Document:

exv10w1

Exhibit 10.1

Memorandum of Understanding

for Settlement and Debt Conversion Agreement

     This Memorandum of Understanding (“Agreement”) is entered into by and among Irvine Sensors
Corporation (the “Company”), Optex Systems, Inc. (“Optex- Texas”) and Longview Fund, LP and Alpha
Capital Anstalt (collectively, “Lenders”) as of September 19, 2008.

1. Global Settlement. The Parties are entering into this Agreement to effect a global
settlement and restructuring of the Obligations (as described below), with the intent that a
portion of the Obligations shall be extinguished by the Lenders as a result of a public
foreclosure sale of the assets of Optex-Texas at which the Lenders shall make an agreed minimum
credit bid as set forth in Section 4.3 below and the remaining portion of the Obligations shall be
converted into a new class of convertible preferred stock (“Convertible Preferred Stock”) of the
Company as set forth in Section 5 below as soon as the Company is permitted to issue such
securities in compliance with the listing requirements of Nasdaq. The Convertible Preferred Stock
shall be substantially the same as the Company’s Series A-1, except that the conversion rate shall
be as set forth in Section 5.2 below. The parties intend that this Agreement be legally binding,
but that the parties shall promptly negotiate in good faith a definitive Settlement and Debt
Conversion Agreement (“Settlement Agreement”) that will supersede this Agreement. The Parties
intend to execute the Settlement Agreement on or before September 26, 2008.

2. The Obligations.

     2.1 The Obligation Amount and Security. The total of the principal, interest and
related amounts owed by the Company to the Lenders as of August 24, 2008, is $18,357,844
(collectively, the “Obligations”). The Obligations do not include the contingent notes payable to
Lenders in the original principal amount of $1.15 million, which notes will be cancelled in
accordance with their terms upon discharge of the Obligations as set forth herein. The Company
acknowledges that the amount of the Obligations shall be increased to include all interest after
August 24, 2008. The amount of accrued interest only shall increase the Obligations and shall be
added to the Second Conversion Amount (as defined below). The Obligations including any accrued
interest thereon have been guaranteed by Optex-Texas (the “Optex-Texas Guaranty”), and the
Optex-Texas Guaranty is secured by the assets of Optex-Texas as described below. As used herein the
term “Loan Documents” shall include all the existing loan documents evidencing or relating to the
Obligations, any security agreement relating thereto, or any guaranty thereof.

     2.2 Surviving Obligations. The Company acknowledges that the Obligations do not
include (i) any amounts currently owed to the Lenders pursuant to the Loan Documents arising under
the Company’s indemnification obligations under the Loan Documents, or (ii) any amounts for
expenses, including attorneys fees, incurred or to be incurred by the Lenders in connection with
this MOU or the implementation of any of the restructuring transactions or enforcement actions
contemplated hereby. Any liabilities of the Company to the Lenders for expense reimbursement or
indemnification shall be accrued as an expense on the Company’s balance sheet and paid pursuant to
terms to be agreed upon in the Settlement Agreement. The Company further acknowledges that it has a
continuing obligation and duty to indemnify, hold harmless and defend the Lenders and to pay any
amounts or liability incurred by Lenders as provided in the existing indemnification provisions in
the Loan Documents which shall survive this Agreement, including, but not limited to, any
indemnification obligations related to the duty to defend any litigation or other matters involving
Timothy Looney or TWL Group L.P. Notwithstanding the foregoing upon, the completion of the
conversion into the Convertible Preferred Stock of the Second Conversion Amount, the
indemnification obligations under the Loan Documents shall be discharged and

 

 

replaced with comparable indemnification obligations in the Settlement Agreement, which shall be
retroactive to include the dates covered by the indemnification obligations in the Loan Documents.
 

3. Events of Defaults and Forbearance.

     3.1 Events of Default. The Company may be in default under certain of the covenants
and provisions of the Loan Documents, pursuant to which the Lenders may have the right to
accelerate its Obligations under the Loan Documents. The Lenders intend to deliver to the Company
and Optex-Texas a notice of the occurrence of an event of default and acceleration under the Loan
Documents and the notice of the exercise of remedies described in Section 4.3 below.

     3.2 Forbearance. The Lenders hereby agree from and after the date of execution of this
Agreement until the conversion into equity of the Second Conversion Amount to forbear in the
exercise of any rights or remedies, whether granted in the Loan Documents or under law, with
respect to the Company or any of its assets (the “Forbearance Period”), other than the exercise of
the Permitted Remedies. As used herein, the “Permitted Remedies” shall be limited solely to (i) the
exercise of the Lenders rights and remedies under applicable law to conduct a public foreclosure
sale as to all collateral securing the Optex-Texas Guaranty pursuant to the terms of Section 4.5
below and (ii) to enforce the terms of this Agreement and (iii) to obtain the benefits of the
continuing indemnification obligations of the Company to Lenders as described in Section 2.2. The
Forbearance Period shall terminate automatically upon the occurrence of any of the following
events: (i) the commencement by the Company or Optex-Texas of a voluntary proceeding seeking relief
with respect to itself or its debts under any bankruptcy, insolvency or similar law, or seeking
appointment of a trustee, receiver, liquidator or other similar official for it or any substantial
part of its assets; or its consent to any of the foregoing in any involuntary proceeding against
it; or makes an assignment for the benefit of, or the offering to or entering into by. the Company
or Optex-Texas of any reorganization with its creditors, (ii) commencement of an involuntary
proceeding against the Company or Optex-Texas of the kind described in clause (i) above; (iii) the
Company or Optex-Texas makes any payment on account of the obligations owed to Looney on TWL Group,
L.P., (iv) Looney or TWL Group, L.P. take any judicial actions to impede the foreclosure against
the Optex Texas Collateral described in Section 4.3 below, or (v) 180 days after the date hereof.

4. Foreclosure on Assets of Optex-Texas.

     4.1 Senior Security Interest. The Optex-Texas Guaranty is secured by a first
priority, perfected security interest in the assets of Optex-Texas (“Optex-Texas Collateral”),
which is senior to the claims of other creditors, including the TWL Group, L.P. loan of $2,000,000
(the “TWL Loan”), which has been subordinated to the Obligations pursuant to a Subordination
Agreement dated as of January 17, 2007 and for which a payment blockage notice has been sent by the
Lenders.

     4.2 Limitations on Use of Optex-Texas Collateral. Pursuant to the terms of the Loan
Documents, the Lenders have the right to seize or obtain control of, and to use, operate, consume
and sell the Optex-Texas Collateral in its possession as appropriate. During the Forbearance
Period and pending the exercise of the remedies described in Section 4.3 below, the Company shall
continue to operate Optex-Texas in the ordinary course of business with the intent of safeguarding
the Optex-Texas Collateral and preserving the value of Optex-Texas as a going concern.

     4.3 Foreclosure Process. The Lenders (or the Collateral Agent at the direction of
the Lenders) shall provide timely notice under the New York Uniform Commercial Code (“NY UCC”) and
any other applicable laws of a public sale under the NY UCC, in which the Lenders, or an entity
controlled by Lenders, will credit bid not less than $15,000,000 of the Obligations (the
“Optex-Texas Allocation Amount”). The Company agrees not to object to the exercise of these
remedies by the

-2-

 

Lenders. Except as provided in Section 5 below, the Lenders hereby waive any right to seek
any deficiency against the Company in connection with the Optex-Texas Collateral or Optex-Texas
Allocation Amount with the intent that the full amount of the Optex-Texas Allocation Amount shall
be indefeasibly discharged and extinguished upon Lenders’ indefeasible receipt of the Optex-Texas
Collateral in connection with such foreclosure proceedings.

     4.4 Post Closing Relationship. If the Lenders, or an entity controlled by the
Lenders (“Optex-Delaware”), acquires the Optex-Texas Collateral at the public sale, they will agree
(a) to provide access to its books and records to the extent reasonably necessary for the Company
to prepare financial statements, tax returns or comply with its SEC reporting duties or SOX
obligations and (b) to negotiate in good faith with the Company regarding (i) a contract
manufacturing relationship under which Optex-Delaware will manufacture products for the Company and
(ii) a consulting arrangement under which the Company will facilitate transition of government
contracts or assist in possible renegotiation of government contracts or otherwise assist in the
transition of operations to Optex-Delaware.

In addition, Optex-Delaware shall acquire all of the assets of Optex-Texas and none of the
liabilities, with the exception of the specific liabilities set forth on Schedule A
attached hereto (provided that Schedule A shall be updated immediately prior to the
date of the foreclosure sale to reflect amounts that were incurred in the ordinary course of
business consistent with past practices after the date of the attached Schedule A and are
approved in writing by the Lenders with Lenders reserving the right to reject any liability in
their sole discretion.) . Except as expressly provided in Schedule A , Lenders or Optex-Delaware
shall not assume or be obligated to pay any other liabilities of Optex-Texas, including without
limitation, the TWL Loan, any obligation or debt owed by Optex-Texas to the Company, any tax
liability or any tort claim asserted against Optex-Texas.

The Company, Optex-Texas and Optex-Delaware shall cooperate and use commercially reasonable efforts
to cause the assignment, as determined by Optex-Delaware is its sole discretion, of any contract,
real or personal property lease, government contract, any other contract right, or any permit or
license right not acquired by Optex-Delaware as a result of the foreclosure sale.

5. Debt Conversion.

     5.1 Amount of Obligations. The portion of the Obligations remaining after the
Optex-Texas Allocation Amount has been applied under Section 4.3 above (including any accrued
interest and other related amounts since the date of this Agreement shall be converted into the
Company’s Convertible Preferred Stock as described below. The initial $1.0 million amount of the
Obligations to be converted is referred to as the “Initial Conversion Amount”. The remaining
amount of the Obligations that may be converted after the Initial Conversion Amount is referred to
as the “Second Conversion Amount.”

     5.2 Securities to be Issued. The Company shall issue Convertible Preferred Stock of
the Company in consideration of the cancellation and indefeasible discharge of the Initial
Conversion Amount and the Second Conversion Amount. During the period preceding the issuance of the
Convertible Preferred Stock, the Initial Conversion Amount and the Second Conversion Amount shall
remain outstanding, but shall be subordinated to the New Debt Facility and the Bridge Notes as
described in Section 5.5 below. The Convertible Preferred Stock shall be convertible into shares
of the Company’s Common Stock at a conversion price equal to the price per share of Common Stock
issued pursuant to the Equity Offering described in Section 5.4 below. In the event that the
Equity Offering is not consummated within 180 days after the date hereof, then such conversion
price shall be set at the lowest price offered in the Equity Offering, if such price is
determinable. If such price is not determinable, then the conversion price shall be equal to the
fair market value (as determined in accordance with Nasdaq’s rules) of the Company’s Common Stock
immediately preceding the issuance of the Convertible Preferred Stock, but

-3-

 

the conversion price shall be subject to ratchet anti-dilution adjustment for one year following
the date of issuance of the Convertible Preferred Stock in the event of subsequent issuances of
Common Stock at a purchase price below the Convertible Preferred Stock (other than issuances in
connection with any of the Company’s existing benefit plans). The Convertible Preferred Stock
shall be issued concurrently with the shares of Common Stock issued pursuant to the Equity Offering
or if no such closing occurs, then at a mutually agreed upon time. The conversion of the
Convertible Preferred Stock shall be subject the same conversion blocker as set forth in the
Certificate of Designation for the existing Series A-1 Preferred Stock.

