payable
        or may become payable by any Acquired Company in connection with the
        Contemplated Transactions for services that were performed at or prior to
        the
        Effective Time, even if the invoice for such fees is not issued until after
        the
        Effective Time.

      

      Working
        Capital Adjustment Escrow Fund. “Working
        Capital Adjustment Escrow Fund” shall mean the escrow fund established pursuant
        to the Escrow Agreement for purposes of the purchase price adjustment, if
        any,
        to be determined pursuant to Section 0
        of the
        Agreement.

      
        
          
          

        

        
          11Exhibit
      10.2

     

    CONFIDENTIAL

     

    WACHOVIA
      CAPITAL FINANCE CORPORATION (WESTERN)

    251
      South Lake Avenue, Suite 900

    Pasadena,
      California 91101

     

    September
      26, 2006

     

    Acquicor
      Technology, Inc. 

    4910
      Birch Street, Suite 102

    Irvine,
      California 92660

    Attention:
      Gilbert F. Amelio 

     

    $65,000,000
      Senior Secured Revolving Credit Facility

    Commitment
      Letter

     

    Ladies
      and Gentlemen:

     

    Wachovia
      Capital Finance Corporation (Western)(“Bank”) and Wachovia Capital Markets, LLC
      (“WCM”, and together with the Bank, “Wachovia”) are pleased to confirm to
      Acquicor Technology, Inc. (the “Company”) the commitment of Bank to provide and
      the commitment of WCM to structure, arrange and syndicate, a senior secured
      revolving loan facility to the Company and its subsidiaries in an amount up
      to
      $65,000,000 (the “Credit Facility”), based upon and subject to the terms and
      conditions set forth in this letter and the term sheet attached as Exhibit
      A
      hereto (the “Term Sheet”, and together with this letter, collectively, the
“Commitment Letter”). The Credit Facility would be used to finance the Company’s
      acquisition of Jazz Semiconductor, Inc. and its subsidiaries (collectively,
      “Jazz”), to refinance existing indebtedness, to fund the working capital needs
      of the Company, and to provide for general corporate purposes.

     

    The
      Company hereby appoints WCM and WCM hereby agrees, acting alone or through
      or
      with affiliates selected by it, to act as the sole lead arranger and the sole
      bookrunner for the Credit Facility in connection with arranging a syndicate
      of
      banks and financial institutions (collectively, the “Lenders”) mutually
      acceptable to Wachovia and the Company to provide a portion of the Credit
      Facility. Bank will act as administrative and collateral agent for the Credit
      Facility (in such capacity, “Agent”). Bank agrees that completion of such
      syndication is not a condition to its commitment hereunder.

     

    In
      connection with the efforts of WCM to form a syndicate of financial institutions
      to become Lenders under the Credit Facility, the Company and its affiliates
      agree to use commercially reasonable efforts to actively assist in achieving
      a
      syndication that is mutually satisfactory to Wachovia and the Company. It is
      understood and agreed that WCM will approach institutions reasonably acceptable
      to the Company and manage, in consultation with the Company, all aspects of
      the
      syndication, including, without limitation, decisions as to the final allocation
      of the commitments, when commitments will be accepted, the selection of proposed
      Lenders and titles among the Lenders. WCM may use its affiliates to assist
      in
      the syndication of the Credit Facility and may allocate fees payable to it
      and
      such affiliates in such manner as it and its affiliates may agree. Wachovia
      may
      share with any of its affiliates and advisors any information related to the
      Company, its subsidiaries and the transactions contemplated under this letter
      on
      a confidential basis. The Company (for itself and its subsidiaries) agrees
      that
      the arrangements with Wachovia will be on an exclusive basis for the term of
      the
      commitment set forth in this letter and that the Company and its affiliates
      will
      not engage, solicit or otherwise consult with any other financial institution
      or
      entity regarding the Credit Facility or any other proposed senior first lien
      for
      the Company and its subsidiaries. No other agents, co-agents, arrangers,
      bookrunners or book managers will be appointed or used by the Company or its
      affiliates in connection with the financing pursuant to a senior credit
      facility.

     

    
      
        
        

      

      
        C-1

        
          

        

      

      
        
        

      

    

     

    The
      Company agrees, and agrees to cause its subsidiaries, (i) to cooperate with
      and
      assist Wachovia in its efforts, both prior and for up to 90 days or such
      extended period of time as may be reasonably necessary subsequent to closing
      to
      syndicate the Credit Facility to Lenders, and, in connection therewith, to
      make
      the management of the Company reasonably available during normal business hours
      for due diligence meetings or conference calls with prospective Lenders and
      (ii)
      to provide, and use its commercially reasonable efforts to cause the agents,
      accountants, investment bankers and other advisors of the Company and its
      affiliates to provide all information, including financial projections, as
      may
      be reasonably necessary to assist Wachovia in preparing materials with
      appropriate information for submission to potential Lenders, including a
      customary information memorandum to be used in connection with the syndication
      of the Credit Facility. 

     

    The
      Company hereby represents, warrants and covenants that (i) all information,
      other than Projections (as defined below), which has been or is hereafter made
      available to Wachovia or any prospective Lender by or on behalf of the Company
      or any of its representatives in connection with the business of the Company
      and
      its subsidiaries (“Information”) is and will be complete and correct as to the
      subject matter thereof in all material respects as of the date made available
      to
      Wachovia or such prospective Lender and does not and will not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make
      the statements contained therein not materially misleading and (ii) all
      financial projections concerning the Company and its affiliates that have been
      or are hereafter made available to Wachovia or prospective Lenders by the
      Company or any of its representatives (the “Projections”) have been or will be
      prepared in good faith based upon assumptions believed by the Company to be
      reasonable when made (it being understood that such Projections are not to
      be
      viewed as facts and are subject to significant uncertainties and contingencies,
      many of which are beyond the Company’s control (including the accuracy of
      information supplied by Jazz and its subsidiaries), that no assurance can be
      given that any particular Projections will be realized, and that actual results
      may differ and such differences may be material). The Company agrees to furnish
      to Wachovia such Information and Projections as Wachovia may reasonably request
      and to supplement the Information and the Projections from time to time until
      the closing date of the Credit Facility so that the representation, warranty
      and
      covenant in the preceding sentence is correct on the closing date of the Credit
      Facility. In arranging and syndicating the Credit Facility, Wachovia will be
      using and relying on the Information and the Projections without responsibility
      for independent verification thereof.

     

    
      
        
        

      

      
        C-2

        
          

        

      

      
        
        

      

    

     

    The
      Company will reimburse Wachovia on the earliest of the closing date, March
      31,
      2007, or abandonment of the transaction to be financed for all reasonable out
      of
      pocket costs and expenses incurred by Wachovia in connection with its continuing
      review of the transaction and the preparation and negotiation of this Commitment
      Letter (including any amendment or modification hereto), and the loan
      documentation and the syndication of the Credit Facility, including reasonable
      attorneys’ fees and legal expenses, appraisal fees (Wachovia may require that
      the Company pay appraisal charges directly), filing and search charges,
      recording taxes and field examination expenses (including the then standard
      per
      diem charges per person per day plus out-of-pocket expenses for the field
      examiners of Wachovia in the field and in the office, including travel, hotel
      and all other reasonable out-of-pocket expenses) and including all CUSIP fees
      for registration with the Standard & Poor’s CUSIP Service Bureau (the “CUSIP
      Bureau”). 

     

    Wachovia
      has the right to apply to such charges and expenses any sums received from
      or on
      behalf of the Company or any of its subsidiaries. Without limiting the
      generality of the foregoing, in connection with the execution of this Commitment
      Letter, the Company will pay to Wachovia an expense reimbursement deposit of
      $75,000 and an additional expense reimbursement deposit of $75,000 will be
      due
      and payable upon the negotiation of the initial draft of the Loan and Security
      Agreement for the Credit Facility (the “Deposits”). The arrangements with
      respect to such charges after the closing of the Credit Facility will be
      governed by the terms of the loan documentation.

     

    The
      Deposits will be applied at closing to any unpaid charges and expenses with
      any
      remaining balance credited at closing to the fees due under the Credit Facility.
      The Deposits may also be retained by Wachovia as a fee if either (i) the
      transaction does not close on or before March 31, 2007 due to delays or actions
      of the Company or the inability of the Company to fulfill the conditions to
      closing or (ii) the Company or any of its affiliates elect not to obtain the
      Credit Facility. In addition, if the transaction does not close on or before
      March 31, 2007, and such failure to close is not caused by the failure of
      Wachovia to perform its duties pursuant to this commitment, the Company agrees
      to then pay to Wachovia a work fee of $125,000 (the “Work Fee”); provided,
      that
      any amounts remaining from the Deposits, after the out of pocket costs and
      expenses described above have been paid, will be applied to the Work Fee to
      reduce the amount of such fee accordingly; provided,
      further,
      that,
      if the transaction closes after March 31, 2007 and the Company uses the Credit
      Facility, the Work Fee will be credited against fees payable at closing;
provided,
      further,
      that,
      if the acquisition of Jazz does close but the Company or its affiliates do
      not
      use the Credit Facility even though Wachovia was ready, willing and able to
      provide the Credit Facility on the terms set forth in this Commitment Letter,
      in
      addition to Wachovia retaining the Deposits, the Company agrees to pay Wachovia
      a breakup fee of $325,000 (less the Work Fee, if already paid). The Company
      hereby acknowledges and agrees that each fee payable hereunder is fully earned
      and non-refundable on the date such fee is due and payable as provided above.
      Any balance remaining from the Deposits after all fees and out of pocket costs
      and expenses have been satisfied will be returned to the Company.

     

    
      
        
        

      

      
        C-3

        
          

        

      

      
        
        

      

    

     

    The
      Company and its subsidiaries agree to jointly and severally indemnify and hold
      harmless Wachovia and each director, officer, employee, attorney, advisor,
      agent
      and affiliate of Wachovia (each such person or entity referred to hereafter
      in
      this paragraph as an “Indemnified Person”) from any losses, claims, costs,
      damages, expenses or liabilities (or actions, suits or proceedings, including
      any inquiry or investigation, with respect thereto) to which any Indemnified
      Person may become subject, insofar as such losses, claims, costs, damages,
      expenses or liabilities (or actions, suits, or proceedings, including any
      inquiry or investigation, with respect thereto) arise out of, relate to, or
      result from, this Commitment Letter, reports or other information provided
      to
      any Indemnified Person or contemplated by or referred to herein or therein
      or
      the other transactions contemplated hereby and thereby and to reimburse upon
      demand each Indemnified Person for any and all legal and other expenses incurred
      in connection with investigating, preparing to defend or defending any such
      loss, claim, cost, damage, expense or inquiry or investigation, with respect
      thereto; provided, that the Company shall have no obligation to any Indemnified
      Person under this indemnity provision for liabilities to the extent that such
      liabilities have resulted from the gross negligence or willful misconduct of
      such Indemnified Person; provided, further, that the Company shall not be
      required to reimburse the legal fees and expenses of more than one outside
      counsel for all Indemnified Persons with respect to any matter for which
      indemnification is sought unless, as reasonably determined by any such
      Indemnified Person’s counsel (and the Company’s counsel reasonably concurs),
      representation of all such Indemnified Persons would create an actual or
      potential conflict of interest. The foregoing provisions of this paragraph
      shall
      be in addition to any right that an Indemnified Person shall have at common
      law
      or otherwise. 

     

    Promptly
      after receipt by any Indemnified Person of notice of its involvement in any
      pending or threatened proceeding as to which, or related to or arising out
      of
      any matter for which, indemnification may be sought hereunder (an “Indemnified
      Proceeding”), such Indemnified Person shall, if a claim in respect thereof is to
      be made against the Company hereunder, notify the Company in writing of such
      involvement, provided, however, that the failure by such Indemnified Person
      to
      so notify the Company shall not relieve the Company from the obligation to
      indemnify or any other liability hereunder or otherwise except to the extent
      that such failure to provide notice prejudices the Company in any material
      respect. In case any Indemnified Person’s involvement in such Indemnified
      Proceeding shall be in any capacity other than as a witness, the Company and
      its
      counsel shall be entitled to participate therein with such Indemnified Person
      and its counsel. To the extent the Company wishes, the Company also shall be
      entitled to assume the defense of any Indemnified Proceeding with counsel of
      the
      Company’s choice that is reasonably acceptable to the relevant Indemnified
      Person and after notice from the Company to the Indemnified Person of the
      Company’s election so to assume the defense thereof, the Company will not be
      liable to such Indemnified Person for the cost of defense thereof.
      Notwithstanding the foregoing, the Company shall not be entitled to assume
      the
      defense of any Indemnified Proceeding, and the limitations in the proceeding
      sentence on its liability to any Indemnified Person shall not apply, if counsel
      to any Indemnified Person reasonably determines, and the Company’s counsel
      reasonably concurs, that there are actual or potential conflicts of interest
      between such Indemnified Person and the Company or that defenses available
      to
      such Indemnified Person may not be asserted by the Company on the behalf of
      such
      Indemnified Person. In any event, notwithstanding the foregoing, the Company
      shall not be liable for any settlement of any Indemnified Proceedings effected
      without your consent (which consent shall not be unreasonably withheld), but
      if
      settled with your written consent or if there is a final judgment for the
      plaintiff in any such Indemnified Proceedings, the Company agrees to indemnify
      and hold harmless each Indemnified Person from and against any and all losses,
      claims, damages, liabilities and expenses by reason of such settlement or
      judgment in accordance with the preceeding paragraph.

     

    
      
        
        

      

      
        C-4

        
          

        

      

      
        
        

      

    

     

    This
      Commitment Letter is addressed solely to the Company and is not intended to
      confer any obligations to or on, or benefits to or on, any third party. No
      Indemnified Person shall be liable for any damages arising from the use by
      others of Information or other materials obtained through internet, Intralinks,
      SyndTrak or other similar transmission systems in connection with the Credit
      Facility except to the extent that such liabilities have resulted from the
      gross
      negligence or willful misconduct of such Indemnified Person. In addition, no
      Indemnified Person shall be responsible or liable for special, indirect,
      consequential, exemplary, incidental or punitive damages which may be alleged
      as
      a result of this Commitment Letter.

     

    Except
      as
      required by applicable law, the Fee Letter executed concurrently herewith and
      the contents thereof shall not be disclosed by the Company or any of its
      affiliates to any third party without the prior consent of Wachovia, other
      than
      to Jazz and its affiliates, potential providers of subordinated debt to assist
      in financing the acquisition, and, in each case, to their respective attorneys,
      financial advisors and accountants. 

     

    The
      Company acknowledges and agrees that Wachovia and/or its affiliates may disclose
      information relating to the Credit Facility to industry and/or bank trade
      publications, including, without limitation, Gold Sheets, the ABF Journal,
      and
      the Secured Lender, with such information to consist of deal terms and other
      information customarily found in such publications (the “Publication
      Information”). The Company further acknowledges and agrees that Wachovia and/or
      its affiliates may use the Publication Information in its own pitchbooks and
      other marketing materials that are shared with other prospective customers,
      and
      may also reproduce and include in such materials the Company’s corporate logo,
      if any, in the form in which it appears on the Company’s Website on the date on
      which such materials are prepared. The Publication Information will not include
      any confidential information.

     

    This
      Commitment Letter will be of no force and effect unless a counterpart hereof
      and
      a counterpart of the Fee Letter are accepted and agreed to by the Company and,
      as so accepted and agreed to, received by Wachovia by 5:00 p.m. in Pasadena,
      California on September 26, 2006, as duly authorized, executed and delivered
      by
      the Company. The commitments of Wachovia under this Commitment Letter, if timely
      accepted and agreed to by the Company, will terminate upon the earlier of (i)
      the occurrence of any event that Wachovia reasonably believes in good faith
      has,
      or would be expected to have, a Material Adverse Effect (as defined below)
      and
      (ii) as of the close of business on March 31, 2007, if the initial borrowings
      under the Credit Facility have not occurred on or prior to such date. All
      indemnities and obligations of the Company and its subsidiaries and affiliates
      hereunder shall be joint and several and shall survive the termination of this
      Commitment Letter or the commitments of Wachovia hereunder. Following any
      termination hereof, the Credit Facility will require reapproval by the credit
      committee of Wachovia even if Wachovia and its counsel and other advisors
      continue to work on the transaction. Such reapproval, if obtained, may result
      in
      different terms or conditions, or the determination not to consummate the
      transaction. 

     

    
      
        
        

      

      
        C-5

        
          

        

      

      
        
        

      

    

     

    As
      used
      herein, the term “Material Adverse Effect” shall mean any change, event, effect,
      claim, circumstance or matter that (considered together with all other changes,
      effects, claims, circumstances or matters) has materially and adversely
      affected, or would reasonably be expected to materially and adversely affect
      the
      business, financial condition, properties, assets, liabilities or results of
      operations of the Company and its subsidiaries taken as a whole; provided,
      however,
      that
      none of the following, in and of itself, either individually or in the
      aggregate, shall be deemed to constitute a Material Adverse Effect: (i) any
      change or event attributable to conditions generally affecting the semiconductor
      wafer fabrication or semiconductor design industries in which Jazz participates,
      provided that such change or event does not have a materially disproportionate
      impact on the Company, Jazz or their subsidiaries, taken as a whole; (ii) any
      change or event attributable to conditions generally affecting the general
      economy as a whole, provided that such change or event does not have a
      materially disproportionate impact on the Company, Jazz and their Subsidiaries,
      taken as a whole; (iii) the failure of Jazz to meet its projections of earnings,
      revenues or other financial measures; (iv) the announcement of the acquisition
      agreement and the pendency of the Contemplated Transactions, including any
      impact thereof on relationships, contractual or otherwise, with customers,
      suppliers, distributors, consultants or employees; or (v) the taking by Jazz
      of
      any action required to be taken by Jazz by the acquisition agreement (other
      than
      actions taken by Jazz in the pre-closing period in violation of its negative
      covenants as contemplated by the acquisition agreement). “Contemplated
      Transactions” shall mean the transactions and other matters contemplated by the
      acquisition agreement, including the merger of the Company’s acquisition
      subsidiary with and into Jazz, the adoption of amendments to charter documents
      and the solicitation and obtaining of approvals for the contemplated
      transactions. 

     

    This
      Commitment Letter contains the entire commitment of Wachovia for this
      transaction and, upon acceptance by the Company, supersedes all prior proposals,
      commitment letter, negotiations, discussions and correspondence. This Commitment
      Letter may not be contradicted by evidence of any alleged oral agreement. No
      party has been authorized by Wachovia to make any oral or written statements
      inconsistent with this Commitment Letter.

     

    This
      Commitment Letter may be executed in any number of counterparts, each of which
      shall be an original, and all of which, when taken together, shall constitute
      one agreement. Delivery of an executed signature page of this Commitment Letter
      by facsimile transmission or other electronic means shall be effective as
      delivery of a manually executed counterpart hereof.

     

    This
      Commitment Letter may not be assigned by the Company without the prior written
      consent of Wachovia and may not be amended, waived or modified, except in
      writing signed by Wachovia and the Company. The commitment of Wachovia hereunder
      is subject to the condition that there shall not have occurred any material
      disruption or material adverse change in, or other condition with respect to,
      the United States financial and capital markets that materially impair the
      ability of Wachovia to syndicate the Credit Facility. Wachovia may terminate
      this Commitment Letter if, in Wachovia’s good faith judgment, any condition to
      the obligations of Wachovia and Lenders set forth in this Commitment Letter
      or
      in the proposed definitive documentation is or becomes incapable of
      satisfaction. This Commitment Letter is governed by and construed in accordance
      with the laws of the State of New York, without regard to principles of
      conflicts of law.

     

    
      
        
        

      

      
        C-6

        
          

        

      

      
        
        

      

    

     

    WACHOVIA
      AND THE COMPANY EACH WAIVES ITS RIGHT TO A JURY TRIAL IN ANY ACTION OR
      PROCEEDING ARISING OUT OF OR IN ANY WAY RELATING TO THIS COMMITMENT LETTER
      OR
      THE TRANSACTIONS REFERRED TO IN THIS COMMITMENT LETTER.

     

    If
      the
      Company accepts and agrees to the foregoing, please so indicate by executing
      and
      returning the enclosed copy of this letter for itself and its subsidiaries
      to
      Wachovia.

    
      
        
        

      

      
        C-7

        
          

        

      

       

    

     

    We
      look
      forward to continuing to work with you to complete this
      transaction.

     

    Very
      truly yours,

     

    
      	WACHOVIA
              CAPITAL
              FINANCE CORPORATION (WESTERN)	 	WACHOVIA
              CAPITAL
              MARKETS LLC
	 	 	 	 	 
	By:	/s/ Vicky
              L.
              Balmot	 	By:	/s/ Vicky
              L.
              Balmot
	Title:	
              
Managing
              Director	 	Title:	
              
Managing
              Director 
	 	
              
 	 	 	
              

            

    

     

    Accepted
      on this 26th day 

    of
      September, 2006:

     

    
      	
              ACQUICOR TECHNOLOGY, INC., 

              for itself and its subsidaries

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

            	 	 	 

    

    
      
        
        

      

      
        C-8

        
          

        

      

       

    

    EXHIBIT
      A

     

    Wachovia
      Capital Finance Corporation (Western) (“Wachovia”)

     

    $65,000,000
      Senior Secured Revolving Credit Facility

    (“Senior
      Credit Facility”)

     

    Summary
      of Proposed Terms and Conditions (“Term
      Sheet”)

     

    September
      26, 2006  

     

    
      	
              Borrowers:

            	 	
              Jazz
                Semiconductor, Inc. (the “Company”),
                an acquisition subsidiary of Acquicor Technology, Inc. (the “Parent”)
                and/or any operating subsidiaries of the Company that have eligible
                assets. 

            
	 	 	 
	
              Guarantors:

            	 	
              Parent
                and all domestic subsidiaries of the Company that are not Borrowers.
                

            
	 	 	 
	
              Sole
                Lead Arranger and Sole Bookrunner:

            	 	
              Wachovia
                Capital Markets, LLC (“WCM”).
                

            
	 	 	 
	
              Syndication
                Agent:

            	 	
              WCM.
                

            
	 	 	 
	
              Administrative
                Agent:

            	 	
              Wachovia
                Capital Finance Corporation (Western) (“Agent”).

            
	 	 	 
	
              Lenders:

            	 	
              Wachovia
                and other financial institutions selected by WCM.

            
	 	 	 
	
              Letter
                of Credit Issuer:

            	 	
              Wachovia
                Bank, National Association.

            
	 	 	 
	
              Credit
                Facility:

            	 	
              $65,000,000
                (the “Maximum
                Credit”)
                consisting of revolving loans (“Revolving
                Loans”),
                subject to the Borrowing Base and other terms described below (the
                “Revolving
                Loan Facility”).

               

              Revolving
                Loans may be drawn, repaid and reborrowed. 

            
	 	 	 
	Borrowing
              Base:	 	Revolving
              Loans and LCs
              may be provided subject to availability under the lesser of (a) the
              Borrowing Base, (b) the amount equal to the Maximum Credit minus
              $5,000,000, or (c) the amount equal to: (i) the Accounts Sublimit,
              plus
              (ii) the Equipment Sublimit, minus (iii)
              $5,000,000.

    

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    
      	
               

               

               

               

               

               

               

               

            	 	
              The
                Borrowing Base shall be calculated as follows:

               

              (a) 
                 the
                amount equal to the lesser of: (i) 85% multiplied by the net  amount
                of eligible accounts of Borrowers (less applicable reserves relating
                to
                Accounts), or (ii) the Accounts Sublimit; plus

               

              (b) 
                 the
                amount equal to the lesser of: (i) 70% multiplied by the “net  orderly
                liquidation value” of eligible equipment of Borrowers  determined
                in a “balanced market” (less reserves relating to Equipment), or (ii) the
                Equipment Sublimit, minus

               

              (c) 
                 $5,000,000,
                minus

               

              (d)
                 applicable
                reserves, to the extent not taken above.

               

              Notwithstanding
                the foregoing, and other than as provided in this Term Sheet, the
                definition of “Borrowing Base” shall not be less favorable to the
                Borrowers, taken as a whole, than the comparable definitions in the
                existing Loan and Security Agreement.

               

              The
                “Accounts Sublimit” shall mean the amount equal to
                $25,000,000.

               

              The
                “Equipment Sublimit” shall mean the amount equal to $50,000,000;
                provided,
                however,
                the Equipment Sublimit shall be reduced by: (a) $1,800,000 on each
                of
                January 31, 2007, April 30, 2007, July 31, 2007, and October 31,
                2007, (b)
                $2,100,000 on each of January 31, 2008, April 30, 2008, July 31,
                2008, and
                October 31, 2008, (c) $2,500,000 on each of January 31, 2009, April
                30,
                2009, July 31, 2009, and October 31, 2009, and (d) $24,400,000 on
                the
                third anniversary of the closing date; provided,
                further,
                that, to the extent the closing date is delayed beyond November 30,
                2006,
                the dates listed above will be adjusted by one month for each month
                or
                part thereof that the closing date is delayed. 

               

              The
                “net orderly liquidation value” of eligible equipment in a “balanced
                market” will initially be determined as those terms have been used and per
                the valuations set forth in Emerald March 2006 appraisal, as may
                be
                required to be updated pursuant to this term sheet, and on a going
                forward
                basis in form and containing assumptions and appraisal methods
                satisfactory to Agent by an appraiser acceptable to Agent, on which
                Agent
                and Lenders are specifically permitted to rely.

               

            
	
              Eligibility:

            	 	
              Criteria
                for determining eligible accounts and eligible equipment will be
                in
                accordance with Agent’s past practices as of the Closing Date and on a
                going forward basis in accordance with customary practices and as
                appropriate under the circumstances as determined by Agent pursuant
                to its
                standard field examinations and other due diligence.

               

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      	
              Letters
                of Credit:

            	 	
              Up
                to $5,000,000 of the Revolving Loan Facility, subject to the Borrowing
                Base and the other terms described herein, will be available for
                the
                issuance of letters of credit arranged for by Agent (“LCs”).

               

            
	
              Interest
                and Fees:

            	 	
              See
                the Fee Letter.

               

            
	
              Collateral:

            	 	
              First
                priority perfected security interests and liens to secure all obligations
                of Borrowers and Guarantors to Agent and Lenders upon all of each
                Borrower’s and Guarantor’s present and future assets, including all
                accounts, general intangibles, chattel paper, documents, instruments,
                supporting obligations, letters of credit, letter-of-credit rights,
                deposit accounts, investment property, inventory, equipment, fixtures
                and
                owned real property, and all products and proceeds thereof (the
                “Collateral”).
                The obligations secured may include hedging and bank product obligations
                of for the benefit Borrowers and Guarantors as selected by the
                Company.

               

              Prior
                to the closing of the transaction set forth herein, Borrowers and
                Guarantors agree that Agent, for the benefit of itself and Lenders,
                is
                irrevocably and unconditionally authorized to file UCC financing
                statements naming Agent, for the benefit of itself and Lenders, as
                secured
                party and each Borrower and each Guarantor as debtor with respect
                to the
                Collateral.

            
	 	 	 
	
              Use
                of Proceeds:

            	 	
              Satisfaction
                of the outstanding obligations of Borrowers and Guarantors to Wachovia
                under the existing secured working capital financing to Borrowers
                and
                Guarantors, acquisition consideration to be paid by Parent or the
                Company
                as part of Parent’s acquisition of the Company at Closing, costs, expenses
                and fees in connection with the Credit Facility and such acquisition,
                for
                working capital of Borrowers and other proper corporate
                purposes.

               

            
	
              Term:
                

            	 	
              Three
                (3) years from the date of closing.

               

            
	Documentation:	 	Definitive
              loan
              documentation (collectively, the "Loan Documents”), including, without
              limitation, a loan and security agreement, supplemental security
              agreements, mortgages, pledge agreements, guarantees, control agreements,
              intercreditor agreements, UCC financing statements, collateral access
              agreements for leased and third party locations, opinion letters of
              counsel to Borrowers and Guarantors, and related documents, each in
              form
              and substance satisfactory to Agent.

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	
               

            	 	
              All
                of the Loan Documents will be prepared using the existing loan documents
                as a base with such changes as shall be mutually agreed and without
                Agent,
                Lenders, Borrowers or Guarantors having hereby agreed to any particular
                provision in the existing loan documents. The Loan Documents shall
                be
                approved by Agent and counsel to Agent and incorporate Agent’s customary
                terms and provisions, including, without limitation, the absence
                of any
                default as a condition to all Revolving Loans and LCs and the right
                to
                establish reserves against loan availability and such other provisions
                as
                may be required in the context of the transactions contemplated hereby.
                The right of Agent to establish reasonable reserves will be in accordance
                with its customary practices and as may be customary under the
                circumstances based on its field examination, scheduled collateral
                reviews
                and updated information received after the acceptance of the Commitment
                Letter.

               

              The
                loan documentation will also provide that Lenders may assign loans
                and
                commitments and/or sell participations in the Credit
                Facility.

               

            
	
              Representations
                and Warranties:

            	 	
              Usual
                and customary for facilities of this nature, subject to materiality
                and
                other negotiated limitations, including, but not limited to,
                representations and warranties concerning: the Collateral; corporate
                existence and good standing, power and authority; accuracy of financial
                information; absence of circumstances giving rise to a Material Adverse
                Effect (as defined in the Commitment Letter) (to be given at closing);
                absence of material adverse change in the assets, business or prospects
                of
                Borrowers and Guarantors (to be given each time the representations
                and
                warranties are brought down, including with each borrowing); locations
                of
                jurisdiction of incorporation, chief executive office and Collateral;
                priority of Agent’s security interests; ownership of properties, and
                absence of other liens (except as specifically agreed to by Agent);
                filing
                of tax returns and payment of taxes; absence of material litigation
                or
                investigations; compliance with other agreements and applicable law,
                regulation, etc.; identification of bank accounts; intellectual property
                matters; identification of subsidiaries; matters related to the capital
                stock of the Borrowers and their subsidiaries; solvency of the Borrowers;
                matters related to labor disputes; absence of certain restrictions
                on the
                Borrowers and Guarantors; identification of material contracts; absence
                of
                changes in accounts payable practices; environmental matters; employee
                benefit matters; accuracy and completeness of information furnished
                to
                Agent; survival and continuing nature of representations and warranties.
                The representations and warranties will be substantially similar
                to those
                in the existing loan documents with modifications as applicable to
                comply
                with the terms of this Commitment Letter.

               

            

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	
              Financial
                Covenants:

            	 	
              Financial
                Covenants will be determined by mutual agreement but be of types
                and set
                at levels no more restrictive than the most senior of all third-party
                subordinated debt provided as part of the financing of the acquisition
                consideration and will, if no comparable covenant is applicable to
                such
                subordinated debt, include a minimum earnings before interest, taxes,
                depreciation and amortization covenant.

               

              The
                financial covenants referred to above will only be applicable at
                any time
                after the sum of excess availability plus qualified cash is less
                than
                $10,000,000.

               

            
	
              Affirmative
                Covenants:

            	 	
              Usual
                and customary for facilities of this nature, including, but not limited
                to: maintenance of corporate existence and rights; requirements for
                new
                locations; compliance with laws; performance of obligations; maintenance
                of properties in good repair; maintenance of appropriate and adequate
                insurance; Agent’s rights to inspect books and properties; payment of
                taxes and claims; delivery of financial statements, financial projections
                and other information; collateral reporting, notices and appraisal
                requirements; and further assurances. The affirmative covenants will
                be
                substantially similar to those in the existing loan documents with
                modifications as applicable to comply with the terms of this Commitment
                Letter.

               

              Collateral
                reporting will include a monthly borrowing base report in form
                satisfactory to Agent, with monthly summaries as to accounts and
                equipment
                disposed of during the period, or more frequently as Agent may from
                time
                to time reasonably request.

               

            
	
              Negative
                Covenants:

            	 	
              Usual
                and customary for facilities of this nature, subject to negotiated
                exceptions and limitations, including, but not limited to, limitations
                on:
                dividends, redemptions and repurchases of capital stock; incurrence
                of
                debt (including capital leases) and guarantees; repurchases or prepayment
                of debt; creation or suffering of liens; loans, investments and
                acquisitions; affiliate transactions; changes in business conducted;
                asset
                sales, mergers and consolidations; restrictions affecting subsidiaries;
                etc. The negative covenants will be substantially similar to those
                in the
                existing loan documents with modifications as applicable to comply
                with
                the terms of this Commitment Letter.

               

            
	
              Events
                of Default:

            	 	
              Usual
                and customary for facilities of this nature, subject to negotiated
                exceptions and limitations, to include, but not be limited to payment
                and
                performance defaults under any of the loan documentation, cross-defaults
                to other indebtedness and documents, breach of representations and
                warranties, insolvency, voluntary and involuntary bankruptcy, judgments
                and attachments, revocation of any guaranty, dissolution and change
                in
                control. The events of default will be substantially similar to those
                in
                the existing loan documents with modifications as applicable to comply
                with the terms of this Commitment Letter.

               

            

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
      	
              Waivers:

            	 	
              To
                include, but not be limited to a waiver by Agent, Lenders and Borrowers
                and Guarantors of their rights to jury trial; waiver by Borrowers
                and
                Guarantors of claims for special, indirect or consequential damages
                in
                respect any breach or alleged breach by any Agent or any Lender of
                any of
                the Loan Documents.

               

            
	
              Conditions:

            	 	
              The
                closing of the Credit Facility will be subject to the satisfaction,
                in a
                manner acceptable to Agent, of those conditions precedent customarily
                required by Agent in similar financings, including, without limitation,
                the following:

               

            
	
              (a)

               

               

               

               

               

               

            	 	
              Receipt
                by Agent of all financial information, projections, budgets, business
                plans, cash flows and such other information as Agent shall request
                from
                time to time, including (i)
                projected monthly balance sheets, income statements, statements of
                cash
                flows and availability of Borrowers for the period through the end
                of the
                2007 fiscal year, (ii)
                projected annual balance sheets, income statements, statements of
                cash
                flows and availability of Borrowers and Guarantors through the end
                of the
                2011 fiscal year, in each case as to the projections described in
                clauses
                (i) and (ii), with the results and assumptions set forth in all of
                such
                projections in form and substance satisfactory to Agent, and an opening
                pro forma balance sheet for Borrowers and Guarantors in form and
                substance
                reasonably satisfactory to Agent, (iii)
                any updates or modifications to the projected financial statements
                of the
                Company and its subsidiaries previously received by Agent, in each
                case in
                form and substance reasonably satisfactory to Agent and (iv)
                current agings of receivables, current perpetual inventory records
                and/or
                rollforwards of accounts and inventory through the date of closing,
                together with supporting documentation.

               

            
	
              (b)

               

            	 	
              This
                transaction and the events contemplated herein must close by December
                31,
                2006; provided,
                however,
                Agent receives each of the following: (i) not more than two weeks
                prior to
                the closing date, a written update to the Emerald March 2006 appraisal
                which (A) confirms there is not a decline of more than 10% in the
                balanced
                market values since the March 2006 appraisal, and (B) provides an
                update
                on current industry conditions, (ii) updated field examinations of
                the
                business and collateral of Borrowers and Guarantors in accordance
                with
                Agent’s customary procedures and practices and as otherwise required by
                the nature and circumstances of the businesses of Borrowers and
                Guarantors, and (iii) evidence, satisfactory to Agent, that Borrowers’
                year-to-date EBITDA as of August 31, 2006 is at least $15,000,000.
                Such
                date may be extended until March 31, 2007, if delivery to Agent of
                the
                following: (i) a full inventory appraisal satisfactory to Agent by
                Emerald
                which confirms there is not a decline of more than 10% in the balanced
                market values since the March 2006 appraisal, and (ii) a full field
                examination of the business and collateral of Borrowers and Guarantors
                satisfactory to Agent and in accordance with Agent’s customary procedures
                and practices and as otherwise required by the nature of the businesses
                of
                Borrowers and Guarantors, and (iii) evidence, satisfactory to Agent,
                that
                Borrowers’ year-to-date EBITDA (x) as of November 30, 2006 is at least
                $18,000,000, if the closing occurs before February 1, 2007, or (y)
                as of
                December 31, 2006 is at least $20,000,000, if the closing occurs
                on or
                after February 1, 2007.

               

            

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	
              (c)

               

            	 	
              Execution
                and delivery of loan documents, all in form and substance satisfactory
                to
                Agent. The loan documents will include, among other documents, a
                loan
                agreement, security agreements, guarantees, UCC financing statements,
                intercreditor agreements, control agreements, and opinion letters
                of
                counsel and including all consents, waivers, acknowledgments and
                other
                agreements from third persons that Agent may deem necessary or desirable,
                in form and substance satisfactory to Agent and including delivery
                to
                Agent of evidence of insurance coverage and a lender’s loss payee
                endorsement in favor of Agent as to casualty and business interruption
                insurance, each of the foregoing in form and substance satisfactory
                to
                Agent. 

               

            
	
              (d)

               

            	 	
              Agent,
                for the benefit of itself and Lenders, shall hold perfected, first
                priority security interests in and liens upon the Collateral and
                Agent
                shall have received such evidence thereof as it requires.

               

            
	
              (e)

               

            	 	
              Minimum
                opening excess availability plus qualified cash at closing (a) after
                the
                application of proceeds of (i) the initial Revolving Loans, (ii)
                the cash
                equity contributions and (iii) the junior debt and (b) after provision
                for
                payment of the acquisition costs and all fees and expenses of the
                transaction, shall not be less than $30,000,000.

               

              The
                term "excess availability" as used in this Term Sheet means the result
                of:
                (a) lesser of: (i) the Borrowing Base, (ii) the amount equal to the
                Maximum Credit minus $5,000,000, or (iii) the amount equal to: (A)
                the
                Accounts Sublimit, plus (B) the Equipment Sublimit, minus (C) $5,000,000;
                minus (b) outstanding obligations under the loan documents; minus
                (c) past
                due payables in accordance with Agent’s customary practices.

               

            

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
      	
              (f)

               

            	 	
              Agent
                shall have received Deposit Account Control Agreements in respect
                of
                accounts where Borrowers have deposit accounts (other than deposit
                accounts specifically swept for payroll, taxes, benefits and the
                like).
                Agent shall have received an Investment Property Control Agreement
                with
                respect to any investment account, securities account, commodity
                account
                or other similar account existing on the date of closing held by
                or in the
                name of any Borrower.

               

            
	
              (g)

               

            	 	
              No
                material misstatements in or omissions from the materials previously
                furnished to Agent by Borrowers and Guarantors.

               

            
	
              (h)

               

            	 	
              No
                defaults or events of default on the closing date under the loan
                documents
                for the Credit Facility or on any other debt or any material contract
                of
                Borrowers or Guarantors shall exist.

               

            
	
              (i)

               

            	 	
              No
                Material Adverse Effect (as defined in the Commitment Letter), and
                no
                material pending or threatened, litigation, proceeding, bankruptcy
                or
                insolvency, injunction, order or unpaid judgments with respect to
                Borrowers and Guarantors shall exist which would constitute a default
                or
                event of default, which has not been cured or waived, under the existing
                loan agreement with the Company. No Event of Default exists or has
                occurred and is continuing, which has not been cured or waived, under
                the
                existing loan agreement with the Company.

               

            
	
              (j)

               

            	 	
              Agent
                shall have received evidence, in form and substance satisfactory
                to Agent,
                that at least $150,000,000 has been distributed and made available
                to
                Borrowers from a trust account established by the Company (the
                “Equity
                Contribution”).

               

            
	
              (k)

            	 	Borrowers
              shall have
              either (i) entered into second lien and/or mezzanine loan agreements
              in
              form and substance satisfactory to Agent, pursuant to which Borrowers
              have
              obtained financing or (ii) entered into that Shareholder Term B Loan
              or
              Shareholder Mezzanine Loan as defined and described in the Agreement
              and
              Plan of Merger approved by WCM and Agent, in either case with lenders
              (the
              “Junior
              Lenders”)
              in an amount not less than $75,000,000; provided
              that such amount may be reduced on a dollar for dollar basis with the
              equivalent increase of the Equity Contribution. WCM and Agent agree
              the
              Shareholder Term B Loan or Shareholder Mezzanine Loan
              may be refinanced at any time with equity or subordinated debt with
              terms
              not more burdensome, taken as a whole, to Borrowers or Lenders than
              the
              debt so refinanced. The loan documentation will include provisions
              relating to the prepayment of the Shareholder Term B Loan and Shareholder
              Mezzanine Loan from Borrower’s excess cash flow and the proceeds of asset
              sales, subject to mutually agreeable terms and conditions, including,
              without limitation, no default or event of default exists or will exist
              after giving effect to such prepayment, the sum of excess availability
              and
              qualified cash after giving effect to such prepayment shall equal or
              exceed an amount to be mutually agreed upon and other mutually agreeable
              terms.

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
      	
               

               

            	 	
              Wachovia
                agrees that the pricing terms of the Shareholder Loan, as described
                in the
                Agreement and Plan of Merger, are acceptable to Agent. The other
                terms and
                conditions of the Shareholder Loan, not specifically defined in the
                Agreement and Plan of Merger, shall be in form and substance reasonably
                satisfactory to Agent. Agent acknowledges that such terms and conditions
                may be consistent with market terms and conditions for similar loans
                with
                third-party lenders.

               

            
	
              (l)

               

            	 	
              Agent
                shall have entered into intercreditor agreements with the Junior
                Lenders,
                in form and substance reasonably satisfactory to Agent.

               

            
	
              (m)

               

            	 	
              Evidence,
                in form and substance satisfactory to Agent, that Borrowers have
                obtained
                all necessary corporate governance, regulatory and SEC approval in
                connection with the acquisition of Borrowers which will be consummated
                substantially concurrently with the closing of the Credit Facility.
                Any
                amendments or modifications to the Agreement and Plan of Merger governing
                the acquisition of Borrowers, made after the date of execution of
                such
                agreement, shall be in form and substance satisfactory to
                Agent.

               

            
	
              (n)

               

            	 	
              Agent
                shall have received completed background checks with respect to Borrowers’
                and Guarantors’ prospective senior management, the results of which are
                satisfactory to Agent.

               

            
	
              (o)

               

            	 	
              For
                verification purposes as part of the measures required by Agent pursuant
                to the US Patriot Act, Agent shall have received all information
                that
                Agent requests concerning each Borrower’s and each Guarantor’s identity,
                the results of which are satisfactory to Agent. 

               

            
	
              (p)

            	 	
              Agent
                shall have received payment of the fees and commissions due under
                the loan
                documents through the date of closing and, to the extent invoiced,
                expenses incurred by Agent through such date and required to be paid
                by
                the Borrowers, including all legal expenses, to the extent invoiced,
                incurred through the date of closing.

               

            

    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      	
              (q)

            	 	
              Wachovia
                agrees that within thirty (30) days of its receipt of (i) the projections
                referred to in subsection (a) of the Conditions section of this Term
                Sheet
                and (ii) the background checks contemplated in subsection (n) of
                the
                Conditions section of this Term Sheet, it will advise Borrowers whether
                the condition that such items be acceptable to Agent in form and
                substance
                has been satisfied.

               

            
	
              Governing
                Law:

            	 	
              California
                (without regard to conflicts of laws).

               

            
	
              Expenses
                and Indemnity:

            	 	
              Borrowers
                and Guarantors will reimburse Agent, WCM and Lenders for all reasonable
                out-of-pocket expenses, including due diligence and audit and appraisal
                expenses and legal fees incurred in the structuring, negotiation,
                arrangement, restructuring, administration or amending of the Credit
                Facility.

               

              Borrowers
                and Guarantors shall indemnify and hold harmless Agent and Lenders
                and
                their respective directors, officers, agents, representatives and
                employees from and against all losses, claims, damages, expenses,
                or
                liabilities including, but not limited to, legal or other expenses
                incurred in connection with investigating, preparing to defend, or
                defending any such loss, claim, damage, expenses or liability, incurred
                in
                respect of the Credit Facility or the relationship between Agent
                or any
                Lender and any Borrower or any Guarantor, except as to any such indemnitee
                as a result of the gross negligence or wilful misconduct of such
                indemnitee.

            
	 	 	 
	
              USA
                PATRIOT Act:

            	 	
              Each
                Lender subject to the USA PATRIOT Act (Title III of Pub.L. 107-56
                (signed
                into law October 26, 2001) (the “Act”) hereby notifies Borrowers and
                Guarantors that pursuant to the requirements of the Act, it is required
                to
                obtain, verify and record information that identifies each person
                or
                corporation who opens an account and/or enters into a business
                relationship with it, which information includes the name and address
                of
                each Borrower and each Guarantor and other information that will
                allow
                such Lender to identify such person in accordance with the Act. Borrowers
                and Guarantors are hereby advised that this commitment is subject
                to
                satisfactory results of such
                verification.

            

    

    

    Each
      term
      used but not defined in this Exhibit A shall have the meaning assigned to such
      term in the Commitment Letter to which this Exhibit A is attached.

     

    This
      Summary of Principal Terms and Conditions is not meant to be, nor shall it
      be
      construed as an attempt to describe all of, or the specific phrasing for, the
      provisions of the documentation. Rather, it is intended only to outline
      principal terms to be included in the Loan Documents.

     

    
      
        
        

      

      
        10

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}]]