Document:

Exhibit 10.2

CHINA BAK BATTERY, INC.

STOCK OPTION PLAN

NOTICE OF GRANT

Capitalized but otherwise undefined terms in this Notice of Grant and the attached Restricted Stock Grant Agreement shall have the same defined meanings as in the China BAK Battery, Inc. Stock Option Plan. 

	
  
Name:
  	
  
 
  	
  
 
  	
  
Address:
  	
  
 
  
	
  
 
  	
  

  	
  
 
  	
  
 
  	
  

  

You have been granted shares of Restricted Stock subject to the terms and conditions of the Plan and the attached Restricted Stock Grant Agreement, as follows:

	
  
 
  	
  
Date of Grant:
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  

  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
Vesting Commencement Date:
  	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
 
  	
  
 
  	
  

  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
   
 	
   
 
	
  
 
  	
  
Purchase Price per share of Restricted Stock:
  	
  
$
  	
  
[$-]
  	
   
 
	
  
 
  	
  
 
  	
  
 
  	
  

  	
  
 
  
	
  
 
  	
  
Total Number of shares of Restricted Stock Granted:
  	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
 
  	
  
 
  	
  

  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
Total Purchase Price:
  	
  
$
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  

  	
  
 
  

Vesting Schedule:

The shares of Restricted Stock shall vest and no longer be subject to forefeiture in accordance with the following schedule:

[Insert vesting schedule for shares of Restricted Stock.]

CHINA BAK BATTERY, INC.

STOCK OPTION PLAN

RESTRICTED STOCK GRANT AGREEMENT

            This
RESTRICTED STOCK GRANT AGREEMENT (“Agreement”),
dated as of the date specified in the Notice of Grant (which is expressly
incorporated herein and made a part hereof, the “Notice of
Grant”), is made by and between CHINA BAK BATTERY, INC., a Nevada
corporation (the “Corporation”), and the person in the
Notice of Grant (the “Grantee,” which term as used
herein shall be deemed to include any successor to the Grantee by will or by the
laws of descent and distribution, unless the context shall otherwise
require).

BACKGROUND

            Pursuant to
the Corporation’s Stock Option Plan (the “Plan”),
the Corporation, acting through the Committee, approved the issuance to the
Grantee, effective as of the date set forth above, of an award of the number of
shares of Restricted Stock as is set forth in the attached Notice of Grant at
the purchase price per share of Restricted Stock (the “Purchase
Price”) set forth in the attached Notice of Grant, upon the terms
and conditions hereinafter set forth.

              NOW,
THEREFORE, in consideration of the mutual premises and undertakings
hereinafter set forth, the parties hereto agree as follows:

1.          Grant of Restricted Stock.  The Corporation hereby grants to Grantee, and Grantee hereby accepts the number of shares of Restricted Stock set forth in the Notice of Grant, subject to the payment by the Grantee of the total purchase price set forth in the Notice of Grant.  

2.          Stockholder Rights.  Until such time as all or any part of the Restricted Stock is forfeited to the Corporation under this Agreement, if ever, Grantee (or any successor in interest) shall have the rights of a stockholder (including voting rights) with respect to the Restricted Stock, including the Restricted Stock that has not yet vested, subject, however, to the transfer restrictions of Section 3.

3.          Vesting of Restricted Stock.  

            (a)          The shares of Restricted Stock shall be restricted and subject to forfeiture pursuant to Section 4 until vested pursuant to this Section 3 or Section 6(b).  The shares of Restricted Stock shall vest, and no longer be subject to forfeiture, (such shares of Restricted Stock becoming “Vested Shares”) in accordance with the vesting schedule set forth in the Notice of Grant.  All shares of Restricted Stock which have not become Vested Shares are hereinafter sometimes referred to as “Nonvested Shares.”

            (b)          The Grantee acknowledges that the vesting of the foregoing shares of Restricted Restricted Stock may create significant income tax liability to the Grantee.

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            (c)          Nonvested Shares may not be sold, transferred, assigned, pledged, or otherwise disposed of, directly or indirectly.

4.          Forfeiture of Nonvested Shares.  At such time as Grantee’s Business Relationship with the Corporation ceases for any reason, including death, then, in such event, any Nonvested Shares shall be automatically forfeited to the Corporation unless the Corporation otherwise notifies the Grantee, subject to the re-payment by the Corporation of the total purchase price specified in the Notice of Grant.

5.          Legend.  All stock certificates evidencing the Nonvested Shares shall be imprinted with a legend substantially as follows:

	
  
 
  	
  
“THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE   ARE SUBJECT TO RESTRICTIONS AGAINST TRANSFER AND FORFEITURE, AS SET FORTH IN   A RESTRICTED STOCK GRANT AGREEMENT DATED [INSERT DATE]. TRANSFER OF THESE   SHARES MAY BE MADE ONLY IN COMPLIANCE WITH THE PROVISIONS OF SAID AGREEMENT,   A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION.”
  

6.          Recapitalizations, Exchanges, Mergers, Etc.  

            (a)          The provisions of this Agreement shall apply to the full extent set forth herein with respect to any and all shares of capital stock of the Corporation or successor of the Corporation which may be issued in respect of, in exchange for, or in substitution for the Restricted Stock by reason of any stock dividend, split, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise which does not terminate this Agreement.  Except as otherwise provided herein, this Agreement is not intended to confer upon any other person except the parties hereto any rights or remedies hereunder.

            (b)          In the event that the Corporation effects a Corporate Transaction, the Board of Directors may take any one or more of the actions specified in the Plan

7.          No Employment Contract Created.  The issuance of the shares of Restricted Stock shall not be construed as granting to Grantee any right with respect to continuance of employment or any other business relationship by the Corporation or any of its subsidiaries.  The right of the Corporation or any of its subsidiaries to terminate at will Grantee’s employment or terminate a business relationship with the Grantee at any time (whether by dismissal, discharge or otherwise), with or without cause, is specifically reserved, subject to any other written employment or other agreement to which the Corporation and Grantee may be a party.

8.          Section 83(b) Election.  Grantee understands that under Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), the excess of the fair market value of the shares of Restricted Stock on the date any forfeiture restrictions applicable to such shares of Restricted Stock lapse over the purchase price paid for such shares of Restricted Stock will be reportable as ordinary income at that time.

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Grantee understands, however, that Grantee may elect to be taxed at the time the shares of Restricted Stock are acquired hereunder, rather than when and as such shares of Restricted Stock cease to be subject to such forfeiture restrictions, by filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30) days after the date of this Agreement. GRANTEE ACKNOWLEDGES THAT IT IS GRANTEE’S SOLE RESPONSIBILITY, AND NOT THE CORPORATION’S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN IF GRANTEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON GRANTEE’S BEHALF.

9.          Tax Witholding.  The Corporation shall be entitled to withhold from Grantee’s compensation any amounts necessary to satisfy applicable tax withholding with respect to the grant and vesting of the shares of Restricted Stock.

10.         Interpretation.  The shares of Restricted Stock are being issued pursuant to the terms of the Plan, and shall in all respects be interpreted in accordance therewith.  The Board of Directors shall interpret and construe this Agreement and the Plan, and any action, decision, interpretation or determination made in good faith by the Board of Directors shall be final and binding on the Corporation and Grantee.  

11.        Notices.  All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if (i) personally delivered or sent by telecopy, (ii) sent by nationally-recognized overnight courier or (iii) sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

             if to the Grantee, to the address (or telecopy number) set forth on the Notice of Grant; and

             if to the Corporation, to its principal executive office as specified in any report filed by the Corporation with the Securities and Exchange Commission or to such address as the Corporation may have specified to the Grantee in writing, Attention: Corporate Secretary.

or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.  Any such communication shall be deemed to have been given (i) when delivered, if personally delivered, or when telecopied, if telecopied, (ii) on the first Business Day (as hereinafter defined) after dispatch, if sent by nationally-recognized overnight courier and (iii) on the third Business Day following the date on which the piece of mail containing such communication is posted, if sent by mail.  As used herein, “Business Day” means a day that is not a Saturday, Sunday or a day on which banking institutions in the city to which the notice or communication is to be sent are not required to be open.  

12.        Specific Performance.  Grantee expressly agrees that the Corporation will be irreparably damaged if the provisions of this Agreement and the Plan are not specifically enforced.  Upon a breach or threatened breach of the terms, covenants and/or conditions of this Agreement or the Plan by the Grantee, the Corporation shall, in addition to all other remedies, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or decree for specific performance, in accordance with the provisions hereof and thereof.  The Board of Directors shall have the power to determine what constitutes a breach or threatened breach of this Agreement or the Plan.  Any such determinations shall be final and conclusive and binding upon the Grantee.

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13.        No Waiver.  No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.

14.        Grantee Undertaking.  The Grantee hereby agrees to take whatever additional actions and execute whatever additional documents the Corporation may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Grantee pursuant to the express provisions of this Agreement.

15.        Modification of Rights.  The rights of the Grantee are subject to modification and termination in certain events as provided in this Agreement and the Plan.

16.        Governing Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Nevada applicable to contracts made and to be wholly performed therein, without giving effect to its conflicts of laws principles.

17.        Counterparts; Facsimile Execution. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.  Facsimile execution and delivery of this Agreement is legal, valid and binding execution and delivery for all purposes.

18.        Entire Agreement.  This Agreement (including the Notice of Grant) and the Plan, constitute the entire agreement between the parties with respect to the subject matter hereof, and supersede all previously written or oral negotiations, commitments, representations and agreements with respect thereto.

19.        Severability.  In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 

20.        WAIVER OF JURY TRIAL.  THE GRANTEE HEREBY EXPRESSLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.

[signature page follows]

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          IN WITNESS WHEREOF, the parties hereto have executed this Restricted Share Grant Agreement as of the date first written above.

	
   
  	
  
CHINA BAK BATTERY, INC.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
 
  
	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
Name:
  	
  
 
  
	
  
 
  	
  
Title:
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  GRANTEE:
  
	
   
  	
   
  	
   
  
	
   
  	
   
  	
   
  
	
   
  	
   
  	
  

  
	
   
  	
  Name:
  	
   
  
	
   
  	
   
  	
   
  

6EX-10.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (“Agreement”) is made and entered into as of
September 26, 2006, by and among: Acquicor Technology Inc., a Delaware corporation
(“Parent”); Joy Acquisition Corp., a Delaware corporation and a wholly-owned Subsidiary of
Parent (“Merger Sub”); Jazz Semiconductor, Inc., a Delaware corporation (the “Company”);
and TC Group, L.L.C. as the Stockholders’ Representative. Certain other capitalized terms
used in this Agreement are defined in Exhibit A.

Recitals

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

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

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

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

Agreement

	 	 	 
	The parties to this Agreement agree as follows:

	 
	 	 
	SECTION 1.

	 	Description of Transaction

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

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

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

1.4 Certificate of Incorporation and Bylaws; Directors and Officers.

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

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

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

1.5 Conversion of Shares.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(b) For purposes of this Agreement:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1.6 Treatment of Company Options.

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

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

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

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

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

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

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

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

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

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

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

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

1.7 Working Capital Adjustment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(i) For purposes of this Agreement:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	 	 	 
	1.8

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

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

Additional Purchase Price Adjustment.

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

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

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

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

(c) For purposes of this Agreement:

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

(ii) “Fair Market Value” means:

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

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

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

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

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

(v) “HHNEC Proceeds” means:

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

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

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

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

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

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

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

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

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

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

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

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

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

1.10 Exchange of Certificates.

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

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

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

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

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

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

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

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

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

1.11 Dissenting Shares.

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

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

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

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

	 	 	SECTION 2. Representations and Warranties of the Company

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

2.1 Subsidiaries; Due Organization; Etc.

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

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

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

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

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

2.3 Capitalization, Etc.

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

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

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

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

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

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

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

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

2.4 Financial Statements; Financial Controls.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.7 Bank Accounts; Receivables; Customers and Suppliers.

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

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

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

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

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

2.8 Equipment; Leasehold.

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

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

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

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

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

2.9 Intellectual Property.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.10 Contracts.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.12 Compliance with Legal Requirements; Governmental Authorizations.

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

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

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

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

2.14 Tax Matters.

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

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

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

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

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

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

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

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

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

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

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

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

2.15 Employee and Labor Matters; Benefit Plans.

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

(i) the name of such employee;

(ii) such employee’s title; and

(iii) such employee’s annualized base salary.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.19 Legal Proceedings; Orders.

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

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

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

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

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

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

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

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

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

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

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

2.22 Vote Required.

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

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

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

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

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

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

	 	 	SECTION 3. Representations and Warranties of Parent and Merger Sub

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

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

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

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

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

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

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

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

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

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

	 	 	 
	SECTION 4.

4.1

	 	Certain Covenants of the Company

Access and Investigation.

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

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

(c) During the Pre-Closing Period:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(xiii) make any material Tax election;

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

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

4.3 Notification; Updates to Disclosure Schedule.

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

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

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

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

	 	 	SECTION 5. Additional Covenants of the Parties

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

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

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

5.4 Parent Stockholders’ Meeting.

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

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

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

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

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

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

5.8 Additional Agreements.

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

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

5.9 Financing.

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

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

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

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

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

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

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

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

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

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

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

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

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

5.14 Indemnification of Officers and Directors.

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

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

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

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

5.16 Termination and Amendment of Certain Agreements.

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

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

5.17 Board of Directors; Management.

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

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

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

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

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

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

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

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

	 	 	SECTION 6. Conditions Precedent to Obligations of Parent and Merger Sub

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

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

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

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

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

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

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

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

6.8 Antitrust Matters

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	 	 	SECTION 7. Conditions Precedent to Obligation of the Company

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

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

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

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

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

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

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

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

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

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

7.7 Antitrust Matters.

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

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

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

	 	 	 
	SECTION 8.

	 	Termination
	 
	 	 
	8.1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	 	 	 
	SECTION 9.

9.1

	 	Indemnification, Etc.

Survival of Representations, Etc.

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

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

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

9.2 Indemnification.

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

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

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

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

(iv) any inaccuracy in the Closing Payment Schedule;

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

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

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

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

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

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

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

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

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

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

9.3 Certain Limitations.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

9.5 Defense of Third Party Claims.

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

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

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

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

9.7 Indemnification Claims; Escrow Arrangements.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

9.8 Tax Matters.

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

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

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

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

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

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

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

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

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

	 	 	 
	SECTION 10.

10.1

	 	Miscellaneous Provisions

Stockholders’ Representative.

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

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

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

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

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

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

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

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

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

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

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

if to Parent:

Acquicor Technology Inc.

4910 Birch Street, Suite 102

Irvine, CA 92660

Attention: General Counsel

Facsimile: (949) 266-9020

with a copy to:

Cooley Godward Kronish LLP

101 California Street

San Francisco, CA 94111

Attention: Gian-Michele a Marca

Facsimile: (415) 693-2222

if to the Company:

Jazz Semiconductor, Inc.

4321 Jamboree Rd.

Newport Beach, CA 92660

Attention: General Counsel

Facsimile: (949) 435-8455

with a copy to:

Latham & Watkins LLP

555 Eleventh Street, NW

Suite 1000

Washington, DC 20004-1304

Attention: David Dantzic

Jonn R. Beeson

Facsimile: (202) 637-2201

and the Stockholders’ Representative.

if to the Stockholders’ Representative:

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

101 South Tryon St.

25th Floor

Charlotte, NC 28280

Attention: Todd R. Newnam

Facsimile: 704-632-0299

with a copy to:

Latham & Watkins LLP

555 Eleventh Street, NW

Suite 1000

Washington, DC 20004-1304

Attention: David Dantzic

Jonn R. Beeson

Facsimile: (202) 637-2201

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

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

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

10.8 Governing Law.

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

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

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

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

10.11 Waiver.

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

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

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

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

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

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

10.16 Construction.

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

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

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

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

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

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1

In witness whereof, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above.

Acquicor Technology Inc.,

a Delaware corporation

By:

Name:

Title:

Joy Acquisition Corp.,

a Delaware corporation

By:

Name:

Title:

Jazz Semiconductor, Inc.,

a Delaware corporation

By:

Name:

Title:

TC Group, L.L.C.,

as the Stockholders’ Representative

	 	 	 
	By:

	 	TCG Holdings, L.L.C.,

its Managing Member
	 
	 	 
	By:

	 	

	 

	 	 
	Name:

	 	

	
 
	 	 
	Title:

	 	

	 

	 	 

2

Exhibit A

CERTAIN DEFINITIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Working Capital Adjustment Escrow Fund. “Working Capital Adjustment Escrow Fund” shall mean
the escrow fund established pursuant to the Escrow Agreement for purposes of the purchase price
adjustment, if any, to be determined pursuant to Section 1.7 of the Agreement.

3

Schedule 1.4

Directors and Officers of the Surviving Corporation

Directors:

Gilbert Amelio

Certain other individuals to be designated by Parent in its sole discretion

Officers:

	 	 	 
	Name	 	Position
	Shu Li

	 	President and Chief Executive Officer
	 
	 	 
	Nabil Alali

	 	Vice President, Newport Beach Operations
	 
	 	 
	Daniel T. Lynch

	 	Vice President, Human Resources
	 
	 	 
	Jeffrey R. McHenry

	 	Vice President, Supply Chain Management
	 
	 	 
	Marco Racanelli

	 	Vice President, Engineering and Technology
	 
	 	 
	Theodore Zhu

	 	Chief Marketing Officer and Vice President, Sales

Certain other individuals to be designated by Parent in its sole discretion

4

Schedule 5.16(a)

Agreements to be Terminated Prior to Closing

	 	•	 	Carlyle Management Agreement dated as of March 12, 2002 between the Company and TC
Group, L.L.C.

	 	•	 	Conexant Management Agreement dated as of March 12, 2002 between the Company and
Conexant Systems, Inc.

	 	•	 	Termination Agreement dated as of June 28, 2006 by and between the Company and TC Group,
L.L.C.

	 	•	 	Termination Agreement dated as of June 28, 2006 by and between the Company and Conexant
Systems, Inc.

	 	•	 	Second Amended and Restated Registration Rights Agreement dated as of October 15, 2002
among the Company and the stockholders of the Company party thereto.

	 	•	 	Second Amended and Restated Stockholder Agreement dated as of October 15, 2002 among the
Company and the stockholders of the Company party thereto.

	 	•	 	Second Amended and Restated Carlyle Board Representation Agreement dated as of
October 15, 2002 between the Company, Newport Fab, LLC and the stockholders of the Company
party thereto.

	 	•	 	Second Amended and Restated Conexant Board Representation Agreement dated as of
October 15, 2002 between the Company, Newport Fab, LLC and the stockholders of the Company
party thereto.

	 	•	 	RFMD Board Representation Agreement dated as of October 15, 2002 between the Company,
Newport Fab, LLC and the stockholders of the Company party thereto.

	 	•	 	Amended and Restated Carlyle Review Agreement dated as of October 15, 2002 among the
Company, Newport Fab, LLC, Carlyle Partners III, L.P., CP III Coinvestment, L.P. and
Carlyle High Yield Partners, L.P.

	 	•	 	Amended and Restated Conexant Review Agreement dated as of October 15, 2002 between the
Company, Newport Fab, LLC and Conexant Systems, Inc.

	 	•	 	Stockholders Agreement among the Company, Carlyle Partners III, L.P. and the other
stockholders of the Company listed on the signature pages attached thereto.

5

Schedule 5.16(b)

Agreements to be Amended Prior to Closing

1. Half Dome Lease Agreement between Specialtysemi, Inc. and Conexant Systems, Inc. dated March 12,
2002 as amended by the First Amendment to the Half Dome Lease Agreement between Newport Fab, LLC
and Conexant Systems, Inc. dated May 1, 2004 and by the Second Amendment to the Half Dome Lease
Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated December 31, 2005.

2. El Capitan Lease Agreement between Specialtysemi, Inc. and Conexant Systems, Inc. date March 12,
2002 as amended by the First Amendment to the El Capitan Lease Agreement between Newport Fab, LLC
and Conexant Systems, Inc. dated October 1, 2004, by the Second Amendment to the El Capitan Lease
Agreement between Newport Fab, LLC and Conexant Systems, Inc. dated November 31, 2005 and by the
Third Amendment to the El Capitan Lease Agreement between Newport Fab, LLC and Conexant Systems,
Inc. dated September 1, 2006.

6

Schedule 5.17(a)

Certain Directors of Parent Following the Effective Time

Gilbert Amelio (Chairman)

Ellen Hancock

John Kensey

Harold Clark

Moshe Meidar

Certain other individuals to be designated by Parent in its sole discretion

7

Schedule 5.17(b)

Certain Members of Management of Parent Following the Effective Time

	 	 	 
	Name	 	Management Position
	Gilbert Amelio

	 	CEO of Parent
	 
	 	 
	Ellen Hancock

	 	COO and President of Parent
	 
	 	 
	Steve Wozniak

	 	CTO of Parent
	 
	 	 

8

Schedule 6.10(i)

Form of Legal Opinion of Latham & Watkins LLP

	1.	 	The Company is a corporation under the DGCL with corporate power and corporate authority to
execute and deliver the Agreement and the Termination Agreement and perform is obligations
thereunder. Based solely on certificates from public officials, we confirm that the Company
is validly existing and in good standing under the laws of the State of Delaware and is
qualified to do business in California.

	2.	 	The execution, delivery and performance of the Agreement have been duly authorized by all
necessary corporate action of the Company, and the Agreement has been duly executed and
delivered by the Company.

	3.	 	The execution, delivery and performance of the Termination Agreement have been duly
authorized by all necessary corporate action of the Company, and the Termination Agreement has
been duly executed and delivered by the Company.

	4.	 	The execution and delivery of the Agreement by the Company and the consummation of the Merger
pursuant thereto and the execution and delivery of the Termination Agreement by the Company
and the termination of the agreements referenced therein pursuant thereto, in each case on the
date hereof do not:

	 	(a)	 	violate any provision of the Company’s Certificate of Incorporation or Bylaws,
or

	 	(b)	 	violate (i) the DGCL or any federal or California statute, rule or regulation
applicable to the Company or (ii) the court or governmental orders, writs, judgments or
decrees specifically directed to the Company that were identified to us by an officer
of the Company as material to the Company and listed in Exhibit A.

9

List of Exhibits

	 	 	 	 	 
	Exhibit A

Exhibit B

Exhibit C

Exhibit D

Exhibit

Exhibit F

Exhibit G

	 	-

-

-

-

E

-

-
	 	Certain Definitions

Form of Certificate of Merger

Form of Certificate of Incorporation of the Surviving Corporation

Form of Certificate Amendment

-Form of Escrow Agreement

Company Retention Bonus Plan

Company Special Retention Bonus Plan
	 
	 	 	 	 

10

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