     5.3 Bridge Offering. The Company intends to raise $1.0 million through the issuance of
secured promissory notes (“Bridge Notes”) as soon as possible following the execution of this
Agreement (the “Bridge Offering”). The Lenders hereby consent to the Bridge Offering and shall
execute all the documentation necessary to effect the conversion of the Initial Conversion Amount
into the Convertible Preferred Stock with the sole condition precedent being the consummation of
the Bridge Offering.

     5.4 New Debt Facility and Equity Offerings. The Company also intends to obtain
additional capital by either (i) securing a new debt facility with net proceeds of at least $2.0
million (the “New Debt Facility”) or (ii) completing an equity offering with net proceeds of at
least $2 million (the “Equity Offering”). The Lenders hereby consent to the New Debt Facility and
the Equity Offering and agree to execute all the documentation necessary to effect the conversion
of the Second Conversion Amount into the Convertible Preferred Stock with the sole condition
precedent being the consummation of either the New Debt Facility or the Equity Offering with net
proceeds of at least $2.0 million. Until December 31, 2009, the Lenders shall have the right, but
not the obligation, to proportionately purchase Common Stock from the Company in one or more
tranches for the aggregate amount of up to $1.0 million subject to Nasdaq approval, if required.
The purchase price of the Common Stock shall be the closing price of the Common Stock on the day
immediately preceding the date of the purchase of such Common Stock.

     5.5 Intercreditor Matters. The Lenders agree to execute appropriate documentation
in order to effectuate the following priority among the classes of the Company’s debt:

	 	 	 
	Upon closing of Bridge Debt:

	 	Upon closing of New Debt Facility:
	 
	 	 
	1. Bridge Debt

	 	1. New Debt Facility
	 
	 	 
	2. Initial Conversion Amount and
Second Conversion Amount (pari
passu) until converted

	 	2. Bridge Debt
	 
	 	 
	3. Optex-Texas Allocation Amount

	 	3. Initial Conversion Amount and
Second Conversion Amount (pari passu)
until converted

The documents to be executed shall include: one or more intercreditor agreements for the benefit of
the holders of the Bridge Notes and the New Debt Facility subordinating the lien in the collateral
of the Original Lenders to the lien in the collateral of the Bridge Note Lenders and the New Debt
Facility lenders and subordinating the Initial Conversion Amount and Second Conversion Amounts and
Optex Texas Allocation Amount to accomplish the priority set forth in the table above and
providing for payment blockage and remedy standstill provisions. For purposes of this Section 5.5,
‘Collateral’ shall not include any interest of the Company in the equity of Optex-Texas, nor the
Optex-Texas Collateral. The

-4-

 

replacement indemnification provisions described in Section 2.2 shall not be subordinate to the
Bridge Debt and New Debt Facility.

6. Release and Waiver

     Concurrent with the closing of the Equity Offering and the conversion of the Initial
Conversion Amount and Secondary Conversion Amount, and with the exception of any rights that arise
under this Agreement, the Settlement Agreement or any other agreements contemplated therein and the
Surviving Obligations set forth in Section 2.2, the parties shall execute a complete release and
waiver of any and all claims they may have against the others relating to the Obligations and the
Lenders shall release all of their liens and security interests in any of the assets of the Company
and its subsidiaries. Notwithstanding the forgoing, (1) the obligations of the parties set forth in
this Agreement and in the Settlement Agreement shall not be affected by the foregoing and (2) the
effectiveness of any releases, the satisfaction of the Obligations in whole or in part, the debt
conversion set forth in Section 5 and any other modification of the rights and duties of the
parties existing prior to this Agreement shall not become effective until, and are all expressly
conditioned on, the final completion of the Lenders’ foreclosure on the Optex-Texas Collateral. 
The agreements set forth herein shall be null and void and the rights and obligations of the
parties existing prior to this Agreement shall be restored as if this Agreement had not existed
in the event the Lenders’ foreclosure on the Optex-Texas Collateral for any reason cannot be
completed, is stayed, is set aside, is rescinded or is otherwise voided by judicial process or
otherwise. 

-5-

 

	 	 	 	 	 	 	 	 	 
	Agreed & Accepted:	 		 	 	 	 
	 
	 	 	 	 	 	 	 	 
	LONGVIEW FUND, L.P.	 	 	 	IRVINE SENSORS CORPORATION
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Wayne Coleson	 	 	 	By:	 	/s/ John J. Stuart, Jr.
	 

	 	 
	 	 	 	 	 	 
	Title:

	 	Chief Investment Officer 	 	 	 	Title:	 	Senior Vice President and Chief
Financial Officer 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ALPHA CAPITAL ANSTALT	 	 	 	OPTEX SYSTEMS, INC. (a Texas Corporation)
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Konrad Ackerman 	 	 	 	By:	 	/s/ John J. Stuart, Jr. 
	 

	 	 
	 	 	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	Chief Financial Officer 
	 

	 	 
	 	 	 	 	 	 

 *

[SIGNATURE PAGE TO MEMORANDUM OF UNDERSTANDING]

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SCHEDULE A

Liabilities of Optex-Texas to be purchased by Optex-Delaware

(amounts shown are as of August 24, 2008 and will be

adjusted to reflect actual amounts on Optex-Texas balance sheet

on the purchase date)

	 	 	 	 	 	 	 	 	 
	Accounts Payable
	 	 	 	 	 	$	2,133,100	 
	(does NOT include intercompany payable to Irvine Sensors)
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Accrued Expenses
	 	 	 	 	 	 	 	 
	Payroll & payroll related
	 	$	144,200	 	 	 	 	 
	Benefits
	 	 	94,300	 	 	 	 	 
	Government contract settlement liability
	 	 	351,200	 	 	 	 	 
	Accrued operating expenses not yet invoiced
	 	 	141,400	 	 	 	 	 
	Deferred rent
	 	 	87,700	 	 	 	 	 
	Property taxes & other
	 	 	17,100	 	 	 	835,900	 
	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Accrued loss on contracts
	 	 	 	 	 	 	400,000	 
	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total Purchased Liabilities
	 	 	 	 	 	$	3,369,000	 
	 
	 	 	 	 	 	 	 

-7-Unassociated Document

    - 1
-

    DATE:
July 10, 2008

    

    RULES

    OF

    THE
ADVANTEST CORPORATION

    INCENTIVE
STOCK OPTION PLAN 2008

    

    

    
      	
              1

            	
              Definitions

            

    

    

    
      	
              1.1

            	
              In
      these Rules:

            

    

    

    “Advantest
Group” means the Company and its subsidiaries;

    

    “Broker”
means Mizuho Investors Securities Co., Ltd. or such other broker or agent
appointed from time to time by the Company to execute transactions in connection
with the Plan;

    

    “Company”
means Advantest Corporation;

    

    “Date of
Grant” means July 10, 2008;

    

    “Directors”
means the board of directors of the Company;

    

    “Eligible
Employee” means any such director, auditor, officer or employee of an Employing
Company as designated by the Company;

    

    “Employing
Company” means any one of the companies listed on Attachment A
hereto;

    

    “Exercise
Period” means a period commencing on April 1, 2009 and expiring at the close of
business on March 31, 2013;

    

    “Exercise
Price” means the price to be paid by a Stock Option Holder for the exercise of
each Stock Option;

    

    “Guidelines”
means Incentive Stock Option Plan 2008 Guidelines for exercising Stock Option
granted to Eligible Employees in accordance with these Rules;

    

    “Plan”
means the plan known as “The Advantest Corporation Incentive Stock Option Plan
2008” in its present form or as from time to time amended in accordance with the
Rules;

    

    “Rules”
means these rules as amended from time to time;

    

    “Shares”
means fully paid common shares of stock of the Company;

    

    “Stock
Option” means the stock options granted by the Company in accordance with the
resolution of the shareholders’ meeting of the Company held on June 25, 2008 and
the resolution of the board meeting of the Company held on June 25,
2008;

    

    “Stock
Option Holder” means a person holding a Stock Option;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    - 2 -

     

    “Stock
Option Register” means a register which is prepared and maintained by the
Company pursuant to the Japanese Company Law (Law No.86 of 2005) and which lists
information including the names and addresses of Stock Option
Holders;

    

    “Subscription
Price” means the price of a Share to be delivered upon exercise of a Stock
Option, subject to adjustment provided in Rule 3, and the initial Subscription
Price is 2,653 yen;

    

    “Tokyo
Business Day” means a business day in Tokyo, Japan on which both the Company and
the Tokyo Stock Exchange are open for the transaction of business;
and

    

    “Unit”
means 100 Shares or such other amount of Shares to which a voting right at a
shareholders’ meeting is granted pursuant to the Japanese Company Law and the
Articles of Incorporation of the Company.

    

    
      	
              1.2

            	
              Where
      the context permits or requires the singular includes the plural and the
      masculine includes the feminine and vice
versa.

            

    

    

    
      	
              1.3

            	
              Headings
      shall be ignored in construing the
Rules.

            

    

    

    
      	
              2

            	
              Grant
      of Stock Options

            

    

    

    
      	
              2.1

            	
              Grant
      of Stock Options

            

    

    

    The
Company may at its absolute discretion grant to any Eligible Employee such
number of Stock Options as determined by the Company.  Each Eligible
Employee will be informed in writing by the Company of such grant.

    

    
      	
              2.2

            	
              Conditions
      on Exercise

            

    

    

    
      	
            	
              2.2.1

            	
              A
      Stock Option may be exercised only on a Tokyo Business
  Day.

            

    

    

    
      	
            	
              2.2.2

            	
              The
      number of Stock Options exercised at one time shall be 10 or multiples of
      10.  If the number of Stock Options held by a Stock Option
      Holder is not 10 or a multiple of 10 (e.g., the number of Stock Options
      held is 27), the remaining Stock Options (in this example, 7) may be
      exercised only when they are exercised together with 10 or a multiple of
      10 Stock Options (in this example, he or she may exercise 17 or 27 of
      his/her Stock Options).  However, if the number of Stock Options
      held by a Stock Option Holder is less than 10, the Stock Option Holder may
      exercise his/her Stock Options only when he or she exercises all of
      his/her Stock Options.

            

    

    

    
      	
              2.3

            	
              Acceptance
      of Stock Option

            

    

    

    To be
entitled to the grant of Stock Options, any Eligible Employee must execute a
written acceptance of such Stock Options in the form of Attachment B hereto and
deliver such acceptance form to the Company by July 10, 2008.  The
acceptance form includes the explanation of the terms of Stock Options in
compliance with the Japanese Company Law.  In the event of any
inconsistency between these Rules and the acceptance form, the provisions of
these Rules shall prevail.

     

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      - 3 -

       

    

     

    
      	
              2.4

            	
              No
      Payment

            

    

    

    No
payment to the Company or the Employing Company shall be required from a Stock
Option Holder upon the grant or acceptance of any Stock Option.  The
grant of the Stock Option is the Company’s ex gratia.

    

    
      	
              2.5

            	
              Disposal
      Restrictions

            

    

    

    
      	
            	
              2.5.1

            	
              Neither
      a Stock Option nor any rights or interests in respect of it may be
      transferred, assigned, pledged or otherwise disposed of by a Stock Option
      Holder to any other person or entity.  If a Stock Option Holder
      purports to transfer, assign, pledge or dispose of any such Stock Option
      or rights or interests, whether voluntarily or involuntarily, then the
      Stock Option may not be exercised and will be automatically transferred by
      the Company pursuant to Rule 5.

            

    

    

    
      	
            	
              2.5.2

            	
              A
      Stock Option Holder may not assign, delegate or otherwise transfer any of
      its rights or obligations under these
Rules.

            

    

    

    
      	
              2.6

            	
              Certificates

            

    

    

    No
certificates will be issued for Stock Options.

    

    
      	
              2.7

            	
              Grant
      to Employing Company

            

    

    

    When the
Stock Options are granted to an Employing Company, these Rules shall apply to
that Employing Company, and “Eligible Employee” shall read as “Employing
Company”, and in the application of Rule 5, “Stock Option Holder” shall be read
as “Eligible Employee who is granted a cash bonus right corresponding to the
Stock Option granted to that Employing Company”.

    

    
      	
              3

            	
              Variations
      In Share Capital

            

    

    

    
      	
              3.1

            	
              Adjustment
      of Stock Option

            

    

    

    
      
        	
              	
                3.1.1

              	
                The
      Exercise Price is 265,300
yen.

              

      

    

    

    
      
        	
              	
                3.1.2

              	
                The
      number of Shares to be delivered upon exercise of each Stock Option is 100
      Shares (i.e., 1 Unit).  If any adjustment is made to the
      Subscription Price, then the number of Shares to be delivered in relation
      to each Stock Option shall be adjusted in accordance with the following
      formula, with fractions of a Share being rounded
  down:

              

      

    

    

    
      	
              Number
      of Shares     

            	
              =
      

            	
              Exercise
      Price

            
	
              Subscription
      Price

            

    

    

    
      	
            	
              3.1.3

            	
              If
      the Company shall make a stock split or consolidate its Shares into a
      smaller number of shares, then the Subscription Price shall be adjusted by
      the Directors based on the following
formula:

            

    

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      - 4
-

       

    

    
      	 	
              NSP

            	
              =
      

            	
               OSP
      

            	
               ×
       

            	
              1

            
	
              Stock
      Split Ratio or Consolidation Ratio

            

    

     

    where:

    NSP = the
Subscription Price after such adjustment.

    OSP = the
Subscription Price before such adjustment.

    

    
      	
            	
              3.1.4

            	
              If
      the Company shall issue any Shares or dispose of Shares owned by the
      Company (other than Shares issued or delivered upon conversion or exchange
      of any convertible or exchangeable securities issued by the Company or
      upon exercise of any rights or warrants issued, granted or offered by the
      Company) and the consideration per Share receivable by the Company shall
      be less than the current market price per Share, then the Subscription
      Price shall be adjusted by the Directors based on the following
      formula:

            

    

    

    
      	 	
              NSP
      

            	
              =
      

            	
               OSP

            	
               ×
       

            	
              N +
      v

            	 
	
              N +
      n

            	 

    

     

    where:

    NSP and
OSP have the meanings ascribed thereto in Rule 3.1.3.

    
      
        
          	
                	
                  N
      =

                	
                    the
      number of Shares outstanding immediately prior to such
      adjustment.

                

        

      

      
        
          	
                	
                  n =
      

                	
                  the
      number of additional Shares being issued as aforesaid or (in the case of
      disposal of Shares owned by the Company) the number of Shares being
      disposed of.

                

        

      

      
        	
              	
                v
      =

              	
                 the
      number of Shares which the aggregate consideration receivable by the
      Company would purchase at such current market price per
    Share.

              

      

    

     

    
      	
            	
              3.1.5

            	
              In
      addition to Rule 3.1.3 and 3.1.4, in any of the following circumstances,
      the Company will adjust the Subscription Price in the manner it considers
      appropriate in its absolute
discretion:

            

    

    

    
      	
              
              

            	
              (i)

            	
              the
      Company will issue securities convertible into Shares (including shares to
      be acquired by the Company upon request by the shareholder or upon
      occurrence of certain events) at a consideration per Share receivable by
      the Company which is less than the current market price per
      Share;

            

    

    

    
      	
            	
              (ii)

            	
              the
      Company will issue warrants, or securities with warrants, to subscribe for
      or purchase Shares at a consideration per Share receivable by the Company
      which is less than the current market price per
  Share;

            

    

    

    
      	
            	
              (iii)

            	
              adjustment
      of the Subscription Price becomes necessary as a result of merger,
      corporate division or stock-for-stock exchange;
  or

            

    

    

    
      	
            	
              (iv)

            	
              in
      addition to the foregoing, adjustment of the Subscription Price becomes
      necessary as a result of change (or possible change) in the number of
      outstanding Shares.

            

    

    

    
      	
            	
              3.1.6

            	
              Any
      fractional number resulting from calculations of the Subscription Price
      shall be rounded up to the nearest one
yen.

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      - 5 -

       

       

    

    
      	
            	
              3.1.7

            	
              The
      Subscription Price after the adjustment shall be the sum to be obtained by
      multiplying the Subscription Price per share after the adjustment by the
      number of shares to be issued per Stock Option after the
      adjustment.

            

    

    

    
      	
              3.2

            	
              Notice

            

    

    

    The
Company will notify Stock Option Holders of any adjustment made under this Rule
3.

    

    
      	
              4

            	
              Exercise
      and Cancellation - General Rules

            

    

    

    
      	
              4.1

            	
              Exercise

            

    

    

    Unless
otherwise specified in these Rules, a Stock Option shall only be
exercisable:

    

    
      
        	
              	
                4.1.1

              	
                within
      the Exercise Period; and

              

      

    

    

    
      
        	
              	
                4.1.2

              	
                subject
      to the conditions imposed under Rule
2.2.

              

      

    

    

    
      	
              5

            	
              Automatic
      Transfer of Stock Options: 

            

    

    

    
      	
              5.1

            	
              Events
      of automatic transfer

            

    

    

    A Stock
Option owned by Stock Option Holder shall be automatically transferred to the
Company for no consideration if any of the following events occurs:

    

    
      	
            	
              5.1.1

            	
              the
      general meeting of the shareholders or, if approval by the shareholders’
      meeting is not legally required, then the board of directors resolves to
      approve (i) any merger agreement pursuant to which the Company shall
      dissolve, (ii) any agreement or a plan pursuant to which the Company shall
      split all or part of its business or (iii) any stock-for-stock exchange
      agreement or stock-transfer plan pursuant to which the Company shall
      become a wholly-owned subsidiary of another
  company.

            

    

    

    
      	
            	
              5.1.2

            	
              a
      Stock Option Holder becomes a person who does not hold any position as a
      director, corporate auditor, officer, employee or any other similar
      position of the Company or its subsidiaries; except where the Company
      deems that it is appropriate to allow him/her to exercise his/her Stock
      Options and notifies him/her.

            

    

    

    
      	
            	
              5.1.3

            	
              a
      Stock Option Holder dies.

            

    

    

    
      	
            	
              5.1.4

            	
              a
      Stock Option Holder waives all or part of his/her stock options by
      submitting to the Company the form specified by the
    Company.

            

    

    

    
      	
            	
              5.1.5

            	
              a
      Stock Option Holder becomes for any reason a director, officer, auditor or
      employee of a company which is a competitor with the Company and the
      Company notifies the Stock Option Holder that his/her stock options are
      non-exercisable.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      - 6 -

       

       

    

    
      	
            	
              5.1.6

            	
              a
      Stock Option Holder is in breach of laws, internal rules of the Company or
      the Rules, and the Company notifies the Stock Option Holder that his/her
      stock options are non-exercisable.

            

    

    

    
      	
              6

            	
              Exercise
      of Stock Option

            

    

    

    
      	
              6.1

            	
              Manner
      of Exercise

            

    

    

    
      	
            	
              6.1.1

            	
              To
      exercise a Stock Option, a Stock Option Holder must deliver on a Tokyo
      Business Day, an exercise notice to the Company (with a copy to the
      Employing Company), in the prescribed form (Attachment C), duly completed
      and signed by the Stock Option Holder.  The Stock Option Holder
      may not withdraw the exercise notice for any
  reason.

            

    

    

    
      	
            	
              6.1.2

            	
              A
      Stock Option Holder shall pay the total amount of the Exercise Price
      relating to the number of Stock Options that he or she exercised (the
      “Total Exercise Price”) and the related expenses and taxes (if any), by
      transfer to the account designated by the Company.  The
      commission for such transfer shall be incurred by the Stock Option
      Holder.  After the Company confirms its receipt of the Total
      Exercise Price and the related expenses and taxes (if any), the Shares
      shall be delivered by crediting the number of Shares, through the Japan
      Securities Depository Center, Inc. (the “JASDEC”), to the Stock Option
      Holder’s account opened pursuant to Rule
6.6.2.

            

    

    

    
      	
              6.2

            	
              Sale
      of Shares

            

    

    

    
      	
            	
              6.2.1

            	
              A
      Stock Option Holder may request, through the Company, that the Broker sell
      all the Shares resulting from his/her exercise of Stock
      Options.  Any such request shall be made in a notice as referred
      to in Rule 6.1.1.

            

    

    

    
      	
            	
              6.2.2

            	
              After
      the receipt of a notice as referred to in Rule 6.2.1, the Company shall
      procure funds to be paid as the Total Exercise Price on behalf of the
      Stock Option Holder, and deliver the resulting Shares to the Stock Option
      Holder in the manner specified in Rule 6.1.2.  The Shares shall
      be sold without delay after the Broker confirms receipt of the Shares by
      the Stock Option Holder.  Subject to Rule 6.5, the Broker shall
      transfer, to the Stock Option Holder's account with Mizuho Bank, Ltd.
      (“Mizuho Bank”) opened pursuant to Rule 6.6.3, the proceeds of the sale of
      the Shares less (i) the commission for the sale, (ii) the related expenses
      and taxes (if any) and (iii) the commission for such transfer, within 30
      days of the sale.  The Stock Option Holder shall transfer, to
      the bank account designated by the Company, an amount equal to (i) the
      Total Exercise Price plus (ii) the related expenses and taxes paid or to
      be paid by the Company in connection with the exercise of the Stock
      Options or the sale of the Shares.

            

    

    
 

    
      	
            	
              6.2.3

            	
              If
      the Company deems that the proceeds of a sale of the Shares will not be
      enough to cover (i) the Total Exercise Price plus (ii) all expenses and
      taxes paid or to be paid by the Broker or the Company in connection with
      the exercise of the Stock Options or the sale of the Shares, the Company
      may either (a) sell the Shares in accordance with Rule 6.2.2 or (b) reject
      the request of the Stock Option Holder to sell the Shares and deem
      that he or she has withdrawn the exercise of his/her Stock Options,
      provided that if the request to sell the Shares has been made to the
      Broker in accordance with Rule 6.2.1, the Company may so deem only when
      such withdrawal can be made under the rules of the JASDEC and the internal
      rules of the Broker.  If the Stock Options are deemed to have
      not been exercised, the Stock Option Holder may exercise the relevant
      Stock Options in accordance with these Rules after he or she receives a
      notice from the Company to the effect that his/her Stock Options have been
      so deemed.  The Company shall not be liable to the Stock Option
      Holder for any result of any decision made under this Rule
      6.2.3.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      - 7
-

       

       

    

    
      
        	
                6.3

              	
                When
      the number of Shares deliverable upon exercise of the Stock Options
      includes less than one Unit, the exercising Stock Option Holder shall be
      deemed to request the Company to purchase such Shares pursuant to the
      Japanese Company Law.  The determination of whether the number
      of Shares deliverable upon exercise includes less than one Unit shall be
      made separately with respect to each exercise (regardless of the number of
      Stock Options included
therein).

              

      

    

    

    
      
        	
                6.4

              	
                No
      Partial Exercise

              

      

    

    

    A Stock
Option may be exercised with respect only to each Stock Option, and no Stock
Option may be exercised in part.

    

    
      	
              6.5

            	
              Withholding

            

    

    

    The
Company and the Broker shall be entitled to withhold, and the Stock Option
Holder shall be obligated to pay, the amount of any tax attributable to or
payable by and any social security or similar payments attributable to or
payable by the Stock Option Holder in connection with the exercise or receipt of
his/her Stock Option or the sale of the Shares.  The Company and the
Broker may establish appropriate procedures to provide for any such payments and
to ensure that the relevant company receives prompt advice concerning the
occurrence of any event which may create, or effect the timing or amount of any
obligation to pay or withhold any such taxes or which may make available to the
relevant company any tax deduction with respect to the payment.

    

    
      	
              6.6

            	
              Broker

            

    

    

    
      	
            	
              6.6.1

            	
              The
      Broker will assist the Company in connection with the exercise of the
      Stock Options and the sale of the resulting
  Shares.

            

    

    

    
      	
            	
              6.6.2

            	
              Prior
      to the exercise of the Stock Options, a Stock Option Holder shall open and
      maintain an account in his/her name with the Broker for the purpose of the
      delivery of the Shares to be delivered upon the exercise.  Such
      account shall be opened through the
Company.

            

    

    

    
      	
            	
              6.6.3

            	
              Prior
      to the sale of the Shares pursuant to Rule 6.2, a Stock Option Holder
      shall open and maintain an account in his/her name with Mizuho Bank for
      the purpose of the payment of the proceeds of a sale of
      Shares.  Such account shall be opened through the
      Company.

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      - 8 -

       

       

    

    
      	
              7

            	
              General

            

    

    

    
      	
              7.1

            	
              Notices

            

    

    

    Any
notice or other document required to be given under or in connection with the
Plan may be delivered to a Stock Option Holder or sent by post or facsimile with
confirmation in writing to him/her at his/her address which appears on the Stock
Option Register.  Notices sent by post shall be deemed to have been
given on the day following the date of posting.  Any notice or other
document required to be given to the Company under or in connection with the
Plan may be delivered or sent by post or facsimile with confirmation in writing
to it at its registered office (or such other place or places as the Company may
from time to time determine and provide Stock Option Holders with notification
of).

    

    
      	
              7.2

            	
              Directors’
      Decisions Final and Binding

            

    

    

    The
decision of the Directors in connection with any interpretation of the Rules or
in any dispute relating to a Stock Option or other matter relating to the Plan
shall be final and conclusive and binding on the relevant parties.

    

    
      	
              7.3

            	
              Costs

            

    

    

    The costs
of introducing and administering the Plan shall be borne by the Company and the
Employing Companies.

    

    
      	
              7.4

            	
              Regulations

            

    

    

    The
Company shall have power from time to time to make or vary regulations for the
administration and operation of the Plan, provided that the same are not
inconsistent with these Rules.

    

    
      	
              7.5

            	
              Limitation
      of Liability

            

    

    

    The
rights and obligations of a Stock Option Holder under the terms and conditions
of his/her office or employment shall not be affected by his/her participation
in the Plan or any right he or she may have to participate in the
Plan.  An individual who participates in the Plan waives all and any
rights to compensation or damages in connection with rights under the Plan
arising from the termination of his/her office or employment with any company
for any reason whatsoever relating to any Stock Option under the Plan as a
result of such termination or from the loss or diminution in value of such
rights or entitlements.

    

    
      	
              7.6

            	
              Personal
      Information

            

    

    

    A Stock
Option Holder hereby consents and agrees that the Company and the Employing
Companies may collect, store, process, use, transfer and modify his/her personal
information regarding identity, place of employment and other pertinent
information needed to effectuate his/her participation in the Plan with other
parties within the Advantest Group, or with third parties to the extent
necessary or helpful in the implementation of the Plan.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      - 9 -

       

       

    

    
      	
              7.7

            	
              No
      Entitlements

            

    

    

    
      	
            	
              7.7.1

            	
              Nothing
      in the Plan, these Rules or any document related thereto shall be
      construed as guaranteeing any Eligible Employee’s continued employment or
      engagement with any member of the Advantest Group, or as giving any
      Eligible Employee any right to continued employment or engagement with any
      member of the Advantest Group, during any
  period.

            

    

    

    
      	
            	
              7.7.2

            	
              Awards
      of Stock Options are discretionary.  No award of Stock Options
      shall confer on the Stock Option Holder any right or entitlement to
      receive another award of stock options at any time in the
      future.

            

    

    

    
      	
              8

            	
              Amendments

            

    

    

    Subject
to Rule 7.4, the Company may at any time modify these Rules in any
respect.  The Company may at any time amend these Rules so that the
Company may issue new shares upon exercise of Stock Options instead of
transferring its treasury stock.

    

    
      	
              9

            	
              Governing
      Law and Jurisdiction

            

    

    

    These
Rules and all Stock Options shall be governed by and construed in accordance
with Japanese law.  Any dispute arising out of, or in connection with,
these Rules shall be subject to the exclusive jurisdiction of the Tokyo District
Court.

    

    
      	
              10

            	
              Local
      Law Appendix

            

    

    

    The Local
Law Appendix attached hereto shall be an integral part of these
Rules.  In the event of any inconsistency between these Rules and the
Local Law Appendix, the provisions of the Local Law Appendix shall
prevail.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      - 10 -

       

    

    Attachment
A

    

    Employing
Company

    

    Advantest
America Corporation (Holding Co.)

     

    Advantest
America, Inc.

     

    Advantest
America R&D Center, Inc.

     

    

    Advantest
(Europe) GmbH

    

    Advantest
(Singapore) Pte. Ltd.

    

    Advantest
(Malaysia) Sdn. Bhd.

    

    Advantest
Taiwan Inc.

    

    Advantest
Korea Co., Ltd.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 11 -

         

      

    Attachment
B

    

    Acceptance
Form:  delivered on June 25, 2008

    

    

    

    

    Attachment
C

    

    Exercise
Notice:  to be delivered separately

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 12 -

         

      

    

    Local
Law Appendix

    for
Germany

    

    

    
      	
              1.

            	
              Definitions

            

    

    

    Definitions
as set out in 1.1 of the Rules are applicable to this Appendix.

    

    
      	
              2.

            	
              Eligible
      Employees

            

    

    

    The
Company’s discretion with respect to 2.1 will be exercised in a way complying
with German law, in particular with the labour law principle of equal treatment
(arbeitsrechtlicher
Gleichbehandlungsgrundsatz) and with the prohibition of discrimination
(Diskriminierungsverbot).

    

    
      	
              3.

            	
              Ex-gratia
      benefit

            

    

    

    The grant
of the Stock Option is an ex-gratia benefit (freiwillige Leistung). It is
granted without any obligation and even repeated granting will not create a
legal claim. 

    

    
      	
              4.

            	
              Vesting

            

    

    

    The Stock
Options shall vest in Eligible Employees at the time of exercise of such Stock
Options.

    

    
      	
              5.

            	
              Deemed
      Exercise

            

    

    

    If Stock
Options held by a Stock Option Holder become automatically transferable pursuant
to Rule 5.1.2, those Stock Options shall be deemed to be exercised immediately
prior to the time the respective Stock Option Holder becomes a person who does
not hold any position as a director, corporate auditor, officer, employee or any
other similar position of the Company or its subsidiaries.  If the
Company deems that the proceeds of the sale of the resulting Shares will not be
enough to cover (i) the Total Exercise Price plus (ii) all costs, expenses and
taxes referred to in Rule 6.2.3, then the Stock Options are deemed to be waived
by the Stock Option Holder.  This clause 5 applies to Rules 5.1.5 and
5.1.6 mutatis mutandis.

    

    
      	
              6.

            	
              Adjustment
      of the Subscription Price

            

    

    

    The
Company’s discretion with respect to the Adjustment of the Subscription Price
will be exercised taking into fair consideration the circumstances where such
adjustment is deemed appropriate.

    

    
      	
              7.

            	
              Taxes/Withholding

            

    

    

    The
following summary of certain German income tax considerations for German
Employees is based on the tax law effective at the date of this Appendix which
may be changed, even with retroactive effect.  The summary does not
describe all tax considerations that may be relevant to a Eligible Employee’s
decision to accept or exercise any of the rights under the Plan.  It
is not a substitute for tax advice.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 13 -

         

      

    

    There are
income tax charges on the exercise of an option at a rate of between 15 % and 45
% (as of 2008) depending on the taxable income of the Stock Option Holder to be
increased by a 5.5 % “solidarity” surcharge on the income tax due (plus church
tax, if applicable).  The tax charge is determined by the difference
between the market value of the shares at the date the shares are booked out
(Ausbuchung) of the
account of the Company or of any transfer agent of the Company and the option
exercise price.  The market value is defined on the basis of the
quoted prices on the respective stock exchange.  The Employing Company
is entitled to deduct the taxes from the gross salary of the Stock Option
Holder.  Additionally, the usual social security contributions (to the
extent the wage base for social security contributions are not exceeded) have to
be paid on the difference between the exercise price and the market value at the
date the shares are booked out (Ausbuchung) of the account of
the Company or of any transfer agent of the Company.  If the regular
salary of the Stock Option Holder is not sufficient for the Employing Company to
deduct wage tax and pay such tax to the competent tax office, the Employing
Company will request the Stock Option Holder to pay the tax to the Employing
Company enabling the Employing Company to withhold wage tax.  The
Employing Company will inform the tax office of such request if the Stock Option
Holder does not meet his/her obligations.

    

    Since any
Stock Option granted under the Plan may not be exercised prior to April 1, 2009
the favourable German capital gains tax regime for shares sold after more than
12 months after the acquisition will not be applicable to the Stock Option
Holder.  If a Stock Option Holder selling the shares owns 1 % or
more of the stated capital of the Company (or has owned 1 % or more at any
time in the last five years) or holds the shares as business assets, he or she
will be subject to income tax (plus solidarity surcharge and, if applicable,
church tax) on 60 % of the difference between the sales prices and the
market value at the date of exercise.  If the Stock Option Holder
selling the shares does not own 1 % or more of the stated capital of the
Company (and has not owned 1 % or more at any time in the last five years)
and does not hold the shares as business assets (i.e. holds them as private
assets), any capital gains derived from the sale of shares will be subject to
income tax at a uniform 25 per cent tax rate (plus solidarity surcharge and, if
applicable, church tax). 

    

    Since any
Stock Option granted under the Plan may not be exercised prior to April 1, 2009
no Stock Option Holder will receive dividends prior to January 1,
2009.  For dividends received after December 31, 2008, the following
principles will apply:

    

    If the
shares are held as business assets 60 % of the gross dividends received by
Stock Option Holders will, in principle, be subject to income tax at the
progressive tax rate plus solidarity surcharge (and church tax, if
applicable).

    Dividend
income received on shares held as private assets will be subject to a uniform 25
per cent tax (plus solidarity surcharge and, if applicable, church
tax).

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 14 -

         

        
          For the
collection of the new uniform 25 per cent tax, a definite withholding tax
regime (Abgeltungsteuer) will apply.
Generally, if the shares are held through a domestic bank or a domestic branch
of a foreign bank (a “Bank”) the Bank will levy the tax on the dividend or the
capital gain by way of withholding. However, in case of capital gains additional
rules may become relevant: Since the purchase price of the shares may not be
verified for withholding purposes, the Bank
might be obliged to levy the 25% tax (plus solidarity surcharge and, if
applicable, church tax) on 30% of the sales price of the shares from which parts
may possibly be recovered later by the shareholder by way of filing an income
tax return.  There will also  be a joint lump-sum deduction
for capital income on private assets (i.e., interest and dividend
income as well as capital gains) of €801 (€1,602 for married couples filing tax
returns jointly) per annum, whereby higher expenses directly attributable to a
capital investment will not be deductible as business expenses.

           

        

      

    

    Please
note that a taxpayer will be able to apply for a tax assessment if
his/her  personal tax rate is lower than the 25 per cent flat-rate
(Günstigerprüfung) or
if the taxpayer can claim a tax credit for tax imposed by foreign Tax
Authorities that has not been recognized yet by way of withholding.

    

    
      	
              8.

            	
              Insider
      Dealings

            

    

    

    Please
note that Germany has adopted the EC-Directive on Insider
Dealings.  Insiders are, among others, persons who by virtue of their
position as members of managing or supervisory boards of the issuing company or
its subsidiaries or by their profession or work, have knowledge of not publicly
known facts which may influence the market value of the securities issued.
Insiders are subject to certain restrictions in selling or purchasing such
securities or otherwise making use of their insider knowledge.  Anyone
in breach of those provisions will be liable to imprisonment or
fine.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 15 -

         

      

    Local
Law Appendix

     for
Italy

    

    
      EXERCISE
OF THE STOCK OPTION

    

    

    "Exercise
Period" means a period commencing after three years following the Date of Grant
(i.e. July 10, 2008) and expiring at the close of business on March 31,
2013;

    

    TAXATION

    

    Any term
not defined in the present appendix shall have the same meaning as ascribed to
it under the Rules.

    

    For the
purpose of this appendix, the Stock Option Holder is assumed to be resident in
Italy for Italian tax purposes.

    

    Grant of a Stock
Option.  The grant of a Stock Option itself is not subject to
tax in the hands of the Stock Option Holder, as the Rules do not provide for the
possibility to transfer it to any third parties.

    

    Exercise of a Stock
Option.  If the Exercise Price is equal to, or higher than, the
fair market value (as defined below) of the Share on the date of the offer of
the Stock Option (as defined below), the difference between:

    

    
      	
              ·

            	
              the
      fair market value of the Share on the date of exercise of the Stock
      Option, and

            

    

    
      	
              ·

            	
              the
      Exercise Price paid by the Stock Option
Holder

            

    

    

    is not
taxable in the hands of the Stock Option Holder as employment
income.

    

    Conversely,
if the Exercise Price is lower than the fair market value of the Share at the
date of offer of the Stock Options, the above mentioned difference is fully
taxable as employment income in the hands of the Stock Option Holder and social
security contributions are also due.

    

    However,
such exemption does not apply if:

    

    
      	
              ·

            	
              as
      a consequence of the exercise of the Stock Option, the Stock Option Holder
      owns more than 10% of the share capital of the
  Company;

            

    

    
      	
              ·

            	
              when
      the Stock Option is exercisable the Shares are not traded on regulated
      markets;

            

    

    
      	
              ·

            	
              the
      Stock Option Holder does not hold, for at least 5 years following the date
      of exercise of the Stock Option, an investment in the Shares for an amount
      at least equal to the difference between the value of the Share at the
      time of exercise of the Stock Options and the amount paid by the Stock
      Option Holder. Should this condition not be satisfied, since the Shares
      are transferred or given as security before the holding period expires,
      the above mentioned difference will become fully taxable in the tax period
      in which the Shares have been transferred or given as
      security.

            

    

    

    Employment
income is subject to tax at progressive rates roughly ranging between 23% and
43%, depending on the total taxable income of the Stock Option Holder. Under
certain circumstances, taxes due by the Stock Option Holder are to be withheld
by the Employing Company and remitted to the competent tax offices.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 16 -

         

      

    

    The
fiscal fair market value of shares listed on a regulated market is equal to the
average of the stock market prices of same shares computed with reference to the
previous month (i.e. the average of Shares listing prices of the period
commencing the same day of the previous month). The date of the offer of the
Stock Option is the day when the corporate bodies of the Company resolve upon
the main terms and conditions of the Plan (i.e. the Date of Grant).

    

    Sale of Shares.  The
sale of Shares amounting to a “non qualified shareholding” is subject to a 12.5%
substitute tax in the hands of the transferor on the difference between the sale
price and the Exercise Price.

    

    The sale
of Shares amounting to a “qualified shareholding” is subject to personal
progressive taxation in the hands of the transferor at rates roughly ranging
between 23% and 43% on an amount equal to 40% of the difference between the sale
price and the Exercise Price.

    

    In this
respect, please note that according to the Ministerial Decree 2 April 2008, as
from 1 January 2009 the 40% percentage of taxable gains arising from disposal of
shares will be increased to 49.72%.

    

    Shares
are deemed to amount to a “non qualified shareholding” in case they entitle the
relevant holder to:

    

    
      	
              ·

            	
              up
      to 2% of the voting rights at the ordinary shareholders' meeting of the
      company or to 5% of the share capital of the company, as far as shares
      listed on a regulated market, or

            

    

    
      	
              ·

            	
              up
      to 20% of the voting rights at the ordinary shareholders' meeting of the
      company or to 25% of the share capital of the company, as far as shares
      not listed on a regulated market.

            

    

    

    If the
above percentages are exceeded, the shares are deemed to amount to a “qualified
shareholding”.

    

    The
amount subject to substitute tax or personal progressive taxation is reduced by
any amount possibly subject to tax at the time of the exercise of the Stock
Options (see under Exercise of Stock Options, above).

    

    Dividends.  Dividends
received on "non qualified shareholdings" (as defined above) are subject to a
final 12.5% tax, which is either withheld by the Italian financial intermediary
- if any - entrusted with the actual payment of such dividends, or directly paid
by the recipient, as the case may be.

    

    Dividends
received on "qualified shareholdings" (as defined above) are subject to
progressive taxation in the hands of the recipient on an amount equal to 40% at
rates roughly ranging between 23% and 43%.

    

    In this
respect, please note that according to the Ministerial Decree 2 April 2008, 40%
percentage of dividends subject to tax will be increased to 49.72% with
reference to dividends yielded as from the fiscal year succeeding the fiscal
year in course at 31 December 2007. It is worth noting that they will be treated
as dividends yielded first those dividends distributed till the end of the
fiscal year in course at 31 December 2007.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 17 -

         

      

    

    In case
of dividends paid under a "qualifying shareholding", should an Italian financial
intermediary be entrusted with the payment of such dividends, the same
intermediary shall levy an advanced 12.5% withholding, which can be deducted
against the final tax burden to be paid by the recipient.  Similarly,
any tax possibly paid or withheld abroad on the dividends received can be
deducted against the final tax burden within the limits provided for by the
relevant Italian tax law.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

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    Local
Law Appendix

    for
Korea

    

    

    This
Appendix has been prepared to provide you with a summary of information
regarding your stock options granted by the Company under the Incentive Stock
Option Plan 2008 (the “Plan”) specific to Korea.

    

    This
supplement is based on the tax laws and other laws concerning stock options in
effect in Korea as of June 2008.  These laws are often complex and
change frequently.  As a result, the information contained in this
summary may be out-of-date at the time you exercise your option or sell shares
you acquire under the Plan.

    

    In
addition, this supplement is general in nature.  It may not apply to
your particular tax or financial situation, and the Company is not in a position
to assure you of any particular tax result.  Accordingly, you are
advised to seek appropriate professional advice as to how the tax or other laws
in your country apply to your specific situation.

    

    If you
are a citizen or resident of a country other than Korea, the information
contained in this supplement may not be applicable to you.

    

    TAX
INFORMATION

    

    Grant

    

    You will
not be subject to tax when a stock option is granted to you under the
Plan.

    

    Date
of Vesting

    

    You will
not be subject to tax when your stock options vest.

    

    Exercise

    

    You will
be subject to income tax when you exercise your stock option.  You
will be taxed on the difference between the fair market value of the shares at
exercise and the option price (i.e., the
spread).  This difference is treated as salary and taxed at your
marginal rate.  If the Employing Company for which you are employed
bears the cost of the spread, your employer will withhold from the spread at
exercise the appropriate income tax and any social insurance contributions
associated with the realized income and pay it to the Korean tax authorities and
social insurance funds.  

    

    Sale
of Shares

    

    When you
subsequently sell the shares that you acquire under the Plan, you will be
subject to capital gains tax on any gain that you realize above the fair market
value at the time the option is exercised.  The capital gains tax on
stock is currently 22%. There is an annual personal exemption from tax for the
first 2,500,000 won of capital gains that you make in any tax
year.  However, if your capital gains exceed this limit, then you will
be required to declare the gains and tax will be due on the excess
amount.  A 10% reduction in capital gains tax will be available if you
pay the tax due within two months of the end of the month calendar quarter in
which you sold your
shares.  No securities transaction tax will apply to either Company’s
sale to you or your subsequent disposition of shares acquired pursuant to the
Plan.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 19 -

         

      

    

    

    Dividends

    

    Income
from receipt of dividends from shares is subject to tax at ordinary income tax
rates, which range from 8.8% to 38.5%.  Your employer is not required
to withhold or report such income.  It is your responsibility to
report this income on your annual tax return and to pay all taxes
owed.

    

    Labor
Law Acknowledgment

    

    By
accepting this stock option, you acknowledge that the Plan is discretionary in
nature and may be unilaterally suspended or terminated by the Company at any
time.

    

    

    RELATED
CONSENTS

    

    Personal
Information

    

    Through
accepting the invitation extended to you to receive Stock Options offered under
the Plan, you effectively consent and agree that your employer and the Company
may use personal information regarding your identity, place of employment, and
other pertinent information needed to effectuate your participation in the Plan
with other parties within the Advantest Group or third parties to the extent
necessary or helpful to implement the Plan.

    

    Treatment
and Management of Purchased Stock

    

    Through
accepting the invitation extended to you to receive Stock Options offered under
the Plan, you effectively consent and agree that upon subscribing to Shares
under the Plan, the Company is authorized to take action regarding the stocks
and proceeds derived therefrom and participate in the management of the stocks
and proceeds derived therefrom as outlined in the Rules of the Advantest
Corporation Incentive Stock Option Plan 2008, as described in Section 6.2, 6.4,
6.5, and all other Sections describing such actions and/or
participation.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

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    Local
Law Appendix

    for
Malaysia

    

    

    INTERPRETATION

    

    Terms
which have been defined in the Rules of the Plan shall, unless otherwise defined
in this Local Law Appendix for Malaysia, have the same meaning and
interpretation ascribed to it in the Rules of the Plan.

    

    The terms
and conditions set out in this Local Law Appendix for Malaysia shall be
applicable to Eligible Employees who are residents in Malaysia and is
supplemental to the terms and conditions set out in the Rules of the
Plan.  In the event of any inconsistency or conflict between (1) this
Local Law Appendix for Malaysia, (2) the Rules of the Plan and/or (3) the
written acceptance for Stock Options in the form of Attachment B of the Rules,
this Local Law Appendix for Malaysia shall prevail.

    

    

    AMENDMENTS/ADDITIONS
TO THE RULES

    

    Rule 2.3 – Acceptance of
Stock Option

    

    Rule 2.3
shall be deleted in its entirety and replaced with the following new
Rule:-

    

    
      	
              “2.3

            	
              Acceptance of Stock
      Option

            

    

    

    
      	
            	
              2.3.1

            	
              Eligibility
      under the Plan does not confer on an Eligible Employee a claim or right to
      participate in or any rights whatsoever under the Plan and an Eligible
      Employee does not acquire or have any rights over or in connection with
      the Stock Options or the Shares comprised herein unless a grant of Stock
      Options has been made by the Company to the Eligible Employee pursuant to
      Rule 2.1 and the Eligible Employee has accepted the grant of Stock Options
      in accordance with the terms of such grant and the
  Plan.

            

    

    

    
      	
            	
              2.3.2

            	
              To
      be entitled to the grant of Stock Options, any Eligible Employee must
      execute a written acceptance of such Stock Options in the form of
      Attachment B hereto and deliver such acceptance form to the Company by
      July 10, 2008 (the “Expiry
      Date”).  The acceptance form includes the explanation of
      the terms of Stock Options in compliance with the Japanese Commercial
      Code.  In the event of any inconsistency between these Rules and
      the acceptance form, the provisions of these Rules shall
      prevail.

            

    

    

    
      	
            	
              2.3.3

            	
              If
      any grant of Stock Option is not accepted in the manner prescribed above,
      such grant shall on the Expiry Date, automatically lapse and be null and
      void and of no further legal
effect.”

            

    

    

    Rule 2.7 – Grant to
Employing Company

    

    Rule 2.7
shall be deleted in its entirety.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 21 -

         

      

    Rule 7.7 – No
Entitlements

    

    The
following new Rule 7.7.3 shall be inserted immediately after the existing Rule
7.7.2:-

    

    
      	
              “7.7.3  

            	
              This
      Plan does not form part nor shall it in any way be construed as giving
      rise to any term of employment of any Eligible Employee, whether express
      or implied, in respect of the grant of Stock Options under the
      Plan.”

            

    

    

    

    EXCHANGE
CONTROL

    

    These
exchange control regulations are based upon the ECM Notices issued by Bank
Negara Malaysia which are in effect in Malaysia as at June 2008.  A
person “resident” in Malaysia is required to comply with the Malaysian exchange
control requirements, as it may be varied or revoked by Bank Negara Malaysia
from time to time.  You should therefore seek the advice of your local
counsel to ensure that you are in compliance with such requirements at all
times.  Non-compliance with any of the ECM Notices constitutes an
offence under paragraph 7 of the Fifth Schedule to the Exchange Control Act,
1953.

    

    For
Malaysian exchange control purposes, a “resident” means inter alia:-

    
      
        
          	
                  (1)

                	
                  a
      citizen of Malaysia, excluding a person who has obtained permanent
      resident status in a territory outside Malaysia and is residing outside
      Malaysia; or

                

        

      

    

    
      
        
          	
                  (2) 

                	
                  a
      non-citizen of Malaysia who has obtained permanent resident status in
      Malaysia and is residing permanently in
  Malaysia.

                

        

      

    

    

    Currency of
Payment

    

    All
payments by residents, pursuant to the exercise of the Stock Options in
accordance with Rule 6.1.2 and/or Rule 6.2.2, must be made in a foreign currency
other than the currencies of Israel.

    

    

    
      TAXATION

    

    

    The
taxation treatment for Stock Options in Malaysia as contained herein is based
upon current taxation law and practice in Malaysia as at June 2008. However,
these laws and practice may be subject to change. Additionally, the private
circumstances of each individual employee would be different in regard to tax
rates, personal and other reliefs etc. Accordingly, you should seek the advice
of your local tax expert to ensure that you are in compliance with taxation laws
and the Inland Revenue Board’s (“IRB’s”) practices in Malaysia.

    

    

    
      Payment of Taxes in relation
to Stock Option

    

    

    Under
Section 13 of the Income Tax Act, 1967 (“ITA”), as confirmed by the IRB’s Public
Ruling No. 4 of 2004 (issued on 9th December 2004), employment income includes
any benefits arising from the grant of a Stock Option and the employee is liable
to pay tax on such benefits (if any).

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 22 -

         

      

    

    The
employer must withhold and pay over to the IRB such taxes under the Income Tax
(Deduction from Remuneration) Rules 1994 (as amended) as are attributable to the
value of the Stock Options upon the exercise by the employee of the Stock
Options in Malaysia.

    

    Please
note that tax will be payable on the exercise of the Stock Option in this case.
In this connection, the time of taxation is no different from the position prior
to the passage of the Finance Act 2005 which introduced certain amendments to
the ITA in this area of tax law and have effect for the year of assessment 2006
and subsequent years of assessment (“FA amendments”), i.e. the employee would be
taxed at the date of exercise of the Stock Option.

    

    
      Calculation of Taxable
Income from the Exercise of Stock Options

    

    

    As to the
value of the benefit to be attributed to the Stock Option, prior to the FA
amendments, the Abbott v Philbin method of valuation would be applicable, which
is the market value of the Shares on the date of grant of the Stock Option, less
the cost of the Shares, i.e. the Exercise Price. The IRB’s position prior to the
FA amendments was the Abbott v Philbin method of valuation.

    

    Following
the passage of the Finance Act 2005 which introduced certain amendments to the
ITA with effect from the year of assessment 2006, the IRB takes the position
that the taxable income from the exercise of a Stock Option should be calculated
as the difference between the market value of the Share on the date the Stock
Option is exercised or exercisable (whichever is lower), and the Exercise Price,
being the price to be paid by the employee, if the Stock Option is (i) granted
in or after year 2006; or (ii) granted before year 2006 but exercised in or
after year 2006.

    

    Market
value is determined for the purposes of the foregoing by reference to the net
asset value of the Shares for the day.

     

    However,
due to certain ambiguities in the language, there could be a residual argument
based upon the express provisions of the Finance Act 2005 that the Abbott v
Philbin method of valuation may still apply, i.e. taxable income from the
exercise of a Stock Option could be calculated as the difference between the
market value of the Share on the date of grant of the Stock Option and the
Exercise Price, being the price to be paid by the employee. This is the position
prior to the passage of the Finance Act 2005 which could potentially be applied
to Stock Options granted before the year of assessment 2006 and perhaps
subsequent years of assessment. However, as the IRB will resist this
interpretation, the employee may only wish to pursue it if the amounts are
substantial.

    

    The
individual employee has the right to object and appeal if he/she does not agree
with the IRB’s position. Further, it is the employee, and not the company, who
would have the right to appeal against the IRB’s position. As such, such
employee would be able to pursue their right of appeal should they be aggrieved
by the IRB’s position and wish to pursue an appeal notwithstanding the potential
difficulties in arguing a contrary position. It is of course a matter entirely
for the employee's decision as to whether or not to take up such an appeal. In
this regard, the employee should consider the quantum of the tax in
dispute.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

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    Local
Law Appendix

    for
Peoples Republic of China

    

    

    The Rules
of The Advantest Corporation Incentive Stock Option Plan 2008 shall be
supplemented with the following provisions to govern Stock Options granted to
Eligible Employees who are employed at an Employing Company established in the
People’s Republic of China (the “PRC”):

    

    

    
      	
              1.

            	
              Rule
      2.1 shall read in its entirety as
follows:

            

    

    

    Grant of
Stock Options

    

    The
Company may at its absolute discretion grant to any Eligible Employee such
number of Stock Options as determined by the Company.  Each Eligible
Employee will be informed in writing by the Company of such grant. Benefits
granted to Eligible Employees under the Plan are intended to be an additional
performance incentive for employee performance beyond normal day-to-day
responsibilities, and thus are not part of the regular salary offered in
exchange for services.

    

    
      	
              2.

            	
              Rule
      2.4 shall read in its entirety as
follows:

            

    

    

    No
Payment

    

    No
payment to the Company or the Employing Company shall be required or permitted
from a Stock Option Holder upon the grant or acceptance of any Stock Option. The
Stock Option Holder shall not remit any foreign currency out of the PRC in
relation to the Stock Option to which he or she is entitled.  The
grant of the Stock Option is the Company’s ex gratia benefit of employment. The
Stock Option has no commercial value.

    

    
      	
              3.

            	
              Rule
      2.5.1 shall read in its entirety as
follows:

            

    

    

    Disposal
Restrictions

    

    Neither a
Stock Option nor any rights or interests in respect of it may be transferred,
assigned, pledged or otherwise disposed of by a Stock Option Holder to any other
person or entity. If a Stock Option Holder purports to transfer, assign, pledge,
or dispose of any such Stock Option or rights or interests, whether voluntarily
or involuntary, then the Stock Option may not be exercised and will be
automatically transferred by the Company pursuant to Rule 5. The Stock Option
Holder may not ask the Company to redeem the Stock Options for any consideration
if he or she decides not to exercise the Stock Option.

    

    
      	
              4.

            	
              Rule
      2.5.2 shall be deleted.

            

    

    

    
      	
              5.

            	
              Rule
      6.1.2 shall be deleted.

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 24 -

         

      

    

    
      	
              6.

            	
              Rule
      6.2.1 shall read in its entirety as
follows:

            

    

    

    A Stock
Option Holder shall request, through the Company, that the Broker sell all the
Shares resulting from his/her exercise of Stock Options.  Such request
shall be made in the same notice as referred to in Rule 6.1.1.

    

    
      	
              7.

            	
              Rule
      6.2.2 shall read in its entirety as
follows:

            

    

    

    After the
receipt of a notice as referred to in Rule 6.2.1, the Employing Company shall
immediately file the notices referred to in Rules 6.1.1 and 6.2.1 (and any other
relevant documents required) with the local tax authority. After the filing, the
Company shall procure funds to be paid the total amount of the Exercise Price
relating to the number of Stock Options that the Stock Option Holder has
exercised (the "Total Exercise Price") on behalf of the Stock Option Holder, and
deliver the resulting Shares to the Stock Option Holder. All of the Shares shall
be sold without delay after the Broker confirms receipt of the Shares by the
Stock Option Holder.  Subject to Rule 6.4, the Broker shall transfer,
to the Stock Option Holder's account with Mizuho Bank, Ltd. (“Mizuho Bank”)
opened pursuant to Rule 6.6.3, the proceeds of the sale of the Shares less, (i)
the commission for the sale, (ii) the related expenses and taxes (if any), and
(iii) the commission for such transfer, within 30 days of the sale.

    

    
      	
              8.

            	
              Rule
      6.2.3 should be amended to read in its entirety as
  follows:

            

    

    

    If the
Company deems that the proceeds of a sale of the Shares will not be enough to
cover (i) the Total Exercise Price plus (ii) all costs, expenses and taxes
referred to in Rule 6.2.2, the Company may either (a) sell the Shares in
accordance with Rule 6.2.2 or (b) reject the request of the Stock Option Holder
to sell the Shares and deem that he or she has withdrawn the exercise of his/her
Stock Options, provided that if the request to sell the Shares has been made to
the Broker in accordance with Rule 6.2.1, the Company may so deem only when such
withdrawal can be made under the rules of  the Japan Securities
Depository Center and the internal rules of the Broker.  If the Stock
Options are deemed to have not been exercised, the Stock Option Holder may
exercise the relevant Stock Options in accordance with these Rules after he or
she receives a notice from the Company to the effect that his/her Stock Options
have been so deemed. The Company shall not be liable to the Stock Option Holder
for any result of any decision made under this Rule 6.2.3.

    

    
      	
              9.

            	
              A
      new Rule 6.5 shall read in its entirety as
  follows:

            

    

    

    Withholding

    

    The
Company, the Employing Company, and the Broker shall be entitled to withhold,
and the Stock Option Holder shall be obligated to pay, the amount of any tax
attributable to or payable by and any social security or similar payments
attributable to or payable by the Stock Option Holder in connection with the
exercise or receipt of his/her Stock Option or the sale of the
Shares.  The Company and the Broker may establish appropriate
procedures to provide for any such payments and to ensure that the relevant
company receives prompt advice concerning the occurrence of any event which may
create, or effect the timing or amount of any obligation to pay or
withhold any such taxes or which may make available to the relevant company any
tax deduction with respect to the payment.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

        - 25 -

        
 

      

    

    
      	
              10.

            	
              A
      new Rule 6.7 shall read in its entirety as
  follows:

            

    

    

    Under no
circumstances shall the Stock Option Holder be required or permitted to provide
the Exercise Price for the exercise of the Stock Option.

    

    
      	
              11.

            	
              A
      new Rule 7.8 shall read in its entirety as
  follows:

            

    

    

    At no
time shall the Plan be considered an offer to purchase or sell securities in the
PRC.

    

    
      	
              12.

            	
              A
      new Rule 11 shall read in its entirety as
  follows:

            

    

    

    In order
to comply with any applicable requirements announced by an authority of the PRC
government, the Company shall have the right to terminate the Plan or to modify
the Plan to the extent necessary to comply with such requirements. Such
termination or the extent of any such modification shall be at the sole
discretion of the Company. The Company shall bear no liability to the Stock
Option Holder in the event the Plan is terminated or modified in accordance with
this Rule 11.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

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    Local
Law Appendix

    for
Singapore

    

    

    This
Appendix is only applicable to employees of Advantest’s Singapore entity who are
ordinarily tax residents in Singapore.  For avoidance of doubt, please
contact your tax advisor to determine whether you are ordinarily a tax resident
of Singapore.

    

    INTERPRETATION

    

    The terms
and conditions set out in this Local Law Appendix for Singapore shall be
applicable to Eligible Employees who are residents in Singapore and is
supplemental to the terms and conditions set out in the Rules of the Plan. In
the event of any inconsistency or conflict between (1) this Local Law Appendix
for Singapore, (2) the Rules of the Plan and/or (3) the written acceptance for
Stock Options in the form of Attachment B of the Plan, this Local Law Appendix
for Singapore shall prevail.

    

    AMENDMENTS
/ ADDITIONS TO THE RULES

    

    Clause 1.1 -
Definitions

    

    The
definition of “Eligible Employees” in the Rules of the Plan to be deleted in its
entirety and replaced with the following:

    

    “Eligible
Employee” means any such director, officer or employee of an Employing Company
as designated by the Company.

    

    Clause 2.7 - Grant to
Employing Company

    

    Clause
2.7 shall be deleted in its entirety.

    

    Clause 4.1.1 - Exercise and
Cancellation - General Rules

    

    Clause
4.1.1 shall be deleted in its entirety and replaced with the
following:

    

    within
the period commencing one year from the Date of Grant and expiring at close of
business on March 31, 2013.

    

    Clause 5.1 - Events of
automatic transfer

    

    Clause
5.1.2 shall be deleted in its entirety and replaced with the
following:

    

    a Stock
Option Holder becomes a person who does not hold any position as a director,
officer, employee or any other similar position of the Advantest Group; except
where the Company deems that it is appropriate to allow him/her to exercise
his/her Stock Options and notifies him/her that his/her Stock Options continue
to be exercisable.

    

    Clause
5.1.5 shall be deleted in its entirety and replaced with the
following:

    

    a Stock
Option Holder becomes for any reason a director, officer, employee or any other
similar position of a company which is a competitor with the Company and the
Company notifies the Stock Option Holder that his/her Stock Options are
non-exercisable.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      
         

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    Local
Law Appendix

    for
Republic of China (Taiwan)

    

    

    Amendments/Additions
to the Rules

    

    
      	
              2.4

            	
              No
      Payment

            

    

    

    Delete
“The grant of the Stock Option is the Company's ex gratia benefit of employment”
and move this sentence to an added provision 2.8.

    

    

    
      	
              2.8

            	
              Ex
      Gratia Benefit (New Provision)

            

    

    

    The grant
of the Stock Option is the Company's ex gratia benefit of
employment.  Participation in this Stock Option is entirely separate
from any pension right or entitlement a Stock Option Holder may have and from
the terms of the employment.

    

    
      	
              7.8

            	
              Tax
      Liabilities

            

    

    

    A Stock
Option Holder should consult his or her financial and/or tax adviser to
determine the personal tax treatment upon the grant of Stock Options, the
exercise of Stock Options and the subsequent sale of Shares.

    

    Taxation

    

    The
following discussion is intended to summarize briefly certain tax consequences
associated with the grant and exercise of options under the Plan, as well as the
sale of shares obtained under the Plan.  It is not intended to serve
as specific tax advice concerning your participation.  This supplement
reflects that tax laws in effect as of June 10, 2008.  Any changes in
the tax laws after this date may affect the taxation of your
options.  You should seek the advice of your personal tax advisor for
specific tax consequences associated with your participation in the
Plan.

     

    Grant of Stock
Options

     

    A Stock
Option Holder will not be subject to Taiwan taxation at the grant of the stock
option under the Plan.

     

    Date of
Vesting

     

    A Stock
Option Holder will not be subject to Taiwan taxation on the vesting date of the
stock option under the Plan.

     

    Exercise of Stock
Options

     

    A Stock
Option Holder is required to report taxable income on the exercise of stock
opions.  The taxable amount the spread (i.e. the difference between
the fair market value at exercise and the exercise price) proportioned to the
Stock Option Holder’s fraction of days present in Taiwan during the vesting
period.  A Stock Option Holder who is a Taiwan tax resident generally
is considered to have been in Taiwan during the entire vesting period for
purposes of proportioning the taxable spread.  A Stock Option Holder
is advised to consult a tax advisor about the rules applicable to his/her
taxable spread.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    - 28 -

     

    The
taxable spread should be categorized as “other income” on the Stock Option
Holder’s annual individual income tax return.

     

    Advantest
Taiwan Inc. will issue a non-withholding statement and report the name, address,
ID number and taxable income of the Stock Option Holder to the tax authorities
by the end of January of the following year.

     

    Sale of the
Shares

    

    The gains
realized from the sale of the shares will not be subject to Taiwan taxation
under the Plan until the worldwide income provision (“Worldwide Income
Provision”) of Article 12 of the Alternative Minimum Tax Act (the “AMT Act”)
comes into effect.  The enforcement of the Worldwide Income Provision
has been projected at January 1, 2009 or January 1, 2010.  The
enforcement date is still subject to the Executive Yuan’s further
discretion.

    

    Pursuant
to Article 12 of the AMT Act, an individual taxpayer’s taxable income for
alternative minimum income tax purposes (“AMTI”) is computed by adding back the
offshore income if it is in excess of NTD 1 million and other add back items to
those items provided in the Income Tax Law.  Consequently, the sale of
the shares may, depending on the individual situation of the taxpayer, subject
the taxpayer to have to pay alternative minimum income tax as a result of
selling the shares.  The AMT rate for individuals is 20%.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    - 29
-
  

      

    Local
Law Appendix

    for
USA

    

    Purpose

    

    This Appendix sets forth certain terms
and conditions applicable to residents of the United States who are awarded
Stock Options (each, a “U.S. Stock Option Holder”) under the Plan and
supplements the terms and conditions set forth in the Rules of the
Plan.  IN THE EVENT
OF ANY CONFLICT AMONG THE TERMS OF THIS APPENDIX, THE RULES OR A STOCK OPTION
ACCEPTANCE FORM, THE TERMS OF THIS APPENDIX SHALL
GOVERN.  Capitalized terms used in this Appendix without
definition have the meaning assigned to such terms in the Rules.

    

    

    Administration of Stock
Options Granted to U.S. Stock Option Holders

    

    The Company, or its authorized U.S.
representative, shall (i) administer the terms of this Appendix, (ii) establish
from time to time such rules and procedures as it may deem appropriate for the
proper administration of this Appendix and (iii) make such determinations under
and such interpretations of and take such steps in connection with this Appendix
or the Stock Options granted to U.S. Stock Option Holders as it may deem
necessary or advisable.

    

    

    Right to American Depository
Shares (“ADSs”)

    

    The Company may arrange, in its sole
discretion, for U.S. Stock Option Holders to receive ADSs rather than Shares
upon the exercise of their Stock Options, in which case, all references to
“Shares” in the Rules, this Appendix, a Stock Option Acceptance Form or any
other document related to the Plan shall be deemed to be a reference to one (1)
ADS per Share, as the context may require.  100 ADSs will be deemed to
constitute a “Unit.”  ADSs will be evidenced by American Depository
Receipts of the Company, which are currently traded on the New York Stock
Exchange.

    

    In the event that the Company elects to
issue ADSs upon the exercise of Stock Options by U.S. Stock Option Holders, 100
ADSs will be issued upon the exercise of each Stock Option.  The
number of ADSs so issued will be adjusted accordingly when the number of Shares
to be issued upon the exercise of each Stock Option is adjusted pursuant to the
Rules.

    

    

    Limitation on Number of
Shares or ADSs Available for Issuance

    

    Notwithstanding anything to the
contrary in the Rules or this Appendix, the maximum aggregate number of Shares
(or ADSs) that may be issued under the Plan as ISOs is 252,000 Shares (or
252,000 ADSs), subject to any equitable adjustments to the number and kind of
Shares or ADSs under the Rules to the extent permitted under Section 422 of the
United States Internal Revenue Code of 1986, as amended (the
“Code”).  To the extent permitted under Section 422 of the Code, any
Shares or ADSs subject to a Stock Option that lapses, expires or is otherwise
terminated without the issuance of such Shares or ADSs may again be available
for purposes of this limit.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    - 30 -

     

    ISO
Qualification.

    

    To the extent possible, Stock Options
awarded to Eligible Employees resident in the United States are intended to
qualify as incentive stock options (“ISOs”) within the meaning of Section 422 of
the Code.  Pursuant to the requirements of the Code, only those Stock
Options awarded to Eligible Employees who are employees of an Employing Company
(and which is a “parent corporation” or “subsidiary corporation” within the
meaning of Section 424 of the Code) may be considered ISOs.  Stock
Options awarded to non-employee directors of an Employing Company shall be
nonqualified stock options.

    

    Vesting and
Exercise

    

    By way of clarification, if a U.S.
Stock Option Holder ceases to be a director, auditor, officer or employee of any
Employing Company under circumstances as a result of which such U.S. Stock
Option Holder’s Stock Options “shall become non-exercisable” in accordance with
Rule 5.1, as applicable, it is understood that:

    

    
      
        	
              	
                (1)

              	
                If
      such cessation occurs prior to the start of the Exercise Period (April 1,
      2009), such U.S. Stock Option Holder’s Stock Options shall never become
      exercisable, but shall be cancelled without any payment being made to the
      U.S. Stock Option Holder in respect thereof;
and

              

      

    

    

    
      
        	
              	
                (2)

              	
                If
      such cessation occurs on or after the start of the Exercise Period, such
      U.S. Stock Option Holder’s Stock Options shall no longer be exercisable as
      of the date of such cessation, and shall be cancelled without any payment
      being made to the U.S. Stock Option Holder in respect
    thereof.

              

      

    

    

    In no
event will a U.S. Stock Option Holder be permitted to exercise Stock Options
either before the start of the Exercise Period or after the end of the Exercise
Period.

    

    Due to the prohibition on loans to
directors and executive officers of the Company set forth under Section 402 of
the Sarbanes-Oxley Act of 2002, the cashless exercise feature of the Plan, as
set forth in Rule 6.2, is not available for U.S. Stock Option Holders who are
directors and executive officers of the Company at the present
time.  The Company will inform those who are subject to this
prohibition if such feature does become available in the
future.  Until such time, such U.S. Stock Option Holder must exercise
his or her Stock Options in the manner set forth in Rule 6.1.

    

    ISO
Conditions

    

    A U.S. Stock Option Holder must comply
with each of the following conditions to ensure that his or her Stock Options
qualify as ISOs.  Except where otherwise noted, responsibility for
complying with the following conditions will be the responsibility of the
individual U.S. Stock Option Holder:

    

    
      
        	
              	
                (1)

              	
                Employee
      Status.  At all times during the period commencing on the
      relevant Date of Grant and ending on the date three months prior to the
      date of exercise, the U.S. Stock Option Holder must be an employee of the
      Company or another member of the Advantest Group (except in the case of an
      employee who is disabled within the meaning of Section 22(e)(3)
      of the Code, in which case such three-month period is extended to one
      year).

              

      

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      - 31 -

       

      
        
           

        

      

      
        	
              	
                (2)

              	
                10%
      Shareholders.  No Stock Option shall qualify as an ISO if
      the U.S. Stock Option Holder is a 10% Shareholder, unless (a) the Exercise
      Price, as of the Date of Grant, is at least 110% of the fair market value
      of the Shares or ADSs subject to the Stock Option and (b) such Stock
      Option, by its terms, is not exercisable after the expiration of five
      years from the Date of Grant.  A “10% Shareholder” means that,
      as of the relevant Date of Grant, an individual owns stock possessing more
      than 10% of the total combined voting power of all classes of stock of the
      Company or any of its
subsidiaries.

              

      

    

    

    
      
        	
              	
                (3)

              	
                Holding
      Period.  A Stock Option will qualify for ISO treatment
      only if the U.S. Stock Option Holder makes no disposition of the Shares or
      ADSs acquired upon exercise of the Stock Option within two years from the
      Date of Grant or within one year from the date of
  exercise.

              

      

    

    

    
      	
            	
              (4)

            	
              Restrictions on
      Exercise.  

            

    

    

    
      
        	
              	
                (a)

              	
                The
      Stock Option may only be exercised by the U.S. Stock Option Holder during
      his or her lifetime.

              

      

    

    

    
      
        	
              	
                (b)

              	
                To
      the extent that the aggregate fair market value of Shares or ADSs with
      respect to which Stock Options are exercisable for the first time by a
      U.S. Stock Option Holder during any calendar year exceeds $100,000, such
      Stock Options shall not qualify for treatment as ISOs.  The
      foregoing sentence shall be applied by taking Stock Options into account
      in the order in which they were
granted.

              

      

    

    

    
      
        	
              	
                (5)

              	
                Conditions Otherwise
      Satisfied by Plan.  The Plan was approved by shareholders
      of the Company on June 25, 2008.  No Stock Option shall be
      granted under the Plan later than ten years from the date on which the
      Plan was approved by the Board of Directors of the Company (the
      “Board”).

              

      

    

    

    Any Stock
Option granted under the Plan that fails to satisfy conditions (1) through (5)
above shall be deemed to be a nonqualified stock option.  Any
ambiguities in the terms of a Stock Option granted under the Plan shall, to the
extent possible, be construed in favor of a finding that such Stock Option
qualifies as an ISO.

    

    The Company shall have the right, in
its sole discretion, to elect to have any rights granted to Stock Option Holders
generally by operation of any non-U.S. law, including, without limitation, any
Japanese law granting retroactive dividend rights, not apply to U.S. Stock
Option Holders where such law (i) is not required to apply to U.S. Stock Option
Holders and (ii) would jeopardize or prevent such U.S. Stock Option Holders'
Stock Options from qualifying as ISOs.

    

    Cessation of
Employment

    

    This Appendix shall not be construed to
limit the period of time, if any, following a U.S. Stock Option Holder’s
termination of employment during which the U.S. Stock Option Holder may exercise
his or her Stock Options pursuant to Rule 5.  Nevertheless, a U.S. Stock
Option Holder who intends for his or her Stock Options to be treated as ISOs
will be required to exercise such Stock Options upon the earlier of

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    - 32 -

     

     

    (i) such
time specified in the applicable provision of Rule 5 and (ii) three months
following his or her termination of employment (except in the case of an
employee who is disabled within the meaning of Section 22(e)(3) of the Code, in
which case such three-month period is extended to one year) provided, however,
that in no event may the Stock Option be exercised beyond the last date of the
Exercise Period.

    

    Not Part of
Wages

    

    Awards of Stock Options are not part of
a U.S. Stock Option Holder’s base salary or wages and will not be taken into
account in determining any other employment-related rights the U.S. Stock Option
Holder may have, such as rights to pension or severance
pay.  Provided, however, that in no event may the Stock Option be
exercised beyond the last date of the Exercise Period.

    

    Securities Law
Restrictions.

    

    The Company may require each U.S. Stock
Option Holder purchasing or acquiring Shares or ADSs pursuant to a Stock Option
under the Plan to represent to and agree with the Advantest Group in writing
that such U.S. Stock Option Holder is acquiring the Shares or ADSs for
investment and not with a view to the distribution thereof.  All
certificates for Shares or ADSs delivered under the Plan, upon exercise of a
Stock Option, shall be subject to such stock-transfer orders and other
restrictions as the Company may deem advisable under the rules, regulations, and
other requirements of the Securities and Exchange Commission, any exchange upon
which the Shares or ADSs are then listed, and any applicable federal or state
securities law, and the Company may cause a legend or legends to be put on any
such certificates to make appropriate reference to such
restrictions.  No Shares or ADSs shall be issued hereunder unless the
Advantest Group shall have determined that such issuance is in compliance with,
or pursuant to an exemption from, all applicable federal and state securities
laws.

    

    Bank and
Broker

    

    Notwithstanding anything to the
contrary in the Rules, including, without limitation, Rules 1.1 or 6.6.3, or
your Stock Option Acceptance Form:

    

    
      
        	
              	
                (1)

              	
                “Broker” means
      JPMorgan Chase Bank or such other broker or agent appointed from time to
      time by the Company to execute transactions in connection with the Plan;
      and

              

      

    

    

    
      
        	
              	
                (2)

              	
                A
      U.S. Stock Option Holder shall open and maintain an account in his or her
      name with JPMorgan Chase Bank for the purpose of the payment of the
      proceeds of a sale of Shares or ADSs.  Such account shall be
      opened through the Company.

              

      

    

    

    Adjustment

    

    Unless the Company determines
otherwise, notwithstanding Rule 3.1 to the contrary, no adjustments shall be
effective if the result of the adjustment is a reduction in the aggregate
Exercise Price of a stock option grant.

    

    Section 409A of the US
Internal Revenue Code

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    - 33 -

     

    As the
Option Price is equal to the fair market value of a Share, the Stock Options are
intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as
amended, and the regulations and guidance promulgated thereunder (“Section
409A”).  Notwithstanding the foregoing or any provision of the Plan,
if any provision of the Plan contravenes Section 409A or could cause the Stock
Option Holder to incur any tax, interest or penalties under Section 409A, the
Company may, in its sole discretion and without the Stock Option Holder’s
consent, modify such provision to (i) comply with, or avoid being subject to,
Section 409A, or to avoid the incurrence of taxes, interest and penalties under
Section 409A, and/or (ii) maintain, to the maximum extent practicable, the
original intent and economic benefit to the Stock Option Holder of the
applicable provision without materially increasing the cost to the Company or
contravening the provisions of Section 409A.  This provision does not
create an obligation on the part of the Company to modify the Plan and does not
guarantee that the Stock Options will not be subject to taxes, interest and
penalties under Section 409A.

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