10-K

QuickLinks -- Click here to rapidly navigate through this document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to

Commission file number: 000-51532

IKANOS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization) 73-1721486
(I.R.S. Employer
Identification Number)

47669 Fremont Boulevard
Fremont, CA 94538
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (510) 979-0400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
None	None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO ý

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES o NO ý

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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether Registrant is a larger accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
                Larger Accelerated filer o    Accelerated filer o    Non-acclerated filer ý

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

        As of January 31, 2006, the registrant had 23,910,846 shares of common stock outstanding. The registrant's common stock was not publicly traded on June 30, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

        The Registrant has incorporated by reference into Part III of this Annual Report on Form 10-K portions of its Proxy Statement for the 2006 Annual Meeting of Stockholders.

IKANOS COMMUNICATIONS, INC.

TABLE OF CONTENTS

PART I
	Item 1.	Business	4
	Item 1A.	Risk Factors	30
	Item 1B.	Unresolved Staff Comments	48
	Item 2.	Properties	48
	Item 3.	Legal Proceedings	48
	Item 4.	Submission of Matters to a Vote of Security Holders	48
PART II
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	49
	Item 6.	Selected Financial Data	51
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	53
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	65
	Item 8.	Financial Statements and Supplementary Data	66
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	93
	Item 9A.	Controls and Procedures	93
PART III
	Item 10.	Directors and Executive Officers of the Registrant	94
	Item 11.	Executive Compensation	95
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	100
	Item 13.	Certain Relationships and Related Transactions	103
	Item 14.	Principal Accountant Fees and Services	106
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	107
Signatures			110

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This Form 10-K, particularly in the sections entitled "Business," "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "expect," "predict," "potential," or the negative of these terms or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described under the caption "Risk Factors" and elsewhere in this prospectus, regarding, among other things:

•

our limited operating history;



•

our ability to integrate the technologies and employees from the NPA acquisition into our existing business;



•

decreased demand for our chipsets;



•

selling prices of products being subject to declines;



•

our dependence on a few customers;



•

market acceptance of new products and technologies;



•

our reliance on subcontractors to manufacture, test and assemble our products;



•

the future growth of the fiber-fast broadband and network processing markets;



•

competition and competitive factors of the markets in which we compete; and



•

future costs and expenses and financing requirements.

        These risks are not exhaustive. Other sections of this Form 10-K may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

        You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assume responsibility for the accuracy and completeness of the forward-looking statements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-K to conform these statements to actual results or to changes in our expectations.

3

PART I

ITEM 1. BUSINESS

The following information should be read in conjunction with audited consolidated financial statements and the notes thereto included in Item 8 of this Annual Report on Form 10-K.

Overview

        We are a leading developer and provider of highly programmable semiconductors that enable fiber-fast broadband services over telephone companies' existing copper lines. We have developed these semiconductors for the fiber-fast broadband services market using our proprietary semiconductor design techniques, specific purpose digital signal processor and advanced mixed-signal semiconductor design capabilities. We use the term "fiber-fast" to refer to maximum transmission rates from 50 megabits per second, or Mbps, to 100 Mbps to download or receive information "downstream" and from 30 Mbps to 100 Mbps to upload or transmit information "upstream." In February 2006, we acquired network processing and ADSL assets, which we refer to as the NPA acquisition, that we believe will enable us to become a leading developer and provider of residential gateway semiconductors providing routing, security and wireless local area network, or LAN, functionality. Our expertise in high-performance communications, transmission media and carrier systems enables us to integrate digital and analog signal processing functions into a single chipset that consists of multiple semiconductors. Our chipsets are incorporated in communications and residential gateway systems that are deployed by telephone companies, or carriers, to enable subscribers to receive Triple Play services, including data, voice and video content. By deploying communication systems that incorporate our chipsets, carriers are able to leverage their existing copper infrastructure to provide fiber-fast broadband services, thereby enabling cost-effective delivery of advanced digital media, video, communications and interactive broadband applications. We are a "fabless" semiconductor company in that we outsource all of the manufacturing, assembly and testing of our semiconductors to our outsourcing partners.

        We offer multiple product lines including very-high-bit-rate-digital subscriber line, or VDSL, that are designed to address different segments of the broadband semiconductor market for both carrier networks and subscriber premises equipment:

•

Our Fx and FxS family of VDSL Physical Layer, or PHY, products is targeted at the fiber extension over copper market, in which deployment distances are generally no more than 3,000 feet, and provides transmission rates up to 100 Mbps downstream and upstream;



•

Our SmartLeap and CleverConnect family of VDSL PHY products is targeted at the broadband over copper market, in which deployment distances generally reach up to 15,000 feet, and provides transmission rates up to 60 Mbps downstream and 30 Mbps upstream;



•

Our Eagle family of ADSL PHY products is primarily targeted at the broadband over copper market, and provides transmission rates up to 24 Mbps downstream and 1 Mbps upstream; and



•

Our Fusiv family of residential gateway products is primarily targeted at customer premises equipment, or CPE, for both the fiber extension and broadband over copper markets.

        Carriers choose chipsets from these multiple PHY product lines based upon the design of their networks, including the distance between the fiber termination point and the customer premises. Moreover, carriers choose amongst the Fusiv family of residential gateway semiconductors based upon the services and functions they wish to provide to their customers.

        Our customers consist primarily of large communications OEMs that sell to leading carriers. To date, we have shipped chipsets to enable over ten million ports. A port is the physical connection between the fiber network and the copper telephone line, as well as between the copper telephone line and the customer premises. Our chipsets have been designed into systems offered by leading OEMs

4

including: Alcatel, Calix, Inc., Dasan Networks, Inc., ECI Telecom, Ltd., Huawei Technologies Co., Ltd., Marconi Corporation plc, Millinet Co., Ltd., NEC Corporation, Netopia, Inc., Nokia Corporation, Salira Optical Network Systems, Inc., the SAFRAN Group, of which Sagem Communication is a subsidiary, Siemens AG, Samsung Electronics Co., Ltd., Sumitomo Electric Industries, Ltd., Tellabs, Inc., UTStarcom Incorporated, Wins Communications Co., Ltd., Woojyun Systec Co., Ltd., ZTE Corporation and ZyXEL Communications Corp. Our OEM customers have sold systems that include our chipsets to the following major carriers: Belgacom, BellSouth Corporation, France Telecom, KDDI Corp., Korea Telecom Corp., Nippon Telegraph & Telephone Corp., Softbank BroadBand, Swisscom and Telecom Italia (France). Our chipsets are also being evaluated for deployment by other leading carriers.

Recent Developments

        On February 17, 2006, we acquired the broadband products product line, which consists of network processing and ADSL assets, for approximately $31 million in cash. The NPA acquisition enables us to enter the growing residential gateway semiconductor market. The NPA acquisition also diversifies our product offerings and allows us to sell into new markets worldwide. Furthermore, this acquisition expands our Triple Play and interactive services expertise by adding over 70 personnel to our research and development team.

Industry Background

Demand for Fiber-Fast Broadband Services

        The growth of the Internet, the proliferation of advanced digital media and the advancement of communications infrastructure have fundamentally changed the way people work, shop, entertain and communicate. According to IDC, in 2004, there were over 273 million online households worldwide. Of these households, approximately 127 million were accessing the Internet through broadband connections, while the majority continued to access the Internet through dial-up connections. Dial-up connections provide transmission rates of up to 56 Kbps, allowing for basic applications such as e-mail and low bandwidth Internet access. Comparatively, most of the 127 million households accessing the Internet through broadband connections were utilizing first generation broadband, such as DSL, ADSL or cable modems, for faster downloading of data. We believe that typical first generation broadband transmission rates are 1 Mbps downstream and 256 Kbps upstream, which limit users to sending and receiving emails with attachments utilizing low-bandwidth Internet access and some multi-media applications. Today, consumers and businesses are increasingly demanding access to advanced digital media, video, communications and interactive broadband applications, including:

•

Broadcast television;



•

High definition television, or HDTV;



•

Internet Protocol television, or IPTV;



•

Video on demand, or VOD;



•

Interactive television;



•

Peer-to-peer file sharing;



•

Sending and receiving advanced digital media such as music, photos and video;



•

Video conferencing;



•

Video surveillance;



•

Streaming video and audio;

5

•

Online gaming and game hosting; and



•

Voice over Internet Protocol, or VoIP.

        Additionally, users are increasingly creating, interacting with and transmitting advanced digital media. As a result, the ability to send information upstream has become equally as important as the ability to receive information downstream. For example, applications such as peer-to-peer file sharing or online gaming have the same high bandwidth requirements for both upstream and downstream transmissions. As data and media files increase in size, we believe users will become increasingly dissatisfied with their existing dial-up connections and first generation broadband technology, which do not maintain sufficient transmission rates for satisfactory delivery of these advanced digital media, video, communications and interactive broadband applications.

        The table below illustrates selected applications and the comparative user experience of using alternative technologies:

			First Generation Broadband
		Dial-up	DSL	Cable	Fiber-Fast Broadband
Typical Downstream Speed/Upstream Speed		56 Kbps/ 56 Kbps	1 Mbps/ 256 Kbps	3 Mbps/ 256 Kbps	50 Mbps to 100 Mbps/ 30 Mbps to 100 Mbps
Service Provider		Carrier	Carrier	Cable Operator	Carrier
Application	Specification	Availability of Reliable Applications (Yes/No)
Web Browsing		Yes	Yes	Yes	Yes
Broadcast TV Services	3 TVs per household 4.5 Mbps per TV	No	No	Yes	Yes
Watch Live HDTV	12 Mbps to 19 Mbps per TV	No	No	Yes	Yes
Video On Demand	Full length motion picture 4.5 Mbps	No	No	Yes	Yes
Peer-to-Peer File Sharing	5 Mbps upstream/ 5 Mbps downstream	No	No	No	Yes
On Line Game Hosting	Super Extended Graphics Array, 30 frames per second	No	No	No	Yes
Video Conferencing	Full motion, Super Extended Graphics Array, 30 frames per second	No	No	No	Yes
Streaming Video	Full screen	No	No	No	Yes
Application	Specification	Estimated Time
Send 30 Digital Photos	2.5 megabytes each	>2 hours	>30 minutes	>30 minutes	<10 seconds
Receive 30 Digital Photos	2.5 megabytes each	>2 hours	>10 minutes	>3 minutes	<10 seconds
Send Typical Video Clip	10 megabytes	>20 minutes	>5 minutes	>5 minutes	<2 seconds
Receive Typical Video Clip	10 megabytes	>20 minutes	>1 minute	>20 seconds	<2 seconds

6

The Carrier Market Opportunity for Fiber-Fast Broadband Services and Residential Gateways

        Historically, carriers have used their copper lines primarily for providing basic voice services. While demand for Internet access has increased, traditional basic voice service revenue has experienced little growth. Carriers' legacy voice revenue has also been under pressure due to increased competition from cable operators and other alternative service providers.

        Anticipating a significant increase in advanced communications traffic, carriers upgraded their core and metro area networks with millions of miles of high-capacity optical fiber in the 1990s. However, broadly deploying fiber directly to the end user on the access network to provide fiber-fast broadband is cost prohibitive and time consuming. As a result, there is an enormous disparity between bandwidth in the fiber network and the bandwidth available to the end user. Given that the majority of Internet users are connected to carriers' copper lines, the most practical means available to the carriers for delivering fiber-fast broadband services is to utilize their existing copper lines.

        In an attempt to meet the growth in demand for Internet access and to supplement their legacy voice revenues, carriers have been deploying first generation broadband technologies in the form of DSL solutions over copper lines. First generation DSL typically offers transmission rates that are becoming inadequate for providing the bandwidth necessary for advanced digital media, video and communications applications.

        Second-generation broadband offerings, specifically the ADSL2 and ADSL2+ standards, were introduced to provide carriers with the ability to offer basic video, voice and data services, and provided speed improvement over first-generation broadband technologies. While second-generation broadband technologies do not offer the high maximum upstream and downstream data rates of third- generation, or VDSL-based technologies, second-generation broadband technology offerings have achieved market acceptance in early deployments of Triple Play services.

        Third-generation interactive broadband provides a richer user experience through the combination of higher upstream and downstream transmission rates, which, together with customizable applications, such as interactive television, provides more personalized services than broadcast-oriented networks. Moreover, fiber-fast broadband enables telephone carriers to offer Triple Play and interactive services that may surpass the services currently provided by cable operators.

        To accommodate the requirements of Triple Play and interactive services, a number of carriers are deploying fiber-fast broadband services over their existing copper infrastructure. Fiber-fast broadband technology bridges the bandwidth gap between fiber and copper while avoiding the costs and time of deploying fiber all the way to the premises. This enables carriers to quickly meet the needs of their users and increase their revenues through the delivery of advanced digital media, video, communications and interactive broadband applications while minimizing costs and capital expenditures.

        In order to deliver Triple Play and interactive services, carriers are increasingly offering customers residential gateway equipment that implements some or all of the following key functions:

•

Network security;



•

Internet protocol, or, IP routing;



•

Wireless LAN, such as 802.11x; and



•

VoIP.

        We believe the size of the VDSL semiconductor market opportunity from 2006 through 2010 could exceed $4.0 billion. Furthermore, we believe the residential gateway semiconductor market opportunity from 2006 through 2010 could exceed $1.5 billion.

7

The Ikanos Solution

        We are a leading developer and provider of highly programmable semiconductors that enable fiber-fast broadband services over telephone companies' existing copper lines. We have developed these semiconductors for the fiber-fast broadband services market using our proprietary semiconductor design techniques, specific purpose digital signal processor and advanced mixed-signal semiconductor design capabilities. Our expertise in high-performance communications, transmission media and carrier systems enables us to integrate digital and analog signal processing functions into a single chipset that consists of multiple semiconductors.

        In February 2006, we completed the NPA acquisition, which we believe will enable us to become a leading developer and provider of residential gateway semiconductors providing key functions such as routing, network security, wireless LAN and VoIP. Through this acquisition, we added over 70 engineers with expertise in developing and designing high performance network processing semiconductors and related software that enables us to integrate key residential gateway functions into a single chipset that consists of multiple semiconductors.

        Our chipsets are incorporated in communications systems that are deployed by carriers to enable subscribers to access data, voice and video. We offer highly programmable chipsets that support the multiple international standards used in fiber-fast broadband deployments worldwide, including VDSL, VDSL2, ADSL2 and ADSL2+, as well as network processing semiconductors.

        We have incorporated features and functions into our chipsets that previously had to be developed by our OEM customers as part of their own systems. We refer to these features and functions as our systems-level capabilities, which enable our OEM customers to reduce costs, accelerate time to market and enhance the flexibility of their systems.

        We believe that our key competitive advantages include our system-level expertise, the programmability of our chipsets, our technology leadership and experience working directly with carriers in mass deployment of this technology. Our chipsets are deployed by several leading carriers and are also being evaluated by other leading carriers.

Key features of our technology include:

        Integrated analog technology.    One of the key technology differentiations of our chipsets is our analog technology that is incorporated into our integrated analog front-end. The analog front-end performs the high-precision analog-to-digital and digital-to-analog conversion and the various analog functions necessary to interface between the digital signal processor and the physical transmission medium. Our integrated analog technology includes programmable transmit and receive filters, low-noise amplifiers, and a power-optimized line driver with synthesized impedance and hybrid cancellation. Our analog technology enables systems to increase performance, adapt to noisy signal conditions, reduce power consumption and be programmed for multiple international standards. Additionally, our analog technology eliminates the need for a large number of discrete components and hence reduces costs for our OEM customers and increases the number of connections, or ports, in OEM systems.

        Highly programmable platform and software.    We provide a highly programmable platform for the fiber-fast broadband industry that enables significant customization of reach, transmission rates and other specifications to optimize transmission performance. Our software enables the programmability of our digital signal processor as well as provides an interface to an external processor for diagnostic testing and configuration of key functions. Our software can be remotely downloaded into our chipsets incorporated into customer premises equipment. This capability allows the carriers to upgrade their existing systems without having to replace them, thereby enabling carriers to protect their investments

8

and reduce costs. In addition, we provide application software that can be used by our OEM customers to facilitate the incorporation of our chipsets into their systems.

        High performance digital signal processing and advanced algorithms.    Communications algorithms are special techniques used to transform between digital data streams and specially conditioned analog signals suitable for transmission over copper lines. In order to reliably transmit and receive signals at fiber-fast transmission rates, it is critical to execute advanced algorithms in real time. Algorithm processing is typically performed by the digital signal processor. We have designed high-performance, low power usage digital signal processors for high transmission rate applications that utilize our proprietary software. Our processing algorithms enable reliable transmission and recovery of signals at fiber-fast transmission rates over the existing copper lines even under noisy signal conditions. We believe the combination of speed and programmability of our digital signal processor and our advanced algorithms provides us a competitive advantage.

        Flexible network interfaces.    Carriers globally use multiple communications protocols for transmitting data, voice and video over their networks. Such protocols include Asynchronous Transfer Mode, or ATM, and IP. Our chipsets have the capability to support multiple network protocols and interfaces, including ATM and IP, to a variety of different OEM systems. For example, carriers in Japan and Korea typically deploy our chipsets to build IP-based line cards while carriers in Europe and North America have typically deployed ATM-based systems.

        High performance network processing.    The delivery of high-quality video and other Triple Play services requires a high performance residential gateway to process the digital data streams that travel in both the upstream and downstream directions from the end customer. Common data processing functions include routing of IP based packets, providing voice, video and data streams with different classes of priority within the system and implementing VoIP, network security and wireless LAN functionality. Our products include high performance network processing semiconductors that are designed to perform residential gateway functions at rates of up to 200 Mbps, which is equal to the rates of our VDSL PHY solutions. We believe the combination of our high performance network processing products and our broad range of VDSL and ADSL PHY solutions provides us a competitive advantage.

Key benefits of our technology for our OEM customers and carriers are:

        Enabling the delivery of advanced digital media, video, communications and interactive broadband applications.    Our PHY chipsets provide fiber-fast transmission rates of up to 100 Mbps downstream and upstream, which we believe are the highest transmission rates currently achievable over copper telephone lines. These transmission rates enable carriers to deliver advanced digital media, video, communications and interactive broadband applications such as broadcast television, HDTV, IPTV VOD, interactive television, peer-to-peer file sharing, sending and receiving advanced digital media, video conferencing, video surveillance, streaming audio and video, online gaming and game hosting and VoIP, as well as traditional telephony services.

        Improving time-to-market with programmable systems-level chipsets.    Our chipsets are programmable through our software, which allows our OEM customers to provide a single line card, instead of multiple line cards, to support multiple international standards. Our systems-level capabilities enable us to design our chipsets to accelerate our OEM customers' time-to-market. Because of the programmability of our chipsets, carriers can deliver multiple service packages and charge different amounts for these packages.

        Cost-effective, fiber-fast transmission over existing copper lines.    Our chipsets minimize carriers' capital expenditures and costs because they enable transmission of signals at fiber-fast transmission rates over their existing copper lines. As a result, carriers can leverage their previous investments in

9

their access network infrastructure to deliver advanced revenue-generating services to their customers. Our chipsets are also compatible with carriers' existing systems, enabling these carriers to add line cards without having to replace existing systems, thus lowering upfront capital expenditures and reducing inventory costs. Moreover, we offer chipsets for both second-generation ADSL2 and ADSL2+ broadband solutions, as well as third-generation VDSL broadband solutions, thereby providing our customers with a convenient single source from which to purchase a wide range of broadband access chipsets.

        End-to-end solutions.    We offer chipsets for carrier networks as well as for customer premises equipment including modems and residential gateways. We ensure seamless interoperability by providing end-to-end solutions for the carrier network end and the customer premises end.

        Proven technology.    To date, we have shipped chipsets to enable over ten million VDSL ports. Our chipsets are already deployed or in field testing at several leading carriers worldwide such as Belgacom, France Telecom, KDDI Corp., Korea Telecom Corp., Nippon Telegraph & Telephone Corp., Softbank BroadBand and Telecom Italia (France). Our OEM customers and the carriers they serve conduct extensive system-level testing and field qualification of a new chipset over a six to 18 month period to ensure that it meets performance, standards compliance and stability requirements before that chipset is approved for mass deployment. Our chipsets have been designed into systems offered by leading OEMs including: Alcatel, Calix, Inc., Dasan Networks, Inc., ECI Telecom, Ltd., Huawei Technologies Co., Ltd., Marconi Corporation plc, Millinet Co., Ltd., NEC Corporation, Nokia Corporation, the SAFRAN Group, of which Sagem Communication is a subsidiary, Salira Optical Network Systems, Inc., Siemens AG, Samsung Electronics Co., Ltd., Sumitomo Electric Industries, Ltd., Tellabs, Inc., UTStarcom Incorporated, Wins Communications Co., Ltd., Woojyun Systec Co., Ltd., ZTE Corporation and ZyXEL Communications Corp.

Our Strategy

        Our objective is to be the leading developer and provider of highly programmable semiconductors for fiber-fast broadband over telephone copper lines and to accommodate the requirements of Triple Play and interactive services. In addition, we intend to further expand into new applications and adjacent markets. The principal elements of our strategy are:

        Leverage our market and technology leadership positions.    We believe we have achieved a leadership position in the fiber-fast broadband market. We have been a leader in the development of the standards for fiber-fast broadband over copper lines and our solutions are compliant with many of those standards. Our chipsets have been deployed by several leading carriers, which we believe provides us with an incumbent position with these carriers. We intend to leverage our incumbent position to accelerate the deployment of our chipsets around the world.

        Capitalize on our existing carrier and OEM relationships.    Broadband technology requires customization for the specific needs of carriers. We intend to continue to capitalize on our close relationships with leading carriers and OEMs to accelerate the deployment of our chipsets. We believe that our close relationships with carriers and OEMs provide us with a deep understanding of their needs and enable us to continue to develop customized technology to meet their requirements.

        Continue to pursue acquisitions, strategic partnerships and joint ventures.    We intend to continue to actively pursue acquisitions, strategic partnerships and joint ventures that we believe may allow us to complement our growth strategy, increase market share in our current markets and expand into adjacent markets, broaden our technology and intellectual property and strengthen our relationships with carriers and OEMs. For example, in February 2006, we completed the NPA acquisition, which we believe will enable us to become a leading developer and provider of residential gateway semiconductors.

10

        Leverage our technology capabilities to pursue new market opportunities.    We have developed expertise in technologies that are key to fiber-fast broadband, including analog and mixed-signal semiconductor design, digital signal processing, advanced-signal processing algorithms, firmware and software. Through the NPA acquisition, we added over 70 engineers with expertise in developing and designing high performance network processing semiconductors and related software that enables us to integrate key residential gateway functions into a single chipset that consists of multiple semiconductors. We plan to further extend our technology expertise by devoting engineering resources to research and development in analog and mixed-signal, digital signal and network processing as well as by exploring potential technology acquisition opportunities. We intend to use our core technologies and establish partnerships to develop new complementary products that incorporate additional functionality to our current chipsets to expand our addressable market.

        Rapidly expand our geographic presence.    We have a significant local presence in Japan and Korea. In addition, we have expanded our sales reach by adding sales personnel, field application engineers, consultants and third-party representatives in Taiwan (also serving China), Europe and the United States. We intend to continue to expand our sales team, technical support organization and third-party sales channels to broaden our customer reach on a global basis. Particularly, we intend to achieve significant growth in key countries such as Belgium, Canada, China, France, Germany, India, Italy, The Netherlands, Sweden, Switzerland, Taiwan, the United Kingdom and the United States. We believe that such geographic expansion provides significant potential for additional long-term growth for our company.

        Capitalize on our fabless operating model.    We intend to continue to operate as a fabless semiconductor company by outsourcing all the manufacturing, assembling and testing of our chipsets to reliable outsourcing partners. We also intend to continue working closely with our third-party outsourcing partners to achieve higher performance and lower cost for our chipsets. We believe that our fabless operating model has enabled us to continue to focus on innovation, integration and the marketing and selling of our products. This enables us to maximize our growth opportunities while minimizing our need for capital and increasing our flexibility.

Ikanos Target Markets

        We offer multiple product lines that are designed to address different segments of the fiber-fast broadband and residential gateway semiconductor markets. Using equipment based on our programmable chipsets, carriers deploy advanced digital media, video, communications and interactive broadband applications over their existing copper infrastructure. Carriers choose our chipsets from these multiple product lines based upon the design of their networks, including the distance between the fiber termination point and the customer premises.

Fiber Extension Over Copper Market

        The fiber extension over copper market refers to transmission rates up to 100 Mbps downstream and upstream, with deployment distances that are generally no more than 3,000 feet of copper line, between the point of fiber termination and the end user.

        Carrier networks connect to their customers through fiber followed by copper lines. As carriers extend fiber closer to the customer, the length of the copper line shortens. With copper lines of 3,000 feet or shorter, carriers can provide fiber-fast transmission rates over existing copper lines. Carriers have been increasing the deployment of fiber and bringing it closer to the customer. However, we believe that deploying fiber directly to the customer is cost prohibitive and time consuming. The fiber extension over copper market utilizes copper lines to bridge the connection between the customer premises and the nearest fiber termination point, thereby enabling carriers to deliver fiber-fast services cost effectively. By providing fiber-fast transmission rates over existing copper lines, carriers enable the

11

provision of advanced digital media, video, communications and interactive broadband applications including broadcast television, HDTV, IPTV, VOD, interactive television, peer-to-peer file sharing, sending and receiving advanced digital media, video conferencing, video surveillance, streaming video and audio, online gaming and game hosting and VoIP, as well as traditional telephony services.

        The fiber extension over copper market is driven by the increasing deployment of fiber using various topologies, such as fiber to the home, premises, building, curb and node, collectively referred to as FTTx. The fiber extension over copper market, although still in its infancy, is a rapidly growing market. Growth is currently being fueled by markets in Asia, particularly Japan and Korea.

Ikanos' Fiber Extension Over Copper Products

        Our fiber extension over copper PHY chipsets enable OEMs to develop systems and line cards that connect consumers to carriers' fiber networks using existing copper lines at transmission rates of up to 100 Mbps downstream and upstream. Our product line to address this market includes our Fx and FxS chipsets:

•

Our Fx chipsets are incorporated into line cards that are installed at the carrier network and in optical line terminals, or OLT, and optical network units, or ONU, and other types of optical-based access systems to connect the fiber network to the consumer over existing copper lines.



•

Our FxS chipsets are incorporated into equipment located at the customer premises, referred to as subscriber located equipment, or SLE, or the optical network terminal, or ONT, and are integral to the delivery of fiber fast broadband services.

12

        The following diagram depicts typical network connectivity of fiber extension over copper:

13

Broadband Over Copper Market

        The broadband over copper market refers to transmission rates of up to 60 Mbps downstream and 30 Mbps upstream and in which deployment distances generally reach up to 15,000 feet of copper line between the point of fiber termination and the end user. DSL is currently the predominant technology worldwide to deploy broadband using existing copper lines. A variety of DSL technologies currently exist in the marketplace, including asymmetric DSL, or ADSL, and very high bit-rate DSL, or VDSL and VDSL2, among others. These DSL technologies vary by their downstream and upstream transmission rates and the effective distance over which they operate. Standards-based ADSL transmission rates currently range up to 25 Mbps downstream and 1 Mbps upstream, with the majority of subscribers typically achieving transmission rates of up to 1 Mbps downstream and 256 Kbps upstream. According to IDC, of the 146 million worldwide broadband services subscribers in 2004, more than 95 million subscribed to DSL services. That number is expected to grow to 199 million by 2009, growing at a compounded annual growth rate of 15.7%.

Ikanos' Broadband Over Copper Products

        Our broadband over copper chipsets supply transmission rates up to 60 Mbps downstream and 30 Mbps upstream over a single copper line. Our chipsets are incorporated in systems to provide point-to-point connection between the carriers' central office or remote terminal and the customers' premises. Depending on distance requirements, carriers can provision services from the central office or through neighborhood remote terminals. In carriers' central office installations, our chipsets are incorporated into digital subscriber line access multiplexers, or DSLAMs, while in neighborhood remote terminal cabinets or multi-dwelling wiring closets, our chipsets are incorporated in mini-remote access multiplexers, or mini-RAMs. Copper lines run from the DSLAM or mini-RAM to the customer premises where our chipsets are also incorporated into customer premises equipment.

        Our broadband over copper product line to address this market includes our SmartLeap, CleverConnect and Eagle chipsets:

•

Our SmartLeap chipsets are incorporated on line cards that are installed in existing carrier equipment such as broadband access concentrators, DSLAMs and mini-RAMs.



•

Our CleverConnect and Eagle chipsets are incorporated into the equipment located at the customer premises. CleverConnect chipsets provide PHY connectivity, Eagle chipsets provide ADSL / ADSL2 / ADSL2+ physical layer connectivity, and Fusiv provides high-layer packet and data processing functions.

14

        The following diagram depicts typical network connectivity in broadband over copper applications (setting forth transmission rates upstream/downstream):

15

Residential Gateway Market

        The residential gateway market refers to high-performance customer premises equipment provided by carriers in order to reliably deliver video and other Triple Play services to their subscribers. While system designs may vary from one carrier to another, common functions include the following:

•

A high-speed PHY that enables communications between the carrier network and the CPE;



•

IP routing capability;



•

VoIP capability;



•

Wireless LAN capability;



•

Network security capability;



•

Quality of service capability; and



•

Industry standard interfaces to support connection of additional networked devices or functions.

Ikanos' Network Processing Products

        Our network processing products are primarily targeted at the residential gateway market, but may also be utilized in adjacent applications including but not limited to routers and security appliances for small and medium enterprises, analog telephone adapters and small IP-based private branch exchanges, or PBXs.

        Our Fusiv family of network processing products includes the following product lines:

•

Fusiv Vx products are incorporated in customer premises equipment that include VoIP capability, including VoIP gateways, integrated access devices, residential gateways, routers and IP-based PBXs;



•

Fusiv AT products are incorporated into ADSL2 and ADSL2+ based data routers and bridges; and



•

Fusiv NP products are incorporated into wired or wireless security appliances and routers.

Ikanos Family of Products

Fx and FxS Families of Chipsets for Fiber Extension Over Copper Applications:

Product	Description		Primary market applications
Fx 100100	Fx 100100 chipset provides transmission rates up to 100 Mbps downstream and up		•	Fiber extension over copper applications
	to 100 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used with OLT and ONU multi-dwelling unit concentrators
	•	4-port burst mode engine
	•	1-port analog front end
	•	1-port integrated front end
	•	4-port packet transport mode framer
Fx 100100S-4 and	Fx 100100S-4 and Fx 100100S-4-EX chipsets provides transmission rates up to		•	Fiber extension over copper applications

16

Fx 100100S-4-EX	100 Mbps downstream and up to 100 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used in CPE or SLE such as residential gateways and modems
	•	1-port burst mode engine
	•	1-port integrated front end
Fx 10050	Fx 10050 chipset provides transmission rates up to 100 Mbps downstream and up		•	Fiber extension over copper applications
	to 50 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used in OLT and ONU multi-dwelling unit concentrators
	•	4-port burst mode engine
	•	1-port analog front end
	•	1-port integrated front end
	•	4-port packet transport mode framer
Fx 10050S-4	Fx 10050S-4 chipset provides transmission rates up to 100 Mbps		•	Fiber extension over copper applications
	downstream and up to 50 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used in CPE or SLE such as residential gateways and modems
	•	1-port burst mode engine
	•	1-port integrated front end
Fx 100100-4 and Fx 100100-4-EX	Fx 100100-4 and Fx 100100-4-EX chipsets provide transmission rates up to		•	Fiber extension over copper applications
	100 Mbps downstream and up to 100 Mbps upstream and consist of the following devices and port densities:		•	Chipsets are used with OLT and ONU multi-dwelling unit concentrators
	•	8-port burst mode engine
	•	4-port analog front end
	•	1-port integrated front end
Fx 10050-4	Fx 10050-4 chipset provides transmission rates up to 100 Mbps downstream and up		•	Fiber extension over copper applications
	to 50 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used with OLT and ONU multi-dwelling unit concentrators
	•	8-port burst mode engine
	•	4-port analog front end
	•	1-port integrated front end
Fx 10050S	Fx 10050S chipset provides transmission rates up to 100 Mbps downstream and up		•	Fiber extension over copper applications
	to 50 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used in CPE or SLE such as residential gateways and modems
	•	1-port burst mode engine
	•	1-port analog front end
	•	1-port integrated front end

17

Fx 7030	Fx 7030 chipset provides transmission rates up to 70 Mbps downstream and up		•	Fiber extension over copper applications
	to 30 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used in OLT and ONU multi-dwelling unit concentrators
	•	4-port burst mode engine
	•	1-port analog front end
	•	1-port integrated front end
	•	4-port packet transport mode framer

Chipsets for Broadband Over Copper Applications:

Product	Description		Primary market applications
SL9402	SL9402 chipset provides transmission		•	Broadband over copper applications
	rates up to 60 Mbps downstream and up to 30 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used in DSLAM, mini-RAM and multi-dwelling unit concentrators
	•	8-port burst mode engine
	•	4-port analog front end
	•	2-port integrated front end
SL9450	SL9450 chipset provides transmission		•	Broadband over copper applications
	rates up to 60 Mbps downstream and up to 30 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used in DSLAM, mini- RAM and multi-dwelling unit concentrators
	•	8-port burst mode engine
	•	4-port analog front end
	•	2-port integrated front end
SL9400	SL9400 chipset provides transmission		•	Broadband over copper applications
	rates up to 60 Mbps downstream and up to 30 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used in DSLAM, mini- RAM and multi-dwelling unit concentrators
	•	8-port burst mode engine
	•	4-port analog front end
	•	1-port integrated front end
SL8800	SL8800 chipset provides transmission		•	Broadband over copper applications
(SmartLeap)	rates up to 50 Mbps downstream and up to 30 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used in DSLAM, mini- RAM and multi-dwelling unit concentrators
	•	8-port burst mode engine
	•	1-port analog front end
	•	1-port integrated front end
	•	8-port packet transport mode framer
SL8100	SL8100 chipset provides transmission		•	Broadband over copper applications
(SmartLeap)	rates up to 50 Mbps downstream and up to 30 Mbps upstream and consists of the following devices and port densities:		•	Chipsets are used in DSLAM, mini- RAM and multi-dwelling unit concentrators

18

	•	8-port burst mode engine
	•	1-port analog front end
	•	1-port integrated front end
	•	8-port packet transport mode framer
CC600	CC600 chipset provides transmission		•	Broadband over copper applications
(CleverConnect)	rates up to 50 Mbps downstream and up to 30 Mbps upstream and consists of the following devices and port densities:		•	Chipsets used in customer premises equipment such as residential gateways and modems
	•	1-port burst mode engine
	•	1-port integrated front end
CC300	CC300 chipset provides transmission		•	Broadband over copper applications
(CleverConnect)	speeds of up to 50 Mbps downstream and up to 30 Mbps upstream and consists of the following devices and port densities:		•	Chipsets used in customer premises equipment such as residential gateways and modems
	•	1-port burst mode engine
	•	1-port analog front end
	•	1-port integrated front end
Eagle IV	Eagle IV chipset provides transmission		•	Broadband over copper applications
	rates up to 25 Mbps downstream and up to 2 Mbps upstream and consists of the following devices and port densities:		•	Chipsets used in USB modem customer premises equipment
	•	1-port digital back end
	•	1-port analog front end
Eagle Plus	Eagle Plus chipset provides transmission		•	Broadband over copper applications
	rates up to 25 Mbps downstream and up to 2 Mbps upstream and consists of the following devices and port densities:		•	Chipsets used in customer premises equipment such as residential gateways and modems
	•	1-port digital back end
	•	1-port analog front end
Eagle III	Eagle III chipset provides transmission		•	Broadband over copper applications
	rates up to 12 Mbps downstream and up to 1 Mbps upstream and consists of the following devices and port densities:		•	Chipsets used in USB modem customer premises equipment
	•	1-port digital back end
	•	1-port analog front end

19

Fusiv Chipsets for Network Processing Applications

Product	Description		Primary market applications
Vx150	Vx150 is a high-performance network media processor for voice and data bundled services. It provides high speed switching, routing, packet filtering, firewall, and VoIP functions		•	Processor used in customer premises equipment such as VoIP gateways, integrated access devices, residential gateways and routers
Vx200	Vx200 is a high-performance network media processor for voice, data and security bundled services. It provides high speed switching, routing, packet filtering, firewall, VoIP and IPSec-based		•	Processor used in customer premises equipment such as VoIP gateways, integrated access devices, residential gateways, routers and IP PBX
	virtual private network, or VPN, functions		•	Firewall and VPN routers and security access systems
AT100	The AT100 is a high-performance ADSL2 and ADSL2+ network processor for data bundled services. It provides high speed switching, routing, packet filtering and firewall functions:		•	Processor used in ADSL2 and ADSL2+ routers and bridge customer premises equipment
	•	1-port network media processor
	•	1-port analog front end
AT200	The AT200 is a high-performance ADSL2 and ADSL2+ network processor for wireless data bundled services. It provides high speed switching, routing, packet filtering, and firewall functions:		•	Processor used in ADSL2 and ADSL2+ wireless routers and bridge customer premises equipment
	•	1-port network media processor
	•	1-port analog front end
AT300	The AT300 is a high-performance ADSL2 and ADSL2+ network processor for wireless data bundled services. It provides high speed switching, routing, packet filtering and firewall functions:		•	Processor used in ADSL2 and ADSL2+ wireless routers and bridges with home networking customer premises equipment
	•	1-port network media processor
	•	1-port analog front end
NP210	NP210 is a highly integrated network security processor with cryptographic accelerators for wired VPN and firewall bundled services. It provides high speed switching, routing, packet filtering, firewall and IPSec-based VPN functions		•	Processor used in wired VPN and firewall appliances, IPSec VPN-enabled equipment and secure ethernet routers

20

NP220	NP220 is a highly integrated network security processor for wired or wireless firewall bundled services. It provides high speed switching, routing, packet filtering and firewall functions	•	Processor used in wired or wireless secure firewall ethernet routers
NP230	NP230 is a highly integrated network security processor with cryptographic accelerators for wired or wireless VPN and firewall bundled services. It provides high speed switching, routing, packet filtering, firewall, IPSec-based VPN and VPN functions	•	Processor used in wired or wireless VPN and firewall appliances, IPSec or VPN-enabled equipment and secure ethernet routers

Customers and Carriers

Customers

        The markets for systems utilizing our products and services are mainly served by large OEMs. We work directly with OEMs to understand their requirements and the requirements of the carriers they serve to provide the OEMs with semiconductors that can be qualified for use within the carriers' networks.

        Below is the list of our OEM customers who have purchased at least $100,000 of our products directly from us or through third-party sales representatives identified during the year ended December 31, 2005:

OEM customer	Direct sales or third-party sales representative
Aethra Telecommunications	Direct Sales
Alcatel	Alcatel
Alpha Networks	Edom Technology
Dasan Networks, Inc.	Uniquest Corporation
Lucent Technologies, Inc.	Solectron
Millinet Co., Ltd.	Uniquest Corporation
NEC Corporation (Magnus)	NEC Corporation (USA)
Sumitomo Electric Industries, Ltd.	Altima
Woojyun Systec Co., Ltd.	Uniquest Corporation
ZyXEL Communications Corp.	Direct sales

        In addition, we have design wins with Adtran, Inc. Huawei Technologies Co., Ltd., Marconi Corporation plc, Salira Optical Network Systems, Inc., Siemens AG and ZTE Corporation.

        In 2005, NEC Corporation accounted for 44.2%, Uniquest Corporation accounted for 23.9% and Altima accounted for 27.8% of our net revenue. In 2004, NEC Corporation accounted for 44.9%, Uniquest Corporation accounted for 26.7% and Altima accounted for 22.9% of our net revenue. In 2003, NEC Corporation accounted for 43.3%, Uniquest Corporation accounted for 26.1%, Altima accounted for 18.2% and Wins Communications Co., Ltd. and Woojyun Systec Co., Ltd. collectively accounted for 9.7% of our net revenue. In addition, through the NPA acquisition, we expect to continue to sell network processing and ADSL products to the existing customer base. The SAFRAN Group, of which Sagem Communication is a subsidiary, represented 73% of net sales of the acquired business for the year ended October 29, 2005.

21

        Historically, substantially all of our sales have been to customers outside the United States. Sales to customers in Asia accounted for 97.8% in the year ended December 31, 2003, 97.2% in the year ended December 31, 2004 and 97.8% in the year ended December 31, 2005. Net sales of the business acquired in the NPA acquisition to customers in Europe and Asia accounted for 72.2% and 26.7% of the total sales of the business, respectively, for the year ended October 29, 2005. We anticipate that a substantial majority of our net revenue will continue to be represented by sales to customers in those regions.

Carriers

        We work directly with several of the major carriers and their OEMs worldwide in connection with the optimization of our technology for mass deployment or trials into the carriers' networks. Our OEM customers have sold products that include our chipsets to the following major carriers:

•

Belgacom (Belgium);



•

France Telecom (France);



•

KDDI Corp. (Japan);



•

Korea Telecom Corp. (Korea);



•

Nippon Telegraph & Telephone Corporation (Japan);



•

Softbank BroadBand (Japan);



•

Swisscom (Switzerland); and



•

Telecom Italia (France).

Ikanos Service and Support for Customers and Carriers

        To accelerate design and development of our OEM customers' systems and the qualification and mass deployment of our technology, we have an application engineering team and a field application engineering team to support our OEM customers and the carriers they serve. These application engineers and field application engineers work closely with the OEMs as well as directly with the carriers. Application engineers have expertise in hardware, software and have access to the various expertise within our company to ensure proper service and support for our OEM customers and the carriers.

        Our service and support involves multiple stages beginning with the carriers' evaluation of our technology through utilization of our reference platforms and optimizing our technology to meet the carriers' performance and other requirements.

        In parallel, our engineers help our OEM customers with the design and review of their system designs. Our application engineers and field application engineers help the OEM engineers design their systems by providing the necessary reference designs, gerber files, schematics, data sheets, sample software codes and other documentation. By doing this, we assist our OEM customers and the carriers they serve in meeting their deployment requirements. Once the hardware incorporating our chipset solutions is built by the OEMs, we work closely with the OEMs' engineers to integrate our software into the OEMs' systems through site visits and extensive field-testing with the carriers. This entire cycle may take six to 18 months depending upon the region, carrier requirements and deployment plans.

Sales and Marketing

        Our sales and marketing strategy is to achieve design wins with leading OEMs and mass deployment with carriers worldwide. We consider a design win to occur when an OEM notifies us that

22

it has selected our solution to be incorporated into its system. We refer to our sales and marketing strategy as "direct touch" since we have significant contact directly with the customers of our OEMs, the carriers. We believe that applications support at the early stages of design is critical to reducing time to deployment and minimizing costly redesigns for our OEM customers and the carriers. By simultaneously working with our OEM customers and the carriers, we are able to use the pull of carrier network compatibility and interoperability to push design wins with our OEM customers, which is further augmented by our support and service capabilities.

        We market and sell our products worldwide through a combination of direct sales and third-party sales representatives. We utilize third-party sales representatives to expand the impact of our sales team. We have strategically located our sales personnel, field applications engineers and third-party sales representatives near our major customers in Japan, Korea, Taiwan (serving Taiwan and China), Europe and the United States.

        Our marketing team focuses on our product strategy and management, product development road maps, product pricing and positioning, new product introduction and transition, demand assessment, competitive analysis and marketing communications and promotions. Our marketing team is also responsible for ensuring that product development activities, product launches, channel marketing program activities and ongoing demand and supply planning occur on a well-managed, timely basis in coordination with our development, operations, and sales groups, as well as our OEM customers and third-party sales representatives.

Competition

        We compete or expect to compete with, among others, Broadcom Corporation, Centillium Communications, Inc., Conexant Systems, Inc., Infineon Technologies A.G., Marvell Technology Group Ltd., Metalink Ltd., STMicroelectronics N.V. and Texas Instruments Incorporated who either offer, or we believe may be developing, semiconductors for segments of the fiber-fast broadband market. Our newly acquired network processing business will also compete with additional companies including Freescale Semiconductor, Inc., Intel Corporation, Marvell Technology Group Ltd., PMC-Sierra, Inc. and Realtek Semiconductor Corp. We believe that our products are not easily interchangeable with the products of our competitors, due to the level of collaboration in product design and development that is typically demanded by our customers from the earliest stages of development, but nonetheless we must constantly maintain our technology developments in order to continue to achieve design wins with our customers.

        We also consider other companies that have access to discrete multi-tone, or DMT, or network processing technology as potential future competitors. In addition, we may also face competition from newly established competitors, suppliers of products based on new or emerging technologies, and customers who choose to develop their own technology.

        We compete primarily with respect to the following factors:

•

product performance;



•

compliance and influencing industry standards;



•

price and cost effectiveness;



•

functionality;



•

time to market; and



•

customer service and support.

        We believe that we are competing effectively with respect to these factors.

23

Technology and Architecture

        We believe that one of our key competitive advantages is in the integration of our broad base of core technologies encompassing the complete space from systems, algorithms, hardware and software to silicon. We believe this vertical integration of core competencies enables us to make optimal architectural choices in designing and developing cost-effective, high-performance, and programmable chipsets. Our products are manufactured on standard low-cost, complementary metal-oxide semiconductor, or CMOS, or bi-polar complementary metal-oxide semiconductor, or Bi-CMOS, processes. We have the following core competencies:

•

ability to develop system-level solutions that incorporate analog and digital processing, as well as software and algorithms;



•

a programmable analog and digital architecture that allows our chipset solutions to be programmed for multiple standards and applications;



•

highly optimized digital signal processing algorithms;



•

highly optimized packet processing engine;



•

carrier deployed VoIP digital signal processing capability;



•

digital design, verification, and back-end capability for leveraging advancements in process technologies;



•

analog design capability in both CMOS and Bi-CMOS processes; and



•

our knowledge of the carrier network, which enables us to help carriers with their network planning and deployment of services.

        Where cost-effective, we purchase designed and verified specific functional blocks, such as real time operating systems, from third-party vendors.

        Our PHY chipsets utilize DMT line coding technology. Starting in June 2003, DMT was adopted as the principal standard for VDSL by three standards committees: in North America, by The American National Standards Institute (ANSI), The Committee T1E1.4, and worldwide, by the Institute of Electrical and Electronics Engineers (IEEE) and ITU-T. In May 2005, the VDSL2 standard was recommended by the ITU-T and in February 2006 the standard was approved. The VDSL2 standard represents an advance in capability over the VDSL standard and defines a series of "profiles" for high-speed DMT-based transmission in both the upstream and downstream directions for a variety of deployment models.

        VDSL and VDSL2 are the highest-rate forms of DSL technology available today and can enable fiber-fast broadband services using existing copper lines. VDSL2 transmits aggregate data at rates of 60 Mbps and over for a reach of 3,000 feet. VDSL2 also offers longer reach of up to 15,000 feet at lower transmission rates. VDSL and VDSL2 are significantly faster than alternative DSL technologies and enable carriers to provide revenue enhancing multiple services to respond to competitive and industry pressures from cable operators and other carriers. We provide products based on the VDSL, VDSL2 standards ADSL, ADSL2 and ADSL2+.

        Our networking processor products have high performance packet processing capacity and implement a broad suite of protocol functionality, VoIP, and networking security. These products are capable of 200+ Mbps packet processing throughput at any standard packet size. This complements our high performance PHY products to accommodate the requirements of Triple Play and interactive services, and provides carriers the scalability and flexibility to add additional broadband applications in the future.

24

Research and Development

        Our research and development efforts are focused on the development of advanced semiconductors and related software. We have experienced engineers who have significant expertise in fiber-fast broadband and network processing technologies. These areas of expertise include communication systems, system architecture, digital signal and network processing, data networking, analog design, digital and mixed signal, very large scale integration development, software development, reference boards, and system design. In addition, we work closely with the research and development teams of our OEM customers and the carriers. As of December 31, 2005, we had 130 persons engaged in research and development, of whom 55 are employed in Bangalore, India and 75 in North America. As a result of the NPA acquisition, we added over 70 persons engaged in research and development. Our research and development expenses were $21.4 million in 2003, $21.7 million in 2004 and $28.4 million in 2005.

Operations

Semiconductor Fabrication

        We do not own or operate a semiconductor fabrication, packaging or testing facility, except for some of the test equipment that we place at our subcontractors sites for our usage. By owning some of the test equipment, we gain some cost benefit and assurance of capacity. We depend on third-party subcontractors to manufacture, package and test our products. By outsourcing manufacturing, we are able to substantially avoid the cost associated with owning and operating our own manufacturing facility. This allows us to focus our efforts on the design and marketing of our products. We currently outsource our semiconductor wafer manufacturing to Taiwan Semiconductor Manufacturing Company and Austriamicrosystems AG. We work closely with our foundries to forecast on a monthly basis our manufacturing capacity requirements. Our semiconductors are currently fabricated in several advanced, sub-micron manufacturing processes. Because finer manufacturing processes lead to enhanced performance, smaller silicon chip size and lower power requirements, we continually evaluate the benefits and feasibility of migrating to smaller geometry process technologies in order to reduce cost and improve performance. We believe that our fabless manufacturing approach provides us with the benefits of superior manufacturing capability as well as flexibility to move the manufacturing, assembly and testing of our products to those vendors that offer the best capability at an attractive price. Nevertheless, because we do not have formal, long-term pricing agreements with our subcontracting partners, our wafer costs and services are subject to sudden price fluctuations based on the cyclical demand for semiconductors. Our engineers work closely with our foundries and other subcontractors to increase yields, lower manufacturing costs and improve quality.

Assembly and Test

        Our products are shipped from our third-party foundries to third-party sort, assembly and test facilities where they are assembled into finished semiconductors and tested. We outsource all product packaging and all testing requirements for these products to several assembly and test subcontractors, including Advanced Semiconductor Engineering, Inc. in Taiwan and Malaysia, United Test and Assembly Center Ltd. in Singapore, and STATSChipPac Ltd. in Singapore, Korea, and China. Our products are designed to use low cost, standard packages and to be tested with widely available test equipment. In addition, we specifically design our semiconductors for ease of testability, further reducing production costs.

Quality Assurance

        Our quality assurance program begins with the design and development process. Our designs are subjected to extensive circuit simulation under extreme conditions of temperature, voltage and

25

processing before being committed to manufacture. We pre-qualify each of our subcontractors and conduct quality audits. We closely monitor foundry production to ensure consistent overall quality, reliability and yield levels. All of our independent foundries and assembly and test subcontractors have been awarded ISO 9000 certification as well as other internationally accepted quality standards.

Intellectual Property

        Our success and future growth will depend on our ability to protect our intellectual property. We rely primarily on patent, copyright, trademark and trade secret laws, contractual provisions, and licenses to protect our intellectual property. We also attempt to protect our trade secrets and other proprietary information through agreements with our customers, suppliers, employees and consultants, and through other security measures.

        As of January 31, 2006 we held 20 issued U.S. patents and have 23 additional U.S. patent applications pending. Our patents and patent applications cover features, arts, and methodology employed in each of our existing product families. The expiration dates are generally 2019 and beyond. We continue to actively pursue the filing of additional patent applications.

        We claim copyright protection for the proprietary documentation used in our products and for the firmware and software components of our products. We have registered "SmartLeap," "CleverConnect," "Fusiv," "Eagle," "Ikanos Communications & Designs" and the "Ikanos Communications" name and logo as trademarks in the United States.

Employees

        As of December 31, 2005, we had a total of 178 full-time employees, of whom 130 were involved in research and development, 10 of whom focus on operations, and 48 in sales and marketing, customer support, finance and administration. None of our employees are represented by a labor union. We have not experienced any work stoppages and believe that our relationships with our employees are good. As a result of the NPA acquisition in February 2006, we added 46 employees in Hyderabad, India, 11 in Toronto, Canada and 17 in San Jose, California.

Backlog

        Our sales are made pursuant to short term purchase orders. These purchase orders are made without deposits and may be rescheduled, canceled or modified on relatively short notice, and in most cases without substantial penalty. Therefore, we believe that the purchase orders are not a reliable indicator of future sales.

26

Directors and Executive Officers of the Registrant

        The following table sets forth the names, ages and positions of our executive officers and directors as of February 27, 2006:

Name	Age	Position
Rajesh Vashist	48	President, Chief Executive Officer and Director, Chairman of the Board
Daniel K. Atler	46	Chief Financial Officer
Derek Obata	47	Vice President of Worldwide Sales
Rouben Toumani	62	Vice President of Systems Engineering
Yehoshua Rom	54	Vice President of Operations
Chris H. Smith	58	Vice President of Human Resources
Dean Grumlose	48	Vice President of Marketing
Danial Faizullabhoy (1)(3)	44	Director
Michael Goguen (2)(3)	41	Director
Michael Gulett (1)(2)(3)	53	Director
Paul G. Hansen (1)(2)	57	Director
G. Venkatesh	48	Director

(1)

Member of the nominating and corporate governance committee.

(2)

Member of the audit committee.

(3)

Member of the compensation committee.

        Rajesh Vashist has served as our President, Chief Executive Officer, and one of our directors since August 1999 and as our Chairman of the Board since June 24, 2004. From January 1999 to August 1999, Mr. Vashist consulted as a Vice President of Business Development at RightWorks. From March 1991 to July 1998, Mr. Vashist worked at Adaptec, Inc. in various marketing and general management positions and served most recently as General Manager of the OEM Solutions Group. Prior to Adaptec, Mr. Vashist held various marketing and management positions at Vitelic Semiconductor and Samsung Semiconductor. Mr. Vashist holds an engineering degree from Regional Engineering College, Rourkela (India) and an M.B.A. from Marquette University.

        Daniel K. Atler has served as our Chief Financial Officer since October 2003. Prior to joining Ikanos, Mr. Atler was an executive for Silicon Image, Inc. During his tenure at Silicon Image, Mr. Atler served as the Vice President of Finance and Administration and Chief Financial Officer from June 1998 to October 2001, and as the Executive Vice President of Strategic Business Development from November 2001 to September 2003. Prior to Silicon Image, Mr. Atler served as the Chief Financial Officer and Vice President of Finance and Administration for Wireless Access, Inc., and as a Senior Manager at Ernst & Young. Mr. Atler holds a degree in business administration from Colorado State University.

        Derek Obata has served as our Vice President of Worldwide Sales since March 2005, having previously served as our Vice President of Sales, Asia Pacific since October 2003. From April 2002 to September 2003, Mr. Obata worked as an independent consultant advising management at technology start-up companies. Prior to that, Mr. Obata was with PCTEL, Inc. where he served as Executive Vice President and General Manager of the core business unit from February 2001 to November 2001, and

27

as Vice President of Worldwide Sales from March 1998 to January 2001. Mr. Obata holds a degree in engineering from the University of California at Berkeley.

        Rouben Toumani has served as our Vice President of Systems Engineering since March 2000. From May 1989 to March 2000, Mr. Toumani was at Anritsu Corporation as the Director of Research and Development of the Telecom Division. From 1971 to 1975 and from 1978 to 1989, Mr. Toumani was at Bell Labs in the Loop Transmission Division. Mr. Toumani received both his M.S. and Ph.D. degrees in electrical engineering from Stanford University, and completed his undergraduate degree in electrical engineering at the American University of Beirut (Lebanon).

        Yehoshua Rom has served as our Vice President of Operations since August 2002. Prior to that, Mr. Rom served as Director of Engineering at Broadcom Corporation from March 2001 to August 2002. From February 2000 to March 2001, Mr. Rom served as Director of Operations at Virage Logic Inc. From July 1997 to January 2000, Mr. Rom was Director of VLSI Engineering at MMC Networks Inc. Mr. Rom holds a B.S. degree in electrical engineering from the Tel Aviv University (Israel) and a M.B.A. degree from San Jose State University.

        Chris H. Smith has served as our Vice President of Human Resources since February 2005. From 1996 until 2005, Mr. Smith was the Vice President of Human Resources at Tularik Inc. and from 1980 until 1996, he was Director of Human Resources at ESL/TRW Incorporated. Mr. Smith holds a Bachelor's degree from Perth College.

        Dean Grumlose has served as our Vice President of Marketing since January 2005. From October 2003 until September 2004, Mr. Grumlose served as Vice President of Marketing at Azanda Network Devices. From April 2003 until September 2003, Mr. Grumlose served as Vice President of Marketing at Velio Communications, Inc. Prior to that, he was Vice President of Routing Products at PMC-Sierra, Inc. in 2001, and held various management positions at Conexant Systems, Inc. from 1996 to 2001. Mr. Grumlose holds a degree in electrical engineering from the University of British Columbia.

        Danial Faizullabhoy has served as one of our directors since July 2001. From July 1998 to July 2005, Mr. Faizullabhoy was a Managing Director with Walden International, a venture capital firm. From 1986 to 1998, he held various positions at Adaptec, including Applications Engineer, Product/Marketing Manager, and Vice President and General Manager of Target and Optical division. Prior to that, Mr. Faizullabhoy was a design engineer at Production Automation. He received a Bachelor's degree in electrical engineering from Norwich University and a M.B.A. degree from Santa Clara University.

        Michael L. Goguen has served as one of our Directors since May 1999. Mr. Goguen has held various positions at Sequoia Capital, a venture capital firm, since 1996 and has been a general partner since 1997. Prior to that, Mr. Goguen spent ten years in various engineering, research, and product management roles at DEC, SynOptics and Centillion, and was a Director of Engineering at Bay Networks (Nortel). Mr. Goguen was also a Technical Chairman of the ATM Forum. Mr. Goguen received a B.S. degree in Electrical Engineering from Cornell University and a M.S. degree in Electrical Engineering from Stanford University.

        Michael Gulett has served as one of our directors since August 2003. From December 2004 to August 2005, Mr. Gulett served as the interim Chief Executive Officer of Siliquent Technologies, Inc., a semiconductor company, which was acquired by Broadcom Corporation in August 2005. From December 2001 to December 2003, he was President and Chief Executive Officer of ARC International plc, a technology licensing and embedded software company. From November 1998 to January 2001, Mr. Gulett served as President and Chief Operating Officer of Virata Corporation, a leading supplier of DSL processors. Prior to that, Mr. Gulett was President and Chief Executive Officer at Paradigm Technology, a developer of fast static random access memory devices. Mr. Gulett has also held

28

management positions at VLSI Technology, California Devices, Intel Corporation and NCR. Mr. Gulett holds a B.S.E.E. from the University of Dayton.

        Paul G. Hansen has served as one of our directors since July 2004. Since April 2001, Mr. Hansen has worked as an independent consultant. Prior to that, Mr. Hansen served as Executive Vice President and Chief Financial Officer of TIBCO Software from July 1998 to April 2001. From 1984 to July 1998, Mr. Hansen held various positions at Adaptec, Inc. including Vice President, Finance, Chief Financial Officer and Assistant Secretary from 1988 to July 1998. Mr. Hansen received a B.S. degree in business from the State University of New York Fredonia.

        G. Venkatesh has served as one of our directors since November 2001. Mr. Venkatesh is the Managing Member of Texan Ventures, LLC, a venture capital and management consulting firm. From July 2003 through September 2004, he has served as Chairman and Interim Chief Executive Officer of Matisse Networks. From June 1999 to November 2001, Mr. Venkatesh served as Vice President of Switching Products at Broadcom Corp. Prior to that he was President and Chief Executive Officer of Maverick Networks, a company he founded in 1998 and which was acquired by Broadcom in 1999. Mr. Venkatesh received a degree in electronics from the Indian Institute of Technology (India) and a M.S.E.E. degree in electrical and computer engineering from the University of Massachusetts.

Where Can You Find Additional Information

        With respect to the statements contained in this Form 10-K regarding the contents of any agreement or any other document, in each instance, the statement is qualified in all respects by the complete text of the agreement or document, a copy of which has been filed as an exhibit to the registration statement. You may inspect a copy of the reports and other information we file without charge at the Public Reference Room of the Securities and Exchange Commission, or SEC, at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain copies of all or any part of this Form 10-K from such offices at prescribed rates. You may also obtain information on the operation of the Public reference Room by calling the SEC at 1-800-SEC-0300. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers, including our information which we file electronically with the SEC.

        We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and, in accordance therewith, file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information are available for inspection and copying at the public reference room and web site of the SEC referred to above. We maintain a web site at www.Ikanos.com. You may access our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the SEC, free of charge at our web site as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The reference to our web address does not constitute incorporation by reference of the information contained at this site.

29

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this Form 10-K, before deciding whether to invest in shares of our common stock.

Risks Related to Our Business

We have a limited operating history and our quarterly operating results may fluctuate significantly. As a result, we may fail to meet or exceed our forecasts or the expectations of securities analysts or investors, which could cause our stock price to decline. In addition, we have experienced high growth rates in our net revenue in recent fiscal quarters. We do not expect similar growth rates in future periods.

        We have a limited operating history which makes it difficult to evaluate our prospects. While our commercial operations began in 1999, we did not begin commercial shipments of our products until the fourth quarter of 2002. Since then, our quarterly net revenue and operating results have varied significantly and are likely to continue to vary from quarter to quarter due to a number of factors, many of which are not within our control. For example, in the quarter ended March 31, 2005, our net revenue decreased by $6.2 million, or 33.4%, from the previous quarter, ended December 31, 2004, but then increased by $7.0 million, or 56.6%, in the next quarter, ended June 30, 2005. Quarterly fluctuations in revenue are typical in our industry, and are likely to continue in the future. In addition, our expenses are also subject to quarterly fluctuations resulting from factors including the costs related to new product releases. If our operating results do not meet the expectations of securities analysts or investors for any quarter or other reporting period, the market price of our common stock may decline. Fluctuations in our operating results may be due to a number of factors, including, but not limited to, those identified throughout this "Risk Factors" section. As a result, you should not rely on quarter to quarter comparisons of our operating results as an indicator of future performance. In addition, in our last three fiscal quarters ended December 31, 2005, our net revenue has grown 56.6%, 30.0% and 14.1% quarter over quarter. We do not expect similar net revenue growth rates in future periods.

We recently completed the NPA acquisition and if we are not successful in integrating the technology and employees from the acquisition into our existing business, then our operating results may be harmed.

        In February 2006, we completed the NPA acquisition. Through this acquisition, we added 46 employees in Hyderabad, India, 11 in Toronto, Canada and 17 in San Jose, California. This is our first acquisition and we face numerous challenges in integrating these employees into our organization as well as integrating the newly acquired technologies we purchased into our existing broadband solutions.

        The net revenue from the acquired business has been highly concentrated among customers. We do not have a prior relationship with many of these customers. The success of our business is dependent in part upon our ability to develop strong relationships with these customers and for the customers to continue to order network processing products from us.

        We may experience more difficulty and costs than we anticipate in integrating the technology we acquired in the NPA acquisition. Although we do have certain rights to seek indemnification from the seller in the event third parties make claims with respect to ownership of these technologies, these types of claims, if filed, are inherently costly to litigate and distract management from the operation of the business. In addition, we may not be successful in defending ourselves against any such claims. If customer demand for the network processing products we acquired in the NPA acquisition does not meet our expectations, we will have expended significant management and financial resources on assets that will not realize their revenue potential. If any of these risks were to be realized, our operating results would be harmed.

30

        We expect our working capital requirements to increase significantly as a result of the NPA acquisition as that business has historically been, and may continue to be, operated on different, and frequently less favorable, terms than those we have historically negotiated to operate our fiber-fast broadband business. For example, payment terms on products shipped were generally on longer terms than we customarily provide. Additionally, purchasing decisions were frequently made in advance of receiving customer forecasts. As a result, we have a higher risk of excess inventory with respect to this business. If we are unsuccessful in addressing these challenges, our operating results may be harmed.

We have a history of losses, and future losses may cause the market price of our common stock to decline. We may not be able to generate sufficient net revenue in the future to achieve or sustain profitability.

        We first became profitable in the third fiscal quarter of 2005. We incurred significant net losses prior to that quarter. As a result of the NPA acquisition, we expect to experience a net loss in 2006 primarily relating to non-cash acquisition-related charges. As of December 31, 2005, we had an accumulated deficit of $86.6 million. To achieve or sustain profitability, we will need to generate and sustain higher net revenue while maintaining reasonable cost and expense levels. We expect to increase expense levels to support increased research and development efforts related to new and existing product development and sales and marketing efforts. Because many of our expenses are fixed in the short term, or are incurred in advance of anticipated sales, we may not be able to decrease our costs and expenses in a timely manner to offset any shortfall of sales. Although we have recently achieved profitability, we may not be able to sustain or increase profitability on a quarterly or an annual basis.

If demand for our chipsets declines or does not grow, we will be unable to increase or sustain our net revenue and our operating results will be harmed.

        We currently expect our chipsets to account for substantially all of our net revenue for the foreseeable future. We began deriving revenues in the first quarter of 2006 from products related to the NPA acquisition. If we are unable to develop new products or successfully integrate the newly acquired products to meet our customers' demand in a timely manner or demand for our chipsets declines or fails to grow as a result of competition or technological changes, it would harm our business. The markets for our products are characterized by frequent introduction of new chipsets, short product life cycles and significant price competition. If we or our OEM customers are unable to manage product transitions in a timely and cost-effective manner, our net revenue would suffer. In addition, frequent technology changes and introduction of next generation products may result in inventory obsolescence, which would increase our cost of revenue and adversely affect our operating performance.

The average selling prices of our products are subject to rapid declines, which may harm our net revenue and profitability.

        The products we develop and sell are used for high volume applications and are subject to rapid declines in average selling prices. We have lowered our prices significantly at times to gain market share, and we expect that we will continue to reduce prices in the future. Offering reduced prices to one customer could impact our average selling prices to all customers. Our financial results will suffer if we are unable to offset any future reductions in our average selling prices by increasing our sales volumes, or if we are unable to reduce our costs and expenses or develop new or enhanced products on a timely basis with higher selling prices.

31

Because we depend on a few significant customers for a substantial portion of our net revenue, the loss of any of our key customers, our inability to continue to sell existing and new products to our key customers in significant quantities or our failure to attract new significant customers could adversely impact our net revenue and harm our business.

        We derive a substantial portion of our net revenue from sales to a relatively small number of customers. As a result, the loss of any significant customer or a decline in business with any significant customer would materially and adversely affect our financial condition and results of operations. The following OEM customers accounted for more than 10% of our net revenue for any one of the periods indicated. Sales made to these OEMs were made through the indicated third-party sales representatives:

		Percentage of our net revenue for year ended December 31,
OEM Customer
	Sales Representative	2004		2005
NEC Corporation (Magnus)	NEC Corporation (USA)	44.9	%	44.2	%
Sumitomo Electric Industries, Ltd.	Altima	22.9		27.8
Dasan Networks, Inc.	Uniquest Corporation	11.3		11.6
Millinet Co., Ltd.	Uniquest Corporation	6.7		5.4

        We expect that a small group of OEM customers, the composition of which has varied over time, will continue to account for a substantial portion of our net revenue in 2006 and in the foreseeable future. In addition, we expect to continue to sell the network processing and ADSL products acquired in the NPA acquisition to the existing customer base for these products. The SAFRAN Group of, which Sagem Communication is a subsidiary, represented 73% of net sales for the acquired business for the year ended October 29, 2005. Accordingly, our future operating results will continue to depend on the success of our largest OEM customers and on our ability to sell existing and new products to these customers in significant quantities. Demand for our chipset products is based on carrier demand for our OEM customers' systems products. Accordingly, a reduction in growth of carrier deployment of fiber-fast broadband services would adversely affect our product sales and business.

        In addition, our longstanding relationships with some of our larger OEM customers may also deter other potential customers who compete with these customers from buying our products. To attract new customers or retain existing OEM customers, we have offered and may continue to offer certain customers favorable prices on our products. If these prices are lower than the prices paid by our existing OEM customers, we may have to offer the same lower prices to certain of our customers. In that event, our average selling prices would decline. The loss of a key customer, a reduction in sales to any major customer or our inability to attract new significant customers could harm our business.

Because of the rapid nature of technological development in our industry and the intense competition we face, our products become outmoded in a relatively short period of time, which requires us to provide frequent updates and/or replacements to existing products. If we do not successfully manage the transition process to next generation chipset products, our operating results may be harmed.

        Our industry is characterized by rapid technological innovation and intense competition. Accordingly, our success depends in part on our ability to develop next generation chipset products in a timely and cost-effective manner. The development of new chipset products is complex and time consuming. If we do not rapidly develop our next generation chipset products ahead of our competitors, we may lose both existing and potential customers to our competitors. Conversely, even if we are successful in rapidly developing new chipset products ahead of our competitors and we do not cost-effectively manage our inventory levels of existing products when making the transition to the new chipset products, our financial results may be negatively affected by high levels of obsolete inventory. If either of the foregoing were to occur, then our operating results would be harmed.

32

We rely on a limited number of independent subcontractors to manufacture, package and test our current products, and our failure to secure and maintain sufficient capacity with these subcontractors could impair our relationships with customers and decrease sales, which would negatively impact our market share and operating results.

        We are a fabless semiconductor company in that we do not own or operate a fabrication or manufacturing facility. Seven outside factory subcontractors located in Taiwan, Austria, Malaysia, Singapore, Korea and China manufacture, assemble and test all of our semiconductor devices in current production, two of which are also our wafer foundries. In addition, in connection with the NPA acquisition, we did not assume specific supply contracts and will need to form relationships with the former suppliers of key components for network processing products. We do not have existing relationships with these suppliers and can make no assurances that these suppliers will continue to provide supplies under the same or similar terms as they had done prior to the NPA acquisition. In past periods of high demand in the semiconductor market, we have experienced delays in meeting our capacity demand and as a result were unable to deliver products to our customers on a timely basis. In addition, we have experienced similar delays due to technical and quality control problems at our subcontractors' facilities. In the future, if any of these events occur, or if these facilities suffer any damage, power outages, financial difficulties or any other disruption, we may be unable to meet our customer demand on a timely basis, or at all, and may need to successfully qualify an alternative facility in a timely manner in order to not disrupt our business. We typically require several months or more to qualify a new facility or process before we can begin shipping products. If we cannot accomplish this qualification in a timely manner, we would experience a significant interruption in supply of the affected products. If we are unable to secure sufficient capacity at our subcontractors' existing facilities, or in the event of a closure or significant delay at any of these facilities, our relationships with our customers would be harmed and our market share and operating results would suffer as a result. In addition, we do not have formal pricing agreements with our subcontractors regarding the pricing for the products and services that they provide us. If their pricing for the products and services they provide increases and we are unable to pass along such increases to our OEM customers, our operating results would be adversely affected.

When demand for manufacturing capacity is high, we may take various actions to try to secure sufficient capacity, which may be costly and negatively impact our operating results.

        The ability of each of our subcontractors' manufacturing facilities to provide us with semiconductors is limited by its available capacity and existing obligations. Although we have purchase order commitments to supply specified levels of products to our OEM customers, we do not have a guaranteed level of production capacity from any of our subcontractors' facilities that we depend on to produce our semiconductors. Facility capacity may not be available when we need it or at reasonable prices. We place our orders on the basis of our OEM customers' purchase orders or our forecast of customer demand, and our subcontractors may not be able to meet our requirements in a timely manner. For example, in 2003 and the first nine months of 2004 as well as the second half of 2005 and continuing, general market conditions in the semiconductor industry resulted in a significant increase in demand at these facilities. The demand for our OEM customers' products increased significantly and we were asked to produce significantly higher quantities than in the past and to deliver on short notice. In addition, our subcontractors have also allocated capacity to the production of other companies' products and reduced deliveries to us on short notice. It is possible that our subcontractors' other customers that are larger and better financed than we are, or that have long-term agreements with our subcontractors, may have induced our subcontractors to reallocate capacity to them. If this reallocation were to occur again, it could impair our ability to deliver products on a timely basis.

        Although we use two independent wafer foundries to manufacture all of our semiconductor products, each of our products is designed to be manufactured in a specific process at only one of these wafer foundries. Accordingly, if one of these wafer foundries were unable to provide us with

33

semiconductors as needed, we could experience significant delays in securing sufficient supplies of those semiconductors. We cannot assure you that any of the existing or new wafer foundries that we use will be able to produce semiconductor devices with acceptable manufacturing yields, or that the wafer foundries will be able to deliver enough devices to us on a timely basis, or at reasonable prices. This could impair our ability to meet our OEM customers' needs.

        In order to secure sufficient manufacturing facility capacity when demand is high and mitigate the risks described in the foregoing paragraphs, we may enter into various arrangements with subcontractors that could be costly and harm our operating results, including:

•

option payments or other prepayments to a subcontractor;



•

nonrefundable deposits with or loans to subcontractors in exchange for capacity commitments;



•

contracts that commit us to purchase specified quantities of components over extended periods;



•

purchase of testing equipment for specific use at our subcontractors' facilities;



•

issuance of our equity securities to a subcontractor; and



•

other contractual relationships with subcontractors.

        We may not be able to make any such arrangements in a timely fashion or at all, and any arrangements may be costly, reduce our financial flexibility and not be on terms favorable to us. Moreover, if we are able to secure facility capacity, we may be obligated to use all of that capacity or incur penalties. These penalties and obligations may be expensive and require significant capital and could harm our business.

In the event we seek to use new wafer foundries to manufacture a portion of our semiconductor products, we may not be able to bring the new foundries on-line rapidly enough and may not achieve the anticipated cost reductions.

        As indicated, we use two independent wafer foundries to manufacture all of our semiconductor products, which exposes us to a substantial risk of delay, increased costs and customer dissatisfaction in the event that either one of these foundries were unable to provide us with our semiconductor requirements. Particularly during times when semiconductor capacity is limited, we may seek to qualify additional wafer foundries to meet our requirements. In order to bring these new foundries on-line, our customers would need to qualify the new facility, which process could take as long as several months. Once qualified, these new foundries would then require an additional number of months to actually begin producing semiconductors to meet our needs, by which time our perceived need for additional capacity may have passed or the opportunities we previously identified may have been lost to our competitors. Furthermore, even if these new foundries offer better pricing than our existing manufacturers, if they prove to be less reliable than our existing manufacturers, we would not achieve some or all of our anticipated cost reductions.

If our subcontractors' manufacturing facilities do not achieve satisfactory yields or quality, our relationships with our customers and our reputation will be harmed and, if this were to occur, our net revenue and operating income could decline and our cost of revenue as a percentage of net revenue could increase.

        The fabrication of semiconductors is a complex and technically demanding process. Minor deviations in the manufacturing process can cause substantial decreases in yields, and in some cases, cause production to be stopped or suspended. Although we work closely with our subcontractors to minimize the likelihood of reduced manufacturing yields, their facilities have from time to time experienced lower than anticipated manufacturing yields that have resulted in our inability to meet our customer demand. It is not uncommon for yields in semiconductor fabrication facilities to decrease in times of high demand, in addition to reduced yields that may result from normal wafer lot loss due to workmanship or operational problems at these facilities. When these events occur, especially

34

simultaneously, as happens from time to time, we may be unable to supply our customers' demand. Many of these problems are difficult to detect at an early stage of the manufacturing process and may be time consuming and expensive to correct. In addition, because we purchase wafers, our exposure to low wafer yields from our subcontractors' wafer foundries is increased. Poor yields from the wafer foundries or defects, integration issues or other performance problems in our products could cause us significant customer relations and business reputation problems, or force us to sell our products at lower gross margins and therefore harm our financial results. Conversely, unexpected yield improvements could result in us holding excess inventory that would also negatively impact our gross margins. In addition, manufacturing defects may not be detected by the testing process performed by our subcontractors. If defects are discovered after we have shipped our products, our reputation would be harmed and our net revenue and operating income could decline and our cost of revenue as a percentage of net revenue could increase.

We base orders for inventory on our forecasts of our OEM customers' demand and if our forecasts are inaccurate, our financial condition and liquidity would suffer.

        We place orders with our suppliers based on our forecasts of our OEM customers' demand. Our forecasts are based on multiple assumptions, each of which may introduce errors into our estimates. In the past, when the demand for our OEM customers' products increased significantly, we were not able to meet demand on a timely basis, and we expended a significant amount of time working with our customers to allocate limited supply and maintain positive customer relations. If we underestimate customer demand, we may forego revenue opportunities, lose market share and damage our customer relationships. Conversely, if we overestimate customer demand, we may allocate resources to manufacturing products that we may not be able to sell when we expect to or at all. As a result, we would have excess or obsolete inventory, resulting in a decline in the value of our inventory, which would increase our cost of revenue and create a drain on our liquidity. Our failure to accurately manage inventory against demand would adversely affect our financial results.

To remain competitive, we need to continue to transition our semiconductor chips to increasingly smaller sizes, and our failure to do so may harm our business.

        We periodically evaluate the benefits, on a product-by-product basis, of migrating to smaller chips, which are measured in microns and referred to as geometry processes. We have designed our products to be manufactured in 0.8 micron, 0.25 micron, 0.18 micron and 0.13 micron geometry processes. We are currently migrating some of our products to even smaller 90-nanometer geometry process technology, and over time, we are likely to migrate to even smaller geometries. The smaller chip size reduces our production and packaging costs, which enables us to be competitive in our pricing. The transition to smaller geometries requires us to work with our subcontractors to modify the manufacturing processes for our products and to redesign some products. In the past, we have experienced some difficulties in shifting to smaller geometry process technologies or new manufacturing processes, which resulted in reduced manufacturing yields, delays in product deliveries and increased expenses. We may face similar difficulties, delays and expenses as we continue to transition our products to smaller geometry processes, all of which could harm our relationships with our customers, and our failure to do so would impact our ability to provide competitive prices to our customers, which would have a negative impact on our sales.

We face intense competition in the semiconductor industry and the broadband communications markets, which could reduce our market share and negatively impact our net revenue.

        The semiconductor industry and the broadband communications markets are intensely competitive. We currently compete or expect to compete with, among others, Broadcom Corporation, Centillium Communications, Inc., Conexant Systems, Inc., Infineon Technologies A.G., Marvell Technology Group Ltd., Metalink Ltd., STMicroelectronics N.V. and Texas Instruments Incorporated, which

35

companies, we believe, have experience in very-high-bit-rate-digital subscriber line, or VDSL, or VDSL-like, technology. We also expect to compete with Freescale Semiconductor, Inc., Intel Corporation, Marvell Technology Group Ltd., PMC-Sierra, Inc. and Realtek Semiconductor Corp., in the network processing market. We expect competition to continue to increase. Competition has resulted and may continue to result in declining average selling prices for our products and reduced volume.

        We consider other companies that have access to discrete multi-tone, or DMT, technology as potential competitors in the future, and we also may face competition from newly established competitors, suppliers of products based on new or emerging technologies and customers who choose to develop their own chipsets. To remain competitive, we need to provide products that are designed to meet our customers' needs. Our products must:

•

achieve optimal product performance;



•

comply with industry standards;



•

be cost-effective for our customers' use in their systems;



•

meet functional specifications;



•

be introduced timely to the market; and



•

be supported by a high-level of customer service and support.

        Many of our competitors operate their own fabrication facilities or have stronger manufacturing partner relationships than we have. In addition, many of our competitors have extensive technology libraries that could enable them to incorporate fiber-fast broadband or network processing technologies into a more attractive product line than ours. Many of them also have longer operating histories, greater name recognition, larger customer bases, and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than we do. These competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. In addition, current and potential competitors have established or may establish financial or strategic relationships among themselves or with existing or potential customers, resellers or other third parties. Accordingly, new competitors or alliances among competitors could emerge and rapidly acquire significant market share. Existing or new competitors may also develop technologies that more effectively address our markets with products that offer enhanced features and functionality, lower power requirements, greater levels of semiconductor integration or lower cost. We cannot assure you that we will be able to compete successfully against current or new competitors, in which case we may lose market share in our existing markets and our net revenue may fail to increase or may decline.

Other data transmission technologies and network processing technologies may compete effectively with the carrier services addressed by our products, which could adversely affect our product sales and business.

        Our net revenue is dependent on the increase in demand for carrier services that use integrated residential gateways. Residential gateways compete against a variety of different data transmission technologies, including other DMT-based technologies, cable modem and satellite and other wireless technologies. If any of these competing technologies proves to be more reliable, faster or less expensive than, or has any other advantages over, the fiber-fast broadband technologies we provide, the demand for our products may decrease and our business would be harmed.

We rely on third-party technologies for the development of our products and our inability to use such technologies in the future would harm our ability to remain competitive.

        We rely on third parties for technologies that are integrated into some of our products, including memory cells, input/output cells and core processor logic. If we are unable to continue to use or license these technologies on reasonable terms, or if these technologies fail to operate properly, we may not be

36

able to secure alternatives in a timely manner and our ability to remain competitive would be harmed. In addition, if we are unable to successfully license technology from third parties to develop future products, we may not be able to develop such products in a timely manner or at all.

We may be unable to attract, retain and motivate key senior management and technical personnel, which could harm our development of technology and ability to be competitive.

        Our future success depends to a significant extent upon the continued service of our key personnel, including our President and Chief Executive Officer, Rajesh Vashist, and our other senior executives and key technical personnel. Except for Mr. Vashist, we do not have employment agreements with any of these executives or any other key employees that govern the length of their service. The loss of the services of Mr. Vashist or other senior management or technical personnel could harm our business. Furthermore, our future success depends on our ability to continue to attract, retain and motivate other senior management and qualified technical personnel, particularly software engineers, digital circuit designers, mixed-signal circuit designers and systems and algorithms engineers, and we are currently in the process of trying to hire a vice president of engineering. Competition for these employees is intense. Stock options and other equity incentives generally comprise a significant portion of our compensation packages for all employees, and the expected volatility in the price of our common stock may make it more difficult for us to attract and retain key employees, which could harm our ability to provide technologically competitive products.

If we are unable to develop, introduce or to achieve market acceptance of our new chipset products, our operating results would be adversely affected.

        Our future success depends on our ability to develop new chipset products and transition to new products, introduce these products in a cost-effective and timely manner and convince OEMs to select our products for design into their new systems. Our historical quarterly results have been, and we expect that our future results will continue to be, dependent on the introduction of a relatively small number of new products and the timely completion and delivery of those products to customers. The development of new chipset products is complex, and from time to time we have experienced delays in completing the development and introduction of new products. We have in the past invested substantial resources in emerging technologies that did not achieve the market acceptance that we had expected. Our ability to develop and deliver new chipset products successfully will depend on various factors, including our ability to:

•

successfully integrate the technologies acquired in the NPA acquisition into our product lines;



•

accurately predict market requirements and evolving industry standards;



•

accurately define new chipset products;



•

timely complete and introduce new product designs;



•

timely qualify and obtain industry interoperability certification of our products and the equipment into which our products will be incorporated;



•

ensure that our subcontractors have sufficient foundry capacity and packaging materials and achieve acceptable manufacturing yields;



•

shift our products to smaller geometry process technologies to achieve lower cost and higher levels of design integration; and



•

gain market acceptance of our products and our OEM customers' products.

37

        If we are unable to develop and introduce new chipset products successfully and in a cost-effective and timely manner, we will not be able to attract new customers or retain our existing customers, which would harm our business.

Our success is dependent on achieving design wins into commercially successful OEM systems.

        Our products are generally incorporated into our OEMs customers' systems at the design stage. As a result, we rely on OEMs to select our products to be designed into their systems, which we refer to as a design win. We often incur significant expenditures on the development of a new product without any assurance that an OEM will select our product for design into its own system. Additionally, in some instances, we are dependent on third parties to obtain or provide information that we need to achieve a design win. Some of these third parties may not supply this information to us on a timely basis, if at all. Furthermore, even if an OEM designs one of our products into its system offering, we cannot be assured that its equipment will be commercially successful or that we will receive any net revenue as a result of that design win. Our OEM customers are typically not obligated to purchase our products and can choose at any time to stop using our products if their own systems are not commercially successful, if they decide to pursue other systems strategies, or for any other reason. If we are unable to achieve design wins or if our OEM customers' systems incorporating our products are not commercially successful, our net revenue would suffer.

Acquisitions, strategic partnerships, joint ventures or investments may impair our capital and equity resources, divert our management's attention or otherwise negatively impact our operating results.

        We intend to continue to actively pursue acquisitions, strategic partnerships and joint ventures that we believe may allow us to complement our growth strategy, increase market share in our current markets and expand into adjacent markets, broaden our technology and intellectual property and strengthen our relationships with carriers and OEMs. Any future acquisition, partnership joint venture or investment may require that we pay significant cash, issue stock or incur substantial debt. Acquisitions, partnerships or joint ventures may also result in the loss of key personnel and the dilution of existing stockholders as a result of issuing equity securities. In addition, acquisitions, partnerships or joint ventures require significant managerial attention, which may be diverted from our other operations. These capital, equity and managerial commitments may impair the operation of our business. Furthermore, acquired businesses may not be effectively integrated, may be unable to maintain key pre-acquisition business relationships, may contribute to increased fixed costs and may expose us to unanticipated liabilities and otherwise harm our operating results.

We rely on third-party sales representatives to assist in selling our products, and the failure of these representatives to perform as expected could reduce our future sales.

        We sell our products to some of our OEM customers through third-party sales representatives. Our relationships with some of our third-party sales representatives have been established within the last three years, and we are unable to predict the extent to which our third-party sales representatives will be successful in marketing and selling our products. Moreover, many of our third-party sales representatives also market and sell competing products. Our third-party sales representatives may terminate their relationships with us at any time. Our future performance will also depend, in part, on our ability to attract additional third-party sales representatives that will be able to market and support our products effectively, especially in markets in which we have not previously distributed our products. If we cannot retain our current third-party sales representatives or recruit additional or replacement third-party sales representatives, our sales and operating results could be harmed.

38

Rapidly changing standards and regulations could make our products obsolete, which would cause our sales and operating results to suffer.

        We design our products to conform to regulations established by governments and to standards set by industry standards bodies such as The American National Standards Institute (ANSI) and The Committee T1E1.4 in North America, European Telecommunications Standards Institute (ETSI) in Europe and ITU-T and the Institute of Electrical and Electronics Engineers, Inc. (IEEE) worldwide. Because our products are designed to conform to current specific industry standards, if competing standards emerge that are preferred by our customers, we would have to make significant expenditures to develop new products. If our customers adopt new or competing industry standards with which our products are not compatible, or the industry groups adopt standards or governments issue regulations with which our products are not compatible, our existing products would become less desirable to our customers and our sales and operating results would suffer.

If we fail to secure or protect our intellectual property rights, competitors may be able to use our technologies, which could weaken our competitive position, reduce our net revenue or increase our costs.

        Our success will depend, in part, on our ability to protect our intellectual property. We rely on a combination of patent, copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights in the United States. We do not currently have any applications on file in any foreign jurisdictions with respect to our intellectual property notwithstanding the fact that a significant portion of our net revenue is generated abroad. Our pending patent applications may not result in issued patents, and our existing and future patents may not be sufficiently broad to protect our proprietary technologies or may be held invalid or unenforceable in court. While we are not currently aware of misappropriation of our existing technology, policing unauthorized use of our technology is difficult and we cannot be certain that the steps we have taken will prevent the misappropriation or unauthorized use of our technologies, particularly in foreign countries where we have not applied for patent protections and, even if such protections were available, the laws may not protect our proprietary rights as fully as U.S. law. The patents we have obtained or licensed, or may obtain or license in the future, may not be adequate to protect our proprietary rights. Our competitors may independently develop or may have already developed technology similar to ours, duplicate our products or design around any patents issued to us or our other intellectual property. In addition, we may be required to license our patents as a result of our participation in various standards organizations. If competitors appropriate our technology and we are not adequately protected, our competitive position would be harmed, our legal costs would increase and our net revenue would be harmed.

Third-party claims of infringement or other claims against us could adversely affect our ability to market our products, require us to redesign our products or seek licenses from third parties, and harm our business. In addition, any litigation required to defend such claims could result in significant costs and diversion of our resources.

        Companies in the semiconductor industry often aggressively protect and pursue their intellectual property rights. From time to time, we receive, and may continue to receive in the future, notices that claim we have infringed upon, misappropriated or misused other parties' proprietary rights. While we are not aware that we are currently infringing on the proprietary rights of third parties, we may in the future be engaged in litigation with parties who claim that we have infringed their patents or misappropriated or misused their trade secrets or who may seek to invalidate one or more of our patents, and it is possible that we would not prevail in any future lawsuits. An adverse determination in any of these types of claims could prevent us from manufacturing or selling some of our products, could increase our costs of products and could expose us to significant liability. Any of these claims

39

could harm our business. For example, in a patent or trade secret action, a court could issue a preliminary or permanent injunction that would require us to withdraw or recall certain products from the market or redesign certain products offered for sale or that are under development. In addition, we may be liable for damages for past infringement and royalties for future use of the technology and we may be liable for treble damages if infringement is found to have been willful. Even if claims against us are not valid or successfully asserted, these claims could result in significant costs and a diversion of management and personnel resources to defend.

Any potential dispute involving our patents or other intellectual property could also include our manufacturing subcontractors and OEM customers, which could trigger our indemnification obligations to them and result in substantial expense to us.

        In any potential dispute involving our patents or other intellectual property, our manufacturing subcontractors and OEM customers could also become the target of litigation. Because we often indemnify our customers for intellectual property claims made against them for products incorporating our technology, any litigation could trigger technical support and indemnification obligations in some of our license agreements, which could result in substantial expenses. While to date none of our OEM customers has made an indemnification claim against us, in the event an indemnification claim were made, it could adversely affect our relationships with our OEM customers and result in substantial costs to us.

Our products typically have lengthy sales cycles, which may cause our operating results to fluctuate and result in volatility in the price of our common stock. An OEM customer or a carrier may decide to cancel or change its product plans, which could cause us to lose anticipated sales.

        After we have delivered a product to an OEM customer, the OEM will usually test and evaluate our product with its carrier customer prior to the OEM completing the design of its own equipment that will incorporate our product. Our OEM customers and the carriers may need three to more than six months to test, evaluate and adopt our product and an additional three to more than nine months to begin volume production of equipment that incorporates our product. Due to this lengthy sales cycle, we may experience significant delays from the time we increase our operating expenses and make investments in inventory until the time that we generate net revenue from these products. It is possible that we may never generate any net revenue from these products after incurring these expenditures and investments. Even if an OEM customer selects our product to incorporate into its equipment, we have no assurances that the customer will ultimately market and sell its equipment or that such efforts by our customer will be successful. The delays inherent in our lengthy sales cycle increase the risk that an OEM customer or carrier will decide to cancel or change its product plans. From time to time, we have experienced changes and cancellations in the purchase plans of our OEM customers. A cancellation or change in plans by an OEM customer or carrier could cause us to not achieve anticipated net revenue and result in volatility of the price of our common stock. In addition, our anticipated sales could be lost or substantially reduced if a significant OEM customer or carrier reduces or delays orders during our sales cycle or chooses not to release equipment that contains our products.

As our international manufacturing, sales and research and development operations expand, we will be increasingly exposed to various legal, business, political and economic risks associated with our international operations.

        We currently obtain substantially all of our manufacturing, assembly and testing services from suppliers and subcontractors located outside the United States, and have a significant portion of our research and development team located in Bangalore and Hyderabad, India. In addition, 99.5% of our net revenue for the year ended December 31, 2005 and 99.8% of our net revenue for the year ended December 31, 2004 was derived from sales to customers outside the United States. Additionally, 98.9%

40

of the net sales for the year ended October 29, 2005 of the network processing business we acquired in the NPA acquisition were derived from sales to customers outside of the United States. We have expanded our international business activities and may open other design and operational centers abroad. International operations are subject to many other inherent risks, including but not limited to:

•

political, social and economic instability, including terrorist acts;



•

exposure to different legal standards, particularly with respect to intellectual property;



•

natural disasters and public health emergencies;



•

trade and travel restrictions;



•

the imposition of governmental controls and restrictions or unexpected changes in regulatory requirements;



•

burdens of complying with a variety of foreign laws;



•

import and export license requirements and restrictions of the United States and each other country in which we operate;



•

foreign technical standards;



•

changes in tariffs;



•

difficulties in staffing and managing international operations;



•

fluctuations in currency exchange rates;



•

difficulties in collecting receivables from foreign entities or delayed revenue recognition; and



•

potentially adverse tax consequences.

        Because we are currently substantially dependent on our foreign sales, research and development and operations, any of the factors described above could significantly harm our ability to produce quality products in a timely and cost effective manner, and increase or maintain our foreign sales.

Significant fluctuations or a slowdown in deployment of fiber extension over copper and broadband over copper in Asia would adversely affect our operating results.

        Sales to customers located in Asia accounted for 97.2% of our net revenue for the year ended December 31, 2004 and 97.8% for the year ended December 31, 2005. Our sales have been dependent on the continuous growth of new fiber extension over copper and broadband over copper subscribers in Asia. Fluctuations in or a plateau of new subscribers in Asia could impact our net revenue and a sustained slow down in growth of fiber extension over copper and broadband over copper subscribers in Asia may cause our net revenue to decline.

We are in the process of implementing a new ERP system, which could disrupt our operations, negatively impact our sales volume and net revenue and adversely affect our ability to integrate the assets we acquired in the NPA acquisition.

        In January 2006, we completed the first of many phases of a new comprehensive enterprise resource planning, or ERP, information system to manage our business operations, and subsequent enhancements to this new system could disrupt our operations. We have experienced difficulties in the past in implementing new information systems. The process of implementing new information systems could also adversely impact our ability to do the following in a timely manner:

•

report financial results;



•

accurately reflect inventory costs;

41

•

accept and process customer orders;



•

receive inventory and ship products;



•

invoice and collect receivables;



•

place purchase orders and pay invoices; and



•

accurately reflect all other business transactions related to the finance, order entry, purchasing, supply chain and human resource processes within the new ERP information system.

Fluctuations in exchange rates between the Japanese yen, the Korean won, the Indian rupee, the U.S. dollar, the Canadian dollar and the euro, as well as other currencies in which we do business, may adversely affect our operating results.

        We transact business in an international environment. As a result, we may experience foreign exchange gains or losses due to the volatility of other currencies compared to the U.S. dollar. Our sales have been historically denominated in U.S. dollars and an increase in the U.S. dollar relative to the currencies of the countries that our customers operate in could materially affect our Asian customers' demand for our products, thereby forcing them to reduce their orders, which would adversely affect our business. We recently began to generate a portion of our revenues and expenses in currencies other than the U.S. dollar, including the Japanese yen, Korean won, Indian rupee, Canadian dollar and the euro. As we report our results in U.S. dollars, the difference in exchange rates in one period compared to another directly impacts period to period comparisons of our operating results. Furthermore, currency exchange rates have been especially volatile in the recent past and these currency fluctuations may make it difficult for us to predict and/or provide guidance on our results.

        Currently we have not implemented any strategies to mitigate risks related to the impact of fluctuations in currency exchange rates. Even if we were to implement hedging strategies, not every exposure is or can be hedged, and, where hedges are put in place based on expected foreign exchange exposure, they are based on forecasts which may vary or which may later prove to have been inaccurate. Failure to hedge successfully or anticipate currency risks properly could adversely affect our operating results. We cannot predict future currency exchange rate changes.

We have historically derived a substantial amount of our net revenue from Asia, and with the NPA acquisition, we expect to derive a majority of our network processing revenues from a single customer in Europe. If we fail to diversify the geographic sources and customer base of our net revenue in the future, our operating results could be harmed.

        A substantial portion of our net revenue has historically been derived from sales into Japan and Korea, and our net revenue has been heavily dependent on developments in these markets. As a result, our sales are subject to economic downturns, decrease in demand and overall negative market conditions in Asia. As a result of the NPA acquisition, we expect to continue to sell network processing products to the existing customer base for these products, of which a substantial majority of the revenues are from a single customer in Europe. While part of our strategy is to continue to diversify the geographic sources and customer base of our net revenue, our failure to successfully penetrate markets outside of Japan and Korea, and to successfully diversify our customer base in Europe, could harm our business and operating results.

The complexity of our products could result in unforeseen delays or expenses and in undetected defects or bugs, which could damage our reputation with current or prospective customers and adversely affect the market acceptance of new products.

        Highly complex products such as those that we offer frequently contain defects and bugs, particularly when they are first introduced or as new versions are released. In the past we have

42

experienced, and may in the future experience, defects and bugs in our products. If any of our products contains defects or bugs, or have reliability, quality or compatibility problems, our reputation may be damaged and our OEM customers may be reluctant to buy our products, which could harm our ability to retain existing customers and attract new customers. In addition, these defects or bugs could interrupt or delay sales or shipment of our products to our customers.

Recent changes to environmental laws and regulations applicable to manufacturers of electrical and electronic equipment are causing us to redesign our products, and may result in increases to our costs and greater exposure to liability.

        The implementation of new environmental regulatory legal requirements, such as lead free initiatives, could impact our product designs and manufacturing processes. The impact of such regulations on our product designs and manufacturing processes could affect the timing of compliant product introductions as well as their commercial success. For example, a recent directive in the European Union bans the use of lead and other heavy metals in electrical and electronic equipment after July 1, 2006. As a result, in advance of this deadline, some of our customers selling products in Europe have begun demanding product from component manufacturers that do not contain these banned substances. Because most of our existing assembly processes (as well as those of most other manufacturers) utilize a tin-lead alloy as a soldering material in the manufacturing process, we must redesign many of our products if we are to meet customer demand. This redesign may result in increased research and development and manufacturing and quality control costs. In addition, the products that we manufacture that comply with the new regulatory standards may not perform as well as our current products. Moreover, if we are unable to successfully and timely redesign existing products and introduce new products that meet the standards set by environmental regulation and our customers, sales of our products could decline, which could materially adversely affect our business, financial condition and results of operations.

We have incurred increased costs as a result of being a public company.

        Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, and recent rules enacted and proposed by the SEC and the Nasdaq National Market, are resulting in increased costs to us as we respond to their requirements. In particular, the costs to comply with Section 404 of Sarbanes-Oxley, as presently in effect, could have an adverse effect on our results of operations. The new rules could also make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage and/or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors, or as executive officers.

Compliance with the requirements imposed by Section 404 of the Sarbanes-Oxley Act could harm our operating results, our ability to operate our business and investors' view of us.

        Pursuant to Section 404 of the Sarbanes-Oxley Act, beginning with our Annual Report on Form 10-K for the fiscal year ending December 31, 2006, we will be required to furnish a report by our management on our internal control over financial reporting. In order to achieve compliance with Section 404 of Sarbanes-Oxley within the prescribed period, we have commenced a process to document and evaluate our internal control over financial reporting, which will be both costly and challenging. We can provide no assurance as to our or our independent auditors' conclusions with respect to the effectiveness of our internal control over financial reporting under Section 404 of Sarbanes-Oxley. There is a risk that neither we nor our independent auditors will be able to conclude

43

that our internal controls over financial reporting are effective as required by Section 404 of Sarbanes-Oxley.

        In addition, during the course of our testing we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by Sarbanes-Oxley for compliance with the requirements of Section 404. Furthermore, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of Sarbanes-Oxley. Effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.

Due to the cyclical nature of the semiconductor and telecommunications industries, our operating results may fluctuate significantly, which could adversely affect the market price of our common stock.

        The semiconductor industry is highly cyclical and subject to rapid change and evolving industry standards and, from time to time, has experienced significant downturns. These downturns are characterized by decreases in product demand, excess customer inventories and accelerated erosion of prices. These factors could cause substantial fluctuations in our net revenue and in our operating results. Any downturns in the semiconductor or broadband communications industry may be severe and prolonged, and any failure of this industry or the broadband communications markets to fully recover from downturns could harm our business. The semiconductor industry also periodically experiences increased demand and production capacity constraints, which may affect our ability to ship products. Accordingly, our operating results may vary significantly as a result of the general conditions in the semiconductor or broadband communications industry, which could cause our stock price to decline.

        In addition, the telecommunications industry from time to time has experienced and may again experience a pronounced downturn. To respond to a downturn, many carriers may be required to slow their capital expenditures, cancel or delay new developments, reduce their workforces and inventories and take a cautious approach to acquiring new equipment and technologies from OEMs, which would have a negative impact on our business. In the future, a downturn in the telecommunications industry may cause our operating results to fluctuate from year to year, which also may tend to increase the volatility of the price of our common stock and harm our business.

Several of the facilities that manufacture our products, most of our OEM customers and the carriers they serve, and our California facility are located in regions that are subject to earthquakes and other natural disasters.

        Several of our subcontractors' facilities that manufacture, assemble and test our products, and one of our subcontractor's wafer foundries, are located in Taiwan. Our customers are currently primarily located in Japan and Korea. The Asia-Pacific region has experienced significant earthquakes in the past and could be subject to additional seismic activities. Any earthquake or other natural disaster in these areas could significantly disrupt these manufacturing facilities' production capabilities and could result in our experiencing a significant delay in delivery, or substantial shortage, of wafers in particular, and possibly in higher wafer prices, and our products in general. Our headquarters in California are also located near major earthquake fault lines. If there is a major earthquake or any other natural disaster in a region where one of our facilities is located, it could significantly disrupt our operations.

44

Changes in our tax rates could affect our future results.

        Our future effective tax rates could be favorably or unfavorably affected by the absolute amount and future geographic distribution of our pre-tax income, our ability to successfully shift our operating activities to our foreign operations and the amount and timing of intercompany payments from our foreign operations subject to U.S. income taxes related to the transfer of certain rights and functions.

The requirement to expense stock options in our income statement could have a significant adverse effect on our reported results, and we do not know how the market will react to reduced earnings.

        The Financial Accounting Standards Board, or FASB, and other agencies have made changes to accounting principles generally accepted in the United States, or GAAP, that requires us, starting in our first quarter of fiscal 2006, to record a charge to earnings for the estimated fair value of employee stock option grants and other equity incentives, whereas under existing accounting rules charges are required only for the intrinsic value, if any, of such awards to employees. We may have significant and ongoing accounting charges under the new rules resulting from option grants and other equity incentive expensing, which could reduce our overall net income. In addition, since we historically have used equity-related compensation as a component of our total employee compensation program, the accounting change could make the use of stock options less attractive to us or require us to pay more cash compensation and therefore make it more difficult for us to attract and retain employees. We plan to grant options and restricted stock units as part of our regular annual equity compensation program. The impact of the fair value of these grants cannot be predicted at this time because it will depend on the number of share-based payments granted and the then current fair values.

Risks Related to our Common Stock

Our stock price is volatile, and you may not be able to resell shares of our common stock at or above the price you paid, or at all.

        The market price of our common stock has fluctuated substantially since our initial public offering and is likely to continue to be highly volatile and subject to wide fluctuations. Fluctuations have occurred and may continue to occur in response to various factors, many of which we cannot control, including:

•

quarter-to-quarter variations in our operating results;



•

changes in accounting rules, particularly those related to the expensing of stock options;



•

announcements of changes in our senior management;



•

the gain or loss of one or more significant customers or suppliers;



•

announcements of technological innovations or new products by our competitors, customers or us;



•

the gain or loss of market share in any of our markets;



•

general economic and political conditions and specific conditions in the semiconductor industry and broadband technology markets, including seasonality in sales of consumer products into which our products are incorporated;



•

continuing international conflicts and acts of terrorism;



•

changes in earnings estimates or investment recommendations by analysts;



•

changes in investor perceptions; or

45

•

changes in expectations relating to our products, plans and strategic position or those of our competitors or customers.

        In addition, the market prices of securities of semiconductor and other technology companies have been volatile, particularly companies, like ours, with low trading volumes. This volatility has significantly affected the market prices of securities of many technology companies for reasons frequently unrelated to the operating performance of the specific companies. Accordingly, you may not be able to resell your shares of common stock at or above the price you paid. In the past, we and other companies that have experienced volatility in the market price of their securities have been, and in the future we may be, the subject of securities class action litigation.

Class action litigation due to stock price volatility or other factors could cause us to incur substantial costs and divert our management's attention and resources.

        In the past, securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities. Companies such as ours in the semiconductor industry and other technology industries are particularly vulnerable to this kind of litigation due to the high volatility of their stock prices. While we are not aware of any such contemplated class action litigation against us, we may in the future be the target of securities litigation. Any securities litigation could result in substantial costs and could divert the attention and resources of our management.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse opinion regarding our stock, our stock price and trading volume could decline.

        The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us issue an adverse opinion regarding our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Substantial future sales of our common stock in the public market could cause our stock price to fall.

        As of December 31, 2005, we had 23,799,844 shares of common stock outstanding. Of these shares, 6,400,000 were recently sold in our initial public offering and are freely tradable under federal and state securities laws without further registration under the Securities Act of 1933, as amended, or the Securities Act, except that any shares held by our "affiliates" (as that term is defined under Rule 144 of the Securities Act) may be sold only in compliance with the limitations under Rule 144. We expect to file a registration statement on Form S-1 with the SEC in which we intend to offer additional shares of our common stock on behalf of us and certain stockholders which we refer to as the public offering. The remaining outstanding shares after completion of the initial public offering are "restricted securities" and generally will be available for sale in the public market as follows:

•

approximately 17,300,000 shares, which are subject to lock-up agreements with the underwriters of our initial public offering, will be eligible for sale at various times, pursuant to Rules 144 and 701 of the Securities Act. The underwriters may, however, release all or a portion of the shares subject to lock-up agreements at any time without notice. To the extent shares are released before the expiration of the lock-up period and the shares are sold into the market, the market price of our common stock could decline.

        To the extent we complete the proposed offering and the underwriters require lock-up agreements from selling stockholders, management and directors, a portion of the shares to be released from the initial public offering lock-up agreement will remain subject to a further lock-up for a period of time to be determined in connection with the proposed offering.

46

        In addition, prior to the proposed offering holders of 15,311,840 shares of common stock are entitled to rights to cause us to register the sale of those shares under the Securities Act. In the event we complete the proposed offering, the number of shares entitled to registration rights will decrease. Registration of these shares under the Securities Act would result in these shares, other than shares purchased by our affiliates, becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration statement

        In the future, we may also issue additional shares to our employees, directors or consultants, in connection with corporate alliances or acquisitions, and in follow-on offerings to raise additional capital. Due to these factors, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales could reduce the market price of our common stock.

Our corporate actions are substantially controlled by our directors, executive officers and their affiliated entities who could exert control over our company in a manner that may be contrary to the interests of other investors.

        Our directors, executive officers and their affiliated entities beneficially own over 35% of our outstanding common stock. In the event we complete the proposed offering, we expect the foregoing percentage will decrease. These stockholders, if they acted together, could exert substantial control over matters requiring approval by our stockholders, including electing directors and approving mergers or other business combination transactions. This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity to receive a premium for their stock as part of a sale of our company and might reduce our stock price. These actions may be taken even if they are opposed by our other stockholders, including those who purchase shares in this offering.

Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

        Provisions in our certificate of incorporation may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

•

the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;



•

the establishment of a classified board of directors requiring that not all members of the board be elected at one time;



•

the prohibition of cumulative voting in the election of directors which would otherwise allow less than a majority of stockholders to elect director candidates;



•

the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders' meeting;



•

the ability of the board of directors to alter our bylaws without obtaining stockholder approval;



•

the ability of the board of directors to issue, without stockholder approval, up to 5,000,000 shares of preferred stock with terms set by the board of directors, which rights could be senior to those of common stock;



•

the required approval of holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or amend or repeal the provisions of our certificate of incorporation regarding the election and removal of directors and the ability of stockholders to take action;

47

•

the required approval of holders of a majority of the shares entitled to vote at an election of directors to remove directors for cause; and



•

the elimination of the right of stockholders to call a special meeting of stockholders and to take action by written consent.

        We are also subject to provisions of the Delaware General Corporation Law that, in general, prohibit any business combination with a beneficial owner of 15% or more of our common stock for three years after the point in time that such stockholder acquired shares constituting 15% or more of our shares, unless the holder's acquisition of our stock was approved in advance by our board of directors.

ITEM 1B. UNRESOLVED STAFF COMMENTS

        None

ITEM 2. PROPERTIES

Facilities

        Our headquarters are located at 47669 Fremont Boulevard, Fremont, California. We lease approximately 74,500 square feet of space under our lease agreements expiring in April 2011. We believe that our facilities are adequate for the next 12 months and that, if required, suitable additional space will be available on commercially reasonable terms to accommodate expansion of our operations. In addition to our headquarters, we lease office space in Toronto, Canada, Bangalore and Hyderabad in India, Tokyo, Japan and Seoul, Korea.

ITEM 3. LEGAL PROCEEDINGS

Legal Proceedings

        From time to time we are involved in legal proceedings and litigation arising in the ordinary course of business. We are not currently a party to any litigation or other legal proceedings that we believe would have a material adverse effect on our business, financial condition, results of operations and cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No stockholder votes took place during the fourth quarter of fiscal 2005.

48

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock

        Our common stock has been quoted on the Nasdaq National Market under the symbol "IKAN" since our initial public offering in September 2005. Prior to that time, there was no public market for our common stock. The following table sets forth for the periods indicated the high and low sale prices per share of our common stock as reported on the Nasdaq National Market.

		High		Low
Fiscal 2005:
	Third quarter	$	14.25	$	12.05
	Fourth quarter		16.35		9.36
Fiscal 2006:
	First quarter (through February 24, 2006)		24.97		14.20

        As of January 31, 2006, there were approximately 170 holders of record of our common stock.

Dividend Policy

        We have never declared or paid any cash dividends on our common stock or other securities. We currently anticipate that we will retain all of our future earnings for use in the expansion and operation of our business and do not anticipate paying any cash dividends in the foreseeable future. We also may incur indebtedness in the future that may prohibit or effectively restrict the payment of dividends on our common stock. Any future determination related to our dividend policy will be made at the discretion of our board of directors.

Equity Compensation Plan Information

        The information required by this item regarding equity compensation plans is incorporated by reference to the information set forth in Item 12 of this Annual Report on Form 10-K.

Sale of Unregistered Securities

        Since February 1, 2003, the registrant has sold and issued the following unregistered securities:

        (1)   In January 2003 and February 2003, the registrant sold an aggregate of 8,666,641 shares of series D preferred stock at a price of $3.8112 per share for an aggregate offering price of $33,030,400.00 to 55 individual and institutional investors including funds affiliated with Greylock Limited Partners, Walden International, TeleSoft Partners, Ridgewood Ikanos, LLC, G. Venkatesh and entities and persons affiliated with Wilson Sonsini Goodrich & Rosati, P.C.

        (2)   In March 2004, April 2004 and May 2004, the registrant sold an aggregate of 2,084,615 shares of series E preferred stock at a price of $7.7232 per share for an aggregate offering price of $16,099,999.04 to 34 individual and institutional investors including funds affiliated with Greylock Limited Partners, Walden International, TeleSoft Partners and Ridgewood Ikanos, LLC.

        (3)   In March 2004, in connection with the series E preferred stock financing, the registrant issued a warrant to purchase an aggregate of 38,844 shares of series E preferred stock to Copan, Inc. The warrants have an exercise price of $7.7232 per share.

49

        (4)   From September 30, 2001 through June 30, 2005, the registrant had issued 62,886 shares of common stock to various consultants and service providers in connection with services rendered to the registrant with a fair market value ranging from $1.08 to $11.43 per share

        The registrant claimed exemption from registration under the Securities Act for the sales and issuances of securities in the transactions described in paragraph (1) above under Section 4(2) under the Securities Act in that such sales and issuances did not involve a public offering or under Rule 701 promulgated under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation, as provided by Rule 701.

        The registrant claimed exemption from registration under the Securities Act for the sale and issuance of securities in the transactions described in paragraph (1), (2), (3) and (4) by virtue of Section 4(2) and/or Regulation D promulgated thereunder as transactions not involving any public offering. All of the purchasers of unregistered securities for which the registrant relied on Regulation D and/or Section 4(2) were accredited investors as defined under the Securities Act. The registrant claimed such exemption on the basis that (a) the purchasers in each case represented that they intended to acquire the securities for investment only and not with a view to the distribution thereof and that they either received adequate information about the registrant or had access, through employment or other relationships, to such information and (b) appropriate legends were affixed to the stock certificates issued in such transactions. All recipients either received adequate information about the registrant or had adequate access, through their relationships with the registrant, to information about the registrant.

50

ITEM 6. SELECTED FINANCIAL DATA

        The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this Form 10-K. Our fiscal years are the 52 or 53 week periods ended on the Sunday nearest the end of December. Our fiscal quarters reported are the consecutive 13 or 14 week periods ending on the Sunday nearest to the end of the month. For presentation purposes, our consolidated financial statements and related notes have been presented as ending on the last day of the nearest calendar month. The selected consolidated balance sheet data as of December 31, 2004 and 2005 and the selected consolidated statement of operations data for each of the three years in the period ended December 31, 2005 has been derived from our audited consolidated financial statements that are included elsewhere in this Form 10-K. The selected balance sheet data as of December 31, 2001, 2002 and 2003 and the statement of operations data for each of the two years in the period ended December 31, 2002 have been derived from our audited consolidated financial statements not included in this Form 10-K. Historical results are not necessarily indicative of the results to be expected in the future.

			Year ended December 31
			2001			2002			2003			2004			2005
			(in thousands, except per share data)
Consolidated Statements of Operations Data
Net revenue			$	—		$	4,116		$	29,045		$	66,676		$	85,071
Costs and expenses:
	Cost of revenue (1)			—			4,122			28,677			40,215			39,281
	Research and development (1)			15,418			16,775			21,419			21,732			28,439
	Selling, general and administrative (1)			2,100			3,676			8,841			13,299			15,532
		Total costs and expenses		17,518			24,573			58,937			75,246			83,252
Income (loss) from operations				(17,518	)		(20,457	)		(29,892	)		(8,570	)		1,819
Interest income (expense), net				(188	)		(6	)		22			106			1,218
Income (loss) before income taxes				(17,706	)		(20,463	)		(29,870	)		(8,464	)		3,037
Provision for income taxes				—			—			—			—			(295	)
		Net income (loss)	$	(17,706	)	$	(20,463	)	$	(29,870	)	$	(8,464	)	$	2,742
Basic net income (loss) per share			$	(39.70	)	$	(35.96	)	$	(43.16	)	$	(5.59	)	$	0.14
Diluted net income (loss) per share			$	(39.70	)	$	(35.96	)	$	(43.16	)	$	(5.59	)	$	0.13
Weighted average number of shares in calculating net income (loss) per share
	Basic			446			569			692			1,515			19,002
	Diluted			446			569			692			1,515			21,161

(1)

Amounts include stock-based compensation as follows:

		Year ended December 31,
		2001		2002		2003		2004		2005
		(in thousands)
Cost of revenue		$	—	$	—	$	74	$	40	$	271
Research and development			—		—		2,415		1,054		3,832
Selling, general and administrative			35		14		3,154		3,876		4,120
	Total stock-based compensation	$	35	$	14	$	5,643	$	4,970	$	8,223

51

	December 31,
	2001			2002			2003			2004			2005
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	19,249		$	4,781		$	11,236		$	25,428		$	93,920
Working capital		16,856			1,116			8,919			18,297			95,627
Total assets		22,804			9,863			20,758			42,031			125,595
Short and long-term debt and capital lease obligations		3,306			3,572			1,835			2,695			1,964
Convertible preferred stock		48,134			52,074			84,963			101,633			—
Total stockholders' equity (deficit)		(29,430	)		(49,848	)		(73,999	)		(76,685	)		103,976

52

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and related notes that are included elsewhere in this Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Item 1A. "Risk Factors" or in other parts of this Form 10-K. We assume no obligation to update the forward-looking statements or such risk factors.

Overview

        We are a leading developer and provider of highly programmable semiconductors that enable fiber-fast broadband services over carriers' existing copper lines. We have developed these semiconductors using our proprietary semiconductor designs, specific purpose digital signal processor and advanced mixed-signal semiconductor design capabilities. We recently acquired network processing and ADSL assets in the NPA acquisition, and began deriving revenues relating to network processing and ADSL products in the first quarter of 2006. We offer multiple product lines that are designed to address different segments of the fiber-fast broadband communications semiconductor market for both carrier networks and subscriber premise equipment. We outsource all of our semiconductor fabrication, assembly and test functions, which enables us to focus on design, development, sales and marketing of our products and reduces the level of our capital investment. Our customers are OEMs, who in turn sell our chipsets as part of their product solutions to carriers.

        We were incorporated in April 1999 and through December 31, 2001, we were engaged principally in research and development. We began commercial shipment of our products in the fourth quarter of 2002. Over the last three years, we have experienced significant net revenue growth, primarily due to a rapid rise in deployments of our products in Japan and Korea. Our net revenue has increased from $29.0 million in 2003, to $85.1 million in 2005. Our net revenue, however, can fluctuate significantly on a quarterly basis. For instance, in the first quarter of 2005, our net revenue decreased $6.2 million or 33.4% from the fourth quarter of 2004, yet in the second quarter of 2005, our net revenue increased $7.0 million or 56.6% from the first quarter of 2005. Quarterly fluctuations in net revenue are characteristic of our industry, as carriers purchase equipment based on expected deployment and OEMs may occassionally manufacture equipment at rates higher than equipment is deployed. As a result, periodically and usually without significant notice, carriers will reduce orders with OEMs for new equipment and OEMs in turn will reduce orders for our products, which will adversely impact the quarterly demand for our products, even when deployment rates may be increasing. We believe that our rate of growth in net revenue in the last three quarters ended December 31, 2005 may be in excess of carrier deployments. The net revenue growth rates in each of the last three fiscal quarters was 56.6%, 30.0% and 14.1% quarter over quarter. We do not expect similar net revenue growth rates in future periods.

        In September 2005, we completed our initial public offering. Aggregate net proceeds from our initial public offering, after deducting underwriting discounts and commissions and issuance costs, were $67.9 million. We also had 15,311,840 shares of redeemable convertible preferred stock outstanding that automatically converted into 15,311,840 shares of our common stock upon the closing of our initial public offering.

        On February 17, 2006, we completed the NPA acquisition for approximately $31 million in cash. This acquisition enables us to enter the growing residential gateway semiconductor market. This acquisition also will diversify our product offerings and allow us to sell into new markets worldwide. As

53

a result of the NPA acquisition, we expect to experience a net loss in 2006, primarily due to non-cash acquisition-related charges.

        On February 27, we filed a registration statement on Form S-1 that we intend to use the net proceeds from for general corporate purposes, including working capital and capital expenditures, but we have not designated the proceeds for any specific uses. This registration statement will include shares to be sold by us and certain selling stockholders.

        Net revenue.    Our net revenue is primarily derived from sales of our chipset products. Net revenue from product sales are generally recognized upon shipment, net of sales returns, rebates and allowances. As is typical in our industry, the selling prices of our products generally decline over time. Therefore, our ability to increase net revenue is dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products in greater quantities. Our ability to increase unit sales volume is dependent primarily upon our ability to increase and fulfill current customer demand and obtain new customers.

        We sell our products to OEMs through a combination of our direct sales force and third-party sales representatives. Sales are generally made under short-term, non-cancelable purchase orders. We also have volume purchase agreements with certain customers who provide us with non-binding forecasts. Although our OEM customers may provide us with rolling forecasts, our ability to predict future sales in any given period is limited and subject to change based on demand for our OEM customers' systems and their supply chain decisions.

        Historically, a small number of customers have accounted for a substantial portion of our net revenue, and we expect that significant customer concentration will continue for the foreseeable future. We expect that a small group of OEM customers, the composition of which has varied over time, will continue to account for a substantial portion of our net revenue in the foreseeable future. The following OEMs accounted for more than 10% of our net revenue for the periods indicated. Sales made to these OEMs were made through the indicated third-party sales representatives:

		Percentage of our net revenue for the year ended December 31,
OEM Customer
	Sales Representative	2004		2005
NEC Corporation (Magnus)	NEC Corporation (USA)	44.9	%	44.2	%
Sumitomo Electric Industries, Ltd.	Altima	22.9		27.8
Dasan Networks, Inc.	Uniquest Corporation	11.3		11.6
Millinet Co., Ltd.	Uniquest Corporation	6.7		5.4

        Moreover, through the NPA acquisition, we expect to continue to sell network processing and ADSL products to the existing customer base for these products. The SAFRAN Group, of which Sagem Communication is a subsidiary, represented 73% of net sales for the acquired business for the year ended October 29, 2005.

        Historically, substantially all of our sales have been to customers outside the United States. Sales to customers in Asia accounted for 97.2% and 97.8% for the year ended December 31, 2004 and 2005, respectively. Net sales of the business acquired in the NPA acquisition to customers in Europe and Asia accounted for 72.2% and 26.7% of total sales of the business, respectively, for the year ended October 29, 2005. We anticipate that a majority of our net revenue will continue to be represented by sales to customers outside the United States.

        Cost of Revenue.    Cost of revenue includes primarily the cost of silicon wafers purchased from our foundries. In addition, cost of revenue includes costs associated with assembling, testing and shipping of

54

our semiconductors and includes accruals for estimated warranty obligations and write-downs of excess, obsolete inventories, stock-based compensation expense and amortization of acquisition-related intangibles. Because we do not have formal, long-term pricing agreements with our outsourcing partners, our wafer costs and services are subject to price fluctuations based on the cyclical demand for semiconductors. In addition, after we purchase wafers from foundries, we also have the yield risk related to manufacturing these wafers into die. Manufacturing yield is the percentage of acceptable product resulting from the manufacturing process, as identified when the product is tested. If our manufacturing yields decrease, our cost per unit increases, which could have a significant adverse impact on our cost of revenue.

        We purchase our inventory pursuant to standard purchase orders. Because lead-times at our manufacturing subcontractors can be up to three months, we may build inventory based on our estimate of future forecasts rather than customers' orders.

        Since we began shipping products, our gross margin had generally increased as we have introduced new products with lower per port costs, higher functionality and, at times, higher per port selling prices. A port is the physical connection between the fiber network and the copper line as well as between the copper line and the customer premises. Our gross margins (which we define as net revenue minus the cost of revenue divided by net revenue) decreased in the fourth quarter ended December 31, 2005, and we expect gross margins to continue to decrease in the future for, among other reasons, the lower margins of network processing products, which we are selling as a result of our acquisition of the network processing and ADSL assets.

        Research and development expenses.    Research and development expenses consist of compensation and associated costs of employees engaged in research and development, contractors costs, tape-out costs, reference design development costs, development testing and evaluation costs, stock-based compensation expenses, occupancy costs and depreciation expense. Before releasing new products, we incur charges for mask sets, amortization of acquisition-related intangibles, prototype wafers and mask set revisions, which we refer to as tape-out costs. Tape-out costs cause our research and development expenses to fluctuate because they are not incurred uniformly every quarter.

        As of December 31, 2005, we had 130 persons engaged in research and development of which 55 are employed in Bangalore, India and 75 in North America. As a result of the NPA acquisition, we added over 70 persons engaged in research and development.

        All research and development expenses are expensed as incurred. We expect our research and development expenses to substantially increase as we invest to develop new products and as a result of the NPA acquisition.

        Selling, general and administrative expenses.    Selling, general and administrative expenses relate primarily to compensation and associated expenses for personnel in general management, stock-based compensation, amortization of acquisition-related intangibles, sales and marketing, and finance, and sales commissions, as well as outside legal and accounting expenses. Our selling, general and administrative expenses have increased, and we expect them to continue to increase in absolute dollars as we hire additional personnel, expand our sales and marketing efforts, and incur additional expenses required of a publicly traded company.

        Interest income, net.    Interest income consists of interest earned on cash, cash equivalents and short-term investments. Interest expense consists of interest on our equipment loans and capital leases. As a result the payment of approximately $31 million for the acquisition of the network processor assets, we expect our cash balances and interest income to decrease as a result of less cash due to the resulting lower cash balance.

55

        Provision for income taxes.    As of December 31, 2005, we had net operating loss carry-forwards of $61.7 million at the federal level, which expire through 2019, and $29.0 million at the state level, which expire through 2009. As of December 31, 2005, we also had research and development credit carry-forwards of $3.6 million at the federal level and $2.0 million at the state level. The federal tax credit carry-forward expires beginning in 2019. The state tax credit carry-forward has no expiration. We have provided a valuation allowance on our deferred tax assets, consisting primarily of net operating loss carry-forwards, because of the uncertainty of their realizability due to our history of losses.

        The Tax Reform Act of 1986 limits the use of net operating loss and tax credit carryforwards in the case of an "ownership change" of a corporation. An ownership change, as defined, may restrict utilization of tax attribute carryforwards. We experienced two such ownership changes in May 1999 and in July 2001. The first ownership change limited approximately $93,000 of federal net operating losses and credits to an annual utilization of approximately $32,000 for each of the three years following May 1999. The second ownership change limited approximately $21.0 million of federal net operating losses and credits to an annual utilization of approximately $853,000 for each of the 19 years following July 2001.

        Similarly, the first ownership change limited approximately $116,000 of California net operating losses and credits to an annual utilization of approximately $32,000 for each of the four years following May 1999. The second ownership change limited approximately $23.4 million of California net operating losses and credits to an annual utilization of approximately $853,000 for each of the 18 years following July 2001. Due to the ownership change, approximately $6.7 million of California net operating losses and credits will expire unutilized.

        Based on our historical losses and other available objective evidence, we determined it is more likely than not that the deferred tax asset will not be realized. This is due to the history of net operating losses we have incurred. The amount of the deferred tax asset considered realizable, however, may change if actual future taxable income differs from estimated amounts.

Critical Accounting Policies and Estimates

        Our discussion and analysis of our financial condition and the results of operations are based on our consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, bad debts, warranty obligations, inventories and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are set forth below.

        Revenue recognition.    The performance of our semiconductor products is reliant upon firmware. Accordingly, net revenue from the sale of semiconductors is recognized in accordance with EITF 03-05 "Application of AICPA Statement of Position 97-2 to non-software deliverables in an arrangement containing more-than-incidental software."

        Net revenue from sales of semiconductors is recognized upon shipment when persuasive evidence of an arrangement exists, the required firmware is delivered, legal title and risk of ownership has transferred, the price is fixed or determinable and collection of the resulting receivable is probable.

        In instances where semiconductors are shipped prior to the release of the related production level firmware, revenue is deferred as we have not established vendor-specific objective evidence of fair value

56

for the undelivered firmware. Net revenue related to these products is recognized when the firmware is delivered or otherwise made available to the customer.

        In addition, we record reductions to net revenue for estimated product returns and pricing adjustments, such as volume purchase incentives, in the same period that the related net revenue is recorded. The amount of these reductions is based on historical sales returns, analysis of credit memo data, specific criteria included in volume purchase incentives agreements, and other factors known at the time. Additional reductions to net revenue would result if actual product returns or pricing adjustments exceed our estimates.

        Inventories.    We value our inventories at the lower of cost or estimated market value. We estimate market value based on our current pricing, market conditions and specific customer information. We write down inventory for estimated obsolescence of unmarketable inventories and quantities on hand in excess of estimated future demand and market conditions. If actual shipments are less favorable than expected, additional charges may be required. Once inventory is written down, a new accounting basis is established and it is not written back up in future periods.

        Stock options.    Prior to January 1, 2006, we elected to follow the intrinsic value-based method prescribed by Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees," or APB 25, and related interpretations in accounting for employee stock options rather than adopting the alternative fair value accounting provided under Statement of Financial Accounting Standards, or SFAS, No. 123, "Accounting for Stock Based Compensation." Therefore, we did not record any compensation expense for stock options we granted to our employees where the exercise price equaled the fair market value of the stock on the date of grant and the exercise price, number of shares eligible for issuance under the options and vesting period were fixed.

        During the first quarter of fiscal 2005, we completed a stock option exchange program. The voluntary program allowed eligible employees, consultants and directors to return to us existing options with an exercise price greater than $3.84 per share and exchange them on a one-for-one basis for new options that were granted on March 1, 2005. The new option grants to purchase 633,002 aggregate shares of common stock have a vesting period identical to the exchanged options and carry an exercise price of $3.84 per share. As a result of the option exchange program, stock options to purchase 633,002 shares of are common stock will be subject to variable accounting until such options are either exercised, forfeited, cancelled or expired. Variable accounting requires us to value the variable options at the end of each accounting period based upon the then current market price of the underlying common stock. Accordingly, our stock compensation expense is subject to significant fluctuation based on changes in the fair value of our common stock. We recorded $5.6 million of stock-based compensation during the year ended December 31, 2005 related to the stock option exchange program.

        We comply with the disclosure requirements of SFAS No. 123 and SFAS No. 148, which require that we disclose our pro forma net income or loss and net income or loss per common share as if we had expensed the fair value of the options. In calculating such fair value, there are certain assumptions that we use, as disclosed in note 1 of our consolidated financial statements included elsewhere in this Form 10-K.

        In addition, in connection with the grant of stock options during 2004 and 2005, we recorded an aggregate of $4.3 million and $8.2 million, respectively, in deferred stock-based compensation expense. These options are considered compensatory because the fair market value of our stock determined for financial reporting purposes is greater than the fair value determined by the board of directors on the date of the grant or issuance. Warrants issued to non-employees are accounted for at fair value, which is estimated using the Black-Scholes option pricing model. The fair value of these warrants is amortized to expense over the vesting period.

57

        In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R), companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Public companies will be required to apply SFAS No. 123(R) as of the first annual reporting period beginning after June 15, 2005. We will adopt SFAS No. 123(R) in the first quarter of fiscal 2006. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods. In March 2005 the SEC issued Staff Accounting Bulletin No. 107, or SAB 107. SAB 107 expresses views of the staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the staff's views regarding the valuation of share-based payment arrangements for public companies. We are evaluating the requirements of SFAS No. 123(R) and SAB 107 to assess what impact its adoption will have on our financial position and results of operations.

        Accounts receivable allowance.    We perform ongoing credit evaluations of our customers and adjust credit limits, as determined by our review of current credit information. We continuously monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience, our anticipation of uncollectible accounts receivable and any specific customer collection issues that we have identified. While our credit losses have historically been low and within our expectations, we may not continue to experience the same credit loss rates that we have in the past. Our receivables are concentrated in a relatively few number of customers. Therefore, a significant change in the liquidity or financial position of any one of our significant customers would have a significant impact on our results of operations and cash flows.

        Warranty accrual.    We provide for the estimated cost of product warranties at the time net revenue is recognized. While we engage in product quality programs and processes, including monitoring and evaluating the quality of our suppliers, our warranty obligation is affected by product failure rates, the cost of replacing chipsets, rework costs and freight incurred in replacing a chipset after failure. We monitor chipset returns for warranty and maintain a reserve for the related warranty expenses based on historical experience of similar products. Should actual failure rates, cost of chipset replacement and inbound and outbound freight costs differ from our estimates, revisions to the estimated warranty reserve would be required.

        Accounting for income taxes.    We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the balance sheets, as well as operating loss and tax credit carry forwards. We have recorded a full valuation allowance against our deferred tax asset. Based on our historical losses and other available objective evidence, we determined it is more likely than not that the deferred tax asset will not be realized. While we have considered potential future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the full valuation allowance, in the event that we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase net income in the period such determination was made.

        The above items are not a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP with no need for our management's judgment in their application. There are also areas in which our management's judgment in selecting any available alternative would not produce a materially different result. See our consolidated financial statements and related notes thereto included elsewhere in this Form 10-K that contain accounting policies and other disclosures required by GAAP.

58

Results of Operations

        The following table sets forth our financial results, as a percentage of net revenue, for the years ended December 31, 2003, 2004 and 2005:

	Year Ended December 31,
	2003		2004		2005
Net revenue	100	%	100	%	100	%
Cost of revenue	98.7		60.3		46.2
Research and development expenses	73.7		32.6		33.4
Selling, general and administrative expenses	30.4		19.9		18.3
Income (loss) from operations	(102.9	)	(12.9	)	2.1
Interest income, net	0.1		0.2		1.4
Provision for income taxes	0.0		0.0		(0.3	)
Net income (loss)	(102.8	)	(12.7	)	3.2

Comparison of 2005 to 2004

        Net revenue.    Net revenue for 2005 was $85.1 million, as compared to $66.7 million for 2004, an increase of $18.4 million, or 27.6%. The increase in our net revenue was the result of increased port shipments offset by slight decreases in average selling prices per port.

        In 2005, we experienced significant sequential quarterly volatility as our net revenue in the first quarter of 2005 decreased 33.4% from the fourth quarter of 2004, and then increased by 56.6% in the second quarter of 2005 from the first quarter of 2005. This volatility was primarily due to our two largest customers in Japan significantly reducing orders for our products for the quarter ended March 31, 2005 and subsequently reinitiating orders for the quarter ended June 30, 2005 and thereafter.

        Cost of revenue.    Cost of revenue for 2005 was $39.3 million, as compared to $40.2 million for 2004, a decrease of $934,000, or 2.3% despite an increase in net revenue in 2005. As a percentage of net revenue, cost of revenue was 46.2% in 2005 compared to 60.3% in 2004. Gross margin was 53.8% for 2005 as compared to 39.7% for 2004. These decreases in cost of revenues and increase in gross margin reflect a shift to sales of newer generation products in 2005. These products have a lower manufacturing cost per port than our older products.

        Research and development expenses.    Research and development expenses for 2005 were $28.4 million as compared to $21.7 million in 2004, an increase of $6.7 million, or 30.9%. We incurred stock-based compensation expense associated with research and development personnel of $3.8 million in 2005 and $1.1 million in 2004. Personnel expenses increased by $1.9 million, or 15.8% related to a 32.7% increase in headcount for the year ended December 31, 2005 as compared to the year ended 2004.

        Selling, general and administrative expenses.    Selling, general and administrative expenses were $15.5 million in 2005 as compared to $13.3 million for 2004, an increase of $2.2 million, or 16.5%. We incurred stock-based compensation expense associated with sales, marketing and administrative personnel of $4.1 million in 2005 and $3.9 million in 2004. Personnel expenses increased by $3.2 million due to a 35.4% increase in headcount in 2005 as compared to 2004. This was partially offset by a decrease in recruiting and external commission expense of $1.1 million as we replaced external sales representatives with full time employees.

59

        Interest income, net.    Net interest income increased $1.1 million to $1.2 million in 2005, as compared to interest income of $106,000 in 2004. This increase was primarily due to the $67.9 million of net proceeds raised in our initial public offering.

        Income tax expense.    Income tax expense was $295,000 in 2005 as compared to no income tax expense in 2004. The income tax expense in 2005 represented federal and state alternative minimum income taxes.

        Net income (loss).    As a result of the above factors, we had a net income of $2.7 million in 2005, as compared to a net loss of $8.5 million in 2004, an increase of $11.2 million.

Comparison of 2004 to 2003

        Net revenue.    Net revenue for 2004 was $66.7 million, as compared to $29.0 million for 2003, an increase of $37.7 million, or 130.0%. The increase in net revenue was due to accelerated deployment of OEM systems using our chipsets in Japan and Korea, as well as increases in selling prices per port for new products shipped during 2004.

        Cost of revenue.    Cost of revenue for 2004 was $40.2 million, as compared to $28.7 million for 2003, an increase of $11.5 million, or 40.1%. Cost of revenue as a percentage of net revenue decreased to 60.3% for 2004 from 98.7% for 2003. Gross margin was 39.7% in 2004 as compared to 1.3% in 2003. The reduction in cost of revenue as a percentage of net revenue was primarily due to the introduction and sales of our new products that comprised a majority of our net revenue for 2004. These new products had lower manufacturing costs per port than products sold in the corresponding period in 2003.

        Research and development expenses.    Research and development expenses for 2004 were $21.7 million as compared to $21.4 million in 2003, an increase of $313,000, or 1.5%. While we increased headcount by 73.0%, our personnel costs increased by 10.0%. This was primarily due to the hiring of employees and consultants in India. We incurred stock-based compensation expense associated with research and development personnel of $1.1 million in 2004 and $2.4 million in 2003. In addition, we incurred additional hiring fees of $428,000 in 2004 as compared to 2003 in connection with transitioning consultants to full-time employees in India.

        Selling, general and administrative expenses.    Selling, general and administrative expenses were $13.3 million in 2004 as compared to $8.8 million for 2003, an increase of $4.5 million, or 51.1%. We incurred stock-based compensation expense associated with sales, marketing and administrative personnel of $3.9 million in 2004 and $3.2 million in 2003. Personnel, recruiting and travel expenses increased by $2.3 million due to an increase in revenue-generation activities. We also incurred additional professional costs of $291,000 in 2004 as compared in 2003 in connection with our initial public offering.

        Interest income, net.    Net interest income was $106,000 in 2004 as compared to net interest income of $22,000 in 2003, an increase of $84,000.

        Net loss.    As a result of the above factors, we had a net loss of $8.5 million in 2004 as compared to a net loss of $29.9 million in 2003, a decrease of $21.4 million, or 71.6%.

Quarterly Results of Operations

        Net revenue.    Quarterly net revenue has increased significantly from $14.3 million in the quarter ended March 31, 2004 to $28.5 million in the quarter ended December 31, 2005. This increase was primarily due to the increase in deployment of equipment incorporating our products, the increase in the number of our design wins and our introduction of new products. Our net revenue, however, has

60

fluctuated on a quarterly basis. For instance, in the quarter ended March 31, 2005, our net revenue decreased 33.4% sequentially as two of our customers decreased their orders and increased 56.6% sequentially in the subsequent quarter ended June 30, 2005 when those same customers re-initiated their orders. In addition, the large increase in net revenue in the first quarter of 2004 was due to ramp-up of deployments of fiber-fast broadband over copper lines by carriers in Japan and Korea.

        Cost of revenue.    Quarterly cost of revenue as a percentage of net revenue decreased significantly from 82.3% in the first quarter of 2004 to 46.4% for the fourth quarter of 2005. Cost of revenue has decreased primarily due to the introduction and sales of our new products, which had lower manufacturing costs per port. Since the first quarter of 2004, cost of revenue has decreased in each subsequent quarter until the third quarter of 2005 due to the continuing penetration of new products, which had lower costs per port and when introduced, occasionally had higher selling prices than the products they replaced. In the fourth quarter of 2005, cost of revenue as a percentage of net revenue increased to 46.4% from 43.8% in the third quarter of 2005 due to decreases in average selling price per port.

        Research and development expenses.    Research and development expenses fluctuated quarter to quarter, due primarily to fluctuation in the frequency and cost of new product releases.

        Selling, general and administrative expenses.    Selling, general and administrative expenses have typically increased in absolute dollars in every quarter. The increases were primarily due to an increase in headcount and commissions associated with higher net revenue and more recently with costs associated with being a public company from March to December 2005.

        Our quarterly revenues and operating results are difficult to predict, and have in the past and may in the future fluctuate from quarter to quarter. We base our planned operating expenses in part on our expectations of future revenues, and our expenses are relatively fixed in the short term. If revenues for a particular quarter are lower than we expect, we may be unable to proportionately reduce our operating expenses for that quarter, which would harm our operating results for that quarter. We believe that period-to-period comparisons of our operating results should not be relied upon as an indication of our future performance. In future periods, the market price of our common stock could decline if our revenues and results of operations are below the expectations of analysts and investors.

        For additional discussion of factors that may cause our revenues and operating results to fluctuate, please see those discussed under the caption "Risk Factors" in this Form 10-K.

Liquidity and Capital Resources

        At December 31, 2005 cash, cash equivalents and short-term investments were $93.9 million as compared to $25.4 million at December 31, 2004, an increase of $68.5 million. This increase was primarily due to the $67.9 million of net proceeds raised in our initial public offering and $6.6 million generated from operations partially offset by purchases of property, equipment and short-term investments totalling $7.2 million. In February 2006, we reduced our cash and cash equivalents by approximately $31 million as a result of the NPA acquisition. We believe there will be additional working capital requirements to fund and operate the network processing and ADSL business we acquired. We expect to finance our operations primarily through operating cash flows and our cash balances.

        Operating expenses will increase as a result of the NPA acquisition, and we also expect to increase our operating expenses as we continue to execute our business strategy. This increase in operating expenses may not result in an increase in our net revenue and our anticipated net revenue may not be sufficient to support these increased expenditures. We anticipate that operating expenses and working capital will constitute a material use of our cash and cash equivalents.

61

        The following table summarizes our statement of cash flows for the years ended December 31, 2003, 2004 and 2005:

	Year ended December 31,
	2003			2004			2005
Statements of Cash Flows Data:
Net cash provided by (used in) operating activities	$	(21,932	)	$	699		$	6,635
Net cash used in investing activities		(692	)		(3,993	)		(7,192	)
Net cash provided by financing activities		29,087			17,489			67,086
Effect of exchange rates on cash and cash equivalents		(8	)		(3	)		(25	)
Net increase in cash and cash equivalents		6,455			14,192			66,504
Cash and cash equivalents—beginning of period		4,781			11,236			25,428
Cash and cash equivalents—end of period		11,236			25,428			91,932

Operating Activities

        Our operating activities generated $6.6 million in cash from operations during 2005. The primary source of these cash flows was $13.9 million in net income before depreciation of $2.9 million and stock-based compensation expense of $8.2 million. Operating cash flows also benefited from an increase in accounts payable and accrued liabilities of $5.3 million. This increase related principally to an increase in inventory purchases required to support our increased revenues and the timing of payment for these inventory purchases to our suppliers. These sources of operating cash flows were partially offset by a $10.9 million increase in accounts receivable caused by the increase in sales volume, the timing of our sales and subsequent cash collections.

        We anticipate that accounts receivable, inventory and accounts payable will increase.

        Our operating activities provided $699,000 in cash in 2004. This was primarily due to a net loss of $8.5 million and increases to inventories of $2.9 million and other assets of $2.0 million which were offset by $5.0 million of non-cash charges for amortization of stock based compensation, a $3.4 million increase in accounts payable, a $2.9 million increase in accrued liabilities and $1.8 million of depreciation of property and equipment.

        Our operating activities used $21.9 million of cash in 2003. This was primarily due to net losses of $29.9 million and a $2.9 million increase to inventories which were partially offset by $5.6 million of non-cash charges for amortization of stock based compensation, a $2.4 million increase to accounts payable, a $1.5 million increase to accrued liabilities and $1.4 million of depreciation of property and equipment.

Investing Activities

        Our investing activities used net cash of $7.2 million, $4.0 million and $692,000 during 2005, 2004 and 2003, respectively. Cash used in investing activities related to the acquisition of property and equipment and purchase of short-term investments. We anticipate that our capital expenditures will be approximately $7.0 to $10.0 million in 2006.

Financing Activities

        Our financing activities provided $67.1 million in 2005 as compared to $17.5 million in 2004 and $29.1 million in 2003. Cash generated by financing activities in 2005 was primarily due to the completion of our initial public offering in which we received $67.9 million of net proceeds. In 2004 and 2003, cash generated by financing activities was primarily due to the net proceeds from the issuance of convertible preferred stock of $16.7 million and $30.6 million, respectively.

62

        On October 21, 2004, we entered into a loan and security agreement with Silicon Valley Bank that provides for an up to $5.0 million revolving line of credit and a $2.0 million equipment financing facility. As of December 31, 2005, we had no balance outstanding under the revolving line of credit and $1.4 million outstanding under the equipment financing facility which bear interest rates from 5.95% to 6.31%.

        The revolving line of credit can be used to (1) borrow revolving loans for working capital requirements, (2) issue letters of credit, (3) enter into foreign exchange forward contracts and (4) support cash management services. Revolving loans will bear interest at a floating rate of interest equal to Silicon Valley Bank's prime rate plus 0.50%. Equipment loans bear interest at a fixed rate of interest equal to Silicon Valley Bank's prime rate at the time of borrowing plus 1.00%. So long as the amount of our unrestricted cash and cash equivalents less outstanding indebtedness under the loan and security agreement exceeds $35.0 million, a maximum of $5.0 million will be available for borrowing under the revolving line of credit. Otherwise, the maximum amount available for borrowing under the revolving line of credit is an amount equal to the lesser of $5.0 million or 80% of our accounts receivable eligible under the terms of the loan and security agreement.

        On October 21, 2006, the revolving line of credit matures and Silicon Valley Bank's commitment to extend revolving loans terminates. Principal and interest on the equipment facility is payable monthly and bears interest at a fixed rate. The outstanding equipment facilities will be paid in full by February 2007.

        The revolving and equipment loans under the loan and security agreement are collateralized by a first priority lien on substantially all of our assets, excluding intellectual property. The loan and security agreement requires us to maintain a profitability covenant and a minimum quick ratio of not less than 1.15 to 1.00. Quick ratio means the ratio of the sum of unrestricted cash and cash equivalents and accounts receivable to current liabilities. In addition, we are required to comply with covenants that limit our ability to, among other things, dispose of assets, make acquisitions, be acquired, incur indebtedness, grant liens, make investments, pay dividends or repurchase stock.

        The loan and security agreement includes events of default that, include among other things, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, cross-default to certain other indebtedness, bankruptcy and insolvency events, change of control and material judgments. The occurrence of an event of default could result in the acceleration of our obligations under the loan and security agreement and foreclosure on the collateral securing our obligations under the loan and security agreement. We were not in compliance with the minimum profitability financial covenant during the quarter ended March 31, 2005. Silicon Valley Bank agreed to forebear its rights to call the equipment financing facility as a result of the non-compliance. This forbearance pertains to the covenant violation during the quarter ended March 31, 2005 in perpetuity; however, it does not extend to any future non-compliance with covenants.

        We believe that our existing cash, cash equivalents and cash flow expected to be generated from future operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors including our rate of net revenue growth, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the costs to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products. Although we are currently not a party to any agreement with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders. Additional debt would result in increased interest expenses and could result in covenants that would restrict our operations. We have not made arrangements to obtain

63

additional financing and there is no assurance that such financing, if required, will be available in amounts or on terms acceptable to us, if at all.

Contractual Commitments and Off-Balance Sheet Arrangements

        As of December 31, 2005, we have no off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC's Regulation S-K.

        The following table summarizes our contractual obligations at December 31, 2005 and the effect those obligations are expected to have on our liquidity and cash flow in future periods:

		Payment due by period
		Total		Less than 1 year		1 to 3 years		After 3 years
		(in thousands)
Capital lease obligations		$	557	$	330	$	227	$	—
Operating leases			3,616		579		1,424		1,613
Notes payable			1,517		765		752		—
Inventory purchase obligations			8,050		8,050		—		—
	Total	$	13,740	$	9,724	$	2,403	$	1,613

        For the purpose of this table, purchase obligations for the purchase of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. In addition, we have purchase orders that represent authorizations to purchase rather than binding agreements. We do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected requirements. In addition, during February 2006, we completed the NPA acquisition for cash consideration of approximately $31 million.

Recent Accounting Pronouncements

        In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R), companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Public companies will be required to apply SFAS No. 123(R) as of the first annual reporting period beginning after June 15, 2005. We expect to adopt SFAS No. 123(R) in the first quarter of fiscal 2006. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods. In March 2005, the SEC issued Staff Accounting Bulletin No. 107, or SAB 107. SAB 107 expresses views of the staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the staff's views regarding the valuation of share-based payment arrangements for public companies. We are evaluating the requirements of SFAS No. 123(R) and SAB 107 to assess what impact its adoption will have on our financial position and results of operations.

        In May 2005, the Financial Accounting Standard Board ("FASB") issued Statement No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements" (FAS 154). FAS 154 changes the requirements for the accounting for, and reporting of, a change in

64

accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. FAS 154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. FAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements. We do not believe adoption of FAS 154 will have a material effect on our consolidated financial position, results of operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

        Our net revenue and the majority of our costs and expenses, including subcontractor manufacturing expenses, are denominated in U.S. dollars. An increase of the U.S. dollar relative to the currencies of the countries that our customers operate in would make our products more expensive to them and increase pricing pressure or reduce demand for our products. We recently began to generate a portion of our revenues and expenses in currencies other than the U.S. dollar, including the Japanese yen, Korean won, Indian rupee and Canadian dollar. As we report our results in U.S. dollars, the difference in exchange rates in one period compared to another directly impacts period to period comparisons of our operating results. Furthermore, currency exchange rates have been especially volatile in the recent past and these currency fluctuations may make it difficult for us to predict and/or provide guidance on our results. We do not currently enter into forward exchange contracts to hedge exposure denominated in foreign currencies or any other derivative financial instruments for trading or speculative purposes. In the future, if we feel our foreign currency exposure has increased, we may consider entering into hedging transactions to help mitigate that risk. Even if we were to implement hedging strategies, not every exposure is or can be hedged, and, where hedges are put in place based on expected foreign exchange exposure, they are based on forecasts which may vary or which may later prove to have been inaccurate. Failure to hedge successfully or anticipate currency risks properly could adversely affect our operating results.

Interest Rate Sensitivity

        We had unrestricted cash and cash equivalents totaling $91.9 million at December 31, 2005. Our investment portfolio currently consists of money market funds, commercial paper and government agency bonds. Our primary objective with this investment portfolio is to invest available cash while preserving principal and meeting liquidity needs. In accordance with our investment policy, we place investments with high credit quality issuers and limit the amount of credit exposure to any one issuer other than U.S. governmental entities. These securities are subject to interest rate risks. However, based on the liquidity of our investments, we believe that if a significant change in interest rates were to occur, it would not have a material effect on our financial condition.

        During October 2004 we entered into a loan agreement with Silicon Valley bank. As of December 31, 2005, no balance was outstanding under the working capital facility and $1.4 million was outstanding under the equipment financing facility. Interest on borrowings under the working capital line is payable monthly and is calculated at a floating rate of interest equal to Silicon Valley Bank's prime rate plus 0.50%, while interest on the equipment financing facility is payable monthly at a fixed rate of interest equal to Silicon Valley Bank's prime rate at the time of borrowing plus 1.00%, as of December 31, 2005. Interest rates on the amounts drawn under the equipment financing facility range from 5.95% to 6.31%.

65

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

IKANOS COMMUNICATIONS, INC.

INDEX TO FINANCIAL STATEMENTS

	Page
Consolidated Financial Statements for the Years Ended December 31, 2005, 2004 and 2003
Report of Independent Registered Public Accounting Firm	67
Consolidated Balance Sheets	68
Consolidated Statements of Operations	69
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss)	70
Consolidated Statements of Cash Flows	72
Notes to Consolidated Financial Statements	73

66

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Ikanos Communications, Inc.:

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity (deficit) and comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of Ikanos Communications, Inc. and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/  PRICEWATERHOUSECOOPERS LLP

San Jose, California
February 27, 2006

67

IKANOS COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

				December 31,
				2005			2004
ASSETS
Current assets:
	Cash and cash equivalents			$	91,932		$	25,428
	Short-term investments				1,988			—
	Accounts receivable—trade				11,015			127
	Inventories				9,125			7,994
	Prepaid expenses and other current assets				2,235			460
		Total current assets			116,295			34,009
Property and equipment, net					8,384			5,813
Other assets					916			2,209
		Total assets		$	125,595		$	42,031
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
	Accounts payable			$	8,371		$	8,199
	Accrued liabilities				11,284			6,189
	Capital lease obligations, current portion				315			838
	Notes payable, current portion				698			486
		Total current liabilities			20,668			15,712
Capital lease obligations, net of current portion					223			355
Notes payable, net of current portion					728			1,016
		Total liabilities			21,619			17,083
Contingencies and Commitments (Note 12)
Redeemable convertible preferred stock; 15,843,667 shares authorized; none and 15,311,840 shares issued and outstanding at December 31, 2005 and 2004, (Liquidation value of none and $102,985 at December 31, 2005 and December 31, 2004 respectively)					—			101,633
Stockholders' equity (deficit):
	Preferred stock; $0.001 par value; 5,000,000 shares authorized; none issued and outstanding at December 31, 2005 and 2004				—			—
	Common stock: 100,000,000 and 20,620,833 shares authorized; $0.001 par value; 23,720,170 and 1,811,952 issued and oustanding at December 31, 2005 and 2004,				24			2
	Additional paid-in capital				195,398			16,131
	Warrants				914			914
	Notes receivable from stockholders				(19	)		(137	)
	Deferred stock-based compensation				(5,699	)		(4,255	)
	Accumulated other comprehensive loss				(65	)		(21	)
	Accumulated deficit				(86,577	)		(89,319	)
		Total stockholders' equity (deficit)			103,976			(76,685	)
			Total liabilities, convertible preferred stock and stockholders' equity (deficit)	$	125,595		$	42,031

The accompanying notes are an integral part of these financial statements.

68

IKANOS COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

			Year ended December 31,
			2005			2004			2003
Net revenues			$	85,071		$	66,676		$	29,045
Costs and expenses:
	Cost of revenue (1)			39,281			40,215			28,677
	Research and development (1)			28,439			21,732			21,419
	Selling, general and administrative (1)			15,532			13,299			8,841
		Total costs and expenses		83,252			75,246			58,937
Income (loss) from operations				1,819			(8,570	)		(29,892	)
Interest income, net				1,218			106			22
Income (loss) before income taxes				3,037		$	(8,464	)	$	(29,870	)
Provision for income taxes				(295	)	$	—		$	—
Net income (loss)				2,742			(8,464	)		(29,870	)
Basic net income (loss) per share			$	0.14		$	(5.59	)	$	(43.16	)
Diluted net income (loss) per share			$	0.13		$	(5.59	)	$	(43.16	)
Weighted-average number of shares in calculating net income (loss) per share:
	Basic			19,002			1,515			692
	Diluted			21,161			1,515			692

(1)

Amounts include stock-based compensation as follows:

	Year ended December 31,
	2005		2004		2003
Cost of revenue		271		40		74
Research and development		3,832		1,054		2,415
Selling, general and administrative		4,120		3,876		3,154
	$	8,223	$	4,970	$	5,643

The accompanying notes are an integral part of these financial statements.

69

IKANOS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)

	Redeemable convertible preferred stock
				Common stock									Notes receivable from stockholders						Accumulated other comprehensive loss						Total stockholders' equity (deficit)
								Additional paid-in capital								Deferred stock-based compensation						Accumulated deficit						Comprehensive income (loss)
	Shares	Amount		Shares		Amount					Warrants
Balance at December 31, 2002	4,484	$	52,074	683		$	1	$	685		$	664	$	(213	)	$	—		$	—		$	(50,985	)	$	(49,848	)
Net loss	—		—	—			—					—		—						—			(29,870	)		(29,870	)	$	(29,870	)
Currency translation adjustment	—		—	—			—					—		—						(8	)		—			(8	)		(8	)
Comprehensive loss																												$	(29,878	)
Deferred stock-based compensation	—		—	—			—		9,746			—		—			(9,746	)		—			—			—
Amortization of deferred stock-based compensation	—		—	—			—					—		—			5,265			—			—			5,265
Issuance of common stock for stockholders' notes receivable	—		—	26			—		29			—		(29	)		—			—			—			—
Stock based compensation	—		—	6			—		378			—		—			—			—			—			378
Issuance of common stock upon exercise of stock options	—		—	82			—		84			—		—			—			—			—			84
Issuance of Series D Redeemable Convertible Preferred Stock, net of issuance costs	8,069		30,624	—			—					—		—			—			—			—			—
Conversion of notes payable into Series D Redeemable Convertible Preferred Stock	597		2,265	—			—					—		—			—			—			—			—
Balance at December 31, 2003	13,150		84,963	797			1		10,922			664		(242	)		(4,481	)		(8	)		(80,855	)		(73,999	)
Net loss	—		—	—			—		—			—		—			—			—			(8,464	)		(8,464	)	$	(8,464	)
Cumulative translation adjustment	—		—	—			—		—			—		—			—			(13	)		—			(13	)		(13	)
Comprehensive loss	—		—	—			—		—			—		—			—			—			—			—		$	(8,477	)
Deferred stock-based compensation	—		—	—			—		3,899			—		—			(3,899	)		—			—			—
Amortization of deferred stock-based compensation	—		—	—			—		—			—		—			4,298			—			—			4,298
Stock based compensation	—		—	46			—		636			—		—			(173	)		—			—			463
Issuance of common stock for stockholders' notes receivable	—		—	10			—		11			—		(11	)		—			—			—			—
Issuance of Series E Redeemable Convertible Preferred Stock, net of issuance costs	2,085		15,910	—			—		—			—		—			—			—			—			—
Issuance of warrants in connection with consultancy services	—		—	—			—		—			250		—			—			—			—			250
Issuance of Series C Redeemable Convertible Preferred Stock upon exercise of warrants	77		760	—			—		—			—		—			—			—			—			—
Repayment of stockholder's notes receivables	—		—	—			—		—			—		116			—			—			—			116
Issuance of common stock upon exercise of stock options	—		—	1,195			1		820			—		—			—			—			—			821
Repurchase of common stock	—		—	(7	)		—		(45	)		—		—			—			—			—			(45	)
Common stock subject to repurchase	—		—	(229	)		—		(112	)		—		—			—			—			—			(112	)
Balance at December 31, 2004	15,312	$	101,633	1,812		$	2	$	16,131		$	914	$	(137	)	$	(4,255	)	$	(21	)	$	(89,319	)	$	(76,685	)

The accompanying notes are an integral part of these financial statements.

70

IKANOS COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS) (CONTINUED)

	Redeemable convertible preferred stock
						Common stock									Notes receivable from stockholders						Accumulated other comprehensive loss						Total stockholders' equity (deficit)
										Additional paid-in capital								Deferred stock-based compensation						Accumulated deficit						Comprehensive income (loss)
	Shares		Amount			Shares		Amount					Warrants
Balance at December 31, 2004	15,312		$	101,633		1,812		$	2	$	16,131		$	914	$	(137	)	$	(4,255	)	$	(21	)	$	(89,319	)	$	(76,685	)
Net income	—			—		—			—		—			—		—			—			—			2,742			2,742		$	2,742
Cumulative translation adjustment	—			—		—			—		—			—		—			—			(59	)		—			(59	)		(59	)
Comprehensive income	—			—		—			—		—			—		—			—			15			—			15			15
Unrealized gains on marketable securities	—			—		—			—		—			—		—			—			—			—			—		$	2,698
Deferred stock-based compensation	—			—		—			—		9,088			—		—			(9,088	)		—			—			—
Amortization of deferred stock-based compensation	—			—		—			—		—			—		—			7,658			—			—			7,658
Stock based compensation	—			—		23			—		538			—		—			(14	)		—			—			524
Issuance of common stock for stockholders' notes receivable	—			—		1			—		—			—		(1	)		—			—			—			(1	)
Issuance of common stock for public offering, proceeds, after deducting underwriting discounts and commissions and issuance costs	—			—		6,400			6		67,901			—					—			—			—			67,907
Issuance of common stock upon exercise of warrants	—			—		14			—		—			—		—			—			—			—			—
Conversion of Preferred Stock	(15,312	)		(101,633	)	15,312			15		101,618			—		—			—			—			—			101,633
Issuance of common stock upon exercise of stock options	—			—		51			—		71			—		—			—			—			—			71
Repurchase of common stock	—			—		(44	)		—		(25	)		—		—			—			—			—			(25	)
Common stock subject to repurchase	—			—		151			1		76			—		—			—			—			—			77
Repayment of notes receivable from stockholders	—			—		—			—		—			—		119			—			—			—			119
Balance at December 31, 2005	—		$	—		23,720		$	24	$	195,398		$	914	$	(19	)	$	(5,699	)	$	(65	)	$	(86,577	)	$	103,976

The accompanying notes are an integral part of these financial statements.

71

IKANOS COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

				2005			2004			2003
Cash flows from operating activities
Net income (loss)				$	2,742		$	(8,464	)	$	(29,870	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Depreciation of property and equipment				2,903			1,823			1,351
	Loss on disposal of property and equipment				—			—			2
	Stock-based compensation expense				8,223			4,970			5,643
	Non-cash interest expense				—			—			11
	Changes in assets and liabilities:
		Accounts receivable			(10,888	)		1,115			(294	)
		Inventories			(1,131	)		(2,875	)		(2,927	)
		Prepaid expenses and other current assets			(1,818	)		(152	)		245
		Other assets			1,259			(2,045	)		(52	)
		Accounts payable			172			3,421			2,435
		Accrued liabilities			5,173			2,906			1,524
			Net cash provided by (used in) operating activities		6,635			699			(21,932	)
Cash flows from investing activities
Purchase of short-term investments					(1,973	)		—			—
Purchases of property and equipment					(5,219	)		(3,993	)		(692	)
			Net cash used in investing activities		(7,192	)		(3,993	)		(692	)
Cash flows from financing activities
Proceeds from redeemable convertible preferred stock issuance, net					—			16,670			30,624
Repayment of notes receivable from stockholders					119			115			—
Proceeds from exercise of stock options					71			821			84
Payments of obligations under capital lease					(910	)		(1,574	)		(968	)
Proceeds from initial public offering, after deducting underwriting discounts and commissions and issuance costs					67,907			—			—
Repurchase of common stock					(25	)		(45	)		—
Borrowings under notes payable					552			1,541			—
Payments on notes payable					(628	)		(39	)		(653	)
			Net cash provided by financing activities		67,086			17,489			29,087
Effect of exchange rate on cash and cash equivalents					(25	)		(3	)		(8	)
Net increase in cash and cash equivalents					66,504			14,192			6,455
Cash and cash equivalents, at beginning of period					25,428			11,236			4,781
Cash and cash equivalents, at end of period				$	91,932		$	25,428		$	11,236
Supplemental disclosure of cash flow information
Cash paid for interest				$	138		$	86		$	197
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment acquired under capital leases				$	255		$	932		$	2,102
Exercise of stock options by notes receivable					1			11			29
Conversion of note payable into preferred stock					—			—			2,265
Conversion of preferred stock into common stock					101,633			—			—

The accompanying notes are an integral part of these financial statements.

72

IKANOS COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—IKANOS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company

        Ikanos Communications, Inc. (the "Company"), was incorporated in the state of California in April 1999 and reincorporated in the State of Delaware in September 2005. The Company provides highly programmable semiconductors that enable fiber-fast broadband access over telephone companies' existing copper wires. The Company's chipsets integrate analog, mixed-signal and digital signal processing functions onto a single chipset. In September 2005, the Company sold 6,400,000 shares of its common stock in its initial public offering at an offering price of $12.00 per share resulting in net proceeds to the Company of $67.9 million, after deducting underwriting discounts and commissions and issuance costs totalling $8.9 million.

        The Company's fiscal year ends on the Sunday closest to December 31. The Company's fiscal quarters end on the Sunday closest to the end of the applicable calendar quarter, except in a 53-week fiscal year, in which case the additional week falls into the fourth quarter of that fiscal year. For presentation purposes, the financial statements and notes have been presented as ending on the last day of the nearest calendar month.

Basis of Presentation

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

Foreign Currency Translation

        Assets and liabilities of foreign subsidiaries, whose functional currency is the local currency, is translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the monthly average rates of exchange prevailing during the year. Adjustments resulting from translating the financial statements of such foreign subsidiaries in accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders' equity. Foreign currency transaction gains and losses, which have not been significant to date, are included as a component of interest income, net, in our consolidated statements of operations.

Use of Estimates

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

Revenue Recognition

        The performance of the Company's semiconductor products is reliant upon firmware. Accordingly, revenue from the sale of semiconductors is recognized in accordance with EITF 03-05 "Application of AICPA Statement of Position 97-2 to non-software deliverables in an arrangement containing more-than-incidental software."

73

        Revenue from sales of semiconductors is recognized upon shipment when persuasive evidence of an arrangement exists, the required firmware is delivered, legal title and risk of ownership has transferred, the price is fixed or determinable and collection of the resulting receivable is probable.

        In instances where semiconductors are shipped prior to the release of the related production level firmware, revenue is deferred as we have not established vendor-specific objective evidence of fair value for the undelivered firmware. Revenue related to these products is recognized when the firmware is delivered or otherwise made available to the customer.

        The Company records reductions to revenue for estimated product returns and pricing adjustments, such as competitive pricing programs and volume purchase incentives, in the same period that the related revenue is recorded. The amount of these reductions is based on historical sales returns, analysis of credit memo data, specific criteria included in volume purchase incentives agreements, and other factors known at the time.

Cash, Cash Equivalents and short-term investments

        The Company invests its cash, cash equivalents and short-term investments through various banks and investment banking institutions. All short-term investments are classified as available-for-sale. The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. Short-term investments generally consist of highly liquid securities with original maturities in excess of 90 days. Such investments are carried at fair value with unrealized gains and losses net of related tax effects, reported within accumulated other comprehensive income (loss). Further, the Company reviews the investment portfolio for declines that may be other than temporary.

Fair Value of Financial Instruments

        The carrying amounts of certain of the Company's financial instruments including, cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the relatively short maturity periods. Based on the interest rates available to the Company for debt with comparable maturities, the carrying values of the company's notes payable and obligations under capital leases approximate fair values.

Inventories

        Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first-out method and market represents the estimated net realizable value. The Company records inventory write-downs for estimated obsolescence of unmarketable inventory based upon assumptions about future demand and market conditions. Once inventory is written down, a new accounting basis is established and accordingly, it is not written back up in future periods. Additionally, the Company specifically reserves for lower of cost or market if pricing trends or forecasts indicate that the carrying value of inventory exceeds its estimated selling price.

Property and Equipment

        Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

74

Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the term of the lease. Equipment held under capital lease is classified as a capital asset and amortized using the straight-line method over the term of the lease or the estimated useful life, whichever is shorter. All repairs and maintenance costs are expensed as incurred.

        The depreciation and amortization periods for property and equipment categories are as follows:

Software	2.5 to 3 years
Computer equipment	3 years
Lab equipment	3 to 4 years
Furniture and fixtures	4 years

Impairment of Long-lived Assets

        The Company evaluates the carrying amount of its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses recoverability using undiscounted cash flows attributed to that asset. If an asset is impaired, it is written down to its estimated fair market value.

Software Development Costs

        Software development costs, including firmware, are included in research and development and are expensed as incurred. Software development costs are capitalized beginning when technological feasibility has been established and ending when a product is available for general release to customers. To date, the period between achieving technological feasibility and the issuing of such software has been short and software development costs qualifying for capitalization have been insignificant.

Research and Development

        Research and development costs consist primarily of compensation and related costs for personnel as well as costs related to materials, supplies and equipment depreciation. All research and development costs are expensed as incurred.

Advertising costs

        Advertising costs are expensed as incurred. To date, advertising costs have been insignificant.

Concentration of Credit Risk

        Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash, cash equivalents and accounts receivable. Cash and cash equivalents are held with a limited number of financial institutions. Deposits held with these financial institutions may exceed the amount of insurance provided on such deposits. Management believes that the financial institutions that hold the Company's investments are credit worthy and, accordingly, minimal credit risk exists with respect to those investments. Short-term investments consist of a diversified portfolio of commercial paper, and government agency bonds with maturities less than one year or specifically identified to fund current operations. All investments are classified as available-for-sale. The Company does not hold or issue financial instruments for trading purposes.

75

        Credit risk with respect to accounts receivable is concentrated due to the number of large orders recorded in any particular reporting period. Three customers represented 33.0%, 30.0% and 29.6%, respectively, of accounts receivable at December 31, 2005. Three customers represented 49.7%, 12.0% and 11.8%, respectively, of accounts receivable at December 31, 2004. The Company reviews credit evaluations of its customers but does not require collateral or other security to support customer receivables. Three customers accounted for 44.2%, 27.8% and 23.9%, respectively, of net revenue for the period ended December 31, 2005. Three customers accounted for 44.9%, 26.7%, and 22.9% of net revenue for the year ended December 31, 2004. Three customers accounted for 43.3%, 26.1%, and 18.2% of net revenue for the year ended December 31, 2003.

Concentration of Other Risk

        The semiconductor industry is characterized by rapid technological change, competitive pricing pressures, and cyclical market patterns. The Company's results of operations are affected by a wide variety of factors, including general economic conditions, both at home and abroad; economic conditions specific to the semiconductor industry; demand for the Company's products; the timely introduction of new products; implementation of new manufacturing technologies; manufacturing capacity; the availability of materials and supplies; competition; the ability to safeguard patents and intellectual property in a rapidly evolving market; and reliance on assembly and wafer fabrication subcontractors and on independent distributors and sales representatives. As a result, the Company may experience substantial period-to-period fluctuations in future periods due to the factors mentioned above or other factors.

Warranty

        The Company generally warrants its products against defects in materials and workmanship and non-conformance to its specifications for varying lengths of time, generally one year. If there is a material increase in customer claims compared with historical experience, or if costs of servicing warranty claims are greater than expected, the Company may record additional charges against cost of revenue.

Comprehensive Income (Loss)

        Comprehensive loss is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owner sources. The difference between the Company's net loss and its total comprehensive loss for the years ended December 31, 2005, 2004 and 2003 was not material and related primarily to foreign currency translation.

Stock-based Compensation

        The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and Financial Accounting Standards Board Interpretation ("FIN") No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, and complies with the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation. Under APB Opinion No. 25, compensation cost is recognized based on the difference, if any, on the date of grant between the fair value of the

76

Company's stock and the amount an employee must pay to acquire the stock. SFAS No. 123 defines a "fair value" based method of accounting for an employee stock option or similar equity investment. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services and complies with the disclosure provisions of SFAS 148, Accounting for Stock-Based Compensation—an Amendment of SFAS 123. The Company has also issued restricted stock awards and restricted stock units (hereafter sometimes collectively called "restricted stock"). The fair market value of the restricted stock is amortized over the projected remaining vesting period.

        The Company amortizes deferred stock-based compensation on the graded vesting method over the vesting periods of the stock options, generally four years. The graded vesting method provides for vesting of portions of the overall awards at interim dates and results in accelerated vesting as compared to the straight-line method. Had compensation cost for the Company's stock compensation plans been determined based on the fair value at the grant dates, as prescribed in SFAS 123, the Company's net loss would have been increased to the pro forma amounts indicated below (in thousands, except per share data):

		Year Ended December 31,
		2005			2004			2003
Net income (loss) as reported:		$	2,742		$	(8,464	)	$	(29,870	)
	Add: Stock-based compensation expense included in net income (loss), net	$	7,766		$	4,447		$	5,511
	Deduct: Employee stock-based compensation expense determined under the fair value method, net	$	(7,767	)	$	(4,882	)	$	(5,539	)
Pro forma net income (loss)			2,741			(8,899	)		(29,898	)
Pro forma net income (loss) per share
	Basic	$	0.14		$	(5.87	)	$	(43.21	)
	Diluted	$	0.13		$	(5.87	)	$	(43.21	)
Net income (loss) per share
	Basic	$	0.14		$	(5.59	)	$	(43.16	)
	Diluted	$	0.13		$	(5.59	)	$	(43.16	)

        The weighted average fair value of the stock options granted during the years ended December 31, 2005, 2004 and 2003 was $6.76, $4.63, $4.12 per share.

        Through June 25, 2004, the date of the Company's initial filing with the Securities and Exchange Commission ("SEC") related to its initial public offering, the Company used the minimum value method to estimate the fair value of options granted to employees. Options granted subsequent to June 25, 2004 were valued using the Black-Scholes valuation model using estimated volatility of 90%.

77

The fair value of the Company's stock-based awards to employees was estimated using the following weighted-average assumptions:

	Stock Option Plans Year ended December 31,
				Stock Purchase Plan 2005
	2005	2004	2003
Dividend yield	0%	0%	0%	0%
Expected life (years)	4.0 years	4.2 years	3.0 years	0.50 years
Expected annualized volatility	90%	45%	0%	90%
Risk-free interest rate	3.9%	3.1%	1.9%	4.1%

Net Income (loss) per share

        Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Basic net income (loss) per share excludes the dilutive effect of stock options, warrants and unvested common shares as these shares are contingently issuable.

        The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands, except per share data):

		Year Ended December 31,
		2005			2004			2003
Numerator:
Net income (loss)		$	2,742		$	(8,464	)	$	(29,870	)
Denominator:
Weighted-average common shares outstanding			19,084			1,783			720
Less: Unvested common shares subject to repurchase			(82	)		(268	)		(28	)
Total shares, basic			19,002			1,515			692
Effective of dilutive securities
Stock options and warrants			2,043			—			—
Unvested common shares subject to repurchase			82			—			—
Redeemable convertible preferred particpating stock warrants			34			—			—
Total shares, diluted			21,161			1,515			692
Net income (loss) per share:
	Basic	$	0.14		$	(5.59	)	$	(43.16	)
	Diluted	$	0.13		$	(5.59	)	$	(43.16	)

78

        The potential shares, which are excluded from the determination of basic and diluted net loss per share as their effect is anti-dilutive, are as follows (in thousands):

	Year Ended December 31,
	2005	2004	2003
Weighted-average redeemable convertible preferred stock	4,333	14,849	12,396
Warrants to purchase common stock	6	45	103
Options to purchase common stock	104	2,792	2,816

Income Taxes

        The Company accounts for income taxes under the liability method, whereby deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Recent Accounting Pronouncements

        In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R), companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Public companies will be required to apply SFAS No. 123(R) as of the first interim or annual reporting period beginning after June 15, 2005. The Company will adopt SFAS No. 123(R) in the first quarter of fiscal 2006. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods. In March 2005 the SEC issued Staff Accounting Bulletin No. 107, or SAB 107. SAB 107 expresses views of the staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the staff's views regarding the valuation of share-based payment arrangements for public companies. We are evaluating the requirements of SFAS No. 123(R) and SAB 107 to assess what impact its adoption will have on our financial position and results of operations.

        In May 2005, the Financial Accounting Standard Board ("FASB") issued Statement No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements" (FAS 154). FAS 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. FAS 154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. FAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting

79

pronouncements. We do not believe adoption of FAS 154 will have a material effect on our consolidated financial position, results of operations or cash flows.

NOTE 2—RELATED PARTY TRANSACTIONS:

        At December 31, 2004, the Company held full recourse notes receivable from five employees with a total balance of $137,000.

        The Company has a consulting agreement with Texan Ventures, LLC entered into on November 7, 2001. G. Venkatesh, who is also a member of the Company's board of directors, is the Managing Member of Texan Ventures, LLC. Under the consulting agreement, Texan Ventures, LLC is entitled to $3,000 per month and reimbursement for reasonable expenses, and an option grant of 13,333 shares that vested monthly over a period of 12 months commencing on November 7, 2001. The Company paid Texan Ventures LLC, $39,000 in 2005, $36,000 in 2004, and $57,000 in 2003 for consulting services. The Company also paid $39,000 to another director during 2003 for consulting services.

NOTE 3—BALANCE SHEET COMPONENTS:

        As of December 31, 2005, our available-for-sale securities consisted of the following (in thousands)

Investments

	Cost basis		Gross Unrealized gains		Fair Value
U.S. Treasury and other U.S. government agencies	$	1,973	$	15	$	1,988
Total available-for-sale securities		1,973		15		1,988

        There were no sales of marketable securities in 2005. Interest income on marketable securities was insignificant for the year ended December 31, 2005.

80

		December 31,
		2005		2004
		(in thousands)
Inventory:
	Finished Goods	$	1,955	$	4,623
	Work-in-Process		4,762		3,231
	Purchased parts and raw materials		2,408		140
			9,125		7,994

		December 31,
		2005			2004
		(in thousands)
Property and equipment, net:
	Software	$	9,201		$	8,104
	Computer equipment		2,541			2,116
	Machinery and equipment		6,602			3,408
	Furniture and fixtures		367			351
	Leasehold improvements		269			258
	Construction in Progress		863			137
			19,843			14,374
Less: Accumulated depreciation and amortization			(11,459	)		(8,561	)
		$	8,384		$	5,813

        Depreciation expense for property and equipment was $2,903,000, $1,823,000 and $1,351,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Included in property and equipment are assets acquired under capital lease obligations with an original cost of $3,531,000, $3,308,000 and $2,102,000 and as of December 31, 2005, 2004 and 2003, respectively. Related accumulated depreciation and amortization of these assets was $2,903,000, $2,035,000 and $1,096,000 as of December 31, 2005, 2004 and 2003, respectively.

		December 31,
		2005		2004
		(in thousands)
Accrued liabilities:
	Warranty accrual	$	2,189	$	1,084
	Accrued rebates		2,909		458
	Accrued compensation and related benefits		2,919		2,071
	Accrued accounting and legal		813		505
	Other accrued liabilities		2,454		2,071
		$	11,284	$	6,189

81

        The following table summarizes the activity related to the product warranty liability, which was included in accrued liabilities in the Company's consolidated balance sheets, at December 31, 2005, 2004 and 2003 (in thousands):

Warranty accrual at December 31, 2002	$	70
Accrual for warranties during the year		70
Settlements made during the year		(14	)
Warranty accrual at December 31, 2003		126
Accrual for warranties during the year		1,340
Settlements made during the year		(382	)
Warranty accrual at December 31, 2004	$	1,084
Accrual for warranties during the period		1,641
Settlements made during the period		(536	)
Warranty accrual at December 31, 2005	$	2,189

NOTE 4—INTEREST INCOME, NET

        Interest income, net included the following (in thousands):

	Year Ended December 31,
	2005			2004			2003
Interest income	$	1,375		$	230		$	220
Interest expense		(157	)		(124	)		(198	)
Interest income, net	$	1,218		$	106		$	22

NOTE 5—STOCKHOLDERS' EQUITY:

Common Stock Offering

        In September 2005, the Company sold 6,400,000 shares of its common stock in its initial public offering at an offering price of $12.00 per share resulting in net proceeds of $67.9 million, after deducting underwriting discounts and commissions and offering costs totalling $8.9 million. Upon the closing of the initial public offering 15,311,840 shares of redeemable convertible preferred stock outstanding automatically converted into 15,311,840 shares of common stock.

Reverse stock split

        On September 20, 2005, the Company filed an amendment to its Amended and Restated Certificate of Incorporation to effect a 1-for-12 reverse stock split of its common and preferred stock. All information related to common stock, preferred stock, options and warrants to purchase preferred stock and earnings (loss) per share included in the accompanying consolidated financial statements has been retroactively adjusted to give effect to the reverse stock split.

82

Preferred Stock

        The Company is authorized to issue 5,000,000 shares of undesignated preferred stock at a $.0001 par value per share. The board of directors may determine the rights, preferences, privileges, qualifications, limitations and restrictions granted or imposed upon any series of preferred stock. As of December 31, 2005, no preferred stock was outstanding.

        At December 31, 2004, the Company had authorized 15,843,667 shares of redeemable convertible preferred stock of which 15,311,840 shares had been issued in series, designated as follows (in thousands, except issue price):

Series	Shares Authorized	Shares Outstanding	Liquidation Amount		Proceeds Net of Issuance Costs
A	347	347	$	1,250	$	1,198
B	686	679		16,069		16,024
C	3,775	3,535		36,536		35,612
D	8,667	8,667		33,030		32,889
E	2,369	2,084		16,100		15,910
	15,844	15,312	$	102,985	$	101,633

Common Stock Reserved:

        As of December 31, 2005, the Company has reserved the following shares of common stock for future issuance (in thousands):

Stock plans	5,051
Warrants	6
Repurchasable Common Stock	80
	5,137

NOTE 6—STOCK OPTION PLAN:

1999 Stock Option Plan

        On September 24, 1999, the Company adopted the 1999 Stock Plan (the "Plan") under which 5,716,833 shares of the Company's common stock have been reserved for issuance to employees, directors and consultants. Options granted under the Plan may be incentive stock options or non statutory stock options. Incentive stock options may only be granted to employees. Options to purchase shares of the Company's common stock are granted at a price equal to the fair market value of the stock at the date of grant, as determined by the Board of Directors. Options generally vest at a rate of 25.0% on the first anniversary of the grant date and ¹/48 per month thereafter. Generally, options terminate ten years after the date of grant. Incentive stock options granted to employees who own more than ten percent of the total combined voting power of all classes of stock of the Company terminate five years from the date of the grant. Should an employee subsequently leave, the Company has the right to repurchase the shares that had not vested at the departure date. Upon completion of

83

the Company's initial public offering, the 1999 Plan was terminated and no shares are available for future issuance under the 1999 Plan.

2004 Equity Incentive Plan

        On September 21, 2005, the Company adopted the 2004 Equity Incentive Plan, (the "2004 Plan"), upon the closing of its initial public offering. The 2004 Plan allows for the issuance of incentive and nonqualified stock options, restricted stock, stock appreciation rights, deferred stock units, performance units and performance shares to the Company's employees, directors and consultants. Options generally vest at a rate of 25% on the first anniversary of the grant date and ¹/48 per month thereafter. Generally, options terminate ten years after the date of grant. The term of an incentive stock option may not exceed ten years, except that with respect to any participant who owns 10% of the voting power of all classes of our outstanding stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date.

        The 2004 Equity Incentive Plan provides for the automatic grant of nonstatutory stock options to our non-employee directors. Each non-employee director appointed to the board will receive an initial option to purchase 30,000 shares upon such appointment except for those directors who become non-employee directors by ceasing to be employee directors. Initial option grants shall vest as to 25% of the shares on the first anniversary of the date of grant and as to 1/48th of the shares each month thereafter, subject to the director continuing to serve as a director on each vesting date. In addition, non-employee directors who have been directors for at least six months will receive a subsequent option to purchase 12,000 shares on the date of each annual meeting of our stockholders. These subsequent option grants shall vest as to 1/12th of the shares each month following the date of grant, subject to the director continuing to serve as a director on each vesting date. All options granted under these automatic grant provisions have a term of ten years and an exercise price equal to the fair market value of our common stock on the date of grant.

2004 Employee Stock Purchase Plan

        On September 21, 2005, the Company adopted the 2004 Employee Stock Purchase Plan, (the "ESPP"), upon the closing of its initial public offering. A total of 1,000,000 shares of the Company's common stock will be made available for sale under the ESPP. All of the Company's employees are eligible to participate if they are customarily employed by us or any participating subsidiary for at least 20 hours per week and more than 5 months in any calendar year. The Company's 2004 ESPP is intended to qualify under Section 423 of the Internal Revenue Code and provides for consecutive, overlapping 24-month offering periods. Each offering period includes four 6-month purchase periods. The offering periods generally start on the first trading day on or after May 1 and November 1 of each year, except that the first offering period will commence on the first trading day on or after the effective date of this offering and will end on the earlier of (1) the first trading day on or after November 1, 2006 and (2) twenty-seven months after the offering period commences, and the second offering period will commence on the first trading day on or after May 1, 2005.

84

        A summary of the activity under the Plan and Stand-Alone Stock Option Agreements is as follows (in thousands, except per share amounts):

		Options Available for Future Issuance		Outstanding Shares		Weighted Average Exercise Price
Balances, December 31, 2002		43		659		$	1.74
	Authorized	2,377		—			—
	Granted	(2,619	)	2,619			0.48
	Exercised	—		(82	)		1.03
	Canceled	380		(380	)		0.67
Balances, December 31, 2003		181		2,816		$	0.73
	Authorized	1,417		—			—
	Granted	(1,237	)	1,237			5.25
	Unvested shares repurchased	5		—			8.04
	Exercised	—		(1,195	)		0.69
	Canceled	66		(66	)		2.15
Balances, December 31, 2004		432		2,792		$	2.72
	Authorized	834		—			—
	Granted	(2,027	)	2,027			6.82
	Unvested shares repurchased	44		—			0.58
	Exercised	—		(51	)		1.40
	Canceled	823		(823	)		7.24
Balances, December 31, 2005		106		3,945		$	3.92

        Option grants outstanding as of December 31, 2005 and the related weighted average price and contractual life information are as follows (shares in thousands):

	Options Outstanding
Weighted Average Exercise Price	Options at December 31, 2005	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Options Vested at December 31, 2005	Weighted Average Exercise Price
$  0.36 - $  0.48	1,486	7.66	$	0.48	1,065	$	0.48
$  1.08 - $  3.84	1,513	6.95		3.36	579		2.60
$  4.80 - $  9.85	68	8.64		5.60	23		5.60
$10.20 - $14.38	866	9.59	$	10.65	102	$	10.28
	3,933				1,769

        As of December 31, 2005 and 2004, options to purchase 3,933,243 and 2,790,819 shares respectively were exercisable. In addition, at December 31, 2005, 12,000 restricted stock units were also outstanding.

        In addition to the above, in connection with options granted to employees to purchase common stock, the Company recorded deferred stock compensation of $3.5 million, $3.9 million and $9.7 million for the years ended December 31, 2005, 2004 and 2003, respectively. Such amounts represent, for

85

employee stock options, the difference between the exercise price and the deemed fair market value of the Company's common stock at the date of grant. The deferred charges for employee options are being amortized to expense over the vesting period, using a multiple option valuation approach, an accelerated basis in accordance with FASB Interpretation No. 28. Net stock-based compensation expense related to these grants was $4.2 million, $4.3 million and $5.3 million for the years ended December 31, 2005, 2004 and 2003, respectively.

Deferred Stock Compensation Expense

        During the first quarter of fiscal 2005, the Company completed an employee stock option exchange program. The voluntary program allowed eligible employees, consultants and directors, to return to the Company existing options with an exercise price greater than $3.84 per share and exchange them for new options that were granted on March 1, 2005. Participants in the exchange program exchanged options to purchase 633,002 shares of common stock with average exercise price of $7.53 per share for options to purchase 633,002 shares of common stock with an exercise price of $3.84 per share. The new option grants have a vesting period identical to the exchanged options and carry an exercise price of $3.84.

        Under the intrinsic value method, used for reporting purposes, the modification of these options is treated as an exchange of the original award for a new award and the resulting expense is recorded as stock-based compensation expense. As a result of the modification to the exercise price of the stock options, the replacement options are accounted for as variable from the date of modification and are required to be revalued at the end of each accounting period based upon the then current market price of the underlying common stock. Such re-valuation until the option is either exercised, forfeited, canceled or expired. The Company recorded $5.6 million of additional deferred stock-based compensation expense during the year ended December 31, 2005 in connection with the exchange program. Net stock compensation expense related to the repricing was $3.4 million, $0 and $0 for the years ended December 31, 2005, 2004 and 2003, respectively.

86

NOTE 7—EMPLOYEE BENEFIT PLAN:

        The Company has a retirement savings plan (the "Savings Plan") which qualifies as a deferred savings plan under section 401(k) of the Internal Revenue Code. All employees are eligible to participate in the Savings Plan and allowed to contribute up to 60.0% of their total compensation, not to exceed the maximum amount allowed by the applicable statutory prescribed limit. The Company is not required to contribute, nor has it contributed, to the Savings Plan for any of the periods presented.

NOTE 8—INCOME TAXES:

        The provision for income taxes consists solely of federal and state alternate minimum taxes as follows (in thousands):

		Year ended December 31, 2005
Current:
	Federal	$	237
	State and local		58
		$	295

        The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory rate of 34% for 2005 to income before income taxes (in thousands):

		Years ended December 31,
		2005			2004			2003
Provision at statutory rate		$	1,032		$	(2,878	)	$	(10,156	)
Permanent differences:
	Change in valuation allowance		(2,480	)		(2,764	)		11,375
	Stock-based compensation		2,234			1,618			—
	Tax credits		(516	)		(1,424	)		(1,154	)
	Others		25			(80	)		(65	)
		$	295		$	0		$	0

        The temporary differences that give rise to significant components of the net deferred tax assets are as follows (in thousands):

		December 31,
		2005			2004
Deferred tax assets:
	Net operating loss carryforwards	$	22,682		$	26,997
	Depreciation and amortization		1,764			2,359
	Research and development credits		5,619			5,640
	Accruals and other		4,014			1,563
			34,079			36,559
Valuation allowance			(34,079	)		(36,559	)
		$	—		$	—

87

        At December 31, 2005, the Company had approximately $61.7 million and $29.0 million of federal and state net operating loss carry forwards, respectively, available to reduce future taxable income which will begin to expire in 2019 for federal and 2009 for state tax purposes, respectively. The Tax Reform Act of 1986 limits the use of net operating loss and tax credit carry forwards in the case of an "ownership change" of a corporation. An ownership change, as defined, may restrict utilization of tax attribute carry forwards. The Company experienced two such ownership changes in May 1999 and in July 2001. The first ownership change limited approximately $93,000 of federal net operating losses and credits to an annual utilization of approximately $32,000 for each of the 3 years following May 1999. The second ownership change limited approximately $21 million of federal net operating losses and credits to an annual utilization of approximately $853,000 for each of the 19 years following July 2001.

        Similarly, the first ownership change limited approximately $116,000 of California net operating losses and credits to an annual utilization of approximately $32,000 for each of the 4 years following May 1999. The second ownership change limited approximately $23.4 million of California net operating losses and credits to an annual utilization of approximately $853,000 for each of the 18 years following July 2001. Due to the ownership change, approximately $6.7 million of California net operating losses and credits will expire unutilized.

        At December 31, 2005, the Company has research and development tax credits of approximately $3.6 million and $2.0 million for federal and state income tax purposes, respectively. If not utilized, the federal carryforward will expire in various amounts beginning 2019. The California credit can be carried forward indefinitely.

        Federal income taxes have not been provided for on unremitted earnings of foreign subsidiaries because such earnings are intended to be permanently reinvested. The amount of unremitted earnings as of December 31, 2005 is approximately $377,000.

        Currently, management believes it is more likely than not that the net deferred tax asset will not be realized and, accordingly, has recorded a valuation allowance for the entire balance. This is due to the history of net operating losses that the Company has incurred. The amount of the deferred tax asset considered realizable, however, may change if actual future taxable income differs from estimated amounts.

NOTE 9—BORROWINGS:

        On October 21, 2004, the Company entered into a loan agreement with Silicon Valley Bank that provides the Company the ability to finance up to $5,000,000 of working capital requirements (subject to certain limitations) and $2,000,000 of equipment purchases. The working capital line of credit matures on October 21, 2006 and Silicon Valley Bank's commitment to extend working capital loans terminates. Borrowings under the agreement are capitalized by a first priority lien on substantially all of the assets of the Company, excluding intellectual property. The agreement contains financial covenants related to liquidity and profitability as well as other nonfinancial covenants. The Company was not in compliance with the minimum profitability financial covenant during the quarter ended March 31, 2005. Silicon Valley Bank agreed to forebear its rights to call the equipment financing facility as a result of the non-compliance. This forbearance pertains to the covenant violation during the quarter ended March 31, 2005 in perpetuity; however, it does not extend to any future non-compliance with covenants. Based on expected future operating results, the Company believes it will continue to be in full compliance with the amended covenants for at least 12 months from the balance sheet date.

88

Accordingly, the Company has classified the amounts due under the facility beyond 12 months from the balance sheet date as non-current.

        As of December 31, 2005, no balance was outstanding under the working capital facility and $1.4 million was outstanding under the equipment financing facility. Interest on borrowings under the working capital line is payable monthly and is calculated at a floating rate of interest equal Silicon Valley Bank's prime rate plus 0.50%, while interest on the equipment financing facility is payable monthly at a fixed rate of interest equal to Silicon Valley Bank's prime rate plus 1.0%, Interest rates on the amounts drawn under the equipment financing facility range from 5.95% to 6.31%.

        Capital lease obligations were as follows (in thousands):

	December 31,
	2005			2004
Capital lease for software and maintenance	$	538		$	1,193
Less current portion		(315	)		(838	)
Capital lease obligations, net of current portion	$	223		$	355

        During 2005 and 2004, the Company acquired equipment, software tools and related maintenance contracts from various vendors, which are paid by installment payments on a monthly or quarterly basis through September 2007, bearing interest at rates ranging from 2.2% to 5.8% per year.

NOTE 10—OPERATING SEGMENT AND GEOGRAPHIC INFORMATION:

        The Company operates in one segment, comprising the design, development and marketing of semiconductors.

        The following table summarizes net revenue by geographic region, based on the country in which the customer is located:

	Year Ended December 31,
	2005		2004		2003
Japan	72.0	%	69.5	%	61.5	%
Korea	23.9	%	27.1	%	35.8	%
Other	4.1	%	3.4	%	2.7	%
Total revenue	100.0	%	100.0	%	100.0	%

        The distribution of long lived assets, net as of December 31, 2005 and 2004 was as follows (in thousands):

	December 31,
	2005	2004
United States	4,082	3,717
Taiwan	3,329	1,459
Other	973	637
	8,384	5,813

89

NOTE 11—WARRANTS

        Upon the closing of the initial public offering, all warrants to purchase shares of redeemable convertible preferred stock outstanding became exercisable for common stock.

Series B Warrants

        In conjunction with a capital lease, the Company issued a warrant to purchase 1,267 shares of Series B convertible preferred stock at $23.6712 per share in April 2000. The warrant is outstanding at December 31, 2005 and will expire in April 2007. Using the Black-Scholes option pricing model, the Company determined that the fair value of the warrant was $21,000 at the date of issuance, which was amortized to interest expense over the life of the lease.

        In conjunction with the Loan and Security Agreement entered into in May 2000, the Company issued a warrant to purchase 1,791 shares of Series B convertible preferred stock at $23.6712 per share. The warrant is outstanding at December 31, 2005 and will expire in May 2007. Using the Black-Scholes option pricing model with a term of seven years, volatility of 90.0%, no dividend yield and risk-free interest rate of 6.8%, the Company determined that the fair value of the warrant was $31,000 at the date of issuance, which was amortized to interest expense over the loan commitment term.

        In conjunction with the Loan and Security Agreement in January 2001, the Company issued warrants to purchase 3,332 shares of Series B convertible preferred stock at exercise prices from $34.008 to $47.40 per share. The warrants are outstanding at December 31, 2005 and will expire in January 2007. Using the Black-Scholes option pricing model with a term of six years, volatility of 90.0%, no dividend yield and risk-free interest rate of 5.0% per year, the Company determined that the fair value of the warrants were $55,000 at the date of issuance, which was amortized to interest expense over the life of the loan commitment term.

Series E Warrants

        In connection with advisory services, the Company issued warrants to 38,844 shares of Series E convertible preferred stock at $7.7232 per share in June 30, 2004. The warrant was exercised on a cashless basis at the time of the initial public offering. Using the Black-Scholes option pricing model, with a term of five years, volatility of 90.0%, no dividend yield and risk-free interest rate of 4.1% per year, the Company determined that the initial fair value of the warrant was $210,000. The unvested warrants were revalued at each period end until vesting occurred. The resulting charges were recorded as stock-based compensation expense over the vesting period.

NOTE 12—CONTINGENCIES AND COMMITMENTS:

        The Company leases office space and equipment under non-cancelable operating and capital leases with various expiration dates through 2005. Rent expense for the years ended December 31, 2005 and 2004 was $1,025,000 and $605,000, respectively. The terms of the facility lease provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid. In February 2006, the Company entered into a lease agreement for office facilities, which expires in 2011.

90

        Future minimum lease payments under non-cancelable operating (including the February 2006 lease commitment) and capital leases are as follows (in thousands):

Year Ended December 31,	Capital Leases			Operating Leases
2006	$	330		$	579
2007		156			678
2008		71			745
2009		—			782
2010		—			664
2011		—			168
Total minimum lease payments		557		$	3,616
Less: Amount representing interest		(19	)
Present value of minimum lease payments		538
Less: Current portion		(315	)
Obligations under capital lease, net of current portion	$	223

Indemnities, Commitments and Guarantees

        During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include intellectual property indemnities to the Company's customers in connection with the sales of its products, indemnities for liabilities associated with the infringement of other parties' technology based upon the Company's products, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of California. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments that the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. The Company does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable.

NOTE 13—SUBSEQUENT EVENT

Business Acquisition

        On February 17, 2006, the Company acquired the Broadband Products Product Line (which includes network processing and ADSL assets) of Analog Devices, Inc. for $32.4 million in cash including estimated transaction related costs of $1.8 million.

91

Supplementary Financial Data
Interim Financial Information (Unaudited)

			Three months ended
			Mar. 31, 2004			Jun. 30, 2004			Sep. 30 2004			Dec. 31, 2004			Mar. 31, 2005			Jun. 30, 2005			Sept.30 2005		Dec. 31 2005
			(in thousands, except per share data)
Net revenue			$	14,272		$	15,919		$	18,037		$	18,448		$	12,286		$	19,243		$	25,010	$	28,532
Costs and expenses:
	Cost of revenue			11,741			9,291			9,542			9,641			6,255			8,841			10,950		13,235
	Research and development			4,444			5,536			5,998			5,754			6,570			6,853			7,108		7,909
	Selling, general and administrative			3,003			3,350			3,389			3,557			3,431			4,075			3,958		4,067
		Total costs and expenses		19,188			18,177			18,929			18,952			16,256			19,769			22,016		25,211
Income (loss) from operations				(4,916	)		(2,258	)		(892	)		(504	)		(3,970	)		(526	)		2,994		3,321
Interest income (expense), net				(6	)		26			48			38			95			90			77		956
Income (loss) before income taxes				(4,922	)		(2,232	)		(844	)		(466	)		(3,875	)		(436	)		3,071		4,277
Provision for income taxes				—			—			—			—			—			—			—		(295	)
		Net income (loss)	$	(4,922	)	$	(2,232	)	$	(844	)	$	(466	)	$	(3,875	)	$	(436	)	$	3,071	$	3,982

92

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

ITEM 9A. CONTROLS AND PROCEDURES

(a)   Evaluation of Disclosure Controls and Procedures

        We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

        Subject to the limitations noted above, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal year covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective to meet the objective for which they were designed and operate at the reasonable assurance level.

        We are not currently required to comply with Section 404 (Management Assessment of Internal Controls) of the Sarbanes-Oxley Act, because we are not yet an accelerated filer.

(b)   Changes in Internal Controls

        There were no changes in our internal control over financial reporting during the quarter ended December 31, 2005, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

93

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Information regarding our executive officers is set forth in Item 1 of Part I of this Annual Report on Form 10-K under the caption "Directors and Executive Officers of the Registrant."

Audit Committee

        Our audit committee is responsible for the oversight of our accounting, reporting and financial control practices. Among other functions, the audit committee is responsible for:

•

overseeing and monitoring our accounting, financial reporting processes, audits and the integrity of our financial statements;



•

appointing and overseeing the work of our independent accountants and reviewing the adequacy of our system of overseeing the independent accountant's qualifications, independence and performance;



•

assisting the board of directors in the oversight and monitoring of our compliance with legal and regulatory requirements;



•

reviewing our internal accounting and financial controls; and



•

reviewing our audited financial statements and reports and discussing the statement and reports with management, including any significant adjustments, management judgments and estimates, new accounting polices and disagreement with management.

        The members of our audit committee are Messrs. Goguen, Gulett and Hansen. Mr. Hansen chairs the audit committee. Our board of directors has determined that each of the members of our audit committee is "independent," as defined under and required by the federal securities laws and the rules of the Nasdaq National Market, including Rule 10A-3(b)(i) under the Securities and Exchange Act of 1934, as amended. Our board of directors has determined that Mr. Hansen qualifies as an "audit committee financial expert" under the federal securities laws and has the "financial sophistication" required under the rules of the Nasdaq National Market. The charter of our audit committee may be found on our website at www.Ikanos.com.

Code of Business Conduct and Ethics

        We have adopted a Code of Business Conduct and Ethics applicable to all our employees. Our Code of Business Conduct and Ethics is available, without charge to you, upon written request made to us at Ikanos Communication, 47669 Fremont Boulevard, Fremont, CA 94538. Any waiver or amendment to our Code of Business Conduct and Ethics will be disclosed on our website at www.Ikanos.com or in a report on Form 8-K filed with the SEC. The information contained on or connected to our Internet website is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.

Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16 (a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of our Common Stock, to file initial reports of ownership of our securities on Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such officers, directors and 10% shareholders are also required by SEC rules to furnish us with copies of all Section 16 (a) forms that they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons, we believe that, during the last fiscal year, all Section 16(a) filing requirements applicable to its officers, directors and 10% shareholders were met.

94

ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation

        The following table sets forth information concerning the compensation earned by our Chief Executive Officer, each of our other most highly compensated executive officers who were serving in such roles at the end of the last completed fiscal year, and whose total annual salary and bonus exceeded $100,000 and an additional individual who served as an executive officer during the last completed fiscal year, collectively referred to as the named executive officers, during the fiscal year ended December 31, 2005:

Summary Compensation Table

						Long-term Compensation
		Annual Compensation
Name and Principal Position						Securities Underlying Options (#)	All Other Compensation
	Year	Salary		Bonus (1)
Rajesh Vashist President and Chief Executive Officer	2005 2004	$	204,788 199,613	$	150,000 100,000	125,000 175,484	—
Derek Obata (2) Vice President of Worldwide Sales	2005 2004		170,578 152,885		134,761 163,541	99,999 33,334	—
Yehoshua Rom Vice President of Operations	2005 2004		166,718 165,000		26,800 34,750	54,166 33,332	—
Daniel K. Atler Chief Financial Officer	2005 2004		179,242 178,365		46,000 36,251	58,333 16,667	—
Rouben Toumani Vice President of Systems Engineering	2005 2004		180,937 176,601		28,100 55,450	116,666 50,000	—
Anoop Khurana (3) Vice President of Engineering	2005 2004		178,818 173,269		18,800 36,250	75,000 58,333	—

(1)

We generally pay bonuses in the year following the year in which they were earned. Bonus amounts in the table are reported for the year in which they were earned even if they were paid in the following year.

(2)

Derek Obata was promoted to Vice President of Worldwide Sales in 2005.

(3)

Anoop Khurana resigned in January 2006.

95

Stock Option Grants in the Last Fiscal Year

        The following table sets forth certain information concerning grants of stock options to each of our named executive officers during the fiscal year ended December 31, 2005. The percentage of total options set forth below is based on an aggregate of options granted to employees during the fiscal year ended December 31, 2005. All options were granted at the fair market value of our common stock, as determined by our board of directors, on the date of grant.

								Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(2)
	Securities Underlying Options Granted (#)	% of Total Options Granted to Employees in Fiscal Year
Name				Exercise Price Per share			Expiration Date
								5%		10%
Rajesh Vashist	125,000	6.20	%	$	10.20		07/19/15	$	1,109,458	$	2,434,555
Derek Obata	28,317 16,667 38,349 16,666	1.41 0.83 1.90 0.83			3.84 3.84 3.84 10.20	(1)	06/14/15 06/01/11 06/14/15 07/19/15		431,428 197,564 584,272 147,922		731,610 273,829 990,802 324,594
Yehoshua Rom	25,000 29,166	1.24 1.45			3.84 10.20	(1)	06/01/11 07/19/15		442,182 258,868		662,464 568,050
Daniel K. Atler	16,667 41,666	0.83 2.07			3.84 10.20	(1)	06/01/11 07/19/15		197,564 369,813		273,829 811,505
Rouben Toumani	50,000 25,000 41,666	2.48 1.24 2.07			3.84 10.20 10.20	(1)	06/01/11 07/19/15 08/26/15		592,680 221,892 369,813		821,470 486,911 811,505
Anoop Khurana (3)	33,334 41,666	1.65 2.07			3.84 10.20	(1)	06/01/11 07/19/15		548,396 502,305		754,944 1,017,637

(1)

Each of these grants was issued on March 1, 2005 pursuant to our stock option exchange program, in replacement of options granted in 2004 that had exercise prices of $8.04 per share.

(2)

Potential realizable value is based on the closing price of our common stock on December 30, 2005 (the last trading day prior to December 31, 2005) of $14.74 per share as reported on the Nasdaq National Market. Potential realizable values are net of exercise price, but before taxes associated with exercise. Amounts representing hypothetical gains are those that could be achieved if options are exercised at the end of the option term. The assumed 5% and 10% rates of stock price appreciation are provided in accordance with rules of the SEC, based on the closing price of our common stock on December 30, 2005 (the last trading day prior to December 31, 2005) of $14.74 per share as reported on the Nasdaq National Market and do not represent our estimate or projection of the future stock price.

(3)

The calculations of potential realizable value for Mr. Khurana are based on the original expiration dates of the options listed but, pursuant to the terms of the options, each of these options shall expire 90 days after Mr. Khurana's resignation on January 2, 2006.

96

Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values

        This table sets forth the number and value of our common stock underlying options held by each of the named executive officers as of December 31, 2005.

			Number of Securities Underlying Unexercised Options at December 31, 2005
					Value of Unexercised In-the-Money Options at December 31, 2005 (2)
	Number of Shares Acquired on Exercise
Name		Value Realized ($)
			Exercisable	Unexercisable	Exercisable		Unexercisable
Rajesh Vashist	—	—	750,482	—	$	9,421,874	$	—
Derek Obata	—	—	201,858	—		2,436,503		—
Yehoshua Rom	—	—	133,219	—		1,532,209		—
Daniel K. Atler	—	—	116,499	—		1,200,295		—
Rouben Toumani	20,833	169,997	152,915	—		1,362,853		—
Anoop Khurana	—	—	147,032	—		1,572,922		—

(1)

The value realized is calculated based on the fair value of the Company's common stock as determined by the Company's board of directors on the date of exercise minus the exercise price of the option, and does not necessarily indicate that the optionee sold such stock.

(2)

Amounts are based on the closing price on December 30, 2005 (the last trading day prior to December 31, 2005) of $14.74 per share as reported on the Nasdaq National Market, without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares underlying the option, less the exercise price payable for these shares.

Offer Letters and Change of Control Arrangements

        On August 31, 2005, we entered into an employment agreement with Rajesh Vashist, our Chief Executive Officer. This agreement provides that Mr. Vashist will receive an annual base salary of $215,000. For fiscal year 2006, Mr. Vashist is also eligible to receive a bonus equal to 50% of his base salary, based on the achievement of performance goals established by the Compensation Committee of our Board of Directors. Any such bonus will be prorated for that portion of the year during which Mr. Vashist did not serve as our Chief Executive Officer. Mr. Vashist is also eligible to receive stock options or other forms of equity compensation. He is also entitled to participate in our standard employee benefit plans and to receive three weeks of vacation per year.

        Pursuant to his employment agreement, if Mr. Vashist's services are terminated without cause (as defined in the employment agreement), or he resigns for good reason (as defined in the employment agreement), he will continue to receive his base salary for six months following his termination, will receive a prorated target bonus payable over the six month period following his termination, will receive benefits under our benefit plans for one year and will receive acceleration of 50% of the unvested portion of any equity awards, including any stock options. He will also be entitled to exercise any vested stock options or similar equity awards for one year following such termination. If Mr. Vashist's services are terminated without cause, or he resigns for good reason, immediately prior to, in connection with, or within 12 months after we undergo a change of control, in lieu of receiving the severance benefits described above, he will be entitled to a lump sum payment in an amount equal to 100% of his then current annual salary and target bonus for the year of termination, and he will receive benefits under our benefit plans for one year. He would also be entitled to full acceleration of all of his outstanding equity awards, including his stock option grants, and would have one year following such termination to exercise any outstanding stock options or similar equity awards. Mr. Vashist would be required to execute and not revoke a separation agreement and release of claims

97

and to refrain from specified competitive activities and refrain from soliciting our employees for alternative employment in order to continue receiving his severance benefits.

        On August 29, 2003, we entered into an offer letter with Daniel K. Atler, our Chief Financial Officer. The offer letter provides that Mr. Atler will receive an annual base salary and a quarterly performance bonus of up to 15% of his base annual salary if he meets the performance criteria set forth by our board of directors. Mr. Atler was also granted an option to purchase shares of common stock pursuant to his offer letter. If Mr. Atler is terminated without cause or is constructively terminated three months before or 12 months after a change in control, he will receive accelerated vesting on all of his options as well as 15 months of compensation and benefits. Pursuant to the terms of Mr. Atler's option agreement, following a change of control he will receive accelerated vesting on all of his options.

        On October 8, 2003, we entered into an offer letter with Derek Obata, who was promoted to the position of Vice President of Worldwide Sales in 2005. The offer letter provides that Mr. Obata will receive an annual base salary and a quarterly sales commission payment if he meets the performance criteria set forth in our sales commission plan. Mr. Obata was granted an option to purchase shares of common stock by our board of directors. The offer letter provides that upon our change of control, Mr. Obata shall be entitled to acceleration of vesting with respect to 25% of all of his unvested options outstanding at the time if his responsibilities are significantly changed or diminished, unless otherwise specified.

        We entered into an offer letter with Mr. Toumani, our Vice President of Systems Engineering on March 10, 2000. This offer letter provided that Mr. Toumani will receive an annual base salary. Mr. Toumani is also entitled to an annual bonus to be awarded at the discretion of the board of directors. On August 22, 2005, we entered into a Change of Control Agreement with Mr. Toumani. This agreement provides that if (1) Mr. Toumani resigns for good reason or is terminated without cause within 12 months following a change of control and (2) Mr. Toumani executes a release of claims with us, he shall receive accelerated vesting with respect to 25% of his unvested options outstanding at the time.

        On July 24, 2001, we entered into an offer letter with Yehoshua Rom, our Vice President of Operations. The offer letter provides that Mr. Rom will receive an annual base salary. Mr. Rom was granted an option to purchase shares of common stock by our board of directors. The offer letter provides that, if Mr. Rom's responsibilities are significantly changed or diminished (1) within one year of a change of control, Mr. Rom will be entitled to acceleration of vesting with respect to 50% of the option grant or (2) more than one year after a change of control, he will be entitled to acceleration of vesting with respect to 25% of the option grant.

        On February 17, 2005, we entered into an offer letter with Chris H. Smith, our Vice President of Human Resources. The offer letter provides that Mr. Smith will receive an annual base salary and an annual bonus of up to 15% of his base annual salary based on attainment of individual and company goals. Mr. Smith was also granted an option to purchase shares of common stock by our board of directors. On August 22, 2005, we entered into a Change of Control Agreement with Mr. Smith. This agreement provides that if (1) Mr. Smith resigns for good reason or is terminated without cause within 12 months following a change of control and (2) Mr. Smith executes a release of claims with us, he shall receive accelerated vesting with respect to 25% of his unvested options outstanding at the time.

        On January 29, 2005, we entered into an offer letter with Dean Grumlose, our Vice President of Marketing. The offer letter provides that Mr. Grumlose will receive an annual base salary and an annual bonus of up to 15% of his base annual salary based on attainment of individual and company goals. Mr. Grumlose was also granted an option to purchase shares of common stock by our board of directors. On August 22, 2005, we entered into a Change of Control Agreement with Mr. Grumlose. This agreement provides that if (1) Mr. Grumlose resigns for good reason or is terminated without

98

cause within 12 months following a change of control and (2) Mr. Grumlose executes a release of claims with us, he shall receive accelerated vesting with respect to 25% of his unvested options outstanding at the time.

        On November 19, 1999, we entered into an offer letter with Anoop Khurana, our Vice President of Engineering. The offer letter provides that Mr. Khurana will receive an annual base salary and a signing bonus. Mr. Khurana was also granted an option to purchase shares of common stock by our board of directors. On August 23, 2005, we entered into a Change of Control Agreement with Mr. Khurana. This agreement provides that if (1) Mr. Khurana resigns for good reason or is terminated without cause within 12 months following a change of control and (2) Mr. Khurana executes a release of claims with us, he shall receive accelerated vesting with respect to 25% of his unvested options outstanding at the time.

Compensation Committee Interlocks and Insider Participation

        In 2005, the compensation committee approved matters concerning executive officer compensation, and Mr. Vashist participated in these deliberations other than those related to his own compensation. In addition, Messrs. Faizullabhoy and Goguen were involved in certain transactions described under the heading "Certain Relationships and Related Party Transactions." None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serve on our board of directors or compensation committee.

Director Compensation

        Prior to our initial public offering in September 2005, our directors did not receive any cash fees for their services on the board of directors, but were entitled to reimbursement of all reasonable out-of-pocket expenses incurred in connection with their attendance at board of directors and board committee meetings and our non-employee directors were eligible under our 1999 Stock Option Plan to receive stock options.

        Following our initial public offering in September 2005, our non-employee directors are entitled to receive $1,000 per meeting and are entitled to reimbursement of business, travel and other related expenses incurred in connection with their attendance at meetings of the board of directors and committee meetings. The chairman of our board of directors, our audit committee, our compensation committee and our nominating and corporate governance committee are each entitled to receive $1,500 per committee meeting attended. In addition, our 2004 Equity Incentive Plan provides for the automatic grant of options to our non-employee directors. Each new non-employee director appointed to the board of directors will receive an initial option to purchase 30,000 shares upon such appointment except for those directors who become non-employee directors by ceasing to be employee directors. The initial option grant vests as to 25% of the shares on the first anniversary of the date of grant and as to 1/48th of the shares each month thereafter, subject to the director continuing to serve as a director on each vesting date. In addition, non-employee directors who have been directors for at least six months receive a subsequent option to purchase 12,000 shares immediately following each annual meeting of our stockholders. The subsequent option grants shall vest as to 1/12th of the shares each month following the date of grant, subject to the director continuing to serve as a director on each vesting date.

        In January 2005, as consideration for his service as a member of the board of directors, Mr. Hansen received an option exercisable for 33,333 shares of our common stock at an exercise price per share of $3.84 that vests with respect to 1/48th of the shares upon the completion of each of the 48 months of continuous service after the vesting commencement date, with vesting commencing in January 2005.

99

        We have a consulting agreement with Texan Ventures, LLC entered into on November 7, 2001. G. Venkatesh, who is also a member of our board of directors, is the Managing Member of Texan Ventures, LLC. Under the consulting agreement, Texan Ventures, LLC is entitled to $3,000 per month and reimbursement for reasonable expenses, and was granted an option to purchase 13,333 shares that vested monthly over a period of 12 months commencing on November 7, 2001. We paid Texan Ventures, LLC, $57,000 in 2003, $36,000 in 2004 and $39,000 in 2005 for consulting services.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

PRINCIPAL STOCKHOLDERS

        The following table sets forth certain information with respect to the beneficial ownership of our common stock, as of December 31, 2005, and as adjusted to reflect the sale of common stock offered by us in the offering, for

•

each person who we know beneficially owns more than 5% of our common stock;



•

each of our directors;



•

each named executive officer;



•

all of our directors and officers as a group; and



•

other selling stockholders.

        Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as indicated by footnote, and subject to applicable community property laws, each person identified in the table possesses sole voting and investment power with respect to all common stock shown to be held by them. The number of shares of common stock outstanding used in calculating the percentage for each listed person or entity includes common stock underlying options or a warrant held by the person or entity that are exercisable within 60 days of December 31, 2005, but excludes common stock underlying options or warrants held by any other person or entity. Percentage of beneficial ownership is based on 23,799,844 shares of common stock outstanding as of December 31, 2005. Unless otherwise indicated, the principal address of each of the stockholders below is c/o Ikanos Communications, Inc., 47669 Fremont Boulevard, Fremont, CA 94538.

		Shares beneficially owned
Name of Beneficial Owner
		Number	Percent
5% Shareholders:
	Entities affiliated with Sequoia Capital (1)	3,050,024	12.8	%
	Entities affiliated with Walden International (2)	2,540,953	10.7
	Entities affiliated with Greylock Partners (3)	2,000,426	8.4
	Entities affiliated with Telesoft Partners (4)	2,017,058	8.5
	Ridgewood Ikanos, LLC (5)	1,563,118	6.6
Executive Officers and Directors:
	Rajesh Vashist (6)	1,037,746	4.4
	Derek Obata (7)	198,524	*
	Yehoshua Rom (8)	165,439	*
	Daniel K. Atler (9)	262,332	1.1
	Rouben Toumani (10)	269,581	1.1
	Anoop Khurana (11)	275,118	*
	Danial Faizullabhoy (2)	2,540,953	10.7
	Michael L. Goguen (Sequoia) (1)	3,050,024	12.8
	Michael Gulett (12)	170,000	*
	Paul Hansen (13)	99,999	*
	G. Venkatesh (14)	239,182	1.0
All executive officers and directors as a group (13 persons)		8,558,898	32.9

*

Represents beneficial ownership of less than 1% of our common stock

100

(1)

Principal address is 3000 Sand Hill Road, Bldg. 4, Suite 280, Menlo Park, CA 94025. Number of shares includes (a) 26,782 shares held by Sequoia International Technology Partners VIII, (b) 139,740 shares held by Sequoia International Technology Partners VIII (Q), (c) 2,159,432 held by Sequoia Capital VIII, (d) 86,888 shares held by Sequoia Capital Franchise Partners, (e) 637,182 shares held by Sequoia Capital Franchise Fund. Michael L. Goguen, who is a member of our board of directors, is a Managing Member of SCFF Management, LLC, the general partner of Sequoia Capital Franchise Fund and Sequoia Capital Franchise Partners. Mr. Goguen is a Managing Member of SC VIII Management, LLC, the general partner of Sequoia Capital VIII, Sequoia International Technology Partners VIII and Sequoia International Technology Partners VIII(Q). Mr. Goguen disclaims beneficial ownership of the listed shares except to the extent of his pecuniary interest therein. Mr. Goguen has the authority to vote shares held by the Sequoia entities.

(2)

Principal address is One California Street, 28th Floor, San Francisco, CA 94111. Number of shares includes (a) 279,224 shares held by Pacven Walden Ventures IV, L.P., (b) 2,819 shares held by Pacven Walden Ventures IV Associates Fund, L.P., (c) 2,145,049 shares held by WIIG Communications Partners L.P. and (d) 113,861 shares held by WIIG Communications Partners Associates Fund, L.P. Danial Faizullabhoy, who is a member of our board of directors, was previously a Managing Director of Walden International. Mr. Faizullabhoy disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.

(3)

Principal address is 880 Winter Street, Waltham, MA 02451. Number of shares includes (a) 1,671,896 shares held by Greylock X Limited Partnership, (b) 128,512 shares held by Greylock X-A Limited Partnership, (c) 398 shares held by David B. Aronoff, (d) 9,000 shares held by Aneel Bhusri, (e) 13,000 shares held by Charles Chi and Renee van Dieen Community Property, (f) 35,006 shares held by Howard E. Cox, Jr., (g) 9,000 shares held by Charles M. Hazard, Jr., (h) 17,802 shares held by William W. Helman, (i) 17,802 shares held by William S. Kaiser, (j) 20,253 shares held by Mapache Investments L.P., (k) 8,427 shares held by McCance Family Limited Partnership, (l) 26,578 shares held by Henry F. McCance, (m) 6,749 shares held by David N. Strohm, (n) 9,000 shares held by David Sze and (o) 27,003 shares held by The Roger L. Evans Revocable Trust dated 12/16/99. Each person identified above disclaims beneficial ownership of aforementioned shares and shares held by Greylock X Limited Partnership and Greylock X-A Limited Partnership, except to the extent of his or her pecuniary interest therein.

(4)

Principal address is 1450 Fashion Island Blvd., Suite 610, San Mateo, CA 94404. Number of shares includes (a) 476,903 shares held by Telesoft Partners IA, L.P., (b) 43,047 shares held by Telesoft Partners II, L.P., (c) 632,434 shares held by Telesoft Partners II QP. L.P., (d) 2,623 shares held by Telesoft NP Employee Fund, L.L.C., (e) 855,854 shares held by Telesoft Partners II SBIC, L.P. and (f) 6,197 shares held by Telesoft Strategic Side Fund I, LLC. Arjun Gupta is the President of TeleSoft IA-GP, Inc., which is the General Partner of TeleSoft Partners IA, L.P. Arjun Gupta is the President of TeleSoft II SBIC-GP, Inc., which is the General Partner of TeleSoft Partners II SBIC, L.P. Arjun Gupta is the Executive Manager of TeleSoft Management II, L.L.C. which is the General Partner of TeleSoft Partners II, L.P. and TeleSoft Partners II QP, L.P. Allan Howard and Tom Dennedy are the Managers of TeleSoft NP Employee Fund, L.L.C. Arjun Gupta is the Executive Manager of the Manager of TeleSoft Strategic Side Fund I, L.L.C. Messrs. Gupta, Howard and Dennedy disclaim beneficial ownership of these shares except to the extent of their pecuniary interest in these entities. Mr. Gupta has voting and investment power with regard to the shares held by TeleSoft Partners IA, L.P., TeleSoft Partners II, L.P., TeleSoft Partners II QP, L.P., TeleSoft Partners II SBIC, L.P. and TeleSoft Strategic Side Fund I, L.L.C. Messrs. Howard and Dennedy share voting and investment power with regard to the shares held by TeleSoft NP Employee Fund, L.L.C.

101

(5)

Principal address is 947 Linwood Avenue, Ridgewood, NJ 07450. Ridgewood Ikanos, LLC is managed by Ridgewood Venture Management Corporation. The officers of Ridgewood Venture Management Corporation, Robert Swanson, Chairman, Robert Gold, President and Warren Majek, Vice President, are authorized to sign documents and make decisions for the management of Ridgewood Ikanos, LLC. Each of these managers disclaims beneficial ownership of these shares except to the extent of their pecuniary interest in the funds that are the owners of Ridgewood Ikanos, LLC.

(6)

Represents (a) 282,682 shares of common stock held by Mr. Vashist, (b) 4,166 shares held by Rajesh Vashist and Rohini Vashist, Trustees of Vashist Family Trust u/i dtd February 10, 2000, (c) 416 shares held by Rohini Vashist, Custodian for Mallika Vashist, a minor under CUTMA until age 21 and (d) options granted to Mr. Vashist to purchase 750,482 shares of common stock that are immediately exercisable, of which 189,305 shares underlying the options would remain subject to our repurchase right as of 60 days of December 31, 2005 upon termination of Mr. Vashist's employment.

(7)

Represents (a) 3,333 shares of common stock held by Mr. Obata, none of which are subject to our right of repurchase as of 60 days of December 31, 2005 and (b) options granted to Mr. Obata to purchase 198,524 shares of common stock that are immediately exercisable, of which 115,704 shares underlying options would remain subject to our repurchase right as of 60 days of December 31, 2005 upon termination of Mr. Obata's employment.

(8)

Represents (a) 32,220 shares of common stock held by Mr. Rom none of which are subject to our right of repurchase as of 60 days of December 31, 2005 and (b) options granted to Mr. Rom to purchase 133,219 shares of common stock that are immediately exercisable, of which 72,114 shares underlying the options would remain subject to our repurchase right as of 60 days of December 31, 2005 upon termination of Mr. Rom's employment.

(9)

Represents (a) 145,833 shares of common stock held by Mr. Atler, 26,833 shares of which are subject to our right of repurchase as of 60 days of December 31, 2005 and (b) options granted to Mr. Atler to purchase 116,499 shares of common stock that are immediately exercisable, of which 81,854 shares underlying the options would remain subject to our repurchase right as of 60 days of December 31, 2005 upon termination of Mr. Atler's employment.

(10)

Represents (a) 37,082 shares of common stock held by Mr. Toumani, (b) 115,833 shares of common stock held by Toumani Family 2000 Trust and (c) options granted to Mr. Toumani to purchase 116,666 shares of common stock that are immediately exercisable, of which 57,291 shares underlying the options would remain subject to our repurchase right as of 60 days of December 31, 2005 upon termination of Mr. Toumani's employment.

(11)

Represents (a) 128,089 shares of common stock held by Mr. Khurana, none of which are subject to our right of repurchase as of 60 days of December 31, 2005 and (b) options granted to Mr. Khurana to purchase 147,029 shares of common stock that are immediately exercisable, of which 71,687 shares underlying the options would remain subject to our repurchase right as of 60 days of December 31, 2005 upon termination of Mr. Khurana's employment.

(12)

Represents options granted to Mr. Gulett to purchase 170,000 shares of common stock that are immediately exercisable, of which 63,750 shares underlying the options would remain subject to our repurchase right upon termination of Mr. Gulett's status as a member of the Board of Directors of Ikanos as of 60 days of December 31, 2005.

(13)

Represents options granted to Mr. Hansen to purchase 99,999 shares of our common stock that are immediately exercisable, of which 64,582 shares underlying the options would remain subject to our repurchase right upon termination of Mr. Hansen's status as a member of the Board of Directors of Ikanos as of 60 days of December 31, 2005.

102

(14)

Represents (a) 55,849 shares of common stock held by Venkatesh Family Living Trust, (b) 13,333 shares of common stock held by Texan Ventures LLC, of which Mr. Venkatesh is a Managing Member, and (c) options granted to Mr. Venkatesh to purchase 170,000 shares of common stock that are immediately exercisable, of which 38,958 shares underlying the options would remain subject to our repurchase right as of 60 days of December 31, 2005 upon termination of Mr. Venkatesh's status as a member of the Board of Directors of Ikanos.

        Our right to repurchase shares identified in footnotes (6) through (10) above is subject to the provisions of applicable offer letters described in the section entitled "Offer Letters and Change of Control Agreements."

        The information required by this item is incorporated by reference to the section captioned "Equity Compensation Plan Information" contained in our 2006 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Since January 1, 2001, we have not been a party to, and we have no plans to be a party to, any transaction or series of similar transactions in which the amount involved exceeded or will exceed $60,000 and in which any current director, executive officer, holder of more than 5% of our capital stock, or entities affiliated with them, had or will have a material interest, other than as described above in Part III, Item 12 and in the transactions described below.

Sale of Preferred Stock

        Since inception, we have issued and sold an aggregate of 15,235,082 shares of preferred stock in the following rounds of financing (excluding shares of preferred stock issued upon exercise of preferred stock warrants):

•

in May 1999, we sold 347,206 shares of series A preferred stock at a price of $3.60 per share;



•

in February 2000 and March 2000, we sold an aggregate of 678,823 shares of series B preferred stock at a price of $23.6712 per share;



•

in July 2001, September 2001, December 2001, February 2002 and July 2002, we sold an aggregate of 3,457,797 shares of series C preferred stock at a price of $10.3368 per share;



•

in January 2003 and February 2003, we sold an aggregate of 8,666,641 shares of series D preferred stock at a price of $3.8112 per share; and



•

in March 2004, April 2004 and May 2004, we sold an aggregate of 2,084,615 shares of series E preferred stock at a price of $7.7232 per share.

        In connection with our initial public offering, each share of series A, series B, series C, series D and series E preferred stock was converted into one share of common stock.

103

Transactions with Directors, Executive Officers and 5% Stockholders

        The following table summarizes purchases of our preferred stock since inception by our directors, executive officers and holders of more than 5% of our common stock (excluding shares of preferred stock issued upon exercise of preferred stock warrants):

	Shares of Preferred Stock
	Series A	Series B	Series C	Series D	Series E
Entities affiliated with Sequoia Capital (1)	138,882	308,938	497,794	1,762,826	299,129
Entities affiliated with Greylock Partners	—	228,115	253,509	1,311,915	203,666
Entities affiliated with Walden International (2)	—	—	707,528	1,574,305	259,118
Entities affiliated with TeleSoft Partners	104,166	96,614	231,788	1,311,921	201,205
Ridgewood Ikanos, LLC	—	—	616,562	787,153	159,402
Venkatesh Family Living Trust (3)	—	—	24,185	31,664	—
Anoop Khurana	—	—	—	6,299	—
Rouben Toumani	—	—	—	833	—

(1)

Michael L. Goguen, who is a member of our board of directors, is a Managing Member of SCFF Management, LLC, the general partner of Sequoia Capital Franchise Fund and Sequoia Capital Franchise Partners. Mr. Goguen is a Managing Member of SC VIII Management, LLC, the general partner of Sequoia Capital VIII, Sequoia International Technology Partners VIII and Sequoia International Technology Partners VIII(Q). Mr. Goguen has the authority to vote shares held by the Sequoia entities. Mr. Goguen disclaims beneficial ownership of all shares except to the extent of his individual pecuniary interest therein.

(2)

Danial Faizullabhoy, who is a member of our board of directors, was previously a Managing Director of Walden International.

(3)

G. Venkatesh, who is a member of our board of directors, is affiliated with the Venkatesh Family Living Trust.

        In July 2001, we issued warrants to purchase an aggregate of 96,742 shares of our series C preferred stock to the following directors, executive officers or holders of more than 5% of our common stock (all of which were exercised in July 2004):

Holders	Shares Subject to Warrants
Entities affiliated with Sequoia Capital (1)	45,528
Entities affiliated with Greylock Partners (2)	23,187
TeleSoft Partners	23,187

(1)

Number of shares includes a warrant exercisable for 42,274 shares of our series C preferred stock issued to Sequoia Capital VIII, a warrant exercisable for 523 shares of our series C preferred stock issued to Sequoia International Technology Partners VIII, and a warrant exercisable for 2,731 shares of our series C preferred stock issued to Sequoia International Technology Partners VIII(Q).

(2)

Greylock X GP Limited Partnership was issued a warrant in the name of Greylock Partners exercisable for 23,187 shares of our series C preferred stock. In July 2004, entities affiliated with Greylock Partners exercised their warrant on a cashless basis, resulting in the purchase of 3,206 shares of our series C preferred stock.

        In March 2001 and June 2001, we issued to various investors convertible Series C promissory notes that converted into an aggregate of approximately 256,605 shares of series C preferred stock to funds affiliated with Sequoia Capital, 130,388 shares of series C preferred stock to funds affiliated with

104

Greylock Partners, 24,248 shares of series C preferred stock to funds affiliated with Walden International, 127,232 shares of series C preferred stock to funds affiliated with TeleSoft Partners and 24,261 shares of series C preferred stock to Ridgewood Ikanos, LLC. In December 2002, we issued to various investors convertible Series D promissory notes that converted into an aggregate of approximately 396,294 shares of series D preferred stock to funds affiliated with Sequoia Capital, 132,098 shares of series D preferred stock to funds affiliated with Greylock Partners and 66,049 shares of series D preferred stock to funds affiliated with Walden International.

        The affiliates purchased the securities described above at the same prices and on the same terms and conditions as the unaffiliated investors in the private financings.

        In February 2000, simultaneously with the closing of the purchase of series B preferred stock, TeleSoft Partners IA, L.P., and TeleSoft Strategic Side Fund I, L.L.C. purchased a total of 27,343 shares of common stock at a purchase price of $3.60 per share.

        In November 2001, we granted an option exercisable for 13,333 shares of our common stock with an exercise price of $1.08 per share as partial compensation pursuant to a consulting agreement to Texan Ventures, LLC. Mr. Venkatesh, who is a member of our board of directors, is a Managing Member of Texan Ventures, LLC. The consulting agreement with Texan Ventures, LLC is described in the section captioned "Management—Director Compensation."

        In August 2003, we granted options to each of Messrs. Gulett and Venkatesh exercisable for 170,000 shares of our common stock with an exercise price of $0.48 per share as consideration for their service as members of our board of directors.

        In August 2004, we granted an option exercisable for 66,666 shares of our common stock with an exercise price of $4.80 per share to Mr. Hansen as consideration for his service as a member of our board of directors. In addition, in January 2005, we granted Mr. Hansen an additional option exercisable for 33,333 shares of our common stock with an exercise price of $3.84 per share.

Consulting Agreement

        We have a consulting agreement with Texan Ventures, LLC. Mr. Venkatesh, who is also a member of our board of directors, is a managing member of Texan Ventures, LLC. The consulting agreement with Texan Ventures, LLC is described in Part III, Item 10.

Investor Rights Agreement and Registration Rights

        We have entered into an agreement with the purchasers of our preferred stock, and certain holders of warrants to purchase our capital stock, including entities with which certain of our directors are affiliated, that provides for certain rights relating to the registration of their shares of common stock issuable upon conversion of their preferred stock or other warrants. See "Description of Capital Stock—Registration Rights."

Stock Option Grants

        For more information regarding the grant of stock options to directors and executive officers, please see Part III, Item 10 and Part III, Item 11.

        During the first quarter of 2005, we completed a stock option exchange program. The voluntary program allowed all of our U.S. employees, including our executive officers and all of our directors, to replace existing stock options with exercise prices greater than $3.84 per share for new options with the same terms, including vesting terms, as the replaced stock options, except that the exercise price for the new options was $3.84 per share and the term of the new options was seven years, instead of ten years for the replaced options. The following executive officers and director participated in the stock option

105

exchange program, and returned stock options for the number of shares of common stock listed below for an equal number of new stock options, as follows:

Name and Position	Number of Shares Underlying Stock Options Exchanged	Exercise Price For Stock Options Returned		Exercise Price For New Stock Options
Daniel K. Atler Chief Financial Officer	16,666	$	8.04	$	3.84
Derek Obata Vice President of Worldwide Sales	16,666	$	8.04	$	3.84
Anoop Khurana Vice President of Engineering	33,333	$	8.04	$	3.84
Yehoshua Rom Vice President of Operations	25,000	$	8.04	$	3.84
Rouben Toumani Vice President of Systems Engineering	50,000	$	8.04	$	3.84
Paul Hansen Director	66,666	$	4.80	$	3.84

Loans to Officer

        From September 2000 to December 2000, we provided two loans to Rouben Toumani, our Vice President of Systems Engineering, for the total principal amount of $88,000, at interest rates ranging from 5.87% to 6.20%. These loans matured on September 13, 2005 and December 10, 2005 and as of December 31, 2005, no balance was outstanding under these loans. These loans were provided in connection with the early exercise of stock options.

Offer Letters

        We have entered into offer letters with our officers. See "Part III, Item 11."

Indemnification and Insurance

        We have entered into an indemnification agreement with each of our directors and executive officers and have purchased directors' and officers' liability insurance. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. For more information, please see Part III, Item 10.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

        The information required by this item is incorporated by reference to the section captioned "Proposal Two—Ratification of Appointment of Independent Registered Public Accounting Firm" contained in our 2006 Proxy Statement.

106

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

        1.     Financial Statements: The financial statements are set forth under Item 8 of this Form 10-K.

        2.     Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.

        The following documents are filed as part of this Report:

        3.     Exhibits:

Exhibit Number		Description
2.1		Form of Agreement and Plan of Merger between Ikanos Communications and Ikanos Communications, Inc., a Delaware corporation. Incorporated by reference to Exhibit 2.1 to Amendment No. 1 of the Registrant's registration statement on Form S-1 dated August 6, 2004 (Registration No. 333-116880).
2.2		Asset Purchase Agreement, dated January 12, 2006, between the Registrant, Analog Devices, Inc. and Analog Devices Canada Ltd.
2.3		Amended and Restated Asset Purchase Agreement, dated February 17, 2006, between the Registrant, Analog Devices, Inc., Analog Devices Canada Ltd., and Analog Devices B.V.
3.1		Form of Bylaws. Incorporated by reference to Exhibit 3.3 to Amendment No. 1 of the Registrant's registration statement on Form S-1 dated August 6, 2004 (Registration No. 333-116880).
3.2		Form of Certificate of Incorporation. Incorporated by reference to Exhibit 3.6 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
4.1		Form of Registrant's Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to Amendment No. 1 of the Registrant's registration statement on Form S-1 dated August 6, 2004 (Registration No. 333-116880).
4.2		Fourth Amended and Restated Investor Rights Agreement, dated as of March 5, 2004, between the Registrant and the parties named therein. Incorporated by reference to Exhibit 3.6 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.1	*	Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers. Incorporated by reference to Exhibit 10.1 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.2	*	1999 Stock Option Plan and related form agreements thereunder. Incorporated by reference to Exhibit 10.2 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.3	*	Amended and Restated 2004 Equity Incentive Plan and related form agreements thereunder. Incorporated by reference to Exhibit 10.3 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.4	*	Amended and Restated 2004 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.4 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.5		Lease Agreement, dated as of February 7, 2006, between Registrant and ProLogis, and addendums thereto.
10.6	*	Offer letter, dated August 6, 1999, between the Registrant and Rajesh Vashist. Incorporated by reference to Exhibit 10.6 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).

107

10.7	*	Offer letter, dated August 29, 2003, between the Registrant and Daniel K. Atler. Incorporated by reference to Exhibit 10.7 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.8	*	Offer letter, dated November 29, 2001, between the Registrant and Lionel Bonnot. Incorporated by reference to Exhibit 10.8 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.9	*	Offer letter, dated February 17, 2005, between the Registrant and Chris H. Smith. Incorporated by reference to Exhibit 10.9 to Amendment No. 4 of the Registrant's registration statement on Form S-1 dated July 18, 2005 (Registration No. 333-116880).
10.10	*	Offer letter, dated October 8, 2003, between the Registrant and Derek Obata. Incorporated by reference to Exhibit 10.10 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.11	*	Offer letter, dated November 19, 1999, between the Registrant and Anoop Khurana. Incorporated by reference to Exhibit 10.11 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.12	*	Offer letter, dated March 10, 2000, between the Registrant and Rouben Toumani. Incorporated by reference to Exhibit 10.12 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.13	*	Offer letter, dated July 24, 2001, between the Registrant and Yehoshua Rom. Incorporated by reference to Exhibit 10.13 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.14	*	Offer letter, dated January 29, 2005, between the Registrant and Dean Grumlose. Incorporated by reference to Exhibit 10.14 to Amendment No. 4 of the Registrant's registration statement on Form S-1 dated July 18, 2005 (Registration No. 333-116880).
10.15†		Product Development Agreement, dated October 30, 2003, between Registrant and Sasken Communication Technologies Ltd. Incorporated by reference to Exhibit 10.15 to Amendment No. 2 of the Registrant's registration statement on Form S-1 dated September 3, 2004 (Registration No. 333-116880).
10.16		Loan and Security Agreement, dated as of October 21, 2004, between Registrant and Silicon Valley Bank. Incorporated by reference to Exhibit 10.16 to Amendment No. 4 of the Registrant's registration statement on Form S-1 dated July 18, 2005 (Registration No. 333-116880).
10.17		Amendment No. 1 and Forbearance, dated June 30, 2005 to the Loan and Security Agreement, dated October 21, 2004, between the Registrant and Silicon Valley Bank. Incorporated by reference to Exhibit 10.17 to Amendment No. 4 of the Registrant's registration statement on Form S-1 dated July 18, 2005 (Registration No. 333-116880).
10.18	*	Change of Control Agreement, dated August 22, 2005, between Registrant and Chris Smith. Incorporated by reference to Exhibit 10.18 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.19	*	Change of Control Agreement, dated August 22, 2005, between Registrant and Dean Grumlose. Incorporated by reference to Exhibit 10.19 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.20	*	Change of Control Agreement, dated August 22, 2005, between Registrant and Rouben Toumani, Ph.D. Incorporated by reference to Exhibit 10.20 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).

108

10.21	*	Change of Control Agreement, dated August 23, 2005, between Registrant and Anoop Khurana. Incorporated by reference to Exhibit 10.21 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.22	*	Employment Agreement, dated August 31, 2005, between Registrant and Rajesh Vashist. Incorporated by reference to Exhibit 10.22 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.23	*	Summary of 2006 Executive Bonus Plan.
10.24	*	Summary of 2006 Sales Compensation Plan.
10.25		Amended and Restated 2004 Equity Incentive Plan Notice of Grant of Restricted Stock Units.
10.26		Lease Agreement, dated as of February 7, 2006, between Registrant and ProLogis, and addendums thereto.
10.27		Patent and Technology License Agreement, effective as of February 17, 2006, by and among the Registrant and Analog Devices, Inc.
21.1		Subsidiaries of the Registrant.
23.1		Consent of PricewaterhouseCoopers, LLP, Independent Registered Public Accounting Firm.
24.1		Power of Attorney is herein referenced to the signature page of this Annual Report on Form 10-K.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*

Indicates a management contract or compensatory plan or arrangement.

†

Confidential treatment has been granted as to certain portions of this Exhibit.

109

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

IKANOS COMMUNICATIONS, INC.
By:
	/s/ RAJESH VASHIST Rajesh Vashist President, Chief Executive Officer and Chairman of the Board

Date: February 27, 2006

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Rajesh Vashist and Daniel K. Atler, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-facts and agents, or his substitute or substitutes, or any of them, shall do or cause to be done by virtue hereof.

110

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/  RAJESH VASHIST Rajesh Vashist	President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)	February 27, 2006
/s/  DANIEL K. ATLER Daniel K. Atler	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	February 27, 2006
/s/  DANIAL FAIZULLABHOY Danial Faizullabhoy	Director	February 27, 2006
/s/  MICHAEL GOGUEN Michael Goguen	Director	February 27, 2006
/s/  MICHAEL GULETT Michael Gulett	Director	February 27, 2006
/s/  PAUL G. HANSEN Paul G. Hansen	Director	February 27, 2006
/s/  G. VENKATESH G. Venkatesh	Director	February 27, 2006

111

EXHIBIT INDEX

Exhibit Number		Description
2.1		Form of Agreement and Plan of Merger between the Registrant and Ikanos Communications, Inc., a Delaware corporation. Incorporated by reference to Exhibit 2.1 to Amendment No. 1 of the Registrant's registration statement on Form S-1 dated August 6, 2004 (Registration No. 333-116880).
2.2		Asset Purchase Agreement, dated January 12, 2006, between the Registrant, Analog Devices, Inc. and Analog Devices Canada Ltd.
2.3		Amended and Restated Asset Purchase Agreement, dated February 17, 2006, between the Registrant, Analog Devices, Inc., Analog Devices Canada Ltd., and Analog Devices B.V.
3.1		Form of Bylaws. Incorporated by reference to Exhibit 3.3 to Amendment No. 1 of the Registrant's registration statement on Form S-1 dated August 6, 2004 (Registration No. 333-116880).
3.2		Form of Certificate of Incorporation. Incorporated by reference to Exhibit 3.6 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
4.1		Form of Registrant's Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to Amendment No. 1 of the Registrant's registration statement on Form S-1 dated August 6, 2004 (Registration No. 333-116880).
4.2		Fourth Amended and Restated Investor Rights Agreement, dated as of March 5, 2004, between the Registrant and the parties named therein. Incorporated by reference to Exhibit 3.6 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.1	*	Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers. Incorporated by reference to Exhibit 10.1 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.2	*	1999 Stock Option Plan and related form agreements thereunder. Incorporated by reference to Exhibit 10.2 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.3	*	Amended and Restated 2004 Equity Incentive Plan and related form agreements thereunder. Incorporated by reference to Exhibit 10.3 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.4	*	Amended and Restated 2004 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.4 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.5		Lease Agreement, dated as ofFebruary 7, 2006, between Registrant and ProLogis, and addendums thereto.
10.6	*	Offer letter, dated August 6, 1999, between the Registrant and Rajesh Vashist. Incorporated by reference to Exhibit 10.6 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.7	*	Offer letter, dated August 29, 2003, between the Registrant and Daniel K. Atler. Incorporated by reference to Exhibit 10.7 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.8	*	Offer letter, dated November 29, 2001, between the Registrant and Lionel Bonnot. Incorporated by reference to Exhibit 10.8 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.9	*	Offer letter, dated February 17, 2005, between the Registrant and Chris H. Smith. Incorporated by reference to Exhibit 10.9 to Amendment No. 4 of the Registrant's registration statement on Form S-1 dated July 18, 2005 (Registration No. 333-116880).

10.10	*	Offer letter, dated October 8, 2003, between the Registrant and Derek Obata. Incorporated by reference to Exhibit 10.10 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.11	*	Offer letter, dated November 19, 1999, between the Registrant and Anoop Khurana. Incorporated by reference to Exhibit 10.11 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.12	*	Offer letter, dated March 10, 2000, between the Registrant and Rouben Toumani. Incorporated by reference to Exhibit 10.12 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.13	*	Offer letter, dated July 24, 2001, between the Registrant and Yehoshua Rom. Incorporated by reference to Exhibit 10.13 of the Registrant's registration statement on Form S-1 dated June 25, 2004 (Registration No. 333-116880).
10.14	*	Offer letter, dated January 29, 2005, between the Registrant and Dean Grumlose. Incorporated by reference to Exhibit 10.14 to Amendment No. 4 of the Registrant's registration statement on Form S-1 dated July 18, 2005 (Registration No. 333-116880).
10.15†		Product Development Agreement, dated October 30, 2003, between Registrant and Sasken Communication Technologies Ltd. Incorporated by reference to Exhibit 10.15 to Amendment No. 2 of the Registrant's registration statement on Form S-1 dated September 3, 2004 (Registration No. 333-116880).
10.16		Loan and Security Agreement, dated as of October 21, 2004, between Registrant and Silicon Valley Bank. Incorporated by reference to Exhibit 10.16 to Amendment No. 4 of the Registrant's registration statement on Form S-1 dated July 18, 2005 (Registration No. 333-116880).
10.17		Amendment No. 1 and Forbearance, dated June 30, 2005 to the Loan and Security Agreement, dated October 21, 2004, between the Registrant and Silicon Valley Bank. Incorporated by reference to Exhibit 10.17 to Amendment No. 4 of the Registrant's registration statement on Form S-1 dated July 18, 2005 (Registration No. 333-116880).
10.18	*	Change of Control Agreement, dated August 22, 2005, between Registrant and Chris Smith. Incorporated by reference to Exhibit 10.18 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.19	*	Change of Control Agreement, dated August 22, 2005, between Registrant and Dean Grumlose. Incorporated by reference to Exhibit 10.19 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.20	*	Change of Control Agreement, dated August 22, 2005, between Registrant and Rouben Toumani, Ph.D. Incorporated by reference to Exhibit 10.20 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.21	*	Change of Control Agreement, dated August 23, 2005, between Registrant and Anoop Khurana. Incorporated by reference to Exhibit 10.21 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.22	*	Employment Agreement, dated August 31, 2005, between Registrant and Rajesh Vashist. Incorporated by reference to Exhibit 10.22 to Amendment No. 6 of the Registrant's registration statement on Form S-1 dated September 1, 2005 (Registration No. 333-116880).
10.23	*	Summary of 2006 Executive Bonus Plan.
10.24	*	Summary of 2006 Sales Compensation Plan.
10.25		Amended and Restated 2004 Equity Incentive Plan Notice of Grant of Restricted Stock Units.

10.26	Lease Agreement, dated as of February 7, 2006, between Registrant and ProLogis, and addendums thereto.
10.27	Patent and Technology License Agreement, effective as of February 17, 2006, by and among the Registrant and Analog Devices, Inc.
21.1	Subsidiaries of the Registrant.
23.1	Consent of PricewaterhouseCoopers, LLP, Independent Registered Public Accounting Firm.
24.1	Power of Attorney is herein referenced to the signature page of this Annual Report on Form 10-K.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*

Indicates a management contract or compensatory plan or arrangement.

†

Confidential treatment has been granted as to certain portions of this Exhibit.

QuickLinks

IKANOS COMMUNICATIONS, INC. TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
PART II
IKANOS COMMUNICATIONS, INC. INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
IKANOS COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
IKANOS COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
IKANOS COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
IKANOS COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplementary Financial Data Interim Financial Information (Unaudited)
PART III
PRINCIPAL STOCKHOLDERS
PART IV
SIGNATURES
POWER OF ATTORNEY
EXHIBIT INDEX

EX-2.2

Exhibit 2.2

Execution Copy

ASSET PURCHASE AGREEMENT

dated as of

January 12, 2006

among

Analog Devices, Inc.,

Analog Devices Canada Ltd.,

and

Ikanos Communications, Inc.

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS		1
	Section 1.1. Definitions	1
ARTICLE II PURCHASE AND SALE OF ACQUIRED ASSETS		13
	Section 2.1. Purchase and Sale	13
	Section 2.2. Excluded Assets	13
	Section 2.3. Assumption of Liabilities	13
	Section 2.4. License Back	14
ARTICLE III PURCHASE PRICE; EMPLOYEE RETENTION BONUS		14
	Section 3.1. Purchase Price	14
	Section 3.2. Employee Retention Bonus	15
	Section 3.3. Post-Closing Inventory Adjustment.	15
ARTICLE IV CLOSING AND DELIVERIES		15
	Section 4.1. Closing	15
	Section 4.2. Delivery of Acquired Assets	15
	Section 4.3. Assignments	16
	Section 4.4. Deliveries of Purchaser	16
	Section 4.5. Further Assurances; Post-Closing Cooperation	16
	Section 4.6. GST and Provincial Sales Tax	17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER		17
	Section 5.1. Organization, Good Standing and Qualification	18
	Section 5.2. Corporate Authorization	18
	Section 5.3. Governmental Authorization; Consents	18
	Section 5.4. Noncontravention	18
	Section 5.5. Seller Financial Statements	19
	Section 5.6. Absence of Changes	20
	Section 5.7. Legal and Other Compliance	21
	Section 5.8. Assumed Contracts	21
	Section 5.9. Support and Service Contracts	21
	Section 5.10. No Liquidation, Insolvency, Winding Up	22
	Section 5.11. Restrictions on Business Activities	22
	Section 5.12. Title to Properties, Absence of Liens, Condition of Equipment	23
	Section 5.13. Customers and Sales	24
	Section 5.14. Intellectual Property	24
	Section 5.15. Litigation	28
	Section 5.16. Tax Matters	29
	Section 5.17. Powers of Attorney	29

i

		Page
	Section 5.18. Environmental Matters	30
	Section 5.19. Brokers’ and Finders’ Fees	31
	Section 5.20. Employee Matters	31
	Section 5.21. Warranties; Defects; Liabilities	32
	Section 5.22. Books and Records	32
	Section 5.23. Acquired or Licensed Assets	32
	Section 5.24. Affiliate Transactions	32
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER		33
	Section 6.1. Organization, Qualification and Corporate Power	33
	Section 6.2. Authorization of Transaction	33
	Section 6.3. Noncontravention	33
ARTICLE VII COVENANTS OF SELLER AND PURCHASER		34
	Section 7.1. Access Pending the Closing	34
	Section 7.2. Operation of the Acquired Business by Seller	34
	Section 7.3. Conduct Prior to Closing	35
	Section 7.4. Confidentiality	36
	Section 7.5. No Solicitation	36
	Section 7.6. Notification of Certain Matters	37
	Section 7.7. Public Disclosure	37
	Section 7.8. Consents	37
	Section 7.9. Applicable Laws	38
	Section 7.10. Updated Schedules	38
	Section 7.11. Seller Closing Financial Statements	38
	Section 7.12. Covenants Regarding Continuing Employees	38
	Section 7.13. Attorney-in-Fact	42
	Section 7.14. Tax Matters	43
	Section 7.15. Additional Delivery	44
ARTICLE VIII CONDITIONS TO CLOSING		45
	Section 8.1. Conditions to Obligations of Seller and Purchaser	45
	Section 8.2. Conditions to Obligations of Seller	45
	Section 8.3. Conditions to Obligations of Purchaser	46
ARTICLE IX NON-COMPETITION AGREEMENT		48
	Section 9.1. Non-Competition	48
ARTICLE X SURVIVAL; INDEMNIFICATION; WAIVER		49
	Section 10.1. Survival	49
	Section 10.2. Indemnification	50

ii

		Page
	Section 10.3. Indemnification Claim Procedures	51
	Section 10.4. Third Party Claims	52
	Section 10.5. Inventory Claims.	53
	Section 10.6. Limitations.	54
	Section 10.7. Assignment of Claims	54
	Section 10.8. Treatment of Indemnity Payments	55
ARTICLE XI TERMINATION		55
	Section 11.1. Grounds for Termination	55
	Section 11.2. Effect of Termination	56
	Section 11.3. Procedure Upon Termination	56
ARTICLE XII MISCELLANEOUS		57
	Section 12.1. Notices	57
	Section 12.2. Amendments and Waivers	58
	Section 12.3. Expenses	58
	Section 12.4. Successors and Assigns	58
	Section 12.5. Governing Law	58
	Section 12.6. Counterparts; Third Party Beneficiaries	58
	Section 12.7. Entire Agreement; Severability	58
	Section 12.8. Captions	59
	Section 12.9. Representation by Counsel; Interpretation	59
	Section 12.10. Other Remedies; Specific Performance	59
	Section 12.11. Waiver of Jury Trial	59

iii

EXHIBIT A	TRANSITION SERVICES AGREEMENT
EXHIBIT B	GENERAL ASSIGNMENT AND BILL OF SALE
EXHIBIT C	PRODUCT TRANSITION AGREEMENT
EXHIBIT D	FORM OF LICENSING AGREEMENT
EXHIBIT E	INSTRUMENT OF ASSUMPTION OF LIABILITIES
DISCLOSURE SCHEDULES

i

INDEX OF SCHEDULES

Schedule	Description
Schedule 1.1(h)	Assumed Contracts
Schedule 1.1(u)	Development Tools
Schedule 1.1(v)	Employees
Schedule 1.1(z)(i)	Included Equipment Assets
Schedule 1.1(z)(ii)	Excluded Equipment Assets
Schedule 1.1(cc)	Excluded Assets
Schedule 1.1(tt)	Liens
Schedule 1.1(yy)	Permits
Schedule 1.1(bbb)	Products
Schedule 1.1(ggg)	Registered Intellectual Property Rights
Schedule 1.1(kkk)	Software
Schedule 1.1(nnn)	Tangible Assets
Schedule 1.1(rrr)	Third Party Technology
Schedule 1.1(sss)	Third Party Technology Contracts
Schedule 1.1(ttt)	Transferred Intellectual Property Rights
Schedule 1.1(vvv)	Transferred Technology
Schedule 1.1(zzz)	Web Content
Schedule 3.2	Employee Retention Schedule
Schedule 5.8	Excluded Contracts
Schedule 5.9	Support and Service Contracts
Schedule 5.12	Leased Real Property
Schedule 5.13	Customers and Sales
Schedule 5.14(m)	List of IP Contracts
Schedule 5.14(t)	Non-exclusive Written Licenses
Schedule 5.14(x)	Open Source Materials
Schedule 5.18(d)	Environmental Permits
Schedule 5.18(e)	Lead Products
Schedule 5.20(a)	Employee Information
Schedule 5.20(b)(ii)(2)	Benefit Plans
Schedule 5.21	Warranty
Schedule 8.3(d)	Third Party Consents

ii

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT, dated as of January 12, 2006, is between Ikanos Communications, Inc., a Delaware corporation (“Purchaser”) and Analog Devices, Inc., a Massachusetts corporation, and the Subsidiary (collectively, the “Seller”).

W I T N E S S E T H :

WHEREAS, Seller is engaged in the design, manufacture and marketing of high-performance analog, mixed-signal and digital signal processing integrated circuits used in signal processing for industrial, communication, computer and consumer applications;

WHEREAS, subject to the provisions hereof, Purchaser desires to purchase and/or license from Seller, and Seller desires to sell and/or license to Purchaser, substantially all of the assets relating to, required for, used in or otherwise constituting the Acquired Business (as defined below), in exchange for the Purchase Price (each as defined below);

NOW, THEREFORE, in consideration of the covenants, representations, warranties and mutual agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS

Section 1.1 Definitions.

The following capitalized term shall have the meaning set forth below:

(a)                   “Acquired Assets” means all of Seller’s right, title and interest in the following:

(i)            the Tangible Assets;

(ii)           the Transferred Intellectual Property Rights;

(iii)          the Transferred Technology;

(iv)          the Books and Records; provided, however, that Seller shall provide the foregoing in both paper and via soft copy download from Seller’s systems (it being understood that Seller need not provide Purchaser with a license or sublicense to its SAP software system);

(v)           the Inventory;

(vi)          the Permits;

(vii)         all rights of Seller under the Assumed Contracts and any deposits associated with the Assumed Contracts;

(viii)        any other assets, tangible or intangible, or rights of Seller which are utilized exclusively by the Seller in the Acquired Business and the Products; and

(ix)           all rights to recover past, present and future damages for the breach, infringement or misappropriation, as the case may be, of any of the foregoing.

Notwithstanding anything to the contrary in this Agreement, the Excluded Assets shall not be considered Acquired Assets.

(b)                   “Actual Closing Inventory” means the actual value of the Net Inventory as of Closing, as calculated in good faith by Purchaser in a manner consistent with the calculation of Net Inventory by Seller prior to the Closing and confirmed in writing to Seller not later than 60 days after Closing through the delivery of an Officer’s Certificate (as defined in Section 10.3 of this Agreement).  In the event that (A) the Actual Closing Inventory has a dollar value that is lower than $3,750,000 and if there is no objection by Seller within 10 business days of delivery of the Officer’s Certificate, then Seller shall pay to Purchaser an amount equal to the amount by which the Actual Closing Inventory is less than $4,000,000; or (B) the Actual Closing Inventory has a dollar value that is greater than $4,250,000 and if there is no objection by Purchaser within 10 business days of delivery of the Officer’s Certificate then Purchaser shall pay to Seller an amount equal to the amount by which the Actual Closing Inventory is greater than $4,000,000; provided, however, that if Seller or Purchaser, as applicable, does object within such 10 business day period, then the parties shall resolve any dispute pursuant to Section 10.5.

(c)                   “Action or Proceeding” means any action, suit, complaint, petition, investigation, proceeding, arbitration, litigation or Governmental or Regulatory Authority investigation, audit or other proceeding, whether civil or criminal, in law or in equity, or before any arbitrator or Governmental or Regulatory Authority.

(d)                   “Acquired Business” means the broadband business unit of the Seller as presently conducted or as proposed by the Seller to be conducted, including the design, development, manufacture, sale, distribution and support of the Products.

(e)                   “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person.  For purposes of this definition, “control” when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; the terms “controlling” and “controlled” have meanings correlative to the foregoing.

(f)                    “Ancillary Agreements” means the Transition Services Agreement attached hereto as Exhibit A, the General Assignment and Bill of Sale attached hereto as Exhibit B, the

2

Product Transition Agreement attached hereto as Exhibit C, the Licensing Agreement attached hereto as Exhibit D, and each other document or agreement delivered by Seller or Purchaser in connection with this Agreement.

(g)                   “Applicable Law” means any law, statute, order, rule, regulation, ordinance, by-law, code or other similar pronouncement having the effect of law whether in the United States, any foreign country, or any domestic or foreign state, province, county, city or other political subdivision or of any Governmental or Regulatory Authority.

(h)                   “Assumed Contracts” means those contracts, agreements, leases, commitments and sales and purchase orders of Seller relating to the Acquired Business listed on Schedule 1.1(h).

(i)                    “Assumed Liabilities” means all Liabilities of the Seller that arise or accrue following the Closing under the Assumed Contracts.

(j)                    “Audited Financial Statements” means the Seller’s balance sheets, statements of income and statements of cash flows for the Acquired Business as a standalone entity for the three years ended October 25, 2003, October 30, 2004 and October 29, 2005 and as of the periods ended then ended.

(k)                   “Benefit Plan” means any plan, program, policy, practice, contract, agreement or other arrangement providing for incentive compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration (other than base salary or wages) of any kind, whether written or unwritten or otherwise, funded or unfunded, including without limitation, each “employee benefit plan,” within the meaning of Section 3(3) of ERISA which is maintained, contributed to, or required to be contributed to, by Seller or any ERISA Affiliate for the benefit of any Employee or former employee, current or former consultant or current or former director of Seller or an ERISA Affiliate, who has provided services to the Acquired Business, or with respect to which Seller or any ERISA Affiliate has or may have any liability or obligation, including any International Employee Plan.

(l)                    “Books and Records” means all papers and records (in paper or electronic format) in the care, custody or control of Seller or its representatives exclusively relating to the Acquired Business including, without limitation, to the extent exclusively relating to the Acquired Business, all purchasing and sales records, customer and vendor lists, accounting and financial records, Product documentation, Product specifications, marketing requirement documents and software release orders; provided, however, that “Books and Records” shall not include employee files to the extent that the disclosure thereof to the Purchaser would be in violation of Applicable Law or the policies and practices of the Seller.

(m)                  “Business Facility” is any property including the land, the improvements thereon, the groundwater thereunder and the surface water thereon, that is or at any time has been owned, operated, occupied, controlled or leased by the Seller in connection with the operation of its business.

3

(n)                   “Closing Cash Payment” means thirty million dollars ($30,000,000), provided, however, that if (A) at Closing the Net Inventory does not have an aggregate value of at least $3,750,000, then the Closing Cash Payment shall be reduced by the difference between the value of the Net Inventory at Closing as certified to Purchaser by Seller pursuant to the Officer’s Closing Inventory Certificate (“Certified Closing Inventory”) and $4,000,000, or (B) at Closing the Net Inventory has an aggregate value in excess of $4,250,000, then the Closing Cash Payment shall be increased by the excess of the value of the Certified Closing Inventory over $4,000,000.

(o)                   “Closing Date” means the date of the Closing.

(p)                   “Code” means the Internal Revenue Code of 1986, as amended form time to time.

(q)                   “Continuing Employees” means those Employees who become employees of Purchaser upon the Closing.

(r)                    “Contract” means any written or oral understanding, note, bond, mortgage, indenture, lease, contract, covenant or other agreement, instrument or commitment, concession, franchise or license.

(s)                   “Control” shall have the meaning attributed thereto in the Licensing Agreement.

(t)                    “Derivative Work” shall have the meaning ascribed to it under the United States Copyright Law, Title 17 U.S.C. Sec. 101 et. seq., as the same may be amended from time to time.

(u)                   “Development Tools” means materials listed on Schedule 1.1(u).

(v)                   “Employee” means any person listed on Schedule 1.1(v).

(w)                  “Employment Agreement” means each management, employment, severance, consulting, relocation, repatriation, expatriation, visa, work permit or other agreement, contract or understanding between Seller or any ERISA Affiliate and any Employee or former employee, current or former consultant or current or former director of Seller or an ERISA Affiliate, who has provided services to the Acquired Business.

(x)                    “Employment Liabilities” means any and all claims, debts, liabilities, commitments and obligations, whether fixed, contingent or absolute, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever or however arising, including all costs and expenses relating thereto arising under law, rule, regulation, permit, action or proceeding before any governmental authority, order or consent decree or any award of any arbitrator of any kind relating to any Benefit Plan, Employment Agreement or otherwise relating to an Employee or former employee, current or former consultant or current or former director of Seller or an ERISA Affiliate, who has provided services to the Acquired Business, and his or her employment with Seller or any ERISA Affiliate.

4

(y)                   “Environmental Laws” means all federal, state, provincial, local and foreign Applicable Laws, directives and guidance relating to pollution or protection of the environment, natural resources and the protection of human health, including laws and regulations relating to emissions, discharges, releases or threatened releases of Hazardous Substances, or otherwise relating to the manufacture, processing, registration, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances or any products or waste containing a Hazardous Substance.

(z)                    “Equipment” means the machinery, test and other equipment, toolings, dies, jigs, spare parts, office furniture, office equipment and office supplies, hardware, computer hardware and all other tangible personal property of the Acquired Business utilized exclusively by the Seller in the Acquired Business, including without limitation the items listed on Schedule 1.1(z)(i) (the “Included Equipment Assets”), but excluding the assets listed on Schedule 1.1(z)(ii) (the “Excluded Equipment Assets”).

(aa)                 “ERISA” means the Employee Retirement Income Security Act of 1974, as the same may hereafter be amended from time to time.  Any reference to a specific section of ERISA shall refer to the cited provision as the same may be subsequently amended from time to time, as well as to any successor provisions.

(bb)                 “ERISA Affiliate” shall mean each subsidiary of Seller and any other person or entity under common control with Seller or any of its subsidiaries within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations issued thereunder.

(cc)                 “Excluded Assets” means (i) any asset that is listed on Schedule 1.1(cc), (ii) any asset that is not an Acquired Asset, (iii) any Contract that is not an Assumed Contract and (iv) any and all Excluded Technology.

(dd)                 “Excluded Technology” means the Technology which is not Transferred Technology.

(ee)                 “Execution Date” means the date of this Agreement.

(ff)                   “Facility Lease” means each lease for each Leased Real Property, each of which is set forth on Schedule 5.12.

(gg)                 “Governmental or Regulatory Authority” means any court, tribunal, arbitrator, authority, agency, bureau, board, commission, department, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, province, county, city or other political subdivision and shall include any stock exchange, quotation service and the National Association of Securities Dealers.

(hh)                 “GST” means all goods and services tax payable under the ETA or under any provincial legislation similar to the ETA and any reference to a specific provision of the ETA or any such provincial legislation shall refer to any successor provision thereto of like or similar effect;

5

(ii)                   “Hazardous Substance” means any substance, emission or material designated by any Governmental or Regulatory Authority to be toxic, hazardous, a pollutant or a waste, including without limitation, (i) any substance designated or listed as a “hazardous substance” under Section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 or the regulations adopted pursuant thereto; (ii) any substance designated or listed as a “hazardous substance” under Sections 307 or 311 of the Clean Water Act or the regulations adopted pursuant thereto; (iii) any substance defined, designated or listed as a “hazardous waste” under Section 1004(5) of the Resource Conservation and Recovery Act or the regulations adopted pursuant thereto or (iv) any other substance of the environment, emission or material, or public health and safety which is regulated by or may give rise to liability under any other laws that concern pollution or protection.

(jj)                   “Intellectual Property Rights” means any or all of the following and all statutory and/or common law rights throughout the world in, arising out of, or associated therewith: (i) all patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof (collectively, “Patents”); (ii) all inventions (whether patentable or not), invention disclosures and improvements, all trade secrets, proprietary information, know how and technology; (iii) all works of authorship, copyrights, mask works, copyright and mask work registrations and applications and all databases and data collections (including knowledge databases, customer lists and customer databases) and all industrial designs and any registrations and applications therefor (“Copyrights”); (iv) all trade names, logos, trademarks and service marks; trademark and service mark registrations and applications (“Trademarks”); (v)  all rights in Software; (vi) rights to Uniform Resource Locators, Web site addresses and domain names (“Web Properties”); (vii) any similar, corresponding or equivalent rights to any of the foregoing; and (viii) all goodwill associated with any of the foregoing.

(kk)                 “Inventory” shall mean all inventory exclusively related to the Acquired Business in which Seller has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work-in-progress and finished products.

(ll)                   “ITA” means the Income Tax Act (Canada), as it may be amended and superseded from time to time;

(mm)               “Knowledge” with respect to the Seller, means (i) the actual knowledge of the following individuals: John Croteau, William Martin, Brian McAloon, Gerald McGuire, Tom Myrick, Jim Schmidt, Alice Valure, Paul Kramarz, Sanjeev Challa, Kamran Sharifi, Reddy Penumalli, Hari Surapaneni and Tony Zarola; and (ii) the knowledge of facts that such individuals would reasonably be expected to have after making due inquiry of the employees directly reporting to such individuals.

(nn)                 “Liabilities” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, determined or determinable, known or unknown, including those arising under any Applicable Law, action or governmental order and those arising under any contract.

6

(oo)                 “Licensed AFEs” shall have the meaning attributed thereto in the Licensing Agreement.

(pp)                 “Licensed Intellectual Property Rights” means all Intellectual Property Rights owned or licensable by Seller that are licensed to Purchaser under the Licensing Agreement.

(qq)                 “Licensee Exclusive Field of Use” shall have the meaning attributed thereto in the Licensing Agreement.

(rr)                   “Licensee Non-Exclusive Field of Use” shall have the meaning attributed thereto in the Licensing Agreement.

(ss)                 “Licensing Agreement” means the agreement substantially in the form attached hereto as Exhibit D.

(tt)                   “Lien” means, with respect to any property or asset, any exception to title described in Schedule 1.1(tt), mortgage, lien, pledge, charge, security interest or other encumbrance, or restriction on transfer in respect of such property or asset, excluding only non-exclusive intellectual property licenses granted in the ordinary course of business.

(uu)                 “Material Adverse Effect” means any (i) change, event or effect that is materially adverse to the Acquired Business, Products or Acquired Assets or (ii) circumstance, change or event that materially impairs Purchaser’s ability to make, use, sell, license, distribute, market, build, modify, debug and operate the Products in substantially the same manner as Seller prior to the date of this Agreement; provided, however, that “Material Adverse Effect” shall not include changes, events or effects that are the result of economic factors affecting the economy as a whole or that are the result of factors generally affecting the industry or specific markets in which the Acquired Business competes, or that is attributable to the announcement or performance of this Agreement.

(vv)                 “Non-U.S. Employee” means any person listed on Schedule 1.1(u) who is identified as being principally employed outside of the United States.  For these purposes, a person who is normally considered to be principally employed in the United States, but who is on ex-patriot status, will be considered to be principally employed in the non-United States jurisdiction in which he or she is performing services as an ex-patriot.

(ww)               “Object Code” means computer software, substantially or entirely in binary form, which is intended to be directly executable by a computer after suitable processing and linking but without the intervening steps of compilation or assembly.

(xx)                  “Ordinary Course of Business” means the ordinary course of business, consistent with past practice (including with respect to quantity and frequency).

7

(yy)                 “Permits” means Seller’s interest in the governmental permits, authorizations, clearances, consents, licenses, registrations, orders and approvals, in each case solely related to the Acquired Business, set forth on Schedule 1.1(yy), to the extent such permits, authorizations, clearances, consents, licenses, registrations, orders and approvals are separately transferable to Purchaser.

(zz)                  “Permitted Liens” means those certain Liens: (a) for Taxes and other governmental charges and assessments which are not yet due and payable, (b) landlord’s, mechanic’s, materialmen’s and similar Liens incurred in the ordinary course of business for obligations which are not yet due and payable, (c) other Liens, not relating to borrowed money, on property which are not material in amount or do not materially impair the existing use of the property affected by such Lien, and (d) Liens in respect of pledges or deposits under workers’ compensation laws.

(aaa)               “Person” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

(bbb)              “Products” means all products of the Acquired Business described in Schedule 1.1(bbb).

(ccc)               “Product Transition Agreement” means the agreement substantially in the form attached hereto as Exhibit C.

(ddd)              “Purchase Price” means the price paid for the Acquired Business provided for in Section 3.1

(eee)               “Purchaser Disclosure Schedules” means the Schedules delivered by the Purchaser to the Seller in connection with this Agreement.

(fff)                 “Purchaser Material Adverse Effect” means any change, event or effect that is materially adverse to the business, financial condition or results of operations of the Purchaser; provided, however, that “Purchaser Material Adverse Effect” shall not include changes, events or effects that are the result of economic factors affecting the economy as a whole or that are the result of factors generally affecting the industry or specific markets in which the Purchaser competes, or that is attributable to the announcement or performance of this Agreement.

(ggg)              “Registered Intellectual Property Rights” means all United States, international and foreign: (i) patents and patent applications (including provisional applications); (ii) registered trademarks or service marks, applications to register trademarks or service marks, intent-to-use applications, or other registrations or applications related to trademarks or service marks; (iii) registered copyrights and applications for copyright registration; (iv) domain name registrations; (v) any other Intellectual Property Rights that are the subject of an application, certificate, filing,

8

registration or other document issued, filed with, or recorded by Governmental or Regulatory Authority; and (vi) any other Intellectual Property Rights listed on Schedule 1.1(ggg).

(hhh)              “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

(iii)                  “Seller Disclosure Schedules” means the Schedules delivered by the Seller to the Purchaser in connection with this Agreement.

(jjj)                  “Seller’s Retained Environmental Liabilities” shall mean any liability, obligation, judgment, penalty, fine, cost or expense, of any kind or nature, or the duty to indemnify, defend or reimburse any Person arising out of: (i) the presence, on or before the Closing, of any Hazardous Substances in the soil, groundwater, surface water, air or building materials of any Business Facility (“Pre-Existing Contamination”); (ii) the migration at any time prior to or after the Closing of Pre-Existing Contamination to any other real property, or the soil, groundwater, surface water, air or building Substances thereof; (iii) any Hazardous Substances Activity conducted on any Business Facility prior to the Closing or otherwise occurring prior to the Closing in connection with or to benefit the Acquired Business (“Pre-Closing Hazardous Substances Activities”); (iv) the exposure of any person to Pre-Existing Contamination or to Hazardous Substances in the course of or as a consequence of any Pre-Closing Hazardous Substances Activities, without regard to whether any health effect of the exposure has been manifested as of the Closing; (v) the violation of any Environmental Laws by the Seller or its agents, employees, predecessors in interest, contractors, invitees or licensees prior to the Closing; (vi) any actions or proceedings brought or threatened by any third party with respect to any of the foregoing; and (viii) any of the foregoing to the extent they continue after the Closing.

(kkk)               “Software” means any and all computer software and code, including assemblers, applets, compilers, Source Code, Object Code, data (including image and sound data), Development Tools, design tools and user interfaces, in any form or format, however fixed.  Software shall include Source Code listings and documentation.

(lll)                  “Source Code” means computer software and code, in form other than Object Code form, including related programmer comments and annotations, help text, data and data structures, instructions and procedural, object-oriented and other code, which may be printed out or displayed in human readable form.

(mmm)            “Subsidiary” means Analog Devices Canada Ltd., an Ontario corporation.

(nnn)              “Tangible Assets” means the tangible assets (including Products, Included Equipment Assets, and Web Content) listed on Schedule 1.1(nnn).

(ooo)              “Taxes” means all federal, state, provincial or local, income, payroll, withholding, VAT, excise, sales, use, goods and services, customs duties, personal property, use and occupancy, business and occupation, mercantile, real estate, ad valorem, capital stock and franchise or other

9

taxes, and assessments and charges in the nature of taxes imposed by any governmental authority, including interest and penalties thereon and including estimated taxes.

(ppp)              “Tax Returns” means all federal, state, provincial, local and foreign returns, estimates, information statements and reports filed with a taxing authority.

(qqq)              “Technology” means all technology, technical and business information and all tangible embodiments of Intellectual Property Rights, including Software, Development Tools, systems, files, records, databases, drawings, artwork, designs, displays, audio-visual works, devices, hardware, apparatuses, documentation, prototypes, lab notebooks, development and lab equipment, methodologies, hardware, tools, manuals, specifications, flow charts, web pages, customer lists, electronic and other data, and other tangible embodiments of, or materials describing or disclosing, technical or business data, concepts, know-how, show-how, techniques, trade secrets, inventions (whether patentable or unpatentable), invention disclosures, algorithms, routines, formulae, processes, routines, files, processes, databases, works of authorship and the like.

(rrr)                 “Third Party Technology” means any Technology or Intellectual Property Rights of a third party or in the public domain, including open source, public source or freeware Technology or any modification or Derivative Work thereof, including any version of any Software licensed pursuant to any GNU general public license or limited general public license that was used in, incorporated into, integrated or bundled with any Technology or Intellectual Property Rights that has been, or is proposed to be, used or otherwise exploited by Seller for or in connection with the Acquired Business or that is otherwise reasonably required in order for Purchaser to use and fully exploit the Acquired Assets or carry on the Acquired Business following the Closing, or listed in Schedule 1.1(rrr).

(sss)               “Third Party Technology Contracts” means all of the Contracts, listed on Schedule 1.1(sss), pursuant to which Seller acquired access or rights to any Third Party Technology.

(ttt)                 “Transferred Intellectual Property Rights” means all Intellectual Property Rights owned or transferable by Seller that are exclusively related to the operation of the Acquired Business, including Intellectual Property Rights listed or described in Schedule 1.1(ttt).

(uuu)              “Transferred Patents” means those Patents which are included in Transferred Intellectual Property Rights.

(vvv)              “Transferred Technology” means all Technology owned or transferable by Seller that are exclusively related to the operation of the Acquired Business, including the Technology constituting the Products and the Web Content, and including all Technology listed on Schedule 1.1(vvv).  To the extent that any Software constitutes Transferred Technology, all versions and releases of such Software, and Software from which such Software was derived, in both Source Code and Object Code form, shall be included as Transferred Technology.

10

(www)            “Transition Services Agreement” means the transition services agreement substantially in the form attached hereto as Exhibit A with respect to specified services to be performed by Seller for Purchaser.

(xxx)                “Net Inventory” means the gross value, at standard cost, of Inventory related to the Acquired Business that relates to all Products of the Seller, subject to the following adjustments (i) inventory greater than 12 months of age shall not be included; (ii) finished goods inventory where the cost is greater than the selling price is written down to market value; and (iii) inventory that is less than 12 months of age is subject to reserve based on a demand reserve calculation, which writes down the portion of inventory less than 12 months old that is in excess of the next 12 month’s demand forecast.  The demand reserve is subject to exception for new products that have been released in the last 6 quarters.

(yyy)              “U.S. Employee” means any person listed on Schedule 1.1(u) who is identified as employed in the United States.  For these purposes, a person who is normally considered to be principally employed outside the United States, but who is on ex-patriot status in the United States, will be considered to be principally employed in the United States.

(zzz)                “Web Content” means all content owned by Seller and exclusively related to the Acquired Business that is, has been or is intended to be displayed or available on Seller’s world wide web site at Uniform Resource Locator www.Analog.com, including the content and materials listed on Schedule 1.1(zzz).

(aaaa)             Each of the following terms is defined in the Section set forth opposite such term:

Term	Section
401K Plan	7.12(g)
Acquisition Proposal	Section 7.5(a)
Added Patent	7.15(b)
Allocation	Section 7.14(a)
Cap Limitation	10.6(a)
Certified Closing Inventory	Section 1.1(n)
Charter Documents	Section 5.1
Closing	Section 4.1
COBRA	7.12(e)
Competitive Business Activity	9.1(a)
Copyrights	1.1(jj)
Customer Information	Section 5.12(f)
Deferred Revenue Accrual	Section 5.9
Employee Excluded Liabilities	7.12(f)
Environmental Permits	5.18(d)
ETA	4.6(a)
Excluded Contracts	Section 5.8
Excluded Equipment Assets	1.1(z)

11

Term	Section
Excluded Liabilities	Section 2.3
General Assignment	Section 4.3
Hazardous Substances Activity	Section 5.18(a)(i)
Included Equipment Assets	1.1(z)
Indemnified Party	10.2(b)
Indemnifying Party	10.2(b)
International Employee Plan	5.20(b)
IP Contracts	Section 5.14(m)
Leased Real Property	5.12(a)
Loss	Section 10.2(a)
M&A Qualified Beneficiaries	7.12(e)
Mediation	10.3(d)
Multiemployer Plan	5.20(b)
Nondisclosure Agreement	Section 7.4
Non-Paying Party	7.14(c)
Officer’s Certificate	Section 10.3(a)
Officer’s Closing Inventory Certificate	Section 8.3(k)
Open Source Materials	Section 5.14(x)
Patents	1.1(jj)
Paying Party	Section 7.14(c)
Pension Plan	5.20(b)
Potential Contributor	10.7(a)
Pre-Closing Hazardous Substances Activities	1.1(jjj)
Pre-Existing Contamination	1.1(jjj)
Prohibited Field of Use	9.1(a)
Purchase Price	Section 3.1
Purchaser	Preamble
Purchaser Indemnified Party	10.2(a)
Purchaser Indemnifying Party	10.2(b)
Purchaser Plan	7.12(g)
Restricted Employee	7.5(b)
Restricted Territory	9.1(a)
Seller	Preamble
Seller Financial Statements	Section 5.5(a)
Seller Indemnified Party	10.2(b)
Seller Indemnifying Party	10.2(a)
Selling Group	7.12(e)
Special Representations	10.1(b)(i)
Straddle Period Taxes	Section 7.14(c)
Third Party Claim	Section 10.4(a)
Trademarks	1.1(jj)

12

Term	Section
Transfer Taxes	Section 7.14(b)
Updated Schedules	Section 7.10
Use	Section 5.14(i)
Web Properties	1.1(jj)

(bbbb)            As used herein, (i) the word “including” shall be deemed to mean “including without limitation”; and (ii) except as otherwise specified, the words “law” or “laws” shall be deemed to refer to any applicable federal, state, provincial or local statute, law, standard, ordinance, regulation, rule, license, permit, approval, order, judgment or award of any court or governmental authority.

ARTICLE II
PURCHASE AND SALE OF ACQUIRED ASSETS

Section 2.1. Purchase and Sale.  Upon the terms and subject to the conditions of this Agreement, at the Closing, Purchaser agrees to purchase from Seller, and Seller agrees to sell, convey, transfer, assign and deliver to Purchaser, the Acquired Assets, free and clear of all Liens.

Section 2.2. Excluded Assets.  Purchaser expressly understands and agrees that notwithstanding anything to the contrary in this Agreement, the Excluded Assets shall be excluded from the Acquired Assets and the Excluded Assets shall remain for all purposes the properties and assets of Seller.

Section 2.3. Assumption of Liabilities.  Upon and subject to the terms and conditions of this Agreement, at the Closing, Purchaser shall assume and agree to pay, perform and discharge when due the Assumed Liabilities.  Except for the Assumed Liabilities, Purchaser is not assuming any liability or obligation of Seller (the “Excluded Liabilities”), whether known or unknown, fixed or contingent, and regardless of when such liabilities or obligations may arise or may have arisen or when asserted, and Seller shall remain responsible for the Excluded Liabilities.  The Excluded Liabilities shall include all Liabilities of Seller that are not Assumed Liabilities, including, without limitation: (i) all warranty and support obligations for Products sold by Seller prior to the Closing, or that may arise after the Closing with respect to completed Inventory included in the Acquired Assets and sold by Purchaser within 90 days after the Closing; (ii) any Employee Excluded Liabilities; (iii) claims for employment discrimination or wrongful termination of employment by Seller; (iv) property, real estate, employment or other taxes or governmental liabilities, including penalties and interest of Seller prior to Closing; (v) claims for death, personal injury, property damage or consequential, punitive, or other damages relating to or arising out of any business conducted by the Seller; (vi) the violation or alleged violation by Seller of any law, including but not limited to laws relating to civil rights, health, safety, labor, discrimination, and protection of the environment; (vii) claims of the Seller’s creditors against Seller; (viii) Seller’s Retained Environmental Liabilities; and (ix) any liability or obligation of Seller for costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby and all liabilities, including Taxes, arising from

13

or related to Seller’s operations or ownership of the Transferred Technology and the Acquired Assets through the Closing Date, including Seller’s portion of any Straddle Period Taxes (as defined below).

Section 2.4. License Back.  Subject to the terms and conditions of this Agreement, as of the Closing Date, Purchaser hereby grants to Seller a non-transferable (except as set forth below), non-sublicensable (except as set forth below), royalty-free, non-exclusive license under the Transferred Patents, in each jurisdiction where rights exist, to make, have made, use, sell, offer to sell and import the products of Seller excluding any product in the wired communications field that is: a DSL solution and/or a broadband network processor and/or router which has the primary purpose of providing network processing and/or routing.  Notwithstanding, it shall not be prohibited for Seller to conduct the activities described in Section 2.04(2) of the Licensing Agreement.  The Seller may grant sublicenses to the Transferred Patents (excluding sublicenses for the sublicensee to make or have made the Licensed AFE products for a party other than Seller), provided, however, that the terms and conditions of any such sublicenses provide (x) for all appropriate use restrictions, and (y) are comparable to those under which the Seller licenses its own valuable Intellectual Property Rights of a similar nature.  The licenses granted to the Seller pursuant to this Section 2.4 may not be transferred or assigned by the Seller, provided, however, Seller may transfer such license upon notice to Purchaser to a successor entity by way of a reorganization, merger or sale of all or substantially all of the assets of Seller.  Notwithstanding the foregoing, Seller may not transfer or assign (through merger, sale of asset or reorganization) the licenses granted herein with respect to Licensed AFEs to any successor entity that provides products or technology in the wired communications field that are: a DSL solution and/or a broadband network processor and/or router which has the primary purpose of providing network processing and/or routing.  Any assignment or transfer of the licenses granted to Seller in this Section 2.4 in violation of this Section 2.4 shall be null and void.  THE PARTIES ACKNOWLEDGE AND AGREE THAT THE TRANSFERRED PATENTS ARE LICENSED BY PURCHASER TO SELLER “AS IS” WITHOUT ANY WARRANTY, INCLUDING ANY WARRANTY AS TO THE VALIDITY OF ANY CLAIM THEREIN.  Purchaser reserves all right, title and interest in all of its Intellectual Property Rights, including the Transferred Intellectual Property Rights, that are not expressly granted by Purchaser in this Section 2.4.

ARTICLE III
PURCHASE PRICE; EMPLOYEE RETENTION BONUS

Section 3.1. Purchase Price.  The total purchase price for the Acquired Assets (the “Purchase Price”) shall consist of the following:

(a)                   The Closing Cash Payment, which shall be payable by Purchaser to Seller at Closing by wire transfer in accordance with written instructions delivered by Seller to Purchaser at least five business days prior to Closing.

14

Section 3.2. Employee Retention Bonus.  Seller shall reimburse Purchaser for up to Five Hundred Fifty Thousand Dollars ($550,000) to be distributed by Purchaser following the twelve month anniversary of the Closing Date to Continuing Employees then still employed by the Purchaser, in the allocations set forth on Schedule 3.2; provided, however, that in the event any person listed on Schedule 3.2 does not agree to accept employment with the Purchaser upon the Closing, the amounts so allocated to such person on Schedule 3.2 may be re-allocated by Purchaser prior to the Closing Date to any other Employee listed on Schedule 3.2; and provided, further that Purchaser may, for its own account, negotiate additional retention bonus amounts above those specified during the period of time between the date hereof and the Closing Date (in which such case such reallocation or additions shall be set forth on an amended Schedule 3.2 to be delivered by Purchaser to Seller prior to the Closing).   Except as set forth in the preceding sentence, any amounts allocated to a Continuing Employee pursuant to Schedule 3.2 who is not so employed upon the twelve month anniversary shall not be reallocated and Seller shall have no reimbursement obligations with respect to any such amounts.

Section 3.3. Post-Closing Inventory Adjustment.  Not later than 60 days after the Closing, the Actual Closing Inventory shall be calculated and the purchase price shall be adjusted if required, as set forth above in the definition of “Actual Closing Inventory.”

ARTICLE IV
CLOSING AND DELIVERIES

Section 4.1. Closing.  The closing (the “Closing”) of the purchase and sale of the Acquired Assets hereunder shall take place at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California, as soon as possible, but in no event later than two business days after satisfaction of the conditions set forth in Article VIII, or at such other time or place as Seller and Purchaser may agree.

Section 4.2. Delivery of Acquired Assets.

(a)                   On the Closing, Seller shall in the manner and form, and to the locations, reasonably specified by Purchaser, (i) deliver to Purchaser or other entit(ies) designated by Purchaser, all of the Acquired Assets (the cost of which such delivery, if to a site other than the current locations of the Acquired Business, shall be borne by Purchaser), (ii) fully disclose to Purchaser all Technology in the Acquired Business and the Acquired Assets to the extent not otherwise disclosed on the Seller Disclosure Schedules, and (iii) in the case of the Transferred Intellectual Property Rights or other intangible assets, deliver such instruments as are reasonably necessary or desirable to document and to transfer title to such assets from Seller to Purchaser in accordance with Section 4.3 below.  Without limiting the foregoing, all Software included in the Transferred Technology shall, at Purchaser’s request, be delivered to Purchaser by electronic means.

15

(b)                   To the extent that Purchaser cannot be granted possession by Seller in respect of certain Acquired Assets as of the Closing, those Acquired Assets shall be held by Seller for and on behalf of Purchaser until such time as Purchaser or its designee is granted possession thereof.

Section 4.3. Assignments.  Without limiting the foregoing, at the Closing, Seller shall deliver to Purchaser, duly executed by Seller:

(a)                   a General Assignment and Bill of Sale substantially in the form of Exhibit B hereto (the “General Assignment”);

(b)                   assignments of the Transferred Intellectual Property Rights in forms reasonably acceptable to Purchaser and otherwise suitable for filing in all relevant jurisdictions, including the Copyright registrations and assignments, the Patent assignments, Web Properties and the Trademark assignments;

(c)                   such other good and sufficient instruments of conveyance, assignment and transfer, in form and substance reasonably acceptable to Purchaser’s counsel, as shall be effective to vest in Purchaser good and valid title in and to the Acquired Assets;

(d)                   all of the Assumed Contracts.  For each Assumed Contract for which consent has been obtained, Seller shall deliver to Purchaser a written agreement in a form reasonably satisfactory to Purchaser, signed by the party or parties (other than Seller) to such Assumed Contract pursuant to which such party or parties thereto consent to the transfer and assignment of such Assumed Contract to Purchaser;

(e)                   all documents containing or relating to “know-how” to be purchased by the Purchaser hereunder;

(f)                    all other previously undelivered documents required to be delivered by Seller (and in Seller’s possession or under its control) to the Purchaser at or prior to the Closing in connection with the transactions contemplated by this Agreement; and

(g)                   all such other assignments and other instruments as, in the opinion of Purchaser’s counsel, are necessary to vest in the Purchaser good, valid and marketable title to the Acquired Assets.

Section 4.4. Deliveries of Purchaser.  At the Closing the Purchaser shall deliver to Seller the payments provided in Section 3.1 hereof and the Instrument of Assumption of Liabilities substantially in the form of Exhibit E hereto.

Section 4.5. Further Assurances; Post-Closing Cooperation.

(a)                   At any time or from time to time after the Closing, at Purchaser’s request, at no cost to Purchaser and without further consideration, Seller shall execute and deliver to Purchaser

16

such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions as Purchaser may reasonably deem necessary or desirable in order more effectively to transfer, convey and assign to Purchaser, and to confirm Purchaser’s title to, all of the Acquired Assets, and, to the full extent permitted by law, to put Purchaser in actual possession and operating control of the Acquired Assets and to assist Purchaser in exercising all rights with respect thereto, and otherwise to cause Seller to fulfill its obligations under this Agreement.

(b)                   Unless specifically authorized in writing by Purchaser, Seller shall not retain or use any copy of any Transferred Technology or any other Acquired Asset that is capable of being copied, including any software or materials constituting Transferred Technology.

Section 4.6. GST and Provincial Sales Tax

(a)                   The Purchaser and the Subsidiary shall elect jointly pursuant to the provisions of subsection 167 of the Excise Tax Act (Canada) (“ETA”), by completing on or before the Closing Date all prescribed forms and related documents so that for purposes of the ETA, no tax is payable under the ETA in respect of the Acquired Assets.  The Purchaser shall be responsible for filing the prescribed form within the prescribed time.

(b)                   The Subsidiary is registered for GST purposes pursuant to the ETA and its registration number is 89894 4566 RT0001.  The Purchaser is registered (or shall be registered prior to the Closing) for GST purposes pursuant to the ETA.

(c)                   The Purchaser and the Subsidiary acknowledge and agree that the Canadian Seller is selling the Acquired Assets outside the ordinary course of business for purposes of the Retail Sales Tax Act (Ontario), and the similar provisions of any other applicable provincial or territorial taxing statute where the Acquired Business is conducted and the Subsidiary shall, therefore, not collect any Taxes from the Purchaser under such Acts.  Purchaser shall provide the Seller with purchase exemption certificates for the provincial sales tax-exempt assets on or prior to the Closing Date.

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth in the Seller Disclosure Schedule delivered to Purchaser in connection with this Agreement, Seller represents and warrants to Purchaser that the statements contained in this Article V are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date, as if made on that date (except for representations and warranties expressly made only as of a specified date, which shall be true and correct in all respects as of such specified date).  Any disclosure made in the Seller Disclosure Schedule shall qualify other representations and warranties (or sections of representations and warranties) to the extent it is reasonably clear from a reading of the disclosure that such disclosure is applicable to such other representations and warranties (or sections of representations and warranties).

17

Section 5.1. Organization, Good Standing and Qualification.  Seller is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation, as set forth on Section 5.1 of the Seller Disclosure Schedule.  Seller has all full corporate power and authority to conduct its business as presently conducted and to own, use, license and lease its assets and properties.  Seller is duly qualified, licensed or admitted to do business and is in good standing as a foreign corporation in each jurisdiction in which the ownership, use, licensing or leasing of its assets and properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except where the failure to be so qualified, licensed or admitted would not have a Material Adverse Effect.  The Seller Disclosure Schedule sets forth a complete and accurate list of each jurisdiction where Seller is so qualified, licensed or admitted to do business relating to the Acquired Business.  Seller has made available to Purchaser a true and correct copy of the Articles of Organization and Bylaws, or comparable organizational documents, of such Seller, as amended through the date hereof (the “Charter Documents”), and each such instrument is in full force and effect.  Seller is not in violation of any of the provisions of its Charter Documents.  There are no proposed amendments to the Charter Documents.  The operations now being conducted by Seller relating to the Acquired Business have not now and have never been conducted under any other name.

Section 5.2. Corporate Authorization.  Seller has the requisite corporate power and authority to enter into this Agreement and the Ancillary Agreements to which it is a party and to perform its obligations hereunder and thereunder.  The execution and delivery of this Agreement and the Ancillary Agreements to which it is a party, and performance by Seller of its obligations hereunder and thereunder, have been duly authorized by all necessary corporate action on the part of Seller.  This Agreement constitutes, and the Ancillary Agreements to which it is a party, when executed and delivered by Seller, will constitute, valid and binding obligations of Seller, enforceable against the Seller in accordance with its respective terms, except (i) as may be limited by (x) applicable bankruptcy, insolvency, reorganization or others laws of general application relating to or affecting the enforcement of creditors’ rights generally and (y) the effect of rules of law governing the availability of equitable remedies and general principles of equity and (ii) as rights to indemnity or contribution may be limited under federal or state securities laws or by principles of public policy

Section 5.3. Governmental Authorization; Consents.  No material consent, permit, qualification, waiver, approval, order or authorization of, or registration, declaration or filing with any Governmental or Regulatory Authority or any third party, including a party to any agreement with Seller (so as not to trigger a conflict), is required by or with respect to Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

Section 5.4. Noncontravention.  The execution, delivery and performance by Seller of this Agreement and each Ancillary Agreement to which Seller is a party and the consummation of the transactions contemplated hereby and thereby do not and will not (i) violate the Charter Documents of Seller, (ii) assuming compliance with the governmental matters disclosed in Section 5.3, violate in

18

any respect any Applicable Law, rule, regulation, judgment, injunction, order or decree, (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the rights of Seller or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the Acquired Assets pursuant to, any Contract or obligation to which Seller is a party or by which the Acquired Business, Products or the Acquired Assets are bound or affected.

Section 5.5. Seller Financial Statements.

(a)                   The income statements specifically related to the Acquired Business for the fiscal years ended October 30, 2004 and October 29, 2005, fairly present the financial results of Seller for the respective periods indicated; provided, however, that such income statements are based on the combined revenues, expenses, assets and liabilities of Seller relevant to the Acquired Business, have been prepared solely for the purpose of this Agreement and the Acquired Business was not conducted as a standalone entity during such periods.  Such income statements were not necessarily prepared in accordance with generally accepted accounting principles, including with respect to the allocation or estimation of costs, operating expenses, assets and liabilities that were included in the Acquired Business.  Such financial statements are hereinafter collectively referred to as the “Seller Financial Statements.”

(b)                   As of the date hereof, Seller has no Liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured or unmatured relating to the Acquired Business, other than (i) as reflected on the Audited Financial Statements; (ii) as have arisen since the date of the most recent balance sheet contained in the Audited Financial Statements in the Ordinary Course of Business; and (iii) contractual and other liabilities incurred in the ordinary course of business which are not required by GAAP to be reflected on a balance sheet.   The Seller Disclosure Schedule separately identifies as of the date hereof (i) each Liability of Seller relating to the Acquired Business to any Employee, except for ordinary course liabilities to Employees such as accrued salaries, bonus, vacation and other benefits, or as otherwise disclosed under Schedule 5.20, and (ii) each Liability of Seller relating to the Acquired Business greater than $100,000.

(c)                   A true and correct copy of the Seller Financial Statements is attached to the Seller Disclosure Schedule.

(d)                   When delivered as contemplated by Section 8.3(n), the Audited Financial Statements shall be complete and correct in all material respects, will have been prepared in accordance with GAAP on a consistent basis throughout the periods indicated, and will fairly present the financial position of the Acquired Business as of the respective dates and for the respective periods indicated.

19

Section 5.6. Absence of Changes.  Since October 29, 2005, and except as contemplated by this Agreement, Seller has conducted the Acquired Business only in the Ordinary Course of Business and, without limiting the generality of the foregoing:

(a)                   There has been no event or change in the condition (financial or otherwise), net worth, assets, operations, obligations or liabilities of the Acquired Business which, in the aggregate, have had or may be reasonably expected to have a Material Adverse Effect;

(b)                   Seller has not mortgaged, pledged or otherwise encumbered any of the Acquired Assets;

(c)                   Seller has not sold, assigned, licensed, leased, transferred or conveyed, or committed itself to sell, assign, license, lease, transfer or convey, any of the Acquired Assets, other than in the Ordinary Course of Business;

(d)                   There has been no destruction of, damage to or loss of any of the Acquired Assets, ordinary wear and tear excepted;

(e)                   Seller has not accelerated, terminated, modified or cancelled any agreement, contract, lease or license (or series of related agreements, contracts, leases, and licenses) involving the Acquired Business, other than in the Ordinary Course of Business;

(f)                    Seller has not delayed or postponed the payment of material accounts payable and other Liabilities relating to the Acquired Business, other than in the Ordinary Course of Business;

(g)                   Seller has not advanced delivery dates of Products ahead of the customer’s requested delivery dates;

(h)                   Seller has not delayed orders to suppliers relative to usual and customary order dates;

(i)                    Seller has taken all actions reasonably required to maintain, renew, or enforce any Registered Intellectual Property Rights, including submission of required documents or fees during the prosecution of patent, trademark or other applications for Registered Intellectual Property Rights;

(j)                    Seller has not made or agreed to make any transfer (by way of a license or otherwise) to any Person of any right to any Transferred Intellectual Property Rights or Transferred Technology, other than non-exclusive licenses granted in the Ordinary Course of Business through the use of agreements that do not materially deviate from the forms of agreement previously provided to Purchaser;

(k)                   Seller has not cancelled, compromised, waived or released any right or claim (or series of related rights and claims) relating to the Acquired Business;

20

(l)                    Seller has not entered into any capital commitments in relation to any of the Acquired Assets or the Acquired Business;

(m)                  No litigation has been commenced or, to the Knowledge of Seller, threatened and to the Knowledge of Seller, no reasonable basis exists for any litigation, proceeding or investigation against Seller related to the Acquired Assets;

(n)                   To the Knowledge of Seller no litigation has been commenced or threatened against any Continuing Employee related to the Acquired Assets;

(o)                   There has been no written notice of any claim or potential claim of ownership by any Person other than Seller of the Transferred Technology or the Transferred Intellectual Property Rights, or of infringement by the Acquired Business of any other Person’s Intellectual Property Rights;

(p)                   Seller has not received written notice of any claim or potential claim, and to the Knowledge of Seller, no basis exists for any claim that Seller has infringed the Intellectual Property Rights of any person or entity related to the Acquired Business; and

(q)                   There has been no agreement by or on behalf of Seller to do any of the things described in the preceding clauses (a) through (o) (other than negotiations with Purchaser and their representatives regarding the transactions contemplated by this Agreement).

Section 5.7. Legal and Other Compliance.  Seller is in compliance in all material respects with all Applicable Laws that are related to or necessary for the operation of the Acquired Business.  No Action or Proceeding has been filed or commenced or, to the Knowledge of Seller threatened against Seller alleging any failure so to comply, nor, to the Knowledge of Seller is there any reasonable basis therefor.

Section 5.8. Assumed Contracts.  Except with respect to the Licensed Technology or as listed in Schedule 5.8 (the “Excluded Contracts”), the Assumed Contracts listed on Schedule 1.1(h) are all of the Contracts between Seller and any third party related to, or necessary for, the operation of the Acquired Business as currently conducted, and true and complete copies of all such Assumed Contracts have been delivered to Purchaser.  Each Assumed Contract is in full force and effect in accordance with its terms and, to the Knowledge of Seller, no third party to any such Assumed Contract is in material breach, violation or default thereunder.  Seller has neither materially breached, violated or defaulted under, nor received notice that Seller has breached, violated or defaulted under, any of the terms or conditions of any Assumed Contract.  All Contracts between Seller and any third party related to or necessary for the Acquired Business are listed in either Schedule 1.1(h) (Assumed Contracts) or Schedule 5.8 (Excluded Contracts) and complete copies of all such Contracts have been delivered to Purchaser or Purchaser’s counsel.

Section 5.9. Support and Service Contracts.  Schedule 5.9 sets forth a true and complete list of all Contracts pursuant to which Seller is obligated (or will be obligated at Closing) to provide

21

support, service and maintenance to customers of the Acquired Business, together with the amounts of deferred revenue which are associated with the executory support and service obligations under such Contracts (each, a “Deferred Revenue Accrual”).  Each Deferred Revenue Accrual is as reflected in the Books and Records and has been accrued in accordance with GAAP, consistently applied, and each arose in the Ordinary Course of Business.

Section 5.10. No Liquidation, Insolvency, Winding Up.

(a)                   No order has been made or petition presented, or resolution passed for the winding-up or liquidation of Seller and there is not outstanding:

(i)            any petition or order for the winding-up of Seller;

(ii)           any appointment of a receiver over the whole or part of the undertaking of assets of Seller;

(iii)          any petition or order for administration of Seller;

(iv)          any voluntary arrangement between Seller and its creditors;

(v)           any distress or execution or other process levied in respect of Seller which remains undischarged; or

(vi)          any unfulfilled or unsatisfied judgment or court order against Seller.

(b)                   Seller is deemed able to pay its debts within the meaning of Applicable Law.

(c)                   The operations of Seller have not been terminated.

Section 5.11. Restrictions on Business Activities.  Other than (i) the provisions of the following nature provided in the Assumed Contracts, which provisions have not been redacted or (ii) such provisions that are disclosed in the Seller Disclosure Schedule, there is no agreement (noncompetition, field of use, most favored nation or otherwise), commitment, judgment, injunction, order or decree relating to the Acquired Business, Products or Acquired Assets which has or reasonably could be expected to have the effect of prohibiting or impairing Seller from (a) any practice of the Acquired Business, (b) making any acquisition of property (tangible or intangible) in connection with the operation of the Acquired Business or the Acquired Assets, (c) conducting the Acquired Business or (d) prohibiting the transactions contemplated by this Agreement and the Ancillary Agreements.  Other than (i) the provisions of the following nature provided in the Assumed Contracts, which provisions have not been redacted or (ii) such provisions that are disclosed in the Seller Disclosure Schedule, Seller has not entered into any agreement under which the operations of the Acquired Business are restricted or which places any restrictions upon Seller with respect to selling, licensing or otherwise distributing any of the Products or the Transferred

22

Technology to or providing services to, customers or potential customers or any class of customers, in any geographic area, during any period of time or in any segment of the market.

Section 5.12. Title to Properties, Absence of Liens, Condition of Equipment.

(a)                   Neither Seller nor any of its Affiliates owns any real property in connection with the Acquired Business.  Schedule 5.12 sets forth a list of all real property currently leased by Seller or any of its Affiliates in connection with the Acquired Business (the “Leased Real Property”), the name of the lessor, the name of the lessee and the date of the lease and each amendment thereto.  Seller has delivered to Purchaser a true and correct copy of each Facility Lease.  Such leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any material existing default or event of default (or event which with notice or lapse of time, or both, would constitute a material default) by Seller or any of its Affiliates or, to the Knowledge of the Seller, by any other party thereto.  The business operations conducted by the Acquired Business subject to such leases does not materially violate any Applicable Law, building code or zoning requirement or classification relating to the particular property or such operations.  All material approvals of governmental authorities (including licenses and permits) required in connection with the operation of the Acquired Business on such Leased Real Property have been obtained.

(b)                   Seller and its Affiliates have completed any and all registration requirements associated with any Facility Lease and paid all fees associated therewith.  To the Knowledge of the Seller, there are no pending or threatened condemnation or eminent domain actions or proceedings, or any special assessments or other activities of any public or quasi-public body against the Leased Real Property.  Under the present circumstances (prior to the assignment of any Facility Lease in conjunction with this transaction), upon expiration of any Facility Lease that is to be assumed by Purchaser, the Seller or Seller Affiliate that is the tenant under such Facility Lease will not be required to expend more than $10,000 to restore the Leased Real Property.

(c)                   Each of Seller and its Affiliates has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, each Acquired Asset (including without limitation, Transferred Intellectual Property Rights and Transferred Technology) being transferred to Purchaser free and clear of any Liens (including any Liens created as a result of the consummation of the transactions contemplated hereby), other than Permitted Liens.  Other than Permitted Liens, the only Liens encumbering any Acquired Asset are the Liens listed on Schedule 1.1(tt), which Liens shall be removed prior to Closing.  To the Knowledge of Seller, no basis exists for the assertion of any claim which, if adversely determined, would result in a Lien on any Acquired Asset or otherwise adversely affect the Acquired Business, any Product or any Acquired Asset.

(d)                   Schedule 1.1(nnn) lists all Tangible Assets owned or leased by Seller and its Affiliates for use in the Acquired Business, and such Tangible Assets and Equipment are (i) adequate for the conduct of the Acquired Business by Seller as currently conducted and as currently contemplated to be conducted, and (ii) in good operating condition, regularly and properly maintained, subject to normal wear and tear.  Schedule 1.1(nnn) identifies where each Tangible

23

Asset (excluding Products, Equipment, and Web Content) is located and whether such Tangible Assets and Transferred Technology are leased to Seller (and, if so, by which lessor).

(e)                   Seller (itself or through its Affiliates) is in custody and control of all the Acquired Assets being sold and transferred by Seller to Purchaser pursuant to this Agreement and the Ancillary Agreements.

(f)                    Seller and its Affiliates have sole and exclusive ownership, free and clear of any Liens, of all customer lists, customer contact information, customer correspondence and customer licensing and purchasing histories relating to the current, former and reasonably anticipated future customers of the Acquired Business in the possession, custody or control of Seller (the “Customer Information”).  No Person other than Seller possesses any claims or rights with respect to use of the Customer Information.

Section 5.13. Customers and Sales.  Schedule 5.13 contains Seller’s list (for a period covering the three prior fiscal years), of all present and reasonably anticipated customers of the Acquired Business together with summaries of the sales made to each customer, as applicable.

Section 5.14. Intellectual Property.

(a)                   Schedules 1.1(ttt) and 1.1(vvv), listing or describing the Transferred Intellectual Property Rights (excluding Trade Secrets and Copyrights) and the Transferred Technology, respectively, are true, complete and accurate.  Schedule 1.1(bbb) is a true complete and accurate list of all Products developed (including those under development), made, distributed, marketed, supported, sold, leased or licensed in connection with the Acquired Business, in the five (5) years prior to Closing.

(b)                   Schedule 1.1(ggg) lists of all Registered Intellectual Property Rights that is an Acquired Asset.  All such Registered Intellectual Property Rights are currently in compliance with formal legal requirements (including payment of filing, examination and maintenance fees and proofs of use), and are not subject to any unpaid maintenance fees or taxes or actions falling due within 90 days after the Closing Date, and all such Registered Intellectual Property Rights that are not applications are to Seller’s Knowledge valid, subsisting and enforceable (excluding applications).  All such Registered Intellectual Property Rights have been filed in Seller’s name or have been assigned to Seller and such assignments have been properly recorded prior to the Closing Date.  There are no proceedings or actions before any court or tribunal (including the PTO or equivalent authority anywhere in the world) related to any of the Transferred Intellectual Property Rights.

(c)                   Seller owns exclusively, and has good and marketable title to all works of authorship and all associated copyrights that are Transferred Intellectual Property Rights and Licensed Intellectual Property Rights owned by Seller.  All Acquired Assets shall be fully transferable and alienable by Purchaser and all Licensed Intellectual Property Rights shall be licensable, subject to the terms of the Licensing Agreement.

24

(d)                   To the extent that any Licensed Intellectual Property Rights owned by Seller, Transferred Intellectual Property Rights or item of Transferred Technology was originally owned or created by or for any third party, including any contractor or employee of Seller and any predecessor of Seller: (i) Seller has a written agreement with such third party or parties with respect thereto, pursuant to which Seller has obtained irrevocable, complete, unencumbered and unrestricted ownership and is the exclusive owner of, all such Technology and Intellectual Property Rights by valid assignment or otherwise and has requested the waiver of all non-assignable rights, including but not limited to all moral rights; (ii) the transfers and/or licenses from Seller to Purchaser hereunder do not violate such third party agreements; (iii) such third parties have not retained and do not have any rights or licenses with respect to the Licensed Intellectual Property Rights owned by Seller, Transferred Intellectual Property Rights or Transferred Technology; and (iv) no basis exists for such third party to challenge or object to this Agreement.

(e)                   Seller has the full and unencumbered right to assign and transfer to Purchaser all of Seller’s rights in and under the Assumed Contracts that provide Intellectual Property Rights without incurring, or causing Purchaser to incur, any obligation to any third party, including any royalty obligations not set forth in the Assumed Contracts.

(f)                    No third party who has licensed or transferred any Intellectual Property Rights that are Transferred Intellectual Property Rights or Licensed Intellectual Property Rights to Seller has ownership rights or license rights to improvements, enhancements or derivative works made by Seller, its licensees or assignees in such Intellectual Property.

(g)                   Except for non-exclusive rights granted in connection with the sale of products to customers in the ordinary course of business, Seller has not transferred ownership of, or granted any license of or right to use, or authorized the retention of any rights to use, or joint ownership of, any Transferred Intellectual Property Right to any other Person.

(h)                   The Transferred Intellectual Property Rights and Licensed Intellectual Property Rights constitute all of the Intellectual Property Rights that are not Patents and Trademarks related to, used in, necessary to, or that would be infringed by, the current conduct of the Acquired Business (and as conducted in substantially the same manner following Closing) and the design, development, reproduction, distribution, marketing, manufacture, use, import, license and sale (“Use”) of Products, including Products or services currently under development.  To the Seller’s Knowledge, the Transferred Intellectual Property Rights and Licensed Intellectual Property Rights constitute all of the Patents related to, used in, necessary to, or that would be infringed by, the current conduct of the Acquired Business (and as conducted in substantially the same manner following Closing) and the Use of Products, including Products or services currently under development.  The Licensed Patents and Transferred Patents constitute all of the Patents Controlled by Seller that would be infringed by or are used in the current conduct of the Acquired Business (and as conducted in substantially the same manner following Closing) including the Use of Products, including Products or services currently under development.

25

(i)                    The Transferred Technology constitutes all of the Technology (other than Patents and Trademarks (and with respect to Patents and Trademarks, to Seller’s Knowledge all such Patents and Trademarks)) related to, used in or necessary to the operation of the Acquired Business, as it currently is conducted (and as conducted in substantially the same manner following Closing), including, without limitation, Use of Products and services (including Products or services currently under development).

(j)                    No government funding, facilities of a university, college, other educational institution or research center or funding from third parties was used in the development of the Transferred Intellectual Property or Transferred Technology, and no governmental entity, university, college, other educational institution or research center has any claim or right or to the Transferred Intellectual Property or Transferred Technology.  No current or former employee, consultant or independent contractor of Seller, who was involved in, or who contributed to, the creation or development of any Transferred Intellectual Property or Transferred Technology, has performed services for the government, a university, college, or other educational institution, or a research center, during a period of time during which such employee, consultant or independent contractor was also performing services for Seller.

(k)                   Seller has, and as a result of the transactions contemplated hereby, Purchaser will have, the right to use, pursuant to valid licenses, all Development Tools that are material to the Acquired Business or that are used in the Acquired Business, including the creation, modification, compilation, operation or support of Products and other Transferred Technology.

(l)                    Schedule 1.1(rrr) lists all Third Party Technology that was, or is, used in, incorporated into, integrated or bundled with, any Technology that is or was Transferred Technology or Product and the related Third Party Technology Contracts.

(m)                  Schedule 5.14(m) lists all material contracts, licenses or agreements to which Seller is a Party with respect to any Transferred Technology or the Transferred Intellectual Property Rights (the “IP Contracts”).  Seller is not in breach of nor has Seller failed to perform under, and, to Seller’s knowledge, no other party to any of the IP Contracts is in breach thereof or has failed to perform thereunder.

(n)                   Neither (i) the operation of the Acquired Business as currently conducted, including the Use of the Products, by either Seller or, following the Closing, by Purchaser, nor (ii) the Acquired Assets (including the Transferred Technology) do or will: (A) infringe or misappropriate the Intellectual Property Rights that are not Patents and Trademarks of any Person; (B) violate the rights of any Person (including rights to privacy or publicity); or (C) constitute unfair competition or trade practices under the laws of any jurisdiction.  To Seller’s Knowledge, neither (i) the operation of the Acquired Business as currently conducted, including the Use of the Products, by either Seller or, following the Closing, by Purchaser, nor (ii) the Acquired Assets (including the Transferred Technology) do or will infringe or misappropriate any Patent and Trademark of any Person.  Seller has not received notice from any Person claiming that the operation of the Acquired Business or Use of any Product or Acquired Asset (including Products, Transferred Technology or

26

services currently under development) infringe or misappropriate the Intellectual Property Rights of any Person or constitute unfair competition or trade practices under the laws of any jurisdiction (nor does Seller have knowledge of any basis therefor).

(o)                   No licenses to Intellectual Property Rights that are not Patents and Trademarks or other consents are required from any third party to permit Purchaser to operate the Acquired Business or to fully exploit the Acquired Assets.  To Seller’s Knowledge no licenses to Patents and Trademarks are required from any third party to permit Purchaser to operate the Acquired Business or to fully exploit the Acquired Assets.

(p)                   There are no Contracts between Seller and any other Person with respect to the Acquired Business or the Acquired Assets, including the Transferred Intellectual Property, under which there is any dispute (or to the Knowledge of Seller any threatened dispute) regarding the scope of such Contract or performance under such Contract.

(q)                   Seller does not have any currently pending claim against any third party for infringing or misappropriating any Transferred Intellectual Property Rights and, to the Knowledge of and Seller, no Person is infringing or misappropriating the Transferred Intellectual Property Rights.

(r)                    Seller does not have any knowledge of any facts or circumstances that would render any of the Transferred Intellectual Property Rights invalid or unenforceable.

(s)                   Seller has taken all reasonable steps that are required to protect Seller’s rights in confidential information and trade secrets of Seller associated with or related to the Acquired Business, the Products or the Acquired Assets.

(t)                    Except for nonexclusive written licenses granted to customers in the ordinary course of business to the software identified on Schedule 5.14(t), no third party possesses any copy of any Source Code to any Software that is Transferred Technology (including any Product) and Seller shall have delivered to Purchaser all copies, and Seller shall not have retained any copy, of any Source Code to any Software that is Transferred Technology.

(u)                   Seller has and enforces a policy requiring each employee and consultant of Seller to execute a proprietary rights and confidentiality agreement substantially in the form provided to the Purchaser and all current and former employees and consultants of Seller who have created or modified any of the Transferred Intellectual Property Rights or Transferred Technology have executed such an agreement assigning all of such employees’ and consultants’ rights in and to the Transferred Technology and the Transferred Intellectual Property Rights to Seller.  No Person has the legal right to assert moral rights and similar rights of attribution with respect to any use, modification or distribution of any Transferred Intellectual Property Rights or Transferred Technology.

(v)                   The assignment to Purchaser of any Assumed Contracts will not result in: (i) Purchaser granting to any third party any right to or with respect to any Technology or

27

Intellectual Property Right owned by, or licensed to, Purchaser (other than the Transferred Intellectual Property Rights or Transferred Technology); (ii) Purchaser being bound by, or subject to, any non-compete or other restriction on the operation or scope of its businesses; (iii) Purchaser being obligated to pay any royalties or other amounts to any third party in excess of those payable by Seller prior to the Closing; or (iv) conflict with or breach of any Assumed Contract.  Notwithstanding the foregoing, Seller makes no representation regarding any agreement or Contract to which Seller was not or is not a party.

(w)                  Seller has disclosed in writing to Purchaser all information relating to any material problem or issue with respect to any of the Products (or any other product, Technology or service of Seller).  Without limiting the foregoing, there have been, and are, no claims asserted against Seller related to the Products.

(x)                    Schedule 5.14(x) sets forth all Intellectual Property Rights and Technology of a third party or in the public domain, including “free software”, “open source software” or under a similar licensing or distribution model (including but not limited to the GNU General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community Source License (SCSL) the Sun Industry Standards License (SISL) and the Apache License) (“Open Source Materials”), that was used in, incorporated into, integrated or bundled with any item of Products, Transferred Intellectual Property Rights or Transferred Technology that is, or was, used in the Acquired Business, or incorporated in or used in the development or compilation of any Products, Transferred Intellectual Property Rights or Transferred Technology; and (2) describes the manner in which such Open Source Materials were used (such description shall include, without limitation, whether (and, if so, how) the Open Source Materials were modified and/or distributed by (or on behalf of) Seller) and how such materials are combined or connected with any non Open Source Materials hat are Transferred Intellectual Property Rights.

Section 5.15. Litigation.  There is no Action or Proceeding specifically naming the Seller pending or, to the Knowledge of the Seller, threatened against, relating to or affecting directly the Acquired Business, any Product, any Acquired Asset or any Continuing Employee, or that questions the validity of this Agreement or of any action taken or to be taken pursuant to or in connection with this Agreement.  To the Knowledge of the Seller, there is no reasonable basis for any such Action or Proceeding.  There are no judgments, orders, decrees, citations, fines or penalties (including without limitation any that would restrict in any manner the use, transfer or licensing or may affect the validity, use or enforceability of the Acquired Assets or Licensed Intellectual Property Rights) heretofore assessed against Seller relating to the Acquired Business, any Product, any Acquired Asset or any Continuing Employee under any federal, state, local or foreign law.  No Governmental or Regulatory Authority has at any time challenged or questioned in writing, or to the Knowledge of Seller, otherwise challenged or questioned, the legal right of Seller to conduct the Acquired Business as currently conducted and as proposed to be conducted, including the right to manufacture, offer or sell any Product.

28

Section 5.16. Tax Matters.

(a)                   To the extent relevant to the Acquired Assets, the Products or the Acquired Business, as of the Closing Date, Seller will have prepared and timely filed all Tax Returns relating to any and all Taxes concerning or attributable to Seller or its operations and such Tax Returns are true and correct and have been completed in accordance with Applicable Law.

(b)                   To the extent failure to do so could adversely impact Purchaser, the Acquired Business, the Products, the Acquired Assets or Purchaser’s use or ownership of the Acquired Assets or operation of the Acquired Business, as of the Closing Date, Seller (i) will have timely paid all Taxes it is required to pay and (ii) will have timely withheld or paid (as the case may be) with respect to its employees all federal, state and foreign income taxes and social security charges and similar fees, Federal Insurance Contribution Act, Federal Unemployment Tax Act and other Taxes required to be withheld or paid.

(c)                   To the extent failure to do so could adversely impact Purchaser, the Acquired Business, the Products, the Acquired Assets or Purchaser’s use or ownership of the Acquired Assets or operation of the Acquired Business, as of the Closing Date, Seller will not be delinquent in the payment of any Tax, nor will there be any Tax deficiency outstanding, assessed or proposed against Seller, nor has Seller executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax.

(d)                   No audit or other examination of any Tax Return of Seller is presently in progress, nor has Seller been notified of any request for such an audit or other examination.

(e)                   Seller has no, and knows no, factual basis for the assertion of any claim for any liabilities for unpaid Taxes of Seller for which Purchaser would become liable as a result of the transactions contemplated by this Agreement or that would result in any Lien on any of the Acquired Assets.

(f)                    There are (and immediately following the Closing there will be) no Liens on the Acquired Assets relating to or attributable to Taxes that the Seller is required to pay, collect, remit or withhold and there are no judgments against the Seller for or with respect to any Taxes arising out of the operation of the Acquired Business.

(g)                   The Subsidiary is a resident of Canada within the meaning of the ITA.

(h)                   Except for the Subsidiary, no other Seller (i) carried on any business in Canada; (ii) owns any taxable Canadian property as that term is defined in the ITA; and (iii) will be selling any of the Acquired Assets to the Purchaser herein in Canada.

Section 5.17. Powers of Attorney.  There are no outstanding powers of attorney executed on behalf of Seller in respect of the Acquired Business, the Products or Acquired Assets, except as granted to Purchaser hereunder.

29

Section 5.18. Environmental Matters.

(a)                   Definitions:  For purposes of this Agreement, the following terms shall have the meanings ascribed to them below:

(i)            “Hazardous Substances Activity” is the transportation, transfer, recycling, storage, use, treatment, manufacture, removal, remediation, release, sale, or distribution of any Hazardous Substance or any product or waste containing a Hazardous Substance, including, without limitation, any required labeling or payment of waste fees or charges (including so-called e-waste fees).

(b)                   To the Knowledge of the Seller, as of the Closing, except in compliance with applicable Environmental Laws, no Hazardous Substances are present on any Business Facility currently owned, operated, occupied, controlled or leased by the Seller or any of its Affiliates for the Acquired Business or were present on any other Business Facility at the time it ceased to be owned, operated, occupied, controlled or leased by the Seller or any of its Affiliates for the Acquired Business.

(c)                   The Seller and its Affiliates have conducted all Hazardous Substance Activities relating to the Acquired Business in compliance in all material respects with all applicable Environmental Laws.  To the Knowledge of Seller, no claims have been asserted against Seller or its Affiliates resulting from exposure of any person to a Hazardous Substance resulting from the Hazardous Substances Activities of the Seller or any of its Affiliates with respect to the Acquired Business.

(d)                   Schedule 5.18(d) accurately describes all of the permits required under any Environmental Laws (“Environmental Permits”) currently held by the Seller and its Affiliates relating to the Acquired Business and the listed Environmental Permits are all of the Environmental Permits necessary for the continued conduct of any Hazardous Substance Activity of the Seller and its Affiliates relating to the Acquired Business as such activities are currently being conducted.  All such Environmental Permits are valid and in full force and effect.  The Seller and its Affiliates have complied in all material respects with all covenants and conditions of any Environmental Permit which is or has been in force with respect to its Hazardous Substances Activities.

(e)                   Schedule 5.18(e) identifies which of Seller’s products are manufactured in a lead (Pb)-free version (containing less than the threshold amounts of hazardous substances regulated by the European Directive 2002/95/EC restriction on the use of certain hazardous materials, as amended) and provides material content declarations for each product currently available.

(f)                    The Seller has delivered to Purchaser or made available for inspection by Purchaser and its agents, representatives and employees all documents in the Seller’s or any Affiliate’s possession concerning the Hazardous Substances Activities of the Seller relating to its Acquired Business and all environmental audits and environmental assessments of any Business Facility at which the Acquired Business is conducted at the request of, or otherwise in the possession of Seller or any of its Affiliates.

30

Section 5.19. Brokers’ and Finders’ Fees.  Except as set forth in the Seller Disclosure Schedules, Seller has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby.

Section 5.20. Employee Matters.

(a)                   Continuing Employees of Acquired Business.

(i)            Schedule 5.20(a) contains a complete and accurate list as of January 10, 2006 of Employees, showing for each such Employee: (i) name, position held, annualized base salary, target incentive compensation and equity compensation to each such individual, or any person connected with any such individual, and includes, if any, the total bonus payments in calendar 2005, (ii) the date of hire, (iii) leave status (including type of leave, expected return date for non-disability related leaves and expiration dates for disability leaves, if any), (iv) visa status, and (vi) the name of any union, collective bargaining agreement or other similar labor agreement covering such Employee, and a list of contractors, showing for each such contractor, (i) name, (ii) location, (iii) role, for contractors in Canada, or designation and group for contractors in India, (iv) compensation, (v) contract start date and where applicable, end date, and (vi) in India, the identity of the third party agency providing such contractors and its related fee.

(b)                   Employee Plans.

(i)            Definitions.  The following terms, when used in this Section 5.20(b), shall have the following meanings:

(1)           “International Employee Plan” shall mean each Benefit Plan that has been adopted or maintained by Seller or an ERISA Affiliate, whether informally or formally, or with respect to which Seller or any ERISA Affiliate will or may have any liability, for the benefit of any Non-U.S. Employees.

(2)           “Multiemployer Plan” means any Pension Plan which is a “multiemployer plan,” as defined in Section 3(37) of ERISA.

(3)           “Pension Plan” shall mean each Benefit Plan which is an “employee pension benefit plan,” within the meaning of Section 3(2) of ERISA.

(ii)           Pension and Benefit Plans.

(1)           Neither Seller nor any ERISA Affiliate has, in the last five (5) years, maintained, established, sponsored, participated in, contributed to, or had or could have any obligation to, any (A) Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code, or (B) Multiemployer Plan.

31

(2)           Schedule 5.20(b)(ii)(2) contains a complete list of all Benefit Plans (including International Employee Plans), (a) for which Employees are eligible, (b) that currently provide benefits to Employees, or (c) that have provided, benefits to Employees for which the Seller or an ERISA Affiliate has outstanding liabilities with respect to such Employees.  Seller and, as applicable, its ERISA Affiliates, are in material compliance with the terms of, and all Applicable Laws for, each Benefit Plan intended to include a Code Section 401(k) arrangement including, but not limited to, ERISA and the Code.

(c)                   Labor.  No work stoppage or labor strike against Seller or any ERISA Affiliate is pending, threatened or reasonably anticipated with respect to the Acquired Business.  Seller does not know of any activities or proceedings of any labor union to organize any current Employees (including Continuing Employees).  Seller is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to Employees (including Continuing Employees) and no collective bargaining agreement is being negotiated with respect to Employees (including Continuing Employees).

Section 5.21. Warranties; Defects; Liabilities.  Each Product manufactured, sold, licensed, leased or delivered by Seller, and all services performed by Seller, have been in conformity with all applicable contractual commitments and all express and implied warranties except where the failure to be in such conformity would not have a Material Adverse Effect.  Except as disclosed in Schedule 5.21, there is no pending or, to Seller’s knowledge, threatened action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against Seller for replacement or repair thereof or other damages in connection therewith with respect to any Product.  No Product manufactured, sold, licensed, leased, or delivered by Seller, and no service performed by Seller, is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale, license or lease or beyond that implied or imposed by Applicable Law.  Schedule 5.21 includes copies of the standard terms and conditions of license or services for Seller used in the Acquired Business.

Section 5.22. Books and Records.  The Books and Records (a) are accurate in all material respects, (b) have been maintained in accordance with Applicable Laws and with generally accepted practices and standards in the jurisdiction(s) in which Seller operates and (c) are in Seller’s possession or under its control.

Section 5.23. Acquired or Licensed Assets.  Other than as set forth in the Transition Services Agreement, the Acquired Assets and the Licensed Intellectual Property Rights comprise all of the assets, properties and rights of every type and description (other than real property) used or developed by Seller or are sufficient for the conduct of the Acquired Business (and as conducted in substantially the same manner following Closing) by Seller and its Affiliates.  The Acquired Assets include all assets that are reflected in the Books and Records as assets of the Acquired Business.

Section 5.24. Affiliate Transactions.  No director or officer of Seller (a) owns, directly or indirectly, on an individual or joint basis (i) any interest in any Acquired Asset or (ii) any interest (other than a passive investment in less than five percent (5%) of the outstanding voting securities of

32

a company that is required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended) in any Person that is a supplier, customer or competitor of the Acquired Business, (b) serves as an officer, director or employee of any person that is a supplier, customer or competitor of the Acquired Business where such relationship would be required to be disclosed pursuant to Regulation S-K, Item 404 promulgated under the Securities Exchange Act of 1934, as amended or (c) has received any loan from or is otherwise a debtor of or has made any loan to or is otherwise a creditor of Seller where such loan is secured by any of the Acquired Assets.

ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Except as set forth in the Purchaser Disclosure Schedule delivered to Seller in connection with this Agreement, Purchaser represents and warrants to Seller as of the date of this Agreement and as of the Closing Date that:

Section 6.1. Organization, Qualification and Corporate Power.  The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  The Purchaser is duly qualified to conduct business and is in corporate and tax good standing in the State of California and under the laws of each other jurisdiction in which the nature of its businesses or the ownership or leasing of its properties requires such qualification, except where the failure to be so qualified or in good standing would not have a Purchaser Material Adverse Effect.  The Purchaser has all requisite corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it.  The Purchaser has furnished or made available to the Seller complete and accurate copies of its Certificate of Incorporation and By-laws.

Section 6.2. Authorization of Transaction.  The Purchaser has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder.  The execution and delivery by the Purchaser of this Agreement and the consummation by the Purchaser of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Purchaser.  This Agreement has been duly and validly executed and delivered by the Purchaser and constitutes a valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms.

Section 6.3. Noncontravention.  Neither the execution and delivery by the Purchaser of this Agreement, nor the consummation by the Purchaser of the transactions contemplated hereby, will (a) conflict with or violate any provision of the charter or By-laws of the Purchaser, (b) require on the part of the Purchaser any filing with, or permit, authorization, consent or approval of, any Governmental or Regulatory Authority, (c) conflict with, result in breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party any right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument to which the Purchaser is a party or by which it is bound or

33

to which any of its assets are subject, or (d) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Purchaser or any of its properties or assets.

ARTICLE VII
COVENANTS OF SELLER AND PURCHASER

Section 7.1. Access Pending the Closing.  During the period commencing on the date of this Agreement and continuing through the Closing Date, Seller will (i) afford to Purchaser and its representatives, at all reasonable times during normal business hours, full and complete access to the Employees, and to Seller’s properties, contracts, Books and Records and other documents and data (including access to all Source Code related to the Products) related to the Acquired Business, (ii) furnish Purchaser and its representatives with copies of all such Contracts, Books and Records, and other existing documents and data related to the Acquired Business as Purchaser may reasonably request, and (iii) furnish Purchaser and its representatives with such additional financial (including Tax Returns and supporting documentation), operating, and other data and information as Purchaser may reasonably request, in each case relating to the Acquired Business.  No information or knowledge obtained in any investigation pursuant to this Section 7.1 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties hereto to consummate the transactions contemplated hereby.

Section 7.2. Operation of the Acquired Business by Seller.  Between the date of this Agreement and the Closing Date, unless otherwise agreed in writing by Purchaser, Seller will:

(a)                   except as otherwise allowed or required pursuant to the terms of this Agreement, conduct the Acquired Business in the Ordinary Course of Business;

(b)                   pay the Liabilities of the Acquired Business when due;

(c)                   pay or perform other obligations of the Acquired Business when due;

(d)                   use commercially reasonable efforts to preserve intact the current business organization of Seller relating to the Acquired Business, keep available the services of the Employees (including providing reasonable cooperation to Purchaser in its efforts to hire the Employees upon the closing), and maintain the relations and goodwill with the suppliers, customers, distributors, licensors, licensees, landlords, trade creditors, employees, agents and others having business relationships with Seller relating to the Acquired Business, with the goal of preserving unimpaired the goodwill and ongoing business of the Acquired Business as of the Closing;

(e)                   confer with Purchaser concerning business or operational matters relating to the Acquired Business of a material nature;

(f)                    use commercially reasonable efforts to maintain all of the Acquired Assets in their current condition, ordinary wear and tear excepted;

34

(g)                   maintain in full force all insurance policies currently in effect with respect to the Acquired Business, including any health and welfare renewals;

(h)                   maintain the Books and Records in the usual, regular and ordinary manner, on a basis consistent with past practices;

(i)                    refrain from requesting or inducing any customer to advance delivery dates ahead of usual and customary shipment dates; and

(j)                    refrain from delaying placement of orders to suppliers and delaying receipt of delivery of such orders of the Acquired Business relative to usual and customary ordering practices.

Section 7.3. Conduct Prior to Closing.  Except as otherwise expressly permitted by this Agreement, between the date of this Agreement and the Closing Date, Seller will not without the prior written consent of Purchaser, to the extent related to the Acquired Business:

(a)                   take any action to impair, encumber or create a Lien (other than Permitted Liens) against the Acquired Assets;

(b)                   other than for Contracts entered into in the Ordinary Course of Business, buy, or enter into any inbound license agreement with respect to, Third Party Technology or the Intellectual Property Rights of any third party to be incorporated in or used in connection with the Acquired Business or sell, lease or otherwise transfer or dispose of, or enter into any outbound license agreement with respect to, any of the Acquired Assets with any third party;

(c)                   other than for Contracts entered into in the Ordinary Course of Business, enter into any Contract relating to (i) the sale or distribution of any Product, (ii) the provision of any services or (iii) any of the Acquired Assets;

(d)                   change pricing or royalties charged to customers or licensees of the Acquired Business if such changes would require approval at a the level of product line manager or greater;

(e)                   enter into any strategic arrangement or relationship, joint venture, development or joint marketing arrangement or agreement relating to the Acquired Business;

(f)                    amend or modify, or violate the terms of, any of the Assumed Contracts;

(g)                   revalue any of the Acquired Assets, including, without limitation, any writing down of the value of inventory or writing off of notes or accounts receivable, other than in the Ordinary Course of Business and in a manner consistent with past practice;

(h)                   to the extent that doing so would adversely impact the Acquired Business in the hands of Purchaser, the Products and the Acquired Assets , make or change any election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the

35

limitation period applicable to any claim or assessment in respect of Taxes, in each case relating to the Acquired Business, the Products and the Acquired Assets;

(i)                    commence or settle any Actions or Proceedings or obtain any releases of threatened Actions or Proceedings involving or relating to the Acquired Business;

(j)                    take any action, or fail to take any action, which would intentionally result in any of the representations and warranties set forth in Article V not being true and correct in all material respect on and as of the Closing Date with the same force and effect as if such representations and warranties had been made on and as of the Closing Date;

(k)                   file a petition in bankruptcy, make an assignment for the benefit of creditors or file a petition seeking reorganization or arrangement or other action under federal or state bankruptcy laws; or

(l)                    take, or agree in writing or otherwise to take, any of the actions described in Section 7.3(a) through (k) above, or any other action that would prevent Seller from performing or cause Seller not to perform its covenants hereunder.

Section 7.4. Confidentiality.  Each of the parties hereto hereby agrees that the information obtained in any investigation pursuant to Section 7.1 hereof, or pursuant to the negotiation and execution of this Agreement or the effectuation of the transactions contemplated hereby, shall be governed by the terms of the Nondisclosure Agreement between Purchaser and Seller effective November 9, 2005 (the “Nondisclosure Agreement”).

Section 7.5. No Solicitation.

(a)                   From and after the date of this Agreement until the earlier to occur of the Closing or termination of this Agreement pursuant to its terms, Seller will not, and Seller will cause its respective Affiliates, shareholders, directors, officers, employees, investment bankers, attorneys, agents and representatives not to, directly or indirectly (a) solicit, entertain, negotiate, encourage, enter into or consummate any Acquisition Proposal (as defined herein) by any person, entity, or group (other than Purchaser and its Affiliates, agents and representatives) or (b) share information concerning the Acquired Business or any material part of the Acquired Business, or afford access to the properties, Books or Records of Seller relating to the Acquired Business, or otherwise assist or facilitate, or enter into any agreement or understanding with, any person, entity or group (other than Purchaser and its Affiliates, agents, and representatives) in connection with any Acquisition Proposal.  For purposes of this Agreement, an “Acquisition Proposal” means any proposal or offer relating to any merger, consolidation, sale or license of substantial assets or similar transactions involving the Acquired Business (other than sales or licenses of assets or inventory in the Ordinary Course of Business or as permitted by this Agreement).  Seller will immediately cease any and all existing activities, discussions, or negotiations with any parties conducted heretofore with respect to any of the foregoing.  Seller will promptly (A) notify Purchaser if it receives any proposal or written inquiry or written request for information in connection with an Acquisition Proposal or potential

36

Acquisition Proposal and (B) notify Purchaser of the terms and conditions of any such Acquisition Proposal including the identity of the party making an Acquisition Proposal.  In addition, from and after the date of this Agreement, until the earlier to occur of the Closing Date or termination of this Agreement pursuant to its terms, Seller will not, and Seller will cause its respective Affiliates, shareholders, directors, officers, employees, investment bankers, attorneys, agents and representatives not to, directly or indirectly, make or authorize any public statement, recommendation or solicitation in support of any Acquisition Proposal made by any person, entity or group (other than Purchaser).

(b)                   For a period of eighteen (18) months after the Closing Date, each party to this Agreement shall not, either alone or in conjunction with any other individual or entity, or directly or indirectly through its present or future Affiliates, (i) solicit or attempt to induce any Restricted Employee to terminate his or her employment or other service relationship with the other party or any Affiliate of the other party, or (ii) hire or attempt to hire any Restricted Employee or enter into or attempt to enter into any relationship, whether directly or indirectly, with the Restricted Employee in which the Restricted Employee will provide personal services; provided, that this clause (ii) shall not apply to any individual whose employment or other relationship with the other party or any Affiliate of the other party has been terminated for a period of six months or longer.  For purposes hereof, “Restricted Employee” means, with respect to the restriction on a party to this Agreement in this paragraph: any individual who (i) was an employee of the other party or any of their respective Affiliates on either the date of this Agreement or the Closing Date, other than an Employee, or (ii) provided personal services to the other party or any of their respective Affiliates, directly or indirectly, on either the date of this Agreement or the Closing Date, other than Employees.

Section 7.6. Notification of Certain Matters.  Seller shall give prompt notice to Purchaser of (a) the occurrence or non-occurrence of any event known to it that in its reasonable judgment is likely to cause any representation or warranty of Seller contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing, and (b) any failure of Seller to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 7.6 shall not (i) limit or otherwise affect any remedies available to the party receiving such notice or (ii) constitute an acknowledgment or admission of a breach of this Agreement.  No disclosure by Seller pursuant to this Section 7.6, however, shall be deemed to amend or supplement the Disclosure Schedule or prevent or cure any misrepresentations, breach of warranty or breach of covenant.

Section 7.7. Public Disclosure.  Neither party will issue any press release or make any other public announcement relating to the transactions contemplated by this Agreement without the prior consent of the other party, not to be unreasonably withheld, except that either party may make any disclosure required to be made under the securities laws and the rules and regulations of the Nasdaq Stock Market or the New York Stock Exchange, as the case may be.

Section 7.8. Consents.  Seller shall use its commercially reasonable efforts to obtain the consents, waivers and approvals under any of the Assumed Contracts or under any contractual restrictions relating to the Tangible Assets and Transferred Technology that are necessary to permit

37

the transfer of such Assumed Contracts or Tangible Assets to Purchaser as may be required in connection with this Agreement; provided that no payment shall be required to be made in connection therewith.  Purchaser shall reasonably cooperate in Seller’s efforts to obtain such consents, waivers and approvals.

Section 7.9. Applicable Laws.  Each of Purchaser and Seller will take all reasonable actions necessary to comply promptly with all Applicable Laws which may be imposed on such party with respect to this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby and will promptly cooperate with and furnish information to any other party hereto in connection with any such requirements imposed upon such other party in connection herewith or therewith.  Each party will take all reasonable actions to obtain (and will cooperate with the other parties in obtaining) any consent, authorization, order or approval of, or any registration, declaration, or filing with, or an exemption by, any Governmental or Regulatory Authority, or other third party, required to be obtained or made by such party or its Subsidiary in connection with this Agreement and the Ancillary Agreements and consummating the transactions contemplated hereby and thereby or the taking of any action contemplated by this Agreement or the Ancillary Agreements.

Section 7.10. Updated Schedules.  On the close of business that is two business days prior to the Closing Date, Seller will cause the Seller Disclosure Schedule to be updated to reflect the then-current circumstances and any resulting additions, deletions or modifications to the Schedules set forth herein since the date of this Agreement (the “Updated Schedules”); provided, however, that the delivery of any such updates pursuant to this Section 7.10 shall not affect the accuracy of such representations and warranties made by Seller under this Agreement as of the date hereof.  Such additions, deletions or modifications to the Seller Disclosure Schedule set forth herein shall be separately transmitted by facsimile to Purchaser and its counsel on such date and to the extent practicable shall be clearly marked to indicate the changes made to the then existing Seller Disclosure Schedule.

Section 7.11. Seller Closing Financial Statements.

(a)                   The Seller shall use commercially reasonable efforts to cause the Audited Financial Statements to be delivered to the Purchaser as promptly as practicable.

Section 7.12. Covenants Regarding Continuing Employees.

(a)           Continuing Employees.  On the Closing Date, Employees who accept employment with Purchaser will be considered to have resigned from their employment with Seller and Purchaser shall thereafter employ all such Continuing Employees on terms and conditions no less favorable than those provided to similarly situated employees of Purchaser.  Notwithstanding the foregoing, the Employees shall be offered such employment positions, base salary and grants by Purchaser of such number of restricted stock units, to be settled in shares of Purchaser common stock with no cash consideration to be paid by Employees for such shares, as set forth in a schedule previously provided and consented to by the Seller prior to the signing of this Agreement. Additionally and notwithstanding the foregoing, nothing in this Section 7.12(a) is intended to limit Purchaser’s ability

38

and discretion, at any time on and after the Closing Date, to change or amend the base salary of Continuing Employees or any other terms of employment of any of the Continuing Employees or adopt, change or amend any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation or employee benefits, including without limitation severance, termination pay, deferred compensation, performance awards, stock-related awards, or fringe benefits.  After the date of this Agreement, Seller shall permit Purchaser to review employee files (to the extent not in violation of Applicable Law), compensation data, and job information for the Employees.  After the date of this Agreement, Seller shall promptly provide Purchaser with copies of the employment files of all Employees and shall promptly provide any additional information about such Employees upon Purchaser’s reasonable request (in each case to the extent not in violation of Applicable Law).  After the date of this Agreement, Seller shall permit Purchaser to contact and meet with all Employees at Seller’s premises during normal business hours, and Seller shall cooperate fully with Purchaser in all such respects.  After the date of this Agreement, if Purchaser believes there is an employee of Seller dedicated to the Acquired Business who was not previously identified, then Seller may, in its reasonable discretion, permit Purchaser to offer employment to such individual subject to the terms applicable hereunder to an Employee.  Purchaser shall be responsible for any liability arising out of its decision to hire or retain, or not hire or not retain, any Employee or contractor (in each case excluding any severance obligations, other than as set forth in Section 7.12(f)(ii), on account of Seller’s termination of such Employee or contractor).

(b)           Employment Offers to U.S. Employees.  Prior to Closing, Purchaser shall make offers of “at-will” employment effective as of the Closing Date to certain U.S. Employees.  Any such “at-will” employment offers will (a) be contingent on Closing; (b) be subject to and in compliance with Purchaser’s standard human resources policies and procedures, including requirements for proof evidencing a legal right to work in the offeree’s country of current employment; and (c) have terms which will be determined by Purchaser in its sole discretion, subject to Section 7.12(a).  Except as limited by Section 7.12(c), the terms of a U.S. Employee’s employment with Purchaser shall be governed solely by any such employment agreement or arrangement entered into by and between Purchaser and the U.S. Employee, and Purchaser shall have no obligation to perform under or liability to the U.S. Employee with respect to any Employment Agreements entered into by and between Seller and the U.S. Employee that are in effect prior to the Closing Date, except with respect to obligations assumed under Section 7.12(h).

(c)           Waiver.  Seller hereby agrees to waive, but only with respect to their hiring or employment in connection with the Acquired Business, any condition or restriction that Seller may have the contractual right to impose on the hiring and employment of Employees by Purchaser.  Notwithstanding the foregoing, such waiver shall not include any waiver of the restrictions set forth in Section 7.5(b) and any non-solicitation provisions in any Employment Agreement between Seller and an Employee.

(d)           Employees.  Between the date of this Agreement and the Closing Date, Seller will notify Purchaser as soon as reasonably practicable of Employees who terminate or resign from their

39

employment with Seller.  Between the date of this Agreement and the Closing Date, Seller will not, without the prior written consent of Purchaser:

(i)    terminate the employment of any Employee, except for cause as defined in an Employment Agreement or other arrangement entered into by and between Seller and the Employee, or in the absence of such a definition or Employment Agreement or other arrangement, as defined by Applicable Law, provided Seller provides notice to Purchaser prior to any such termination;

(ii)   reassign any Employee to another business unit of Seller;

(iii)  hire any employees relating to the Acquired Business;

(iv)  change, increase or amend the rate of remuneration (cash, equity or otherwise) or any other terms of employment of any of the Employees or adopt, grant extend or increase the rate or terms of any bonus, insurance pension or other employee benefit plan, payment or arrangement made to, for or with any such Employees, except increases pursuant to any Applicable Law, rule or regulation and any changes communicated to Purchaser prior to the date of this Agreement;

(v)   grant any severance or termination pay (whether payable in cash, stock or other equity instruments) to any Employee; or

(vi)  adopt or amend any agreement with an Employee except in the Ordinary Course of Business, provided Seller provides notice to Purchaser within three (3) business days of Seller’s offer of employment or by the day before the Closing Date, if earlier.

(e)           COBRA Continuation Coverage.  Seller agrees and acknowledges that the selling group (as defined in Treasury Regulation Section 54.4980B-9, Q&A-3(a)) of which it is a part (the “Selling Group”) will continue to offer a group health plan to employees after the Closing Date and, accordingly, that Seller and the Selling Group shall be solely responsible for providing continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) to those individuals who are M&A qualified beneficiaries (as defined in Treasury Regulation Section 54.4980B-9, Q&A-4(a)) with respect to the transactions contemplated by this Agreement (collectively, the “M&A Qualified Beneficiaries”). Seller further agrees and acknowledges that in the event that the Selling Group ceases to provide any group health plan to any employee prior to the expiration of the continuation coverage period for all M&A Qualified Beneficiaries (pursuant to Treasury Regulation Section 54.4980B-9, Q&A-8(c)), then Seller shall provide Purchaser with (a) written notice of such cessation as far in advance of such cessation as is reasonably practicable (and, in any event, at least thirty (30) days prior to such cessation), and (b) all information necessary or appropriate for Parent or Purchaser to offer continuation coverage to such M&A Qualified Beneficiaries.

40

(f)            Employee Liability Claims.

(i)    As between the parties, the Seller and any ERISA Affiliate shall (i) sponsor and (ii) assume or retain, as the case may be, and be solely responsible for all of the following from and after Closing, which will be considered “Employee Excluded Liabilities” for purposes of this Agreement, including Section 2.3 hereof:

(1)                   Employment Liabilities, including but not limited to payments or entitlements that Seller may owe or have promised to pay to any Employees, including wages, other remuneration, holiday or vacation pay, bonus, severance pay (statutory or otherwise), commission, pension contributions, taxes, and any other liability, payment or obligations related to Employees, consultants or contractors;

(2)                   all payments with respect to the Employees that are due to be paid prior to or on the Closing Date (including, without prejudice to the generality of the foregoing, pension contributions, insurance premiums and taxation) to any third party in connection with the employment of any of the Employees; and

(3)                   any non-forfeitable claims or expectancies of any Employees from their prior employment with Seller or an ERISA Affiliate which have been incurred or accrued on or prior to the Closing Date.

(ii)   All costs and disbursements, if any, incurred in connection with the termination by Seller of any employment of any Employee prior to or in connection with the Closing Date (including any Employee who does not accept an offer of employment with Purchaser) shall be borne by Seller; provided, however, that Purchaser shall promptly reimburse Seller for up to $515,000 in actual costs and disbursements incurred by Seller in connection with the termination by Seller within 120 days following the Closing of any Employees who do not become Continuing Employees;

(iii)  All costs and disbursements incurred in connection with the termination by the Purchaser of any employment of any Employee on or after the Closing Date shall be borne by the Purchaser.

(g)           Purchaser Employee Plans.

(i)    With respect to Continuing Employees, (i) Purchaser will allow such Continuing Employees and their eligible dependents to participate in the employee benefit plans maintained by Purchaser or its subsidiaries on terms no less favorable than those provided to similarly situated employees of Purchaser and its subsidiaries, (ii) each such Continuing Employee will receive credit for purposes of eligibility to participate and vesting under such plans for years of service with Seller or any ERISA Affiliate prior to the Closing Date, and (iii) Purchaser will cause any and all pre-existing condition limitations, eligibility waiting periods and evidence of insurability requirements under any group health plans of Purchaser in which such Continuing Employees and their eligible dependents will participate to be waived and will provide credit for any co-payments

41

and deductibles prior to the Closing Date for purposes of satisfying any applicable deductible, out-of-pocket or similar requirements under any such plans that may apply after the Closing Date.

(ii)   Purchaser shall cause a tax qualified defined contribution retirement plan established or maintained by Purchaser (the “Purchaser Plan”) to accept eligible rollover contributions as defined in Section 402(c)(4) of the Code) from Continuing Employees who were U.S. Employees (and any other Continuing Employee on the U.S. payroll) with respect to any account balance distributed to them on or as of the Closing Date by the Analog Devices, Inc. The Investment Partnership (the “401k Plan”). To the extent permitted by the Purchaser Plan, rollovers of outstanding loans from such 401k Plan shall be permitted. The distributions and rollovers described herein shall comply with Applicable Law and each party shall make all filings and take any actions required of such party under Applicable Law in connection therewith.

(iii)  Immigration Issues.    Purchaser shall assume any of Seller’s United States immigration related obligations and liabilities relating to Employees who are foreign nationals, such as (but not limited to), those arising in connection with filings by the Seller of Labor Condition Applications, nonimmigrant/immigrant visa petitions, and Applications for Alien Employment (Labor) Certification.

Section 7.12A.  Non-U.S. Employee employed in Canada.  Not less than five business days prior to the Closing Date, Seller shall notify Non-U.S. Employees employed in Canada about the sale of the Acquired Business to Purchaser.  Not less than five business days prior to the Closing Date, but effective as of the Closing Date, Purchaser shall offer employment to such Non-U.S. Employees.  Such offers of employment to be made by Purchaser shall be (a) conditional upon the completion of the Closing; (b) subject to and in compliance with Purchaser’s standard human resources policies and procedures including requirements for proof evidencing a legal right to work in Canada; and (c) have terms, including the position, salary and responsibilities of such Non-U.S. Employee, which will be determined by Purchaser in its sole discretion, subject to Section 7.12(a).  Except as limited in Section 7.12, the terms of a Non-U.S. Employee’s employment with Purchaser shall be governed solely by any such employment agreement or arrangement entered into by and between Purchaser and the Non-U.S. Employee, and Purchaser shall have no obligation to perform under or liability to the Non-U.S. Employees employed in Canada with respect to any Employment Agreements and other arrangements entered into by and between Seller and the Non-U.S. Employee that are in effect prior to the Closing Date.

Section 7.13.  Attorney-in-Fact.  Effective on the Closing Date, Seller hereby constitutes and appoints Purchaser the true and lawful attorneys of Seller, with full power of substitution, in the name of Seller or Purchaser, but on behalf of and for the benefit of Purchaser to demand and receive from time to time any and all of the Acquired Assets and to make endorsements and give receipts and releases for and in respect of the same and any part thereof; provided, however, that if any of the actions authorized by this Section 7.11(a) could reasonably be determined to result in a claim for indemnification by Purchaser against Seller, then Purchaser shall not take any such actions without complying with the procedures set forth in Article X of this Agreement.  Seller hereby acknowledges that the appointment hereby made and the powers hereby granted are coupled with an interest and

42

are not and shall not be revocable by it in any manner or for any reason.  Seller shall deliver to Purchaser at the Closing an acknowledged power of attorney to the foregoing effect executed by Seller.

Section 7.14.  Tax Matters.

(a)                   Allocation of Purchase Price.  The parties hereto intend that the purchase be treated as a taxable transaction for federal and state income tax purposes.  Within thirty (30) days of the Closing Date, Purchaser shall provide Seller with an allocation among the Acquired Assets of the Purchase Price to the extent properly taken into account under Section 1060 of the Code and the regulations promulgated thereunder (the “Allocation”).  The Allocation shall be conclusive and binding upon Purchaser and Seller for all purposes, and the parties agree that all returns and reports (including IRS Form 8594) and all financial statements shall be prepared in a manner consistent with (and the parties shall not otherwise file a Tax return position inconsistent with) the Allocation unless required by the IRS or any other applicable taxing authority or applicable law.

(b)                   Transfer Taxes.  Purchaser shall be responsible for and shall pay when due any GST, sales, use, excise or similar transfer taxes that may be payable in connection with the sale or purchase of the Acquired Assets (the “Transfer Taxes”).  The parties hereto shall cooperate with each other and use their commercially reasonable efforts to minimize such Transfer Taxes, including but not limited to the transfer of all Transferred Intellectual Property Rights, Transferred Technology, Web Content and other Acquired Assets by remote electronic transmission, and not in tangible form, to the maximum extent possible and the delivery of applicable exemption and resale certificates.

(c)                   Responsibility for Taxes and Tax Returns.  In the case of any real or personal property taxes or any similar ad valorem taxes attributable to the Acquired Assets for which Taxes are reported for a period commencing before the Closing Date and ending thereafter (a “Straddle Period Taxes”), any such Straddle Period Taxes shall be prorated between Purchaser and Seller on a per diem basis.  The party required by law to pay any such Straddle Period Taxes (the “Paying Party”) to the extent such payment exceeds the obligation of the Paying Party hereunder shall provide the other party (the “Non-Paying Party”) with proof of payment, and within ten (10) days of receipt of such proof of payment, the Non-Paying Party shall reimburse the Paying Party for the Non-Paying Party’s share of such Straddle Period Taxes.  The party required by law to file a Tax Return with respect to Straddle Period Taxes shall do so within the time period prescribed by law.

(d)                   Cooperation.  To the extent relevant to the Acquired Business or the Acquired Assets, each party shall (i) provide the other with such assistance as may reasonably be required in connection with the preparation of any Tax Return and the conduct of any audit or other examination by any taxing authority or in connection with judicial or administrative proceedings relating to any liability for Taxes and (ii) retain and provide the other with all records or other information that may be relevant to the preparation of any Tax Returns, or the conduct of any audit or examination, or other proceeding relating to Taxes.  Seller shall retain all documents, including prior years’ Tax Returns, supporting work schedules and other records or information with respect to all sales, use

43

and employment tax returns and, absent the receipt by Seller of the relevant tax clearance certificates, shall not destroy or otherwise dispose of any such records for six (6) years after Closing without the prior written consent of Purchaser.  Purchaser and Seller shall have executed the election referred to in Section 4.6 and Purchaser has possession of any and all executed forms required for filing the election.

(e)                   Employee Withholding.  Purchaser shall prepare and furnish to each of the Continuing Employees who are U.S. Employees or are Non-U.S. Employees who are required to pay income taxes in the United States a Form W-2, which shall reflect all wages and compensation paid to such Continuing Employees for that portion of the calendar year in which the Closing Date occurs during which the Continuing Employees were employed by Seller and were employed in connection with the operation of the Acquired Business.  Seller shall furnish to Purchaser the Forms W-4 and W-5 of each such Continuing Employee.  Purchaser shall send to the appropriate Social Security Administration office a duly completed Form W-3 and accompanying copies of the duly completed Forms W-2.  It is the intent of the parties hereunder that the obligations of Purchaser and Seller under this Section 7.14(e) shall be carried out in accordance with Section 5 of Revenue Procedure 2004-53.

Section 7.15.  Additional Delivery.

(a)                   In the event of a breach of Section 5.23 above, Seller shall immediately transfer and deliver such tangible assets and tangible properties to Purchaser (excluding Intellectual Property Rights that are not Transferred Intellectual Property Rights).

(b)                   If any Added Patent would be infringed by the current operation of the Acquired Business as conducted as of the Closing Date (and as conducted in substantially the same manner following Closing (including the Use of Products or services currently under development)), then each such Added Patent shall be deemed a Licensed Patent under the Licensing Agreement, notwithstanding the fact it is not listed as on the Appendix A to the Licensing Agreement.  For the purposes of this Section, “Added Patent” shall mean any Patent (1) Controlled by Seller as of the Closing Date that is not a Transferred Patent, or (2) that comes under the Control of Seller following the Closing Date (but prior to the one year anniversary of the Closing Date), including without limitation, any patent applications that have a first effective filing date after the Closing Date but prior to the one year anniversary of the Closing Date.

(c)                   If, following the Closing Date, Purchaser or Seller identifies any Technology or Intellectual Property Rights of any third party which by the terms cannot be delivered or licensed to Purchaser under the terms of this Agreement and the Licensing Agreement, Seller shall use its commercially reasonable efforts to assist Purchaser in obtaining such delivery and sub-license or a stand-alone license from the third party owner of such Technology or right.

44

ARTICLE VIII
CONDITIONS TO CLOSING

Section 8.1. Conditions to Obligations of Seller and Purchaser.  The obligations of Seller and Purchaser to consummate the Closing are subject to the satisfaction or waiver in a writing (which waiver shall not be considered a waiver of any other provision of this Agreement unless it specifically so states) of the following conditions:

(a)                   Antitrust Notification.  Any applicable waiting period under the merger, antitrust or competition laws of any applicable jurisdiction where the parties are required to submit premerger notification forms, relating to the sale and purchase of the Acquired Assets shall have expired or been terminated.

(b)                   No Order.  No provision of any Applicable Law or regulation and no judgment, injunction, order or decree prohibiting the consummation of the Closing shall be in effect.

(c)                   No Injunctions or Restraints; Illegality.  No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect, nor shall any proceeding brought by a Governmental or Regulatory Authority seeking any of the foregoing be pending.

(d)                   Regulatory Consents and Approvals.  All consents, approvals and actions of, filings with and notices to any governmental or regulatory authority necessary to permit Seller and Purchaser to perform their obligations under this Agreement and to consummate the transactions contemplated hereby and shall have been duly obtained, made or given, and all terminations or expirations of waiting periods imposed by any governmental or regulatory authority necessary for the consummation of the transactions contemplated by this Agreement shall have occurred.

Section 8.2. Conditions to Obligations of Seller.  The obligation of Seller to consummate the Closing is subject to the satisfaction or waiver in a writing (which waiver shall not be considered a waiver of any other provision of this Agreement unless it specifically so states) of the following further conditions:

(a)                   Representations, Warranties and Covenants.  The representations and warranties of Purchaser set forth in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as though such representations and warranties were made on and as of such date (except for representations and warranties which address matters only as to a specified date, which representations and warranties shall be true and correct with respect to such specified date), except for changes contemplated or permitted by this Agreement and except where the failure of the representations and warranties to be true and correct would not reasonably be expected to result in a Purchaser Material Adverse Effect or a material adverse effect on the ability of the Purchaser to consummate the transactions contemplated hereby.

45

(b)                   Performance.  Purchaser shall have performed and complied with each agreement, covenant and obligation required by this Agreement to be so performed or complied with by Purchaser at or before the Closing, except where the failure to so perform or comply would not reasonably be expected to result in a Purchaser Material Adverse Effect or a material adverse effect on the ability of the Purchaser to consummate the transactions contemplated hereby.

(c)                   Secretary’s Certificate.  Purchaser shall have delivered to Seller a certificate, dated the Closing Date and validly executed by the Secretary of Purchaser, certifying as to (i) the terms and effectiveness of the articles of incorporation and the bylaws of Purchaser and (ii) the valid adoption of resolutions of the Board of Directors of Purchaser approving this Agreement and the consummation of the transactions contemplated hereby.

(d)                   Officer’s Certificate.  Seller shall have received a certificate, validly executed by the Chief Executive Officer of Purchaser for and on Purchaser’s behalf, to the effect that, as of the Closing, each of the conditions to the obligations of Purchaser set forth in Section 8.2(a) and (b) has been satisfied (unless otherwise waived by Seller in accordance with the terms hereof).

(e)                   India Subsidiary.  Purchaser shall have executed an Asset Purchase Agreement for the disposition of all the Acquired Assets which are located in India, which such agreement shall be on terms substantially similar to those with respect to Acquired Assets which are not located in India and shall otherwise be on terms acceptable to Seller and Purchaser in their reasonable determination.  The purchase price for such assets shall be that portion of the purchase price otherwise payable hereunder which the parties shall agree represents the fair market value of such assets.

Section 8.3. Conditions to Obligations of Purchaser.  The obligations of Purchaser to consummate the Closing are subject to the satisfaction or waiver in a writing (which waiver shall not be considered a waiver of any other provision of this Agreement unless it specifically so states) of the following further conditions:

(a)                   Representations, Warranties and Covenants.  The representations and warranties of the Seller set forth in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date (except for representations and warranties expressly made only as of a specified date, which shall be true and correct in all respects as of such specified date), except for changes contemplated or permitted by this Agreement and except where the failure of the representations and warranties to be true and correct would not reasonably be expected to result in a Material Adverse Effect; provided, however, that in determining the accuracy of such representations and warranties for purposes of this Section 8.3(a), (x) all materiality qualifications that are contained in such representations and warranties shall be disregarded and (y) any update of or modification to the Seller Disclosure Schedule made or purported to have been made on or after the date of this Agreement shall be disregarded.

(b)                   Performance.  Seller shall have performed and complied with, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by Seller at

46

or before the Closing except where the failure to so perform would not reasonably be expected to result in a Material Adverse Effect.

(c)                   Secretary’s Certificate.  Seller shall have delivered to Purchaser a certificate, dated the Closing Date and validly executed by the Secretary of Seller, certifying as to (i) the terms and effectiveness of the articles of incorporation and the bylaws of Seller and (ii) the valid adoption of resolutions of the Board of Directors of Seller approving this Agreement and the consummation of the transactions contemplated hereby.

(d)                   Third Party Consents.  Purchaser shall have received all consents (or in lieu thereof waivers) relating to any Assumed Contract as set forth in Schedule 8.3(d).

(e)                   Releases from All Liens.  Releases from all Liens against the Acquired Assets, if any, shall have been obtained in form satisfactory to Purchaser.

(f)                    No Material Adverse Effect.  No material adverse effect on the Acquired Assets shall have occurred since the date of this Agreement.

(g)                   Proceedings.  All proceedings to be taken on the part of Seller in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchaser, and Purchaser shall have received copies of all such documents and other evidences as Purchaser may reasonably request in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith.

(h)                   Actions or Proceedings.  There shall be no Action or Proceeding pending wherein an unfavorable judgment, order, decree, stipulation or injunction would (i) prevent consummation of the transactions contemplated by this Agreement, (ii) cause the transactions contemplated by this Agreement to be rescinded following consummation, (iii) affect adversely the right of the Purchaser to own, operate or control any of the Acquired Assets, or to conduct the business of the Seller and the Subsidiary as currently conducted, following the Closing, or (iv) contain a prayer for relief payable by the Purchaser in an amount in excess of $1,000,000 and no such judgment, order, decree, stipulation or injunction shall be in effect.

(i)                    Employees.  At least 50% of the Employees to whom Purchaser extends offers in compliance with Section 7.12(a) shall have accepted such offers.

(j)                    Officer’s Certificate.  Purchaser shall have received a certificate, validly executed by the Treasurer of Seller for and on Seller’s behalf, to the effect that, as of the Closing, each of the conditions to the obligations of Seller set forth in this Section 8.2(a) and Section 8.2(b)  has been satisfied (unless otherwise waived by Purchaser in accordance with the terms hereof).

(k)                   Officer’s Closing Inventory Certificate.  Purchaser shall have received a certificate, validly executed by the Treasurer of Seller for and on Seller’s behalf, as of the Closing,

47

certifying in good faith as to the dollar value of the Inventory related to the Acquired Business at Closing (the “Officer’s Closing Inventory Certificate”).

(l)                    Opinion.  Purchaser shall have received a legal opinion from Wilmer Cutler Pickering Hale and Dorr LLP, legal counsel to Seller, in form reasonably acceptable to the Purchaser.

(m)                  India Subsidiary.  Seller shall have executed an Asset Purchase Agreement for the disposition of all the Acquired Assets which are located in India, which such agreement shall be on terms substantially similar to those with respect to Acquired Assets which are not located in India and shall otherwise be on terms acceptable to Seller and Purchaser in their reasonable determination.  The purchase price for such assets shall be that portion of the purchase price otherwise payable hereunder which the parties shall agree represents the fair market value of such assets.

(n)                   Audited Closing Financial Statements.  Purchaser shall have received the audited Closing Financial Statements from Seller.

(o)                   Workplace Safety and Insurance Board Purchase Certificate.  Purchaser shall receive from Seller a valid and current Workplace Safety and Insurance Board Purchase Certificate with respect to the Acquired Business that waives the right of the Workplace Safety and Insurance Board to hold Purchase liable for any amounts owed by Seller to the Workplace Safety and Insurance Board.

ARTICLE IX
NON-COMPETITION AGREEMENT

Section 9.1. Non-Competition.

(a)                   Subject to the Closing, and without limiting Seller’s ability to prosecute antitrust claims against third parties, beginning on the Closing Date and ending on the third (3^rd) anniversary of the Closing Date, Seller shall not directly or indirectly, without the prior written consent of Purchaser, engage in a Competitive Business Activity (as defined below) anywhere in the Restricted Territory (as defined below).  For all purposes of and under this Agreement, the term “Competitive Business Activity” shall mean engaging in, managing or directing persons engaged in, or having an ownership interest in any entity which derives revenue from (except for ownership of three percent (3%) or less of any entity whose securities have been registered under the Securities Act or Section 12 of the Exchange Act), activities constituting the Prohibited Field of Use.  For all purposes of and under this Agreement, the term “Restricted Territory” shall mean each and every country, province, state, city or other political subdivision of the world, including those in which Seller is currently engaged in business or otherwise distributes, licenses or sells any Products, and the term “Prohibited Field of Use” shall mean using, developing (including but not limited to design and modification), manufacturing, licensing, sale or other distribution of any product or Technology in the wired communications field that is: a DSL solution and/or broadband network processors and

48

routers whose primary purpose is network processing and/or routing.  Notwithstanding the foregoing, Prohibited Field of Use shall not include using, developing (including but not limited to design and modification), manufacturing, licensing, sale or other distribution of general purpose processors, general purpose DSPs, analog components and mixed signal components. Seller will not explicitly market its general purpose DSPs, Licensed AFEs and/or general purpose processors in the wired communications field that are: DSL solutions and/or broadband network processors and/or routers which have the primary purpose of providing network processing and/or routing.

(b)                   The parties hereto agree that the duration and area for which the covenant not to compete set forth in this Section 9.1(b) is to be effective is reasonable.  In the event that any court determines that the time period or the area or both of them are unreasonable and such covenant is to that extent unenforceable, the parties hereto agree that the covenant shall remain in full force and effect for the greatest time period and in the greatest area that would not render it unenforceable.  The parties hereto agree that damages are an inadequate remedy for any breach of this covenant and that Purchaser shall, whether or not it is pursuing any potential remedies at law, be entitled to equitable relief in the form of preliminary and permanent injunctions without bond or other security upon any actual or threatened breach of this covenant.  No waiver of any breach of the foregoing covenant shall be implied from the forbearance or failure of Purchaser to take action thereon.

ARTICLE X
SURVIVAL; INDEMNIFICATION; WAIVER

Section 10.1. Survival.

(a)                   Notwithstanding any right of a party (whether or not exercised) to investigate the affairs of the other party (whether pursuant to Section 7.1 or otherwise) or a waiver or non-assertion by a party of any closing condition set forth in Article VIII or any termination right set forth in Article XI, each party shall have the right to rely fully upon the representations and warranties of the other party or parties hereto set forth in this Agreement, the Ancillary Agreements and the certificates and other instruments delivered in connection herewith or therewith.

(b)

(i)            The representations and warranties of Seller contained in this Agreement or in any certificate delivered pursuant hereto or in connection herewith shall survive the Closing until one year after the Closing Date solely as a basis for an indemnification claim; provided, however, that notwithstanding the foregoing, (x) the representations and warranties of the Seller set forth in Section 5.14 (Intellectual Property) shall survive for eighteen months and (y) the representations and warranties of the Seller set forth in Section 5.17 (Tax Matters) shall survive until the expiration of the statute of limitations (including any extensions thereof) (the representations and warranties described in the foregoing clauses (x) and (y) being referred to herein as the “Special Representations”).

49

(ii)           The representations and warranties of Purchaser contained in this Agreement or in any certificate delivered pursuant hereto or in connection herewith shall survive the Closing until one year after the Closing Date.

(iii)          Notwithstanding anything to the contrary in clauses (i) and (ii), any representation or warranty in respect of which indemnity may be sought under this Agreement shall survive the time at which it would otherwise terminate pursuant to the preceding clauses (i) and (ii), if notice of the inaccuracy or breach thereof (or of the matters giving rise to the inaccuracy or breach thereof) giving rise to such right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time (in which case such representation or warranty shall survive solely for purposes of permitting the resolution of such claim).

(c)                   Notwithstanding anything to the contrary set forth in this Agreement, the covenants and other agreements set forth in this Agreement or in the Ancillary Agreements shall survive indefinitely in accordance with their respective terms.

Section 10.2. Indemnification.

(a)                   Seller (for purposes of this Article X, the “Seller Indemnifying Party”) hereby agrees, following the Closing, to indemnify Purchaser (the “Purchaser Indemnified Party”) against and agrees to hold each of them harmless from any and all claims, losses, liabilities, damages,  interest and penalties, costs and expenses, including, without limitation, reasonable attorneys’ fees and expenses and reasonable expenses of investigation and defense in connection therewith arising out of any claim, damages, complaint, demand, cause of action, investigation, suit or other proceeding) (hereinafter individually a “Loss” and collectively “Losses”“), including Losses incurred by Purchaser with respect to its officers, directors, employees, agents and Affiliates, arising out of or relating to (i) the inaccuracy of any representation or warranty made by Seller in this Agreement; (ii) any breach of or default in connection with any of the covenants or agreements made by the Seller in this Agreement or the Seller Disclosure Schedule (including any exhibit or schedule to the Seller Disclosure Schedule); or (iii) the Excluded Liabilities.

(b)                   Purchaser (for purposes of this Article X, the “Purchaser Indemnifying Party”, and together with the Seller Indemnifying Party, as the case may be, the “Indemnifying Party”) hereby agrees, following the Closing, to indemnify Seller (the “Seller Indemnified Party”, and together with the Purchaser Indemnified Party, as the case may be, the “Indemnified Party”) against and agrees to hold it harmless from any and all Losses, including Losses incurred by Seller with respect to its officers, directors, employees, agents and Affiliates, arising out of or relating to (i) the inaccuracy of any representation or warranty made by Purchaser in this Agreement; (ii) any breach of or default in connection with any of the covenants or agreements made by the Purchaser in this Agreement or the Purchaser Disclosure Schedule (including any exhibit or schedule to the Purchaser Disclosure Schedule); or (iii) the Assumed Liabilities.

(c)                   In determining the amount of any Losses in respect of the failure of any representation or warranty to be true and correct as of any particular date (but not in determining

50

whether any such representations and warranties failed to be true and correct as of any particular date), any materiality standard or qualification contained in such representation or warranty shall be disregarded.

Section 10.3. Indemnification Claim Procedures.

(a)                   The Indemnified Party may deliver to the Indemnifying Party a certificate signed by any officer of the Indemnified Party (an “Officer’s Certificate”):

(i)            stating that an Indemnified Party has paid, suffered, incurred or sustained (or reasonably anticipates that it may pay, suffer, incur or sustain) Losses for which such Indemnified Party is entitled to indemnification pursuant to Section 10.2 or Section 10.3;

(ii)           stating the amount of such Losses (which, in the case of Losses not yet paid, suffered, incurred, sustained, may be the maximum amount reasonably anticipated to be so paid, suffered, incurred or sustained);

(iii)          specifying in reasonable detail (based upon the information then possessed by the Indemnified Party) the individual items of such Losses included in the amount so stated and the nature of the claim for indemnification to which such Losses relate; and

(iv)          the specific provisions of this Agreement that form the basis for such claim for indemnification for such Losses.

(b)                   The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have prejudiced the Indemnifying Party.

(c)                   The Indemnifying Party shall make payment having a value equal to such Losses to the Indemnified Party in accordance with this Section 10.3 within twenty (20) business days following receipt of the Officer’s Certificate.  If the Indemnifying Party objects in writing to any claim made by the Indemnified party in any Officer’s Certificate within the twenty (20) business days allowed for payment of the Losses, the Indemnified Party and the Indemnifying Party shall attempt in good faith for ten (10) business days after Indemnified Party’s receipt of such written objection to resolve such objection.  If the Indemnified Party and the Indemnifying Party shall reach agreement on the objection, the Indemnifying Party shall distribute payment to the Indemnified Party in accordance with the terms of such agreement.

(d)                   If no such agreement can be reached during such 20-business day period for good faith negotiation, but in any event upon the expiration of such 20-business day period, the parties shall submit the dispute to JAMS, or any other mutually selected mediator (the “Mediator”) for non-binding mediation.  The parties will cooperate with the Mediator and with one another in selecting the Mediator (in the case of JAMS, in selecting an individual to mediate from JAM’s panel of neutrals), and in promptly scheduling the mediation proceedings.  The parties covenant that they will

51

participate in the mediation in good faith, and that they will share equally in its costs.  All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees, experts and attorneys, and by the Mediator, are confidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving the parties; provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation.  If the dispute is not resolved within thirty (30) days from the date of the submission of the dispute to mediation (or such later date as the parties may mutually agree in writing), the dispute shall be submitted to arbitration in accordance with Section 10.3(e) below.  The mediation may continue, if the parties so agree, after the appointment of the arbitrators.  Unless otherwise agreed by the parties, the Mediator shall be disqualified from serving as arbitrator in the case.  The pendency of a mediation shall not preclude a party from seeking provisional remedies in aid of the arbitration from a court of appropriate jurisdiction, and the parties agree not to defend against any application for provisional relief on the ground that a mediation is pending.

(e)                   In the event the parties do not settle the dispute through mediation, the parties will submit the matter(s) to binding arbitration in Chicago, Illinois, in accordance with the Commercial Arbitration Rules of the American Arbitration Association.  Each party shall appoint one arbitrator, and the two arbitrators thus appointed will appoint a third arbitrator.  The parties shall instruct the arbitrators to make a determination within thirty (30) days after submission of the dispute to arbitration.  Each party shall bear its own arbitration costs and expenses; provided, however, that the arbitrators may modify the allocation of fees, costs and expenses in the award in those cases where fairness dictates other than each party bearing its own fees, costs and expenses.  The award shall be final and binding on the parties, and judgment on the award may be entered in and enforced by any court of competent jurisdiction.

Section 10.4. Third Party Claims.

(a)                   An Indemnified Party shall give written notification to the Indemnifying Party of the commencement of any third party claim which the Indemnified Party believes may result in a claim for indemnification hereunder (a “Third Party Claim”).  Such notification shall be given within 20 days after receipt by the Indemnified Party of notice of such Third Party Claim, and shall describe in reasonable detail (to the extent known by the Indemnified Party) the facts constituting the basis for such Third Party Claim and the amount of the claimed damages; provided, however, that no delay or failure on the part of the Indemnified Party in so notifying the Indemnifying Party shall relieve the Indemnifying Party of any liability or obligation hereunder except to the extent such failure shall have prejudiced the Indemnifying Party.  Within 20 days after delivery of such notification, the Indemnifying Party may, upon written notice thereof to the Indemnified Party, assume control of the defense of such Third Party Claim with counsel reasonably satisfactory to the Indemnified Party; provided that (i) the Indemnifying Party may only assume control of such defense if (A) it acknowledges in writing to the Indemnified Party that any damages, fines, costs or other liabilities that may be assessed against the Indemnified Party in connection with such Third Party Claim constitute Losses for which the Indemnified Party shall be indemnified in full pursuant

52

to this Article X and (B) the ad damnum is less than or equal to the amount of Losses for which the Indemnifying Party is liable under this Article X and (ii) the Indemnifying Party may not assume control of the defense of a Third Party Claim involving criminal liability or in which equitable relief is sought against the Indemnified Party.  If the Indemnifying Party does not, or is not permitted under the terms hereof to, so assume control of the defense of a Third Party Claim, the Indemnified Party shall control such defense.  The non-controlling party may participate in such defense at its own expense.  The controlling party shall keep the non-controlling party advised of the status of such Third Party Claim and the defense thereof and shall consider in good faith recommendations made by the non-controlling party with respect thereto.  The non-controlling party shall furnish the controlling party with such information as it may have with respect to such Third Party Claim (including copies of any summons, complaint or other pleading which may have been served on such party and any written claim, demand, invoice, billing or other document evidencing or asserting the same) and shall otherwise cooperate with and assist the controlling party in the defense of such Third Party Claim.  The fees and expenses of counsel to the Indemnified Party with respect to a Third Party Claim shall be considered Losses for purposes of this Agreement if (i) the Indemnified Party controls the defense of such Third Party Claim pursuant to the terms of this Section 10.4 or (ii) the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes that the Indemnifying Party and the Indemnified Party have conflicting interests or different defenses available with respect to such Third Party Claim.  The Indemnifying Party shall not agree to any settlement of, or the entry of any judgment arising from, any Third Party Claim without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld, conditioned or delayed; provided that the consent of the Indemnified Party shall not be required if the Indemnifying Party agrees in writing to pay any amounts payable pursuant to such settlement or judgment and such settlement or judgment includes a complete release of the Indemnified Party from further liability and has no other adverse effect on the Indemnified Party.  The Indemnified Party shall not agree to any settlement of, or the entry of any judgment arising from, any such Third Party Claim without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld, conditioned or delayed.

Section 10.5. Inventory Claims.

(a)                   Notwithstanding the foregoing, in case either party shall object in writing to any claim or claims made in any Officer’s Certificate with respect to the determination of the Actual Closing Inventory within 20 days after delivery of such Officer’s Certificate, the parties shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims.  If such parties should so agree, a memorandum setting forth such agreement shall be prepared and signed by all parties and the claim shall be paid in accordance with Section 10.3 above.

(b)                   If no such agreement can be reached after good faith negotiation and prior to 40 days after delivery of an Officer’s Certificate, the Indemnified Party on the one hand, and the Indemnifying Party, as the case may be, on the other hand, may demand review by an independent auditor for binding resolution of the claim or claims.

53

(c)                   The independent auditor shall determine how all expenses relating to how the review shall be paid, including without limitation, the respective expenses of each party and the fees of the independent auditor.  The independent auditor shall set a limited time period and establish procedures designed to reduce the cost while allowing the parties an opportunity, adequate in the sole judgment of independent auditor, to discover relevant information from the opposing parties about the subject matter of the dispute.  The decision of the independent auditor as to the validity and amount of any claim in such Officer’s Certificate shall be final, binding, and conclusive upon the parties to this Agreement.  Such decision shall be written and shall be supported by written findings of fact and conclusions that shall set forth the scope of the award that may be awarded by independent auditor.  Within 30 days of a decision of independent auditor requiring payment by one party to another, such party shall make the payment to such other party

(d)                   Judgment upon any award rendered by independent auditor may be entered in any court having jurisdiction.

Section 10.6. Limitations.

(a)                   Notwithstanding anything to the contrary herein, (i) the aggregate liability of the Seller for Losses under Section 10.2(a) shall not exceed $2,500,000 (the “Cap Limitation”), provided, however, that notwithstanding the foregoing, the Cap Limitation shall not apply to (A) claims for indemnification for Losses arising out of fraud, (B) the Special Representations, Section 5.1 (Organization, Good Standing and Qualification) and Section 5.2 (Corporate Authorization) and (C) the Excluded Liabilities; provided, further, that the claims for indemnification described in the foregoing clause (B) shall not exceed the Closing Cash Payment; and (ii)  Seller shall be liable for only that portion of the aggregate Losses under Section 10.2(a) for which it would otherwise be liable which exceeds $300,000.

(b)                   Notwithstanding anything to the contrary herein, (i) the aggregate liability of the Purchaser for Losses under Section 10.2(b) (other than the obligation to pay the purchase price hereunder, with respect to which the Cap Limitation shall not apply) shall not exceed the Cap Limitation; provided, however, that notwithstanding the foregoing, the Cap Limitation shall not apply to (A) Section 6.1 (Organization, Good Standing and Qualification) and Section 6.2 (Corporate Authorization) and (B) the Assumed Liabilities; provided, further, that the claims for indemnification described in the foregoing clause (A) shall not exceed the Closing Cash Payment; and (ii) Purchaser shall be liable for only that portion of the aggregate Losses under Section 10.2(b) for which it would otherwise be liable which exceeds $300,000 (other than the obligation to pay the purchase price hereunder, with respect to which such limitation shall not apply).

Section 10.7. Assignment of Claims.

(a)                   The amount of Losses recoverable by an Indemnified Party under this Article X with respect to an indemnity claim shall be reduced by any proceeds received by such Indemnified Party or an Affiliate, with respect to the Losses to which such indemnity claim relates, from an insurance carrier; provided, however, that the neither party shall not be required to maintain such

54

insurance or to make claims under any such policy.  If the Indemnified Party receives any payment from the Indemnifying Party in respect of any Losses pursuant to Section 10.2 and the Indemnified Party could have recovered all or part of such Losses from a third party (a “Potential Contributor”) based on the underlying claim asserted against the Indemnifying Party, the Indemnified Party shall assign such of its rights to proceed against the Potential Contributor as are necessary to permit the Indemnifying Party to recover from the Potential Contributor the amount of such payment; provided that in the event such third party is an insurer, the Indemnifying Party shall reimburse the Indemnified Party for any increased premium directly attributable to any such recovery of Losses.

(b)                   Except with respect to claims based on fraud and claims for equitable relief, after the Closing, the rights of the Indemnified Parties under this Article X shall be the exclusive remedy of the Indemnified Parties with respect to matters involving breaches of the representations and warranties set forth in this Agreement or otherwise covered by the indemnification provisions hereof (provided that the foregoing shall not apply to the Licensing Agreement).

Section 10.8. Treatment of Indemnity Payments.Any payments made to an Indemnified Party pursuant to this Article X shall be treated as an adjustment to the Purchase Price for tax purposes and shall be increased by the amount of any GST deemed to be included in such payments.

ARTICLE XI
TERMINATION

Section 11.1. Grounds for Termination.  The Parties may terminate this Agreement prior to the Closing as provided below:

(a)                   the Parties may terminate this Agreement by mutual written consent;

(b)                   the Purchaser may terminate this Agreement by giving written notice to the Seller in the event the Seller is in breach of any representation, warranty or covenant contained in this Agreement, and such breach (i) individually or in combination with any other such breach, would cause the conditions set forth in clauses (a) or (b) of Section 8.2 not to be satisfied and (ii) is not cured within 20 days following delivery by the Purchaser to the Seller of written notice of such breach;

(c)                   the Seller may terminate this Agreement by giving written notice to the Purchaser in the event the Purchaser is in breach of any representation, warranty or covenant contained in this Agreement, and such breach (i) individually or in combination with any other such breach, would cause the conditions set forth in clauses (a) or (b) of Section 8.3 not to be satisfied and (ii) is not cured within 20 days following delivery by the Seller to the Purchaser of written notice of such breach;

(d)                   the Purchaser may terminate this Agreement by giving written notice to the Seller if the Closing shall not have occurred on or before March 15, 2006 by reason of the failure of any

55

condition precedent under Section 8.1 or 8.3 (unless the failure results primarily from a breach by the Purchaser of any representation, warranty or covenant contained in this Agreement); or

(e)                   the Seller may terminate this Agreement by giving written notice to the Purchaser if the Closing shall not have occurred on or before March 15, 2006 by reason of the failure of any condition precedent under Section 8.1 or 8.2 (unless the failure results primarily from a breach by the Seller of any representation, warranty or covenant contained in this Agreement).

The party desiring to terminate this Agreement pursuant to clauses (b) through (e) shall give notice of such termination to the other parties.

Section 11.2. Effect of Termination.

If this Agreement is terminated as permitted by Section 11.1, such termination shall be without liability of any party (or any stockholder, director, officer, employee, agent, consultant or representative of such party) to the other parties to this Agreement; provided that each party shall remain liable for any willful breaches of this Agreement prior to its termination; and provided further that, the provisions of Section 7.4 (Confidentiality), Section 7.7 (Public Announcements), Article XII (Miscellaneous), this Section 11.2 and the applicable definitions set forth in Section 1.1 shall remain in full force and effect and survive any termination of this Agreement.  Notwithstanding the foregoing, nothing contained herein shall relieve any party from liability for any breach hereof.

Section 11.3. Procedure Upon Termination.  In the event of termination of this Agreement by Purchaser or Seller or by both Purchaser and Seller pursuant to Section 11.1 hereof, written notice thereof shall forthwith be given to the other party hereto and the transactions contemplated herein shall be abandoned without further action by Purchaser or Seller or any other party hereto.  In addition, if this Agreement is terminated as provided herein:

(a)                   Each party will redeliver (or destroy, if agreed to by the other party or if such party requests that they may destroy, and such request is unreasonably denied by the other party) all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same; and

(b)                   The confidentiality of all information of a confidential nature received by any party hereto with respect to the business of any other party (other than information which is a matter of public knowledge or which has heretofore been or is hereafter published in any publication for public distribution or filed as public information with any governmental authority in each case without violation of the confidentiality obligations of the receiving party) shall be maintained in accordance with the Nondisclosure Agreement, which shall survive termination of this Agreement.

56

ARTICLE XII
MISCELLANEOUS

Section 12.1. Notices.  All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given,

if to Seller, to:

Analog Devices, Inc.
Three Technology Way
Norwood, Massachusetts 02062-9106

Attention:              William A. Martin, Treasurer

Telecopy:              (781) 461-3491

Telephone:            (781) 461-4033

with a copy to:

Wilmer Cutler Pickering Hale and Dorr LLP

60 State Street

Boston, MA 02109

Attention:              Jeff Stein, Esq.

Telecopy:              (617) 526-5000

if to Purchaser, to:

Ikanos Communications

47669 Fremont Blvd.,

Fremont, CA 94538

Attention:              Chief Financial Officer

Telecopy:              (510) 979-0500

with a copy to:

Wilson Sonsini Goodrich & Rosati, PC

650 Page Mill Road

Palo Alto, California 94034

Attention:Jack Sheridan, Esq.
Arthur Schneiderman, Esq.

Telecopy:              (650) 493-6811

Telephone:            (650) 493-9300

All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a business day in the place of receipt.  Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt.  In

57

the case of facsimile transmissions, receipt shall be evidenced by written confirmation that such facsimile was successfully transmitted.

Section 12.2. Amendments and Waivers.

(a)                   Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective.

(b)                   No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any or other further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 12.3. Expenses.  All costs and expenses incurred in connection with this Agreement and the Ancillary Agreements shall be paid by the party incurring such cost or expense.

Section 12.4. Successors and Assigns.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, that no party may assign its rights or obligations hereunder without the prior written consent of Seller in the case of Purchaser, or Purchaser, in the case of Seller, except that Seller may assign its rights hereunder by operation of law or otherwise in connection with a merger of Seller with or into another Person or the sale of all or substantially all of the assets of Seller.

Section 12.5. Governing Law.  This agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law rules of such state.

Section 12.6. Counterparts; Third Party Beneficiaries.  This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other parties hereto.  No provision of this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

Section 12.7. Entire Agreement; Severability.  This Agreement, the exhibits and schedules hereto, together with the Ancillary Agreements and the Nondisclosure Agreement, constitutes the entire agreement between the parties hereto and any of such parties’ respective Affiliates with respect to the subject matter of this Agreement and supersedes all prior communications, agreements and understandings, both oral and written, with respect to the subject matter of this Agreement.  In the event any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect

58

without said provision, and the parties agree to negotiate, in good faith, a legal and enforceable substitute provision which most nearly effects the parties’ intent in entering into this Agreement.

Section 12.8. Captions.  The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

Section 12.9. Representation by Counsel; Interpretation.  Seller and Purchaser each acknowledge that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement.  Accordingly, any rule of law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived.  The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of Seller and Purchaser.

Section 12.10. Other Remedies; Specific Performance.  Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy.  The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the Parties shall be entitled to seek an injunction to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.

Section 12.11. Waiver of Jury Trial.  Each of Seller and Purchaser hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this agreement or the subject matter hereof.

(The remainder of this page is intentionally left blank.)

59

IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

SELLER
Analog Devices, Inc.
By:	/s/ Brian P. McAloon
	Brian P. McAloon
	Executive Vice President
PURCHASER:
Ikanos Communications, Inc.
By:	/s/ Daniel K. Atler
	Daniel K. Atler
	Vice President and Chief Financial Officer

(Signature Page to Asset Aggrement)

EX-2.3

Exhibit 2.3

EXECUTION COPY

AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT

dated as of

February 17, 2006

among

Analog Devices, Inc.,

Analog Devices Canada Ltd.,

Analog Devices B.V.,

and

Ikanos Communications, Inc.

TABLE OF CONTENTS

	Page
ARTICLE I DEFINITIONS	1
Section 1.1. Definitions	1
ARTICLE II PURCHASE AND SALE OF ACQUIRED ASSETS	13
Section 2.1. Purchase and Sale	13
Section 2.2. Excluded Assets	13
Section 2.3. Assumption of Liabilities	13
Section 2.4. License Back	14
ARTICLE III PURCHASE PRICE; EMPLOYEE RETENTION BONUS	15
Section 3.1. Purchase Price	15
Section 3.2. Employee Retention Bonus	15
Section 3.3. Post-Closing Inventory Adjustment.	15
ARTICLE IV CLOSING AND DELIVERIES	15
Section 4.1. Closing	15
Section 4.2. Delivery of Acquired Assets	16
Section 4.3. Assignments	16
Section 4.4. Deliveries of Purchaser	17
Section 4.5. Further Assurances; Post-Closing Cooperation	17
Section 4.6. GST and Provincial Sales Tax	17
Section 4.7. Indian Asset Purchase Agreement	18
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER	18
Section 5.1. Organization, Good Standing and Qualification	18
Section 5.2. Corporate Authorization	19
Section 5.3. Governmental Authorization; Consents	19
Section 5.4. Noncontravention	19
Section 5.5. Seller Financial Statements	19
Section 5.6. Absence of Changes	20
Section 5.7. Legal and Other Compliance	22
Section 5.8. Assumed Contracts	22
Section 5.9. Support and Service Contracts	22
Section 5.10. No Liquidation, Insolvency, Winding Up	22
Section 5.11. Restrictions on Business Activities	23
Section 5.12. Title to Properties, Absence of Liens, Condition of Equipment	23
Section 5.13. Customers and Sales	24
Section 5.14. Intellectual Property	25
Section 5.15. Litigation	29
Section 5.16. Tax Matters	29

i

	Page
Section 5.17. Powers of Attorney	30
Section 5.18. Environmental Matters	30
Section 5.19. Brokers’ and Finders’ Fees	31
Section 5.20. Employee Matters	31
Section 5.21. Warranties; Defects; Liabilities	33
Section 5.22. Books and Records	33
Section 5.23. Acquired or Licensed Assets	33
Section 5.24. Affiliate Transactions	33
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER	34
Section 6.1. Organization, Qualification and Corporate Power	34
Section 6.2. Authorization of Transaction	34
Section 6.3. Noncontravention	34
ARTICLE VII COVENANTS OF SELLER AND PURCHASER	34
Section 7.1. Access Pending the Closing	34
Section 7.2. Operation of the Acquired Business by Seller	35
Section 7.3. Conduct Prior to Closing	36
Section 7.4. Confidentiality	37
Section 7.5. No Solicitation	37
Section 7.6. Notification of Certain Matters	38
Section 7.7. Public Disclosure	38
Section 7.8. Consents	38
Section 7.9. Applicable Laws	39
Section 7.10. Updated Schedules	39
Section 7.11. Seller Closing Financial Statements	39
Section 7.12. Covenants Regarding Continuing Employees	39
Section 7.13. Attorney-in-Fact	43
Section 7.14. Tax Matters	44
Section 7.15. Additional Delivery	45
ARTICLE VIII CONDITIONS TO CLOSING	46
Section 8.1. Conditions to Obligations of Seller and Purchaser	46
Section 8.2. Conditions to Obligations of Seller	46
Section 8.3. Conditions to Obligations of Purchaser	47
ARTICLE IX NON-COMPETITION AGREEMENT	50
Section 9.1. Non-Competition	50
ARTICLE X SURVIVAL; INDEMNIFICATION; WAIVER	51
Section 10.1. Survival	51

ii

	Page
Section 10.2. Indemnification	52
Section 10.3. Indemnification Claim Procedures	52
Section 10.4. Third Party Claims	54
Section 10.5. Inventory Claims	55
Section 10.6. Limitations	56
Section 10.7. Assignment of Claims	56
Section 10.8. Treatment of Indemnity Payments	57
ARTICLE XI TERMINATION	57
Section 11.1. Grounds for Termination	57
Section 11.2. Effect of Termination	58
Section 11.3. Procedure Upon Termination	58
ARTICLE XII MISCELLANEOUS	58
Section 12.1. Notices	58
Section 12.2. Amendments and Waivers	59
Section 12.3. Expenses	60
Section 12.4. Successors and Assigns	60
Section 12.5. Governing Law	60
Section 12.6. Counterparts; Third Party Beneficiaries	60
Section 12.7. Entire Agreement; Severability	60
Section 12.8. Captions	60
Section 12.9. Representation by Counsel; Interpretation	60
Section 12.10. Other Remedies; Specific Performance	61
Section 12.11. Waiver of Jury Trial	61
Section 12.12. Existing Asset Purchase Agreement	61

iii

EXHIBIT A	TRANSITION SERVICES AGREEMENT
EXHIBIT B	GENERAL ASSIGNMENT AND BILL OF SALE
EXHIBIT C	PRODUCT TRANSITION AGREEMENT
EXHIBIT D	FORM OF LICENSING AGREEMENT
EXHIBIT E	INSTRUMENT OF ASSUMPTION OF LIABILITIES
DISCLOSURE SCHEDULES

i

INDEX OF SCHEDULES

Schedule	Description
Schedule 1.1(h)	Assumed Contracts
Schedule 1.1(u)	Development Tools
Schedule 1.1(v)	Employees
Schedule 1.1(z)(i)	Included Equipment Assets
Schedule 1.1(z)(ii)	Excluded Equipment Assets
Schedule 1.1(cc)	Excluded Assets
Schedule 1.1(tt)	Liens
Schedule 1.1(yy)	Permits
Schedule 1.1(bbb)	Products
Schedule 1.1(ggg)	Registered Intellectual Property Rights
Schedule 1.1(kkk)	Software
Schedule 1.1(nnn)	Tangible Assets
Schedule 1.1(rrr)	Third Party Technology
Schedule 1.1(sss)	Third Party Technology Contracts
Schedule 1.1(ttt)	Transferred Intellectual Property Rights
Schedule 1.1(vvv)	Transferred Technology
Schedule 1.1(zzz)	Web Content
Schedule 3.2	Employee Retention Schedule
Schedule 5.8	Excluded Contracts
Schedule 5.9	Support and Service Contracts
Schedule 5.12	Leased Real Property
Schedule 5.13	Customers and Sales
Schedule 5.14(m)	List of IP Contracts
Schedule 5.14(t)	Non-exclusive Written Licenses
Schedule 5.14(x)	Open Source Materials
Schedule 5.18(d)	Environmental Permits
Schedule 5.18(e)	Lead Products
Schedule 5.20(a)	Employee Information
Schedule 5.20(b)(ii)(2)	Benefit Plans
Schedule 5.21	Warranty
Schedule 7.12(f)	Additional Departing Employees
Schedule 8.3(d)	Third Party Consents
Schedule 9.1	Exceptions to Prohibited Field of Use
Schedule 10.6(c)	Excluded Entities

ii

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT

This AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of February 17, 2006, is between Ikanos Communications, Inc., a Delaware corporation (“Purchaser”) and Analog Devices, Inc., a Massachusetts corporation (“ADI”), Analog Devices Canada Ltd., an Ontario corporation (“AD Canada”), and Analog Devices B.V., a private limited liability company organized under the laws of the Netherlands (“ADBV” and collectively with ADI and AD Canada, “Seller”).

W I T N E S S E T H :

WHEREAS, Seller is engaged in the design, manufacture and marketing of high-performance analog, mixed-signal and digital signal processing integrated circuits used in signal processing for industrial, communication, computer and consumer applications;

WHEREAS, subject to the provisions hereof, Purchaser desires to purchase and/or license from Seller, and Seller desires to sell and/or license to Purchaser, substantially all of the assets relating to, required for, used in or otherwise constituting the Acquired Business (as defined below), in exchange for the Purchase Price (each as defined below); and

WHEREAS, Purchaser and Seller desire to terminate the Asset Purchase Agreement dated as of January 12, 2006 by and between Purchaser and Seller (the “Existing Asset Purchase Agreement”) and desire that this Agreement supersede and replace the Existing Asset Purchase Agreement, except that the Seller Disclosure Schedules to the Existing Asset Purchase Agreement shall survive and constitute the Seller Disclosure Schedules to this Agreement,

NOW, THEREFORE, in consideration of the covenants, representations, warranties and mutual agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS

Section 1.1. Definitions.

The following capitalized term shall have the meaning set forth below:

(a)“Acquired Assets” means all of Seller’s right, title and interest in the following:

(i)the Tangible Assets;

(ii)the Transferred Intellectual Property Rights;

(iii)the Transferred Technology;

(iv)the Books and Records; provided, however, that Seller shall provide the foregoing in both paper and via soft copy download from Seller’s systems (it being understood that Seller need not provide Purchaser with a license or sublicense to its SAP software system);

(v)the Inventory;

(vi)the Permits;

(vii)all rights of Seller under the Assumed Contracts and any deposits associated with the Assumed Contracts;

(viii)any other assets, tangible or intangible, or rights of Seller which are utilized exclusively by the Seller in the Acquired Business and the Products; and

(ix)all rights to recover past, present and future damages for the breach, infringement or misappropriation, as the case may be, of any of the foregoing.

Notwithstanding anything to the contrary in this Agreement, the Excluded Assets shall not be considered Acquired Assets.

(b)“Actual Closing Inventory” means the actual value of the Net Inventory as of Closing, as calculated in good faith by Purchaser in a manner consistent with the calculation of Net Inventory by Seller prior to the Closing and confirmed in writing to Seller not later than 60 days after Closing through the delivery of an Officer’s Certificate (as defined in Section 10.3 of this Agreement).  In the event that (A) the Actual Closing Inventory has a dollar value that is $250,000 less than the Certified Closing Inventory and if there is no objection by Seller within 10 business days of delivery of the Officer’s Certificate, then Seller shall pay to Purchaser an amount equal to the amount by which the Actual Closing Inventory is less than the Certified Closing Inventory; or (B) the Actual Closing Inventory has a dollar value that is $250,000 greater than the Certified Closing Inventory and if there is no objection by Purchaser within 10 business days of delivery of the Officer’s Certificate then Purchaser shall pay to Seller an amount equal to the amount by which the Actual Closing Inventory is greater than the Certified Closing Inventory ; provided, however, that if Seller or Purchaser, as applicable, does object within such 10 business day period, then the parties shall resolve any dispute pursuant to Section 10.5.

(c)“Action or Proceeding” means any action, suit, complaint, petition, investigation, proceeding, arbitration, litigation or Governmental or Regulatory Authority investigation, audit or other proceeding, whether civil or criminal, in law or in equity, or before any arbitrator or Governmental or Regulatory Authority.

2

(d)“Acquired Business” means the broadband business unit of the Seller as presently conducted or as proposed by the Seller to be conducted, including the design, development, manufacture, sale, distribution and support of the Products.

(e)“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person.  For purposes of this definition, “control” when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; the terms “controlling” and “controlled” have meanings correlative to the foregoing.

(f)“Ancillary Agreements” means the Transition Services Agreement attached hereto as Exhibit A, the General Assignment and Bill of Sale attached hereto as Exhibit B, the Product Transition Agreement attached hereto as Exhibit C, the Licensing Agreement attached hereto as Exhibit D, and each other document or agreement delivered by Seller or Purchaser in connection with this Agreement.

(g)“Applicable Law” means any law, statute, order, rule, regulation, ordinance, by-law, code or other similar pronouncement having the effect of law whether in the United States, any foreign country, or any domestic or foreign state, province, county, city or other political subdivision or of any Governmental or Regulatory Authority.

(h)“Assumed Contracts” means those contracts, agreements, leases, commitments and sales and purchase orders (to the extent existing as of the Closing) of Seller relating to the Acquired Business listed on Schedule 1.1(h).

(i)“Assumed Liabilities” means all Liabilities of the Seller that arise or accrue following the Closing under the Assumed Contracts.

(j)“Audited Financial Statements” means the Seller’s balance sheets, statements of income and statements of cash flows for the Acquired Business as a standalone entity for the three years ended October 25, 2003, October 30, 2004 and October 29, 2005 and as of the periods ended then ended.

(k)“Benefit Plan” means any plan, program, policy, practice, contract, agreement or other arrangement providing for incentive compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration (other than base salary or wages) of any kind, whether written or unwritten or otherwise, funded or unfunded, including without limitation, each “employee benefit plan,” within the meaning of Section 3(3) of ERISA which is maintained, contributed to, or required to be contributed to, by Seller or any ERISA Affiliate for the benefit of any Employee or former employee, current or former consultant or current or former director of Seller or an ERISA Affiliate, who has provided services to the Acquired Business, or with respect to which Seller or any ERISA Affiliate has or may have any liability or obligation, including any International Employee Plan.

3

(l)“Books and Records” means all papers and records (in paper or electronic format) in the care, custody or control of Seller or its representatives exclusively relating to the Acquired Business including, without limitation, to the extent exclusively relating to the Acquired Business, all purchasing and sales records, customer and vendor lists, accounting and financial records, Product documentation, Product specifications, marketing requirement documents and software release orders; provided, however, that “Books and Records” shall not include employee files to the extent that the disclosure thereof to the Purchaser would be in violation of Applicable Law or the policies and practices of the Seller.

(m)“Business Facility” is any property including the land, the improvements thereon, the groundwater thereunder and the surface water thereon, that is or at any time has been owned, operated, occupied, controlled or leased by the Seller in connection with the operation of its business.

(n)“Closing Cash Payment” means thirty million five hundred seventy thousand two hundred thirty-two dollars ($29,470,232), provided, however, that if (A) at Closing the Net Inventory does not have an aggregate value of at least $3,750,000, then the Closing Cash Payment shall be reduced by the difference between the value of the Net Inventory at Closing as certified to Purchaser by Seller pursuant to the Officer’s Closing Inventory Certificate (“Certified Closing Inventory”) and $4,000,000, or (B) at Closing the Net Inventory has an aggregate value in excess of $4,250,000, then the Closing Cash Payment shall be increased by the excess of the value of the Certified Closing Inventory over $4,000,000.

(o)“Closing Date” means the date of the Closing.

(p)“Code” means the Internal Revenue Code of 1986, as amended form time to time.

(q)“Continuing Employees” means those Employees who become employees of Purchaser upon the Closing or, with respect to Employees located in India, as soon as legally permissible after the Closing.

(r)“Contract” means any written or oral understanding, note, bond, mortgage, indenture, lease, contract, covenant or other agreement, instrument or commitment, concession, franchise or license.

(s)“Control” shall have the meaning attributed thereto in the Licensing Agreement.

(t)“Derivative Work” shall have the meaning ascribed to it under the United States Copyright Law, Title 17 U.S.C. Sec. 101 et. seq., as the same may be amended from time to time.

(u)“Development Tools” means materials listed on Schedule 1.1(u).

(v)“Employee” means any person listed on Schedule 1.1(v).

4

(w)“Employment Agreement” means each management, employment, severance, consulting, relocation, repatriation, expatriation, visa, work permit or other agreement, contract or understanding between Seller or any ERISA Affiliate and any Employee or former employee, current or former consultant or current or former director of Seller or an ERISA Affiliate, who has provided services to the Acquired Business.

(x)“Employment Liabilities” means any and all claims, debts, liabilities, commitments and obligations, whether fixed, contingent or absolute, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever or however arising, including all costs and expenses relating thereto arising under law, rule, regulation, permit, action or proceeding before any governmental authority, order or consent decree or any award of any arbitrator of any kind relating to any Benefit Plan, Employment Agreement or otherwise relating to an Employee or former employee, current or former consultant or current or former director of Seller or an ERISA Affiliate, who has provided services to the Acquired Business, and his or her employment with Seller or any ERISA Affiliate.

(y)“Environmental Laws” means all federal, state, provincial, local and foreign Applicable Laws, directives and guidance relating to pollution or protection of the environment, natural resources and the protection of human health, including laws and regulations relating to emissions, discharges, releases or threatened releases of Hazardous Substances, or otherwise relating to the manufacture, processing, registration, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances or any products or waste containing a Hazardous Substance.

(z)“Equipment” means the machinery, test and other equipment, toolings, dies, jigs, spare parts, office furniture, office equipment and office supplies, hardware, computer hardware and all other tangible personal property of the Acquired Business utilized exclusively by the Seller in the Acquired Business, including without limitation the items listed on Schedule 1.1(z)(i) (the “Included Equipment Assets”), but excluding the assets listed on Schedule 1.1(z)(ii) (the “Excluded Equipment Assets”).

(aa)“ERISA” means the Employee Retirement Income Security Act of 1974, as the same may hereafter be amended from time to time.  Any reference to a specific section of ERISA shall refer to the cited provision as the same may be subsequently amended from time to time, as well as to any successor provisions.

(bb)“ERISA Affiliate” shall mean each subsidiary of Seller and any other person or entity under common control with Seller or any of its subsidiaries within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations issued thereunder.

(cc)“Excluded Assets” means (i) any asset that is listed on Schedule 1.1(cc), (ii) any asset that is not an Acquired Asset, (iii) any Contract that is not an Assumed Contract and (iv) any and all Excluded Technology.

5

(dd)“Excluded Technology” means the Technology which is not Transferred Technology.

(ee)“Execution Date” means the date of this Agreement.

(ff)“Facility Lease” means each lease for each Leased Real Property, each of which is set forth on Schedule 5.12.

(gg)“Governmental or Regulatory Authority” means any court, tribunal, arbitrator, authority, agency, bureau, board, commission, department, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, province, county, city or other political subdivision and shall include any stock exchange, quotation service and the National Association of Securities Dealers.

(hh)“GST” means all goods and services tax payable under the ETA or under any provincial legislation similar to the ETA and any reference to a specific provision of the ETA or any such provincial legislation shall refer to any successor provision thereto of like or similar effect;

(ii)“Hazardous Substance” means any substance, emission or material designated by any Governmental or Regulatory Authority to be toxic, hazardous, a pollutant or a waste, including without limitation, (i) any substance designated or listed as a “hazardous substance” under Section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 or the regulations adopted pursuant thereto; (ii) any substance designated or listed as a “hazardous substance” under Sections 307 or 311 of the Clean Water Act or the regulations adopted pursuant thereto; (iii) any substance defined, designated or listed as a “hazardous waste” under Section 1004(5) of the Resource Conservation and Recovery Act or the regulations adopted pursuant thereto or (iv) any other substance of the environment, emission or material, or public health and safety which is regulated by or may give rise to liability under any other laws that concern pollution or protection.

(jj)“Intellectual Property Rights” means any or all of the following and all statutory and/or common law rights throughout the world in, arising out of, or associated therewith: (i) all patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof (collectively, “Patents”); (ii) all inventions (whether patentable or not), invention disclosures and improvements, all trade secrets, proprietary information, know how and technology; (iii) all works of authorship, copyrights, mask works, copyright and mask work registrations and applications and all databases and data collections (including knowledge databases, customer lists and customer databases) and all industrial designs and any registrations and applications therefor (“Copyrights”); (iv) all trade names, logos, trademarks and service marks; trademark and service mark registrations and applications (“Trademarks”); (v)  all rights in Software; (vi) rights to Uniform Resource Locators, Web site addresses and domain names (“Web Properties”); (vii) any similar, corresponding or equivalent rights to any of the foregoing; and (viii) all goodwill associated with any of the foregoing.

6

(kk)“Inventory” shall mean all inventory exclusively related to the Acquired Business in which Seller has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work-in-progress and finished products.

(ll)“ITA” means the Income Tax Act (Canada), as it may be amended and superseded from time to time;

(mm)“Knowledge” with respect to the Seller, means (i) the actual knowledge of the following individuals: John Croteau, William Martin, Brian McAloon, Gerald McGuire, Tom Myrick, Jim Schmidt, Alice Valure, Paul Kramarz, Sanjeev Challa, Kamran Sharifi, Reddy Penumalli, Hari Surapaneni and Tony Zarola; and (ii) the knowledge of facts that such individuals would reasonably be expected to have after making due inquiry of the employees directly reporting to such individuals.

(nn)“Liabilities” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, determined or determinable, known or unknown, including those arising under any Applicable Law, action or governmental order and those arising under any contract.

(oo)“Licensed AFEs” shall have the meaning attributed thereto in the Licensing Agreement.

(pp)“Licensed Intellectual Property Rights” means all Intellectual Property Rights owned or licensable by Seller that are licensed to Purchaser under the Licensing Agreement.

(qq)“Licensee Exclusive Field of Use” shall have the meaning attributed thereto in the Licensing Agreement.

(rr)“Licensee Non-Exclusive Field of Use” shall have the meaning attributed thereto in the Licensing Agreement.

(ss)“Licensing Agreement” means the agreement substantially in the form attached hereto as Exhibit D.

(tt)“Lien” means, with respect to any property or asset, any exception to title described in Schedule 1.1(tt), mortgage, lien, pledge, charge, security interest or other encumbrance, or restriction on transfer in respect of such property or asset, excluding only non-exclusive intellectual property licenses granted in the ordinary course of business.

(uu)“Material Adverse Effect” means any (i) change, event or effect that is materially adverse to the Acquired Business, Products or Acquired Assets or (ii) circumstance, change or event that materially impairs Purchaser’s ability to make, use, sell, license, distribute, market, build, modify, debug and operate the Products in substantially the same manner as Seller prior to the date of this Agreement; provided, however, that “Material Adverse Effect” shall not

7

include changes, events or effects that are the result of economic factors affecting the economy as a whole or that are the result of factors generally affecting the industry or specific markets in which the Acquired Business competes, or that is attributable to the announcement or performance of this Agreement.

(vv)“Non-U.S. Employee” means any person listed on Schedule 1.1(u) who is identified as being principally employed outside of the United States.  For these purposes, a person who is normally considered to be principally employed in the United States, but who is on ex-patriot status, will be considered to be principally employed in the non-United States jurisdiction in which he or she is performing services as an ex-patriot.

(ww)“Object Code” means computer software, substantially or entirely in binary form, which is intended to be directly executable by a computer after suitable processing and linking but without the intervening steps of compilation or assembly.

(xx)“Ordinary Course of Business” means the ordinary course of business, consistent with past practice (including with respect to quantity and frequency).

(yy)“Permits” means Seller’s interest in the governmental permits, authorizations, clearances, consents, licenses, registrations, orders and approvals, in each case solely related to the Acquired Business, set forth on Schedule 1.1(yy), to the extent such permits, authorizations, clearances, consents, licenses, registrations, orders and approvals are separately transferable to Purchaser.

(zz)“Permitted Liens” means those certain Liens: (a) for Taxes and other governmental charges and assessments which are not yet due and payable, (b) landlord’s, mechanic’s, materialmen’s and similar Liens incurred in the ordinary course of business for obligations which are not yet due and payable, (c) other Liens, not relating to borrowed money, on property which are not material in amount or do not materially impair the existing use of the property affected by such Lien, and (d) Liens in respect of pledges or deposits under workers’ compensation laws.

(aaa)“Person” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

(bbb)“Products” means all products of the Acquired Business described in Schedule 1.1(bbb).

(ccc)“Product Transition Agreement” means the agreement substantially in the form attached hereto as Exhibit C.

(ddd)“Purchase Price” means the price paid for the Acquired Business provided for in Section 3.1

8

(eee)“Purchaser Disclosure Schedules” means the Schedules delivered by the Purchaser to the Seller in connection with this Agreement.

(fff)“Purchaser Material Adverse Effect” means any change, event or effect that is materially adverse to the business, financial condition or results of operations of the Purchaser; provided, however, that “Purchaser Material Adverse Effect” shall not include changes, events or effects that are the result of economic factors affecting the economy as a whole or that are the result of factors generally affecting the industry or specific markets in which the Purchaser competes, or that is attributable to the announcement or performance of this Agreement.

(ggg)“Registered Intellectual Property Rights” means all United States, international and foreign: (i) patents and patent applications (including provisional applications); (ii) registered trademarks or service marks, applications to register trademarks or service marks, intent-to-use applications, or other registrations or applications related to trademarks or service marks; (iii) registered copyrights and applications for copyright registration; (iv) domain name registrations; (v) any other Intellectual Property Rights that are the subject of an application, certificate, filing, registration or other document issued, filed with, or recorded by Governmental or Regulatory Authority; and (vi) any other Intellectual Property Rights listed on Schedule 1.1(ggg).

(hhh)“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

(iii)“Seller Disclosure Schedules” means the Schedules delivered by the Seller to the Purchaser in connection with this Agreement.

(jjj)“Seller’s Retained Environmental Liabilities” shall mean any liability, obligation, judgment, penalty, fine, cost or expense, of any kind or nature, or the duty to indemnify, defend or reimburse any Person arising out of: (i) the presence, on or before the Closing, of any Hazardous Substances in the soil, groundwater, surface water, air or building materials of any Business Facility (“Pre-Existing Contamination”); (ii) the migration at any time prior to or after the Closing of Pre-Existing Contamination to any other real property, or the soil, groundwater, surface water, air or building Substances thereof; (iii) any Hazardous Substances Activity conducted on any Business Facility prior to the Closing or otherwise occurring prior to the Closing in connection with or to benefit the Acquired Business (“Pre-Closing Hazardous Substances Activities”); (iv) the exposure of any person to Pre-Existing Contamination or to Hazardous Substances in the course of or as a consequence of any Pre-Closing Hazardous Substances Activities, without regard to whether any health effect of the exposure has been manifested as of the Closing; (v) the violation of any Environmental Laws by the Seller or its agents, employees, predecessors in interest, contractors, invitees or licensees prior to the Closing; (vi) any actions or proceedings brought or threatened by any third party with respect to any of the foregoing; and (viii) any of the foregoing to the extent they continue after the Closing.

(kkk)“Software” means any and all computer software and code, including assemblers, applets, compilers, Source Code, Object Code, data (including image and sound data), Development

9

Tools, design tools and user interfaces, in any form or format, however fixed.  Software shall include Source Code listings and documentation.

(lll)“Source Code” means computer software and code, in form other than Object Code form, including related programmer comments and annotations, help text, data and data structures, instructions and procedural, object-oriented and other code, which may be printed out or displayed in human readable form.

(mmm)“Subsidiaries” means AD Canada, ADBV and Analog Devices India Private Limited.

(nnn)“Tangible Assets” means the tangible assets (including Products, Included Equipment Assets, and Web Content) listed on Schedule 1.1(nnn).

(ooo)“Taxes” means all federal, state, provincial or local, income, payroll, withholding, VAT, excise, sales, use, goods and services, customs duties, personal property, use and occupancy, business and occupation, mercantile, real estate, ad valorem, capital stock and franchise or other taxes, and assessments and charges in the nature of taxes imposed by any governmental authority, including interest and penalties thereon and including estimated taxes.

(ppp)“Tax Returns” means all federal, state, provincial, local and foreign returns, estimates, information statements and reports filed with a taxing authority.

(qqq)“Technology” means all technology, technical and business information and all tangible embodiments of Intellectual Property Rights, including Software, Development Tools, systems, files, records, databases, drawings, artwork, designs, displays, audio-visual works, devices, hardware, apparatuses, documentation, prototypes, lab notebooks, development and lab equipment, methodologies, hardware, tools, manuals, specifications, flow charts, web pages, customer lists, electronic and other data, and other tangible embodiments of, or materials describing or disclosing, technical or business data, concepts, know-how, show-how, techniques, trade secrets, inventions (whether patentable or unpatentable), invention disclosures, algorithms, routines, formulae, processes, routines, files, processes, databases, works of authorship and the like.

(rrr)“Third Party Technology” means any Technology or Intellectual Property Rights of a third party or in the public domain, including open source, public source or freeware Technology or any modification or Derivative Work thereof, including any version of any Software licensed pursuant to any GNU general public license or limited general public license that was used in, incorporated into, integrated or bundled with any Technology or Intellectual Property Rights that has been, or is proposed to be, used or otherwise exploited by Seller for or in connection with the Acquired Business or that is otherwise reasonably required in order for Purchaser to use and fully exploit the Acquired Assets or carry on the Acquired Business following the Closing, or listed in Schedule 1.1(rrr).

10

(sss)“Third Party Technology Contracts” means all of the Contracts, listed on Schedule 1.1(sss), pursuant to which Seller acquired access or rights to any Third Party Technology.

(ttt)“Transferred Intellectual Property Rights” means all Intellectual Property Rights owned or transferable by Seller that are exclusively related to the operation of the Acquired Business, including Intellectual Property Rights listed or described in Schedule 1.1(ttt).

(uuu)“Transferred Patents” means those Patents which are included in Transferred Intellectual Property Rights.

(vvv)“Transferred Technology” means all Technology owned or transferable by Seller that are exclusively related to the operation of the Acquired Business, including the Technology constituting the Products and the Web Content, and including all Technology listed on Schedule 1.1(vvv).  To the extent that any Software constitutes Transferred Technology, all versions and releases of such Software, and Software from which such Software was derived, in both Source Code and Object Code form, shall be included as Transferred Technology.

(www)“Transition Services Agreement” means the transition services agreement substantially in the form attached hereto as Exhibit A with respect to specified services to be performed by Seller for Purchaser.

(xxx)“Net Inventory” means the gross value, at standard cost, of Inventory related to the Acquired Business that relates to all Products of the Seller, subject to the following adjustments (i) inventory greater than 12 months of age shall not be included; (ii) finished goods inventory where the cost is greater than the selling price is written down to market value; and (iii) inventory that is less than 12 months of age is subject to reserve based on a demand reserve calculation, which writes down the portion of inventory less than 12 months old that is in excess of the next 12 month’s demand forecast.  The demand reserve is subject to exception for new products that have been released in the last 6 quarters.

(yyy)“U.S. Employee” means any person listed on Schedule 1.1(u) who is identified as employed in the United States.  For these purposes, a person who is normally considered to be principally employed outside the United States, but who is on ex-patriot status in the United States, will be considered to be principally employed in the United States.

(zzz)“Web Content” means all content owned by Seller and exclusively related to the Acquired Business that is, has been or is intended to be displayed or available on Seller’s world wide web site at Uniform Resource Locator www.Analog.com, including the content and materials listed on Schedule 1.1(zzz).

(aaaa)Each of the following terms is defined in the Section set forth opposite such term:

11

Term	Section
401K Plan	7.12(g)
Acquisition Proposal	Section 7.5(a)
Added Patent	7.15(b)
Allocation	Section 7.14(a)
Cap Limitation	10.6(a)
Certified Closing Inventory	Section 1.1(n)
Charter Documents	Section 5.1
Closing	Section 4.1
COBRA	7.12(e)
Competitive Business Activity	9.1(a)
Copyrights	1.1(jj)
Customer Information	Section 5.12(f)
Deferred Revenue Accrual	Section 5.9
Employee Excluded Liabilities	7.12(f)
Environmental Permits	5.18(d)
ETA	4.6(a)
Excluded Contracts	Section 5.8
Excluded Equipment Assets	1.1(z)
Excluded Liabilities	Section 2.3
General Assignment	Section 4.3
Hazardous Substances Activity	Section 5.18(a)(i)
Included Equipment Assets	1.1(z)
Indemnified Party	10.2(b)
Indemnifying Party	10.2(b)
International Employee Plan	5.20(b)
IP Contracts	Section 5.14(m)
Leased Real Property	5.12(a)
Loss	Section 10.2(a)
M&A Qualified Beneficiaries	7.12(e)
Mediation	10.3(d)
Multiemployer Plan	5.20(b)
Nondisclosure Agreement	Section 7.4
Non-Paying Party	7.14(c)
Officer’s Certificate	Section 10.3(a)
Officer’s Closing Inventory Certificate	Section 8.3(k)
Open Source Materials	Section 5.14(x)
Patents	1.1(jj)
Paying Party	Section 7.14(c)
Pension Plan	5.20(b)
Potential Contributor	10.7(a)
Pre-Closing Hazardous Substances Activities	1.1(jjj)
Pre-Existing Contamination	1.1(jjj)

12

Term	Section
Prohibited Field of Use	9.1(a)
Purchase Price	Section 3.1
Purchaser	Preamble
Purchaser Indemnified Party	10.2(a)
Purchaser Indemnifying Party	10.2(b)
Purchaser Plan	7.12(g)
Restricted Employee	7.5(b)
Restricted Territory	9.1(a)
Seller	Preamble
Seller Financial Statements	Section 5.5(a)
Seller Indemnified Party	10.2(b)
Seller Indemnifying Party	10.2(a)
Selling Group	7.12(e)
Special Representations	10.1(b)(i)
Straddle Period Taxes	Section 7.14(c)
Third Party Claim	Section 10.4(a)
Trademarks	1.1(jj)
Transfer Taxes	Section 7.14(b)
Updated Schedules	Section 7.10
Use	Section 5.14(i)
Web Properties	1.1(jj)

(bbbb)As used herein, (i) the word “including” shall be deemed to mean “including without limitation”; and (ii) except as otherwise specified, the words “law” or “laws” shall be deemed to refer to any applicable federal, state, provincial or local statute, law, standard, ordinance, regulation, rule, license, permit, approval, order, judgment or award of any court or governmental authority.

ARTICLE II
PURCHASE AND SALE OF ACQUIRED ASSETS

Section 2.1. Purchase and Sale.   Upon the terms and subject to the conditions of this Agreement, at the Closing, Purchaser agrees to purchase from Seller, and Seller agrees to sell, convey, transfer, assign and deliver to Purchaser, the Acquired Assets, free and clear of all Liens.

Section 2.2. Excluded Assets.   Purchaser expressly understands and agrees that notwithstanding anything to the contrary in this Agreement, the Excluded Assets shall be excluded from the Acquired Assets and the Excluded Assets shall remain for all purposes the properties and assets of Seller.

Section 2.3. Assumption of Liabilities.  Upon and subject to the terms and conditions of this Agreement, at the Closing, Purchaser shall assume and agree to pay, perform and discharge when

13

due the Assumed Liabilities.  Except for the Assumed Liabilities, Purchaser is not assuming any liability or obligation of Seller (the “Excluded Liabilities”), whether known or unknown, fixed or contingent, and regardless of when such liabilities or obligations may arise or may have arisen or when asserted, and Seller shall remain responsible for the Excluded Liabilities.  The Excluded Liabilities shall include all Liabilities of Seller that are not Assumed Liabilities, including, without limitation: (i) all warranty and support obligations for Products sold by Seller prior to the Closing, or that may arise after the Closing with respect to completed Inventory included in the Acquired Assets and sold by Purchaser within 90 days after the Closing; (ii) any Employee Excluded Liabilities; (iii) claims for employment discrimination or wrongful termination of employment by Seller; (iv) property, real estate, employment or other taxes or governmental liabilities, including penalties and interest of Seller prior to Closing; (v) claims for death, personal injury, property damage or consequential, punitive, or other damages relating to or arising out of any business conducted by the Seller; (vi) the violation or alleged violation by Seller of any law, including but not limited to laws relating to civil rights, health, safety, labor, discrimination, and protection of the environment; (vii) claims of the Seller’s creditors against Seller; (viii) Seller’s Retained Environmental Liabilities; and (ix) any liability or obligation of Seller for costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby and all liabilities, including Taxes, arising from or related to Seller’s operations or ownership of the Transferred Technology and the Acquired Assets through the Closing Date, including Seller’s portion of any Straddle Period Taxes (as defined below).

Section 2.4. License Back. Subject to the terms and conditions of this Agreement, as of the Closing Date, Purchaser hereby grants to Seller a non-transferable (except as set forth below), non-sublicensable (except as set forth below), royalty-free, non-exclusive license under the Transferred Patents, in each jurisdiction where rights exist, to make, have made, use, sell, offer to sell and import the products of Seller excluding any product in the wired communications field that is: a DSL solution and/or a broadband network processor and/or router which has the primary purpose of providing network processing and/or routing.  Notwithstanding, it shall not be prohibited for Seller to conduct the activities described in Section 2.04(2) of the Licensing Agreement.  The Seller may grant sublicenses to the Transferred Patents (excluding sublicenses for the sublicensee to make or have made the Licensed AFE products for a party other than Seller), provided, however, that the terms and conditions of any such sublicenses provide (x) for all appropriate use restrictions, and (y) are comparable to those under which the Seller licenses its own valuable Intellectual Property Rights of a similar nature.  The licenses granted to the Seller pursuant to this Section 2.4 may not be transferred or assigned by the Seller, provided, however, Seller may transfer such license upon notice to Purchaser to a successor entity by way of a reorganization, merger or sale of all or substantially all of the assets of Seller.  Notwithstanding the foregoing, Seller may not transfer or assign (through merger, sale of asset or reorganization) the licenses granted herein with respect to Licensed AFEs to any successor entity that provides products or technology in the wired communications field that are: a DSL solution and/or a broadband network processor and/or router which has the primary purpose of providing network processing and/or routing.  Any assignment or transfer of the licenses granted to Seller in this Section 2.4 in violation of this Section 2.4 shall be null and void.  THE PARTIES ACKNOWLEDGE AND AGREE THAT THE TRANSFERRED

14

PATENTS ARE LICENSED BY PURCHASER TO SELLER “AS IS” WITHOUT ANY WARRANTY, INCLUDING ANY WARRANTY AS TO THE VALIDITY OF ANY CLAIM THEREIN.  Purchaser reserves all right, title and interest in all of its Intellectual Property Rights, including the Transferred Intellectual Property Rights that are not expressly granted by Purchaser in this Section 2.4.

ARTICLE III
PURCHASE PRICE; EMPLOYEE RETENTION BONUS

Section 3.1. Purchase Price.  The total purchase price for the Acquired Assets (the “Purchase Price”) shall consist of the following:

(a)The Closing Cash Payment, which shall be payable by Purchaser to Seller at Closing by wire transfer in accordance with written instructions delivered by Seller to Purchaser at least five business days prior to Closing.

Section 3.2. Employee Retention Bonus.  Seller shall reimburse Purchaser for up to Seven Hundred Fifty Thousand Dollars ($750,000) to be distributed by Purchaser following the twelve month anniversary of the Closing Date to Continuing Employees then still employed by the Purchaser, in the allocations set forth on Schedule 3.2; provided, however, that in the event any person listed on Schedule 3.2 does not agree to accept employment with the Purchaser upon the Closing, the amounts so allocated to such person on Schedule 3.2 may be re-allocated by Purchaser prior to the Closing Date to any other Employee listed on Schedule 3.2; and provided, further that Purchaser may, for its own account, negotiate additional retention bonus amounts above those specified during the period of time between the date hereof and the Closing Date (in which such case such reallocation or additions shall be set forth on an amended Schedule 3.2 to be delivered by Purchaser to Seller prior to the Closing).  Except as set forth in the preceding sentence, any amounts allocated to a Continuing Employee pursuant to Schedule 3.2 who is not so employed upon the twelve month anniversary shall not be reallocated and Seller shall have no reimbursement obligations with respect to any such amounts.

Section 3.3. Post-Closing Inventory Adjustment.  Not later than 60 days after the Closing, the Actual Closing Inventory shall be calculated and the purchase price shall be adjusted if required, as set forth above in the definition of “Actual Closing Inventory.”

ARTICLE IV
CLOSING AND DELIVERIES

Section 4.1. Closing .  The closing (the “Closing”) of the purchase and sale of the Acquired Assets hereunder shall take place at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California, as soon as possible, but in no event later than two business days after satisfaction of the conditions set forth in Article VIII, or at such other time or place as Seller and Purchaser may agree.

15

Section 4.2. Delivery of Acquired Assets.

(a)On the Closing, Seller shall in the manner and form, and to the locations, reasonably specified by Purchaser, (i) deliver to Purchaser or other entit(ies) designated by Purchaser, all of the Acquired Assets (the cost of which such delivery, if to a site other than the current locations of the Acquired Business, shall be borne by Purchaser), (ii) fully disclose to Purchaser all Technology in the Acquired Business and the Acquired Assets to the extent not otherwise disclosed on the Seller Disclosure Schedules, and (iii) in the case of the Transferred Intellectual Property Rights or other intangible assets, deliver such instruments as are reasonably necessary or desirable to document and to transfer title to such assets from Seller to Purchaser in accordance with Section 4.3 below.  Without limiting the foregoing, all Software included in the Transferred Technology shall, at Purchaser’s request, be delivered to Purchaser by electronic means.

(b)To the extent that Purchaser cannot be granted possession by Seller in respect of certain Acquired Assets as of the Closing, those Acquired Assets shall be held by Seller for and on behalf of Purchaser until such time as Purchaser or its designee is granted possession thereof.

Section 4.3. Assignments .  Without limiting the foregoing, at the Closing, Seller shall deliver to Purchaser, duly executed by Seller:

(a)a General Assignment and Bill of Sale substantially in the form of Exhibit B hereto (the “General Assignment”);

(b)assignments of the Transferred Intellectual Property Rights in forms reasonably acceptable to Purchaser and otherwise suitable for filing in all relevant jurisdictions, including the Copyright registrations and assignments, the Patent assignments, Web Properties and the Trademark assignments;

(c)such other good and sufficient instruments of conveyance, assignment and transfer, in form and substance reasonably acceptable to Purchaser’s counsel, as shall be effective to vest in Purchaser good and valid title in and to the Acquired Assets;

(d)all of the Assumed Contracts.  For each Assumed Contract for which consent has been obtained, Seller shall deliver to Purchaser a written agreement in a form reasonably satisfactory to Purchaser, signed by the party or parties (other than Seller) to such Assumed Contract pursuant to which such party or parties thereto consent to the transfer and assignment of such Assumed Contract to Purchaser;

(e)all documents containing or relating to “know-how” to be purchased by the Purchaser hereunder;

16

(f)all other previously undelivered documents required to be delivered by Seller (and in Seller’s possession or under its control) to the Purchaser at or prior to the Closing in connection with the transactions contemplated by this Agreement; and

(g)all such other assignments and other instruments as, in the opinion of Purchaser’s counsel, are necessary to vest in the Purchaser good, valid and marketable title to the Acquired Assets.

Section 4.4. Deliveries of Purchaser.  At the Closing the Purchaser shall deliver to Seller the payments provided in Section 3.1 hereof and the Instrument of Assumption of Liabilities substantially in the form of Exhibit E hereto.

Section 4.5. Further Assurances; Post-Closing Cooperation.

(a)At any time or from time to time after the Closing, at Purchaser’s request, at no cost to Purchaser and without further consideration, Seller shall execute and deliver to Purchaser such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions as Purchaser may reasonably deem necessary or desirable in order more effectively to transfer, convey and assign to Purchaser, and to confirm Purchaser’s title to, all of the Acquired Assets, and, to the full extent permitted by law, to put Purchaser in actual possession and operating control of the Acquired Assets and to assist Purchaser in exercising all rights with respect thereto, and otherwise to cause Seller to fulfill its obligations under this Agreement.

(b)Unless specifically authorized in writing by Purchaser, Seller shall not retain or use any copy of any Transferred Technology or any other Acquired Asset that is capable of being copied, including any software or materials constituting Transferred Technology.

Section 4.6. GST and Provincial Sales Tax

(a)Purchaser and AD Canada shall elect jointly pursuant to the provisions of subsection 167 of the Excise Tax Act (Canada) (“ETA”), by completing on or before the Closing Date all prescribed forms and related documents so that for purposes of the ETA, no tax is payable under the ETA in respect of the Acquired Assets.  Purchaser shall be responsible for filing the prescribed form within the prescribed time.

(b)AD Canada is registered for GST purposes pursuant to the ETA and its registration number is 89894 4566 RT0001.  The Purchaser is registered (or shall be registered prior to the Closing) for GST purposes pursuant to the ETA.

(c)Purchaser and AD Canada acknowledge and agree that AD Canada is selling the Acquired Assets outside the ordinary course of business for purposes of the Retail Sales Tax Act (Ontario), and the similar provisions of any other applicable provincial or territorial taxing statute

17

where the Acquired Business is conducted and AD Canada shall, therefore, not collect any Taxes from Purchaser under such Acts.

Section 4.7. Indian Asset Purchase Agreement.  At the Closing, each of Purchaser and Seller shall cause their respective Indian subsidiaries to deliver an executed asset purchase agreement for the disposition of all the Acquired Assets which are owned by Analog Devices India Private Limited (the “Indian Asset Purchase Agreement”).  The purchase price for such assets shall be that portion of the purchase price otherwise payable hereunder which the parties shall agree represents the fair market value of such assets.

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth in the Seller Disclosure Schedules, Seller represents and warrants, on behalf of itself and each of its Subsidiaries, to Purchaser that the statements contained in this Article V are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date, as if made on that date (except for representations and warranties expressly made only as of a specified date, which shall be true and correct in all respects as of such specified date).  Any disclosure made in the Seller Disclosure Schedule shall qualify other representations and warranties (or sections of representations and warranties) to the extent it is reasonably clear from a reading of the disclosure that such disclosure is applicable to such other representations and warranties (or sections of representations and warranties).  Unless the context otherwise requires, each reference to “Seller” is this Article V shall include reference to Seller and each of its Subsidiaries.

Section 5.1. Organization, Good Standing and Qualification.  Seller is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation, as set forth on Section 5.1 of the Seller Disclosure Schedule.  Seller has all full corporate power and authority to conduct its business as presently conducted and to own, use, license and lease its assets and properties.  Seller is duly qualified, licensed or admitted to do business and is in good standing as a foreign corporation in each jurisdiction in which the ownership, use, licensing or leasing of its assets and properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except where the failure to be so qualified, licensed or admitted would not have a Material Adverse Effect.  The Seller Disclosure Schedule sets forth a complete and accurate list of each jurisdiction where Seller is so qualified, licensed or admitted to do business relating to the Acquired Business.  Seller has made available to Purchaser a true and correct copy of the Articles of Organization and Bylaws, or comparable organizational documents, of such Seller, as amended through the date hereof (the “Charter Documents”), and each such instrument is in full force and effect.  Seller is not in violation of any of the provisions of its Charter Documents.  There are no proposed amendments to the Charter Documents.  The operations now being conducted by Seller relating to the Acquired Business have not now and have never been conducted under any other name.

18

Section 5.2. Corporate Authorization .  Seller has the requisite corporate power and authority to enter into this Agreement and the Ancillary Agreements to which it is a party and to perform its obligations hereunder and thereunder.  The execution and delivery of this Agreement and the Ancillary Agreements to which it is a party, and performance by Seller of its obligations hereunder and thereunder, have been duly authorized by all necessary corporate action on the part of Seller.  This Agreement constitutes, and the Ancillary Agreements to which it is a party, when executed and delivered by Seller, will constitute, valid and binding obligations of Seller, enforceable against the Seller in accordance with its respective terms, except (i) as may be limited by (x) applicable bankruptcy, insolvency, reorganization or others laws of general application relating to or affecting the enforcement of creditors’ rights generally and (y) the effect of rules of law governing the availability of equitable remedies and general principles of equity and (ii) as rights to indemnity or contribution may be limited under federal or state securities laws or by principles of public policy.

Section 5.3. Governmental Authorization; Consents.  No material consent, permit, qualification, waiver, approval, order or authorization of, or registration, declaration or filing with any Governmental or Regulatory Authority or any third party, including a party to any agreement with Seller (so as not to trigger a conflict), is required by or with respect to Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

Section 5.4. Noncontravention.  The execution, delivery and performance by Seller of this Agreement and each Ancillary Agreement to which Seller is a party and the consummation of the transactions contemplated hereby and thereby do not and will not (i) violate the Charter Documents of Seller, (ii) assuming compliance with the governmental matters disclosed in Section 5.3, violate in any respect any Applicable Law, rule, regulation, judgment, injunction, order or decree, (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the rights of Seller or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the Acquired Assets pursuant to, any Contract or obligation to which Seller is a party or by which the Acquired Business, Products or the Acquired Assets are bound or affected.

Section 5.5. Seller Financial Statements.

(a)The income statements specifically related to the Acquired Business for the fiscal years ended October 30, 2004 and October 29, 2005, fairly present the financial results of Seller for the respective periods indicated; provided, however, that such income statements are based on the combined revenues, expenses, assets and liabilities of Seller relevant to the Acquired Business, have been prepared solely for the purpose of this Agreement and the Acquired Business was not conducted as a standalone entity during such periods.  Such income statements were not necessarily prepared in accordance with generally accepted accounting principles, including with respect to the allocation or estimation of costs, operating expenses, assets and liabilities that were included in the

19

Acquired Business.  Such financial statements are hereinafter collectively referred to as the “Seller Financial Statements.”

(b)           As of the date hereof, Seller has no Liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured or unmatured relating to the Acquired Business, other than (i) as reflected on the Audited Financial Statements; (ii) as have arisen since the date of the most recent balance sheet contained in the Audited Financial Statements in the Ordinary Course of Business; and (iii) contractual and other liabilities incurred in the ordinary course of business which are not required by GAAP to be reflected on a balance sheet.   The Seller Disclosure Schedule separately identifies as of the date hereof (i) each Liability of Seller relating to the Acquired Business to any Employee, except for ordinary course liabilities to Employees such as accrued salaries, bonus, vacation and other benefits, or as otherwise disclosed under Schedule 5.20, and (ii) each Liability of Seller relating to the Acquired Business greater than $100,000.

(c)           A true and correct copy of the Seller Financial Statements is attached to the Seller Disclosure Schedule.

(d)           When delivered as contemplated by Section 8.3(n), the Audited Financial Statements shall be complete and correct in all material respects, will have been prepared in accordance with GAAP on a consistent basis throughout the periods indicated, and will fairly present the financial position of the Acquired Business as of the respective dates and for the respective periods indicated.

Section 5.6. Absence of Changes.  Since October 29, 2005, and except as contemplated by this Agreement, Seller has conducted the Acquired Business only in the Ordinary Course of Business and, without limiting the generality of the foregoing:

(a)           There has been no event or change in the condition (financial or otherwise), net worth, assets, operations, obligations or liabilities of the Acquired Business which, in the aggregate, have had or may be reasonably expected to have a Material Adverse Effect;

(b)           Seller has not mortgaged, pledged or otherwise encumbered any of the Acquired Assets;

(c)           Seller has not sold, assigned, licensed, leased, transferred or conveyed, or committed itself to sell, assign, license, lease, transfer or convey, any of the Acquired Assets, other than in the Ordinary Course of Business;

(d)           There has been no destruction of, damage to or loss of any of the Acquired Assets, ordinary wear and tear excepted;

20

(e)           Seller has not accelerated, terminated, modified or cancelled any agreement, contract, lease or license (or series of related agreements, contracts, leases, and licenses) involving the Acquired Business, other than in the Ordinary Course of Business;

(f)            Seller has not delayed or postponed the payment of material accounts payable and other Liabilities relating to the Acquired Business, other than in the Ordinary Course of Business;

(g)           Seller has not advanced delivery dates of Products ahead of the customer’s requested delivery dates;

(h)           Seller has not delayed orders to suppliers relative to usual and customary order dates;

(i)            Seller has taken all actions reasonably required to maintain, renew, or enforce any Registered Intellectual Property Rights, including submission of required documents or fees during the prosecution of patent, trademark or other applications for Registered Intellectual Property Rights;

(j)            Seller has not made or agreed to make any transfer (by way of a license or otherwise) to any Person of any right to any Transferred Intellectual Property Rights or Transferred Technology, other than non-exclusive licenses granted in the Ordinary Course of Business through the use of agreements that do not materially deviate from the forms of agreement previously provided to Purchaser;

(k)           Seller has not cancelled, compromised, waived or released any right or claim (or series of related rights and claims) relating to the Acquired Business;

(l)            Seller has not entered into any capital commitments in relation to any of the Acquired Assets or the Acquired Business;

(m)          No litigation has been commenced or, to the Knowledge of Seller, threatened and to the Knowledge of Seller, no reasonable basis exists for any litigation, proceeding or investigation against Seller related to the Acquired Assets;

(n)           To the Knowledge of Seller no litigation has been commenced or threatened against any Continuing Employee related to the Acquired Assets;

(o)           There has been no written notice of any claim or potential claim of ownership by any Person other than Seller of the Transferred Technology or the Transferred Intellectual Property Rights, or of infringement by the Acquired Business of any other Person’s Intellectual Property Rights;

(p)           Seller has not received written notice of any claim or potential claim, and to the Knowledge of Seller, no basis exists for any claim that Seller has infringed the Intellectual Property Rights of any person or entity related to the Acquired Business; and

21

(q)           There has been no agreement by or on behalf of Seller to do any of the things described in the preceding clauses (a) through (o) (other than negotiations with Purchaser and their representatives regarding the transactions contemplated by this Agreement).

Section 5.7. Legal and Other Compliance.  Seller is in compliance in all material respects with all Applicable Laws that are related to or necessary for the operation of the Acquired Business.  No Action or Proceeding has been filed or commenced or, to the Knowledge of Seller threatened against Seller alleging any failure so to comply, nor, to the Knowledge of Seller is there any reasonable basis therefor.

Section 5.8. Assumed Contracts.  Except with respect to the Licensed Technology or as listed in Schedule 5.8 (the “Excluded Contracts”), the Assumed Contracts listed on Schedule 1.1(h) are all of the Contracts between Seller and any third party related to, or necessary for, the operation of the Acquired Business as currently conducted, and true and complete copies of all such Assumed Contracts have been delivered to Purchaser.  Each Assumed Contract is in full force and effect in accordance with its terms and, to the Knowledge of Seller, no third party to any such Assumed Contract is in material breach, violation or default thereunder.  Seller has neither materially breached, violated or defaulted under, nor received notice that Seller has breached, violated or defaulted under, any of the terms or conditions of any Assumed Contract.  All Contracts between Seller and any third party related to or necessary for the Acquired Business are listed in either Schedule 1.1(h) (Assumed Contracts) or Schedule 5.8 (Excluded Contracts) and complete copies of all such Contracts have been delivered to Purchaser or Purchaser’s counsel.

Section 5.9. Support and Service Contracts.  Schedule 5.9 sets forth a true and complete list of all Contracts pursuant to which Seller is obligated (or will be obligated at Closing) to provide support, service and maintenance to customers of the Acquired Business, together with the amounts of deferred revenue which are associated with the executory support and service obligations under such Contracts (each, a “Deferred Revenue Accrual”).  Each Deferred Revenue Accrual is as reflected in the Books and Records and has been accrued in accordance with GAAP, consistently applied, and each arose in the Ordinary Course of Business.

Section 5.10. No Liquidation, Insolvency, Winding Up.

(a)           No order has been made or petition presented, or resolution passed for the winding-up or liquidation of Seller and there is not outstanding:

(i)          any petition or order for the winding-up of Seller;

(ii)         any appointment of a receiver over the whole or part of the undertaking of assets of Seller;

(iii)        any petition or order for administration of Seller;

(iv)        any voluntary arrangement between Seller and its creditors;

22

(v)         any distress or execution or other process levied in respect of Seller which remains undischarged; or

(vi)        any unfulfilled or unsatisfied judgment or court order against Seller.

(b)           Seller is deemed able to pay its debts within the meaning of Applicable Law.

(c)           The operations of Seller have not been terminated.

Section 5.11. Restrictions on Business Activities.  Other than (i) the provisions of the following nature provided in the Assumed Contracts, which provisions have not been redacted or (ii) such provisions that are disclosed in the Seller Disclosure Schedule, there is no agreement (noncompetition, field of use, most favored nation or otherwise), commitment, judgment, injunction, order or decree relating to the Acquired Business, Products or Acquired Assets which has or reasonably could be expected to have the effect of prohibiting or impairing Seller from (a) any practice of the Acquired Business, (b) making any acquisition of property (tangible or intangible) in connection with the operation of the Acquired Business or the Acquired Assets, (c) conducting the Acquired Business or (d) prohibiting the transactions contemplated by this Agreement and the Ancillary Agreements.  Other than (i) the provisions of the following nature provided in the Assumed Contracts, which provisions have not been redacted or (ii) such provisions that are disclosed in the Seller Disclosure Schedule, Seller has not entered into any agreement under which the operations of the Acquired Business are restricted or which places any restrictions upon Seller with respect to selling, licensing or otherwise distributing any of the Products or the Transferred Technology to or providing services to, customers or potential customers or any class of customers, in any geographic area, during any period of time or in any segment of the market.

Section 5.12. Title to Properties, Absence of Liens, Condition of Equipment.

(a)           Neither Seller nor any of its Affiliates owns any real property in connection with the Acquired Business.  Schedule 5.12 sets forth a list of all real property currently leased by Seller or any of its Affiliates in connection with the Acquired Business (the “Leased Real Property”), the name of the lessor, the name of the lessee and the date of the lease and each amendment thereto.  Seller has delivered to Purchaser a true and correct copy of each Facility Lease.  Such leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any material existing default or event of default (or event which with notice or lapse of time, or both, would constitute a material default) by Seller or any of its Affiliates or, to the Knowledge of the Seller, by any other party thereto.  The business operations conducted by the Acquired Business subject to such leases does not materially violate any Applicable Law, building code or zoning requirement or classification relating to the particular property or such operations.  All material approvals of governmental authorities (including licenses and permits) required in connection with the operation of the Acquired Business on such Leased Real Property have been obtained.

23

(b)           Seller and its Affiliates have completed any and all registration requirements associated with any Facility Lease and paid all fees associated therewith.  To the Knowledge of the Seller, there are no pending or threatened condemnation or eminent domain actions or proceedings, or any special assessments or other activities of any public or quasi-public body against the Leased Real Property.  Under the present circumstances (prior to the assignment of any Facility Lease in conjunction with this transaction), upon expiration of any Facility Lease that is to be assumed by Purchaser, the Seller or Seller Affiliate that is the tenant under such Facility Lease will not be required to expend more than $10,000 to restore the Leased Real Property.

(c)           Each of Seller and its Affiliates has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, each Acquired Asset (including without limitation, Transferred Intellectual Property Rights and Transferred Technology) being transferred to Purchaser free and clear of any Liens (including any Liens created as a result of the consummation of the transactions contemplated hereby), other than Permitted Liens.  Other than Permitted Liens, the only Liens encumbering any Acquired Asset are the Liens listed on Schedule 1.1(tt), which Liens shall be removed prior to Closing.  To the Knowledge of Seller, no basis exists for the assertion of any claim which, if adversely determined, would result in a Lien on any Acquired Asset or otherwise adversely affect the Acquired Business, any Product or any Acquired Asset.

(d)           Schedule 1.1(nnn) lists all Tangible Assets owned or leased by Seller and its Affiliates for use in the Acquired Business, and such Tangible Assets and Equipment are (i) adequate for the conduct of the Acquired Business by Seller as currently conducted and as currently contemplated to be conducted, and (ii) in good operating condition, regularly and properly maintained, subject to normal wear and tear.  Schedule 1.1(nnn) identifies where each Tangible Asset (excluding Products, Equipment, and Web Content) is located and whether such Tangible Assets and Transferred Technology are leased to Seller (and, if so, by which lessor).

(e)           Seller (itself or through its Affiliates) is in custody and control of all the Acquired Assets being sold and transferred by Seller to Purchaser pursuant to this Agreement and the Ancillary Agreements.

(f)            Seller and its Affiliates have sole and exclusive ownership, free and clear of any Liens, of all customer lists, customer contact information, customer correspondence and customer licensing and purchasing histories relating to the current, former and reasonably anticipated future customers of the Acquired Business in the possession, custody or control of Seller (the “Customer Information”).  No Person other than Seller possesses any claims or rights with respect to use of the Customer Information.

Section 5.13. Customers and Sales.  Schedule 5.13 contains Seller’s list (for a period covering the three prior fiscal years), of all present and reasonably anticipated customers of the Acquired Business together with summaries of the sales made to each customer, as applicable.

24

Section 5.14. Intellectual Property.

(a)           Schedules 1.1(ttt) and 1.1(vvv), listing or describing the Transferred Intellectual Property Rights (excluding Trade Secrets and Copyrights) and the Transferred Technology, respectively, are true, complete and accurate.  Schedule 1.1(bbb) is a true complete and accurate list of all Products developed (including those under development), made, distributed, marketed, supported, sold, leased or licensed in connection with the Acquired Business, in the five (5) years prior to Closing.

(b)           Schedule 1.1(ggg) lists of all Registered Intellectual Property Rights that is an Acquired Asset.  All such Registered Intellectual Property Rights are currently in compliance with formal legal requirements (including payment of filing, examination and maintenance fees and proofs of use), and are not subject to any unpaid maintenance fees or taxes or actions falling due within 90 days after the Closing Date, and all such Registered Intellectual Property Rights that are not applications are to Seller’s Knowledge valid, subsisting and enforceable (excluding applications).  All such Registered Intellectual Property Rights have been filed in Seller’s name or have been assigned to Seller and such assignments have been properly recorded prior to the Closing Date.  There are no proceedings or actions before any court or tribunal (including the PTO or equivalent authority anywhere in the world) related to any of the Transferred Intellectual Property Rights.

(c)           Seller owns exclusively, and has good and marketable title to all works of authorship and all associated copyrights that are Transferred Intellectual Property Rights and Licensed Intellectual Property Rights owned by Seller.  All Acquired Assets shall be fully transferable and alienable by Purchaser and all Licensed Intellectual Property Rights shall be licensable, subject to the terms of the Licensing Agreement.

(d)           To the extent that any Licensed Intellectual Property Rights owned by Seller, Transferred Intellectual Property Rights or item of Transferred Technology was originally owned or created by or for any third party, including any contractor or employee of Seller and any predecessor of Seller: (i) Seller has a written agreement with such third party or parties with respect thereto, pursuant to which Seller has obtained irrevocable, complete, unencumbered and unrestricted ownership and is the exclusive owner of, all such Technology and Intellectual Property Rights by valid assignment or otherwise and has requested the waiver of all non-assignable rights, including but not limited to all moral rights; (ii) the transfers and/or licenses from Seller to Purchaser hereunder do not violate such third party agreements; (iii) such third parties have not retained and do not have any rights or licenses with respect to the Licensed Intellectual Property Rights owned by Seller, Transferred Intellectual Property Rights or Transferred Technology; and (iv) no basis exists for such third party to challenge or object to this Agreement.

(e)           Seller has the full and unencumbered right to assign and transfer to Purchaser all of Seller’s rights in and under the Assumed Contracts that provide Intellectual Property Rights

25

without incurring, or causing Purchaser to incur, any obligation to any third party, including any royalty obligations not set forth in the Assumed Contracts.

(f)            No third party who has licensed or transferred any Intellectual Property Rights that are Transferred Intellectual Property Rights or Licensed Intellectual Property Rights to Seller has ownership rights or license rights to improvements, enhancements or derivative works made by Seller, its licensees or assignees in such Intellectual Property.

(g)           Except for non-exclusive rights granted in connection with the sale of products to customers in the ordinary course of business, Seller has not transferred ownership of, or granted any license of or right to use, or authorized the retention of any rights to use, or joint ownership of, any Transferred Intellectual Property Right to any other Person.

(h)           The Transferred Intellectual Property Rights and Licensed Intellectual Property Rights constitute all of the Intellectual Property Rights that are not Patents and Trademarks related to, used in, necessary to, or that would be infringed by, the current conduct of the Acquired Business (and as conducted in substantially the same manner following Closing) and the design, development, reproduction, distribution, marketing, manufacture, use, import, license and sale (“Use”) of Products, including Products or services currently under development.  To the Seller’s Knowledge, the Transferred Intellectual Property Rights and Licensed Intellectual Property Rights constitute all of the Patents related to, used in, necessary to, or that would be infringed by, the current conduct of the Acquired Business (and as conducted in substantially the same manner following Closing) and the Use of Products, including Products or services currently under development.  The Licensed Patents and Transferred Patents constitute all of the Patents Controlled by Seller that would be infringed by or are used in the current conduct of the Acquired Business (and as conducted in substantially the same manner following Closing) including the Use of Products, including Products or services currently under development.

(i)            The Transferred Technology constitutes all of the Technology (other than Patents and Trademarks (and with respect to Patents and Trademarks, to Seller’s Knowledge all such Patents and Trademarks)) related to, used in or necessary to the operation of the Acquired Business, as it currently is conducted (and as conducted in substantially the same manner following Closing), including, without limitation, Use of Products and services (including Products or services currently under development).

(j)            No government funding, facilities of a university, college, other educational institution or research center or funding from third parties was used in the development of the Transferred Intellectual Property or Transferred Technology, and no governmental entity, university, college, other educational institution or research center has any claim or right or to the Transferred Intellectual Property or Transferred Technology.  No current or former employee, consultant or independent contractor of Seller, who was involved in, or who contributed to, the creation or development of any Transferred Intellectual Property or Transferred Technology, has performed services for the government, a university, college, or other educational institution, or a research

26

center, during a period of time during which such employee, consultant or independent contractor was also performing services for Seller.

(k)           Seller has, and as a result of the transactions contemplated hereby, Purchaser will have, the right to use, pursuant to valid licenses, all Development Tools that are material to the Acquired Business or that are used in the Acquired Business, including the creation, modification, compilation, operation or support of Products and other Transferred Technology.

(l)            Schedule 1.1(rrr) lists all Third Party Technology that was, or is, used in, incorporated into, integrated or bundled with, any Technology that is or was Transferred Technology or Product and the related Third Party Technology Contracts.

(m)          Schedule 5.14(m) lists all material contracts, licenses or agreements to which Seller is a Party with respect to any Transferred Technology or the Transferred Intellectual Property Rights (the “IP Contracts”).  Seller is not in breach of nor has Seller failed to perform under, and, to Seller’s knowledge, no other party to any of the IP Contracts is in breach thereof or has failed to perform thereunder.

(n)           Neither (i) the operation of the Acquired Business as currently conducted, including the Use of the Products, by either Seller or, following the Closing, by Purchaser, nor (ii) the Acquired Assets (including the Transferred Technology) do or will: (A) infringe or misappropriate the Intellectual Property Rights that are not Patents and Trademarks of any Person; (B) violate the rights of any Person (including rights to privacy or publicity); or (C) constitute unfair competition or trade practices under the laws of any jurisdiction.  To Seller’s Knowledge, neither (i) the operation of the Acquired Business as currently conducted, including the Use of the Products, by either Seller or, following the Closing, by Purchaser, nor (ii) the Acquired Assets (including the Transferred Technology) do or will infringe or misappropriate any Patent and Trademark of any Person.  Seller has not received notice from any Person claiming that the operation of the Acquired Business or Use of any Product or Acquired Asset (including Products, Transferred Technology or services currently under development) infringe or misappropriate the Intellectual Property Rights of any Person or constitute unfair competition or trade practices under the laws of any jurisdiction (nor does Seller have knowledge of any basis therefor).

(o)           No licenses to Intellectual Property Rights that are not Patents and Trademarks or other consents are required from any third party to permit Purchaser to operate the Acquired Business or to fully exploit the Acquired Assets.  To Seller’s Knowledge no licenses to Patents and Trademarks are required from any third party to permit Purchaser to operate the Acquired Business or to fully exploit the Acquired Assets.

(p)           There are no Contracts between Seller and any other Person with respect to the Acquired Business or the Acquired Assets, including the Transferred Intellectual Property, under which there is any dispute (or to the Knowledge of Seller any threatened dispute) regarding the scope of such Contract or performance under such Contract.

27

(q)           Seller does not have any currently pending claim against any third party for infringing or misappropriating any Transferred Intellectual Property Rights and, to the Knowledge of and Seller, no Person is infringing or misappropriating the Transferred Intellectual Property Rights.

(r)            Seller does not have any knowledge of any facts or circumstances that would render any of the Transferred Intellectual Property Rights invalid or unenforceable.

(s)           Seller has taken all reasonable steps that are required to protect Seller’s rights in confidential information and trade secrets of Seller associated with or related to the Acquired Business, the Products or the Acquired Assets.

(t)            Except for nonexclusive written licenses granted to customers in the ordinary course of business to the software identified on Schedule 5.14(t), no third party possesses any copy of any Source Code to any Software that is Transferred Technology (including any Product) and Seller shall have delivered to Purchaser all copies, and Seller shall not have retained any copy, of any Source Code to any Software that is Transferred Technology.

(u)           Seller has and enforces a policy requiring each employee and consultant of Seller to execute a proprietary rights and confidentiality agreement substantially in the form provided to the Purchaser and all current and former employees and consultants of Seller who have created or modified any of the Transferred Intellectual Property Rights or Transferred Technology have executed such an agreement assigning all of such employees’ and consultants’ rights in and to the Transferred Technology and the Transferred Intellectual Property Rights to Seller.  No Person has the legal right to assert moral rights and similar rights of attribution with respect to any use, modification or distribution of any Transferred Intellectual Property Rights or Transferred Technology.

(v)           The assignment to Purchaser of any Assumed Contracts will not result in: (i) Purchaser granting to any third party any right to or with respect to any Technology or Intellectual Property Right owned by, or licensed to, Purchaser (other than the Transferred Intellectual Property Rights or Transferred Technology); (ii) Purchaser being bound by, or subject to, any non-compete or other restriction on the operation or scope of its businesses; (iii) Purchaser being obligated to pay any royalties or other amounts to any third party in excess of those payable by Seller prior to the Closing; or (iv) conflict with or breach of any Assumed Contract.  Notwithstanding the foregoing, Seller makes no representation regarding any agreement or Contract to which Seller was not or is not a party.

(w)          Seller has disclosed in writing to Purchaser all information relating to any material problem or issue with respect to any of the Products (or any other product, Technology or service of Seller).  Without limiting the foregoing, there have been, and are, no claims asserted against Seller related to the Products.

(x)            Schedule 5.14(x) sets forth all Intellectual Property Rights and Technology of a third party or in the public domain, including “free software”, “open source software” or under a

28

similar licensing or distribution model (including but not limited to the GNU General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community Source License (SCSL) the Sun Industry Standards License (SISL) and the Apache License) (“Open Source Materials”), that was used in, incorporated into, integrated or bundled with any item of Products, Transferred Intellectual Property Rights or Transferred Technology that is, or was, used in the Acquired Business, or incorporated in or used in the development or compilation of any Products, Transferred Intellectual Property Rights or Transferred Technology; and (2) describes the manner in which such Open Source Materials were used (such description shall include, without limitation, whether (and, if so, how) the Open Source Materials were modified and/or distributed by (or on behalf of) Seller) and how such materials are combined or connected with any non Open Source Materials hat are Transferred Intellectual Property Rights.

Section 5.15. Litigation.  There is no Action or Proceeding specifically naming the Seller pending or, to the Knowledge of the Seller, threatened against, relating to or affecting directly the Acquired Business, any Product, any Acquired Asset or any Continuing Employee, or that questions the validity of this Agreement or of any action taken or to be taken pursuant to or in connection with this Agreement.  To the Knowledge of the Seller, there is no reasonable basis for any such Action or Proceeding.  There are no judgments, orders, decrees, citations, fines or penalties (including without limitation any that would restrict in any manner the use, transfer or licensing or may affect the validity, use or enforceability of the Acquired Assets or Licensed Intellectual Property Rights) heretofore assessed against Seller relating to the Acquired Business, any Product, any Acquired Asset or any Continuing Employee under any federal, state, local or foreign law.  No Governmental or Regulatory Authority has at any time challenged or questioned in writing, or to the Knowledge of Seller, otherwise challenged or questioned, the legal right of Seller to conduct the Acquired Business as currently conducted and as proposed to be conducted, including the right to manufacture, offer or sell any Product.

Section 5.16. Tax Matters.

(a)           To the extent relevant to the Acquired Assets, the Products or the Acquired Business, as of the Closing Date, Seller will have prepared and timely filed all Tax Returns relating to any and all Taxes concerning or attributable to Seller or its operations and such Tax Returns are true and correct and have been completed in accordance with Applicable Law.

(b)           To the extent failure to do so could adversely impact Purchaser, the Acquired Business, the Products, the Acquired Assets or Purchaser’s use or ownership of the Acquired Assets or operation of the Acquired Business, as of the Closing Date, Seller (i) will have timely paid all Taxes it is required to pay and (ii) will have timely withheld or paid (as the case may be) with respect to its employees all federal, state and foreign income taxes and social security charges and similar fees, Federal Insurance Contribution Act, Federal Unemployment Tax Act and other Taxes required to be withheld or paid.

29

(c)           To the extent failure to do so could adversely impact Purchaser, the Acquired Business, the Products, the Acquired Assets or Purchaser’s use or ownership of the Acquired Assets or operation of the Acquired Business, as of the Closing Date, Seller will not be delinquent in the payment of any Tax, nor will there be any Tax deficiency outstanding, assessed or proposed against Seller, nor has Seller executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax.

(d)           No audit or other examination of any Tax Return of Seller is presently in progress, nor has Seller been notified of any request for such an audit or other examination.

(e)           Seller has no, and knows no, factual basis for the assertion of any claim for any liabilities for unpaid Taxes of Seller for which Purchaser would become liable as a result of the transactions contemplated by this Agreement or that would result in any Lien on any of the Acquired Assets.

(f)            There are (and immediately following the Closing there will be) no Liens on the Acquired Assets relating to or attributable to Taxes that the Seller is required to pay, collect, remit or withhold and there are no judgments against the Seller for or with respect to any Taxes arising out of the operation of the Acquired Business.

(g)           AD Canada is a resident of Canada within the meaning of the ITA.

(h)           Except for AD Canada, no other Seller (i) carried on any business in Canada; (ii) owns any taxable Canadian property as that term is defined in the ITA; and (iii) will be selling any of the Acquired Assets to the Purchaser herein in Canada.

Section 5.17. Powers of Attorney.  There are no outstanding powers of attorney executed on behalf of Seller in respect of the Acquired Business, the Products or Acquired Assets, except as granted to Purchaser hereunder.

Section 5.18. Environmental Matters.

(a)           Definitions:  For purposes of this Agreement, the following terms shall have the meanings ascribed to them below:

(i)              “Hazardous Substances Activity” is the transportation, transfer, recycling, storage, use, treatment, manufacture, removal, remediation, release, sale, or distribution of any Hazardous Substance or any product or waste containing a Hazardous Substance, including, without limitation, any required labeling or payment of waste fees or charges (including so-called e-waste fees).

(b)           To the Knowledge of the Seller, as of the Closing, except in compliance with applicable Environmental Laws, no Hazardous Substances are present on any Business Facility currently owned, operated, occupied, controlled or leased by the Seller or any of its Affiliates for the

30

Acquired Business or were present on any other Business Facility at the time it ceased to be owned, operated, occupied, controlled or leased by the Seller or any of its Affiliates for the Acquired Business.

(c)           The Seller and its Affiliates have conducted all Hazardous Substance Activities relating to the Acquired Business in compliance in all material respects with all applicable Environmental Laws.  To the Knowledge of Seller, no claims have been asserted against Seller or its Affiliates resulting from exposure of any person to a Hazardous Substance resulting from the Hazardous Substances Activities of the Seller or any of its Affiliates with respect to the Acquired Business.

(d)           Schedule 5.18(d) accurately describes all of the permits required under any Environmental Laws (“Environmental Permits”) currently held by the Seller and its Affiliates relating to the Acquired Business and the listed Environmental Permits are all of the Environmental Permits necessary for the continued conduct of any Hazardous Substance Activity of the Seller and its Affiliates relating to the Acquired Business as such activities are currently being conducted.  All such Environmental Permits are valid and in full force and effect.  The Seller and its Affiliates have complied in all material respects with all covenants and conditions of any Environmental Permit which is or has been in force with respect to its Hazardous Substances Activities.

(e)           Schedule 5.18(e) identifies which of Seller’s products are manufactured in a lead (Pb)-free version (containing less than the threshold amounts of hazardous substances regulated by the European Directive 2002/95/EC restriction on the use of certain hazardous materials, as amended) and provides material content declarations for each product currently available.

(f)            The Seller has delivered to Purchaser or made available for inspection by Purchaser and its agents, representatives and employees all documents in the Seller’s or any Affiliate’s possession concerning the Hazardous Substances Activities of the Seller relating to its Acquired Business and all environmental audits and environmental assessments of any Business Facility at which the Acquired Business is conducted at the request of, or otherwise in the possession of Seller or any of its Affiliates.

Section 5.19. Brokers’ and Finders’ Fees.  Except as set forth in the Seller Disclosure Schedules, Seller has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby.

Section 5.20. Employee Matters.

(a)           Continuing Employees of Acquired Business.

(i)           Schedule 5.20(a) contains a complete and accurate list as of January 10, 2006 of Employees, showing for each such Employee: (i) name, position held, annualized base salary, target incentive compensation and equity compensation to each such individual, or any

31

person connected with any such individual, and includes, if any, the total bonus payments in calendar 2005, (ii) the date of hire, (iii) leave status (including type of leave, expected return date for non-disability related leaves and expiration dates for disability leaves, if any), (iv) visa status, and (vi) the name of any union, collective bargaining agreement or other similar labor agreement covering such Employee, and a list of contractors, showing for each such contractor, (i) name, (ii) location, (iii) role, for contractors in Canada, or designation and group for contractors in India, (iv) compensation, (v) contract start date and where applicable, end date, and (vi) in India, the identity of the third party agency providing such contractors and its related fee.

(b)           Employee Plans.

(i)            Definitions.  The following terms, when used in this Section 5.20(b), shall have the following meanings:

(1)             “International Employee Plan” shall mean each Benefit Plan that has been adopted or maintained by Seller or an ERISA Affiliate, whether informally or formally, or with respect to which Seller or any ERISA Affiliate will or may have any liability, for the benefit of any Non-U.S. Employees.

(2)             “Multiemployer Plan” means any Pension Plan which is a “multiemployer plan,” as defined in Section 3(37) of ERISA.

(3)             “Pension Plan” shall mean each Benefit Plan which is an “employee pension benefit plan,” within the meaning of Section 3(2) of ERISA.

(ii)           Pension and Benefit Plans.

(1)             Neither Seller nor any ERISA Affiliate has, in the last five (5) years, maintained, established, sponsored, participated in, contributed to, or had or could have any obligation to, any (A) Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code, or (B) Multiemployer Plan.

(2)             Schedule 5.20(b)(ii)(2) contains a complete list of all Benefit Plans (including International Employee Plans), (a) for which Employees are eligible, (b) that currently provide benefits to Employees, or (c) that have provided, benefits to Employees for which the Seller or an ERISA Affiliate has outstanding liabilities with respect to such Employees.  Seller and, as applicable, its ERISA Affiliates, are in material compliance with the terms of, and all Applicable Laws for, each Benefit Plan intended to include a Code Section 401(k) arrangement including, but not limited to, ERISA and the Code.

(c)           Labor.  No work stoppage or labor strike against Seller or any ERISA Affiliate is pending, threatened or reasonably anticipated with respect to the Acquired Business.  Seller does not know of any activities or proceedings of any labor union to organize any current Employees (including Continuing Employees).  Seller is not presently, nor has it been in the past, a party to, or

32

bound by, any collective bargaining agreement or union contract with respect to Employees (including Continuing Employees) and no collective bargaining agreement is being negotiated with respect to Employees (including Continuing Employees).

Section 5.21. Warranties; Defects; Liabilities.  Each Product manufactured, sold, licensed, leased or delivered by Seller, and all services performed by Seller, have been in conformity with all applicable contractual commitments and all express and implied warranties except where the failure to be in such conformity would not have a Material Adverse Effect.  Except as disclosed in Schedule 5.21, there is no pending or, to Seller’s knowledge, threatened action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against Seller for replacement or repair thereof or other damages in connection therewith with respect to any Product.  No Product manufactured, sold, licensed, leased, or delivered by Seller, and no service performed by Seller, is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale, license or lease or beyond that implied or imposed by Applicable Law.  Schedule 5.21 includes copies of the standard terms and conditions of license or services for Seller used in the Acquired Business.

Section 5.22. Books and Records.  The Books and Records (a) are accurate in all material respects, (b) have been maintained in accordance with Applicable Laws and with generally accepted practices and standards in the jurisdiction(s) in which Seller operates and (c) are in Seller’s possession or under its control.

Section 5.23. Acquired or Licensed Assets.  Other than as set forth in the Transition Services Agreement, the Acquired Assets and the Licensed Intellectual Property Rights comprise all of the assets, properties and rights of every type and description (other than real property) used or developed by Seller or are sufficient for the conduct of the Acquired Business (and as conducted in substantially the same manner following Closing) by Seller and its Affiliates.  The Acquired Assets include all assets that are reflected in the Books and Records as assets of the Acquired Business.

Section 5.24. Affiliate Transactions.  No director or officer of Seller (a) owns, directly or indirectly, on an individual or joint basis (i) any interest in any Acquired Asset or (ii) any interest (other than a passive investment in less than five percent (5%) of the outstanding voting securities of a company that is required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended) in any Person that is a supplier, customer or competitor of the Acquired Business, (b) serves as an officer, director or employee of any person that is a supplier, customer or competitor of the Acquired Business where such relationship would be required to be disclosed pursuant to Regulation S-K, Item 404 promulgated under the Securities Exchange Act of 1934, as amended or (c) has received any loan from or is otherwise a debtor of or has made any loan to or is otherwise a creditor of Seller where such loan is secured by any of the Acquired Assets.

33

ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Except as set forth in the Purchaser Disclosure Schedule delivered to Seller in connection with this Agreement, Purchaser represents and warrants to Seller as of the date of this Agreement and as of the Closing Date that:

Section 6.1. Organization, Qualification and Corporate Power.  The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  The Purchaser is duly qualified to conduct business and is in corporate and tax good standing in the State of California and under the laws of each other jurisdiction in which the nature of its businesses or the ownership or leasing of its properties requires such qualification, except where the failure to be so qualified or in good standing would not have a Purchaser Material Adverse Effect.  The Purchaser has all requisite corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it.  The Purchaser has furnished or made available to the Seller complete and accurate copies of its Certificate of Incorporation and By-laws.

Section 6.2. Authorization of Transaction.  The Purchaser has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder.  The execution and delivery by the Purchaser of this Agreement and the consummation by the Purchaser of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Purchaser.  This Agreement has been duly and validly executed and delivered by the Purchaser and constitutes a valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms.

Section 6.3. Noncontravention.  Neither the execution and delivery by the Purchaser of this Agreement, nor the consummation by the Purchaser of the transactions contemplated hereby, will (a) conflict with or violate any provision of the charter or By-laws of the Purchaser, (b) require on the part of the Purchaser any filing with, or permit, authorization, consent or approval of, any Governmental or Regulatory Authority, (c) conflict with, result in breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party any right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument to which the Purchaser is a party or by which it is bound or to which any of its assets are subject, or (d) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Purchaser or any of its properties or assets.

ARTICLE VII
COVENANTS OF SELLER AND PURCHASER

Section 7.1. Access Pending the Closing.  During the period commencing on the date of this Agreement and continuing through the Closing Date, Seller will (i) afford to Purchaser and its representatives, at all reasonable times during normal business hours, full and complete access to the

34

Employees, and to Seller’s properties, contracts, Books and Records and other documents and data (including access to all Source Code related to the Products) related to the Acquired Business, (ii) furnish Purchaser and its representatives with copies of all such Contracts, Books and Records, and other existing documents and data related to the Acquired Business as Purchaser may reasonably request, and (iii) furnish Purchaser and its representatives with such additional financial (including Tax Returns and supporting documentation), operating, and other data and information as Purchaser may reasonably request, in each case relating to the Acquired Business.  No information or knowledge obtained in any investigation pursuant to this Section 7.1 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties hereto to consummate the transactions contemplated hereby.

Section 7.2. Operation of the Acquired Business by Seller.  Between the date of this Agreement and the Closing Date (except with respect to the Acquired Assets to be transferred under the Indian Asset Purchase Agreement, for which this Section 7.2 shall survive from the date of this Agreement until the closing of the Indian Asset Purchase Agreement), unless otherwise agreed in writing by Purchaser, Seller will and Seller will cause its Subsidiaries to:

(a)           except as otherwise allowed or required pursuant to the terms of this Agreement, conduct the Acquired Business in the Ordinary Course of Business;

(b)           pay the Liabilities of the Acquired Business when due;

(c)           pay or perform other obligations of the Acquired Business when due;

(d)           use commercially reasonable efforts to preserve intact the current business organization of Seller relating to the Acquired Business, keep available the services of the Employees (including providing reasonable cooperation to Purchaser in its efforts to hire the Employees upon the closing), and maintain the relations and goodwill with the suppliers, customers, distributors, licensors, licensees, landlords, trade creditors, employees, agents and others having business relationships with Seller relating to the Acquired Business, with the goal of preserving unimpaired the goodwill and ongoing business of the Acquired Business as of the Closing;

(e)           confer with Purchaser concerning business or operational matters relating to the Acquired Business of a material nature;

(f)            use commercially reasonable efforts to maintain all of the Acquired Assets in their current condition, ordinary wear and tear excepted;

(g)           maintain in full force all insurance policies currently in effect with respect to the Acquired Business, including any health and welfare renewals;

(h)           maintain the Books and Records in the usual, regular and ordinary manner, on a basis consistent with past practices;

35

(i)            refrain from requesting or inducing any customer to advance delivery dates ahead of usual and customary shipment dates; and

(j)            refrain from delaying placement of orders to suppliers and delaying receipt of delivery of such orders of the Acquired Business relative to usual and customary ordering practices.

Section 7.3. Conduct Prior to Closing.  Except as otherwise expressly permitted by this Agreement, between the date of this Agreement and the Closing Date  (except with respect to the Acquired Assets to be transferred under the Indian Asset Purchase Agreement, for which this Section 7.3 shall survive from the date of this Agreement until the closing of the Indian Asset Purchase Agreement), Seller will not, and Seller will not permit any of its Subsidiaries to, without the prior written consent of Purchaser, to the extent related to the Acquired Business:

(a)           take any action to impair, encumber or create a Lien (other than Permitted Liens) against the Acquired Assets;

(b)           other than for Contracts entered into in the Ordinary Course of Business, buy, or enter into any inbound license agreement with respect to, Third Party Technology or the Intellectual Property Rights of any third party to be incorporated in or used in connection with the Acquired Business or sell, lease or otherwise transfer or dispose of, or enter into any outbound license agreement with respect to, any of the Acquired Assets with any third party;

(c)           other than for Contracts entered into in the Ordinary Course of Business, enter into any Contract relating to (i) the sale or distribution of any Product, (ii) the provision of any services or (iii) any of the Acquired Assets;

(d)           change pricing or royalties charged to customers or licensees of the Acquired Business if such changes would require approval at a the level of product line manager or greater;

(e)           enter into any strategic arrangement or relationship, joint venture, development or joint marketing arrangement or agreement relating to the Acquired Business;

(f)            amend or modify, or violate the terms of, any of the Assumed Contracts;

(g)           revalue any of the Acquired Assets, including, without limitation, any writing down of the value of inventory or writing off of notes or accounts receivable, other than in the Ordinary Course of Business and in a manner consistent with past practice;

(h)           to the extent that doing so would adversely impact the Acquired Business in the hands of Purchaser, the Products and the Acquired Assets , make or change any election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes, in each case relating to the Acquired Business, the Products and the Acquired Assets;

36

(i)            commence or settle any Actions or Proceedings or obtain any releases of threatened Actions or Proceedings involving or relating to the Acquired Business;

(j)            take any action, or fail to take any action, which would intentionally result in any of the representations and warranties set forth in Article V not being true and correct in all material respect on and as of the Closing Date with the same force and effect as if such representations and warranties had been made on and as of the Closing Date;

(k)           file a petition in bankruptcy, make an assignment for the benefit of creditors or file a petition seeking reorganization or arrangement or other action under federal or state bankruptcy laws; or

(l)            take, or agree in writing or otherwise to take, any of the actions described in Section 7.3(a) through (k) above, or any other action that would prevent Seller from performing or cause Seller not to perform its covenants hereunder.

Section 7.4. Confidentiality.  Each of the parties hereto hereby agrees that the information obtained in any investigation pursuant to Section 7.1 hereof, or pursuant to the negotiation and execution of this Agreement or the effectuation of the transactions contemplated hereby, shall be governed by the terms of the Nondisclosure Agreement between Purchaser and Seller effective November 9, 2005 (the “Nondisclosure Agreement”).

Section 7.5. No Solicitation.

(a)           From and after the date of this Agreement until the earlier to occur of the Closing or termination of this Agreement pursuant to its terms, Seller will not, and Seller will cause its respective Affiliates, shareholders, directors, officers, employees, investment bankers, attorneys, agents and representatives not to, directly or indirectly (a) solicit, entertain, negotiate, encourage, enter into or consummate any Acquisition Proposal (as defined herein) by any person, entity, or group (other than Purchaser and its Affiliates, agents and representatives) or (b) share information concerning the Acquired Business or any material part of the Acquired Business, or afford access to the properties, Books or Records of Seller relating to the Acquired Business, or otherwise assist or facilitate, or enter into any agreement or understanding with, any person, entity or group (other than Purchaser and its Affiliates, agents, and representatives) in connection with any Acquisition Proposal.  For purposes of this Agreement, an “Acquisition Proposal” means any proposal or offer relating to any merger, consolidation, sale or license of substantial assets or similar transactions involving the Acquired Business (other than sales or licenses of assets or inventory in the Ordinary Course of Business or as permitted by this Agreement).  Seller will immediately cease any and all existing activities, discussions, or negotiations with any parties conducted heretofore with respect to any of the foregoing.  Seller will promptly (A) notify Purchaser if it receives any proposal or written inquiry or written request for information in connection with an Acquisition Proposal or potential Acquisition Proposal and (B) notify Purchaser of the terms and conditions of any such Acquisition Proposal including the identity of the party making an Acquisition Proposal.  In addition, from and after the date of this Agreement, until the earlier to occur of the Closing Date or termination of this

37

Agreement pursuant to its terms, Seller will not, and Seller will cause its respective Affiliates, shareholders, directors, officers, employees, investment bankers, attorneys, agents and representatives not to, directly or indirectly, make or authorize any public statement, recommendation or solicitation in support of any Acquisition Proposal made by any person, entity or group (other than Purchaser).

(b)           For a period of eighteen (18) months after the Closing Date, each party to this Agreement shall not, either alone or in conjunction with any other individual or entity, or directly or indirectly through its present or future Affiliates, (i) solicit or attempt to induce any Restricted Employee to terminate his or her employment or other service relationship with the other party or any Affiliate of the other party, or (ii) hire or attempt to hire any Restricted Employee or enter into or attempt to enter into any relationship, whether directly or indirectly, with the Restricted Employee in which the Restricted Employee will provide personal services; provided, that this clause (ii) shall not apply to any individual whose employment or other relationship with the other party or any Affiliate of the other party has been terminated for a period of six months or longer.  For purposes hereof, “Restricted Employee” means, with respect to the restriction on a party to this Agreement in this paragraph: any individual who (i) was an employee of the other party or any of their respective Affiliates on either the date of this Agreement or the Closing Date, other than an Employee, or (ii) provided personal services to the other party or any of their respective Affiliates, directly or indirectly, on either the date of this Agreement or the Closing Date, other than Employees.

Section 7.6. Notification of Certain Matters.  Seller shall give prompt notice to Purchaser of (a) the occurrence or non-occurrence of any event known to it that in its reasonable judgment is likely to cause any representation or warranty of Seller contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing, and (b) any failure of Seller to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 7.6 shall not (i) limit or otherwise affect any remedies available to the party receiving such notice or (ii) constitute an acknowledgment or admission of a breach of this Agreement.  No disclosure by Seller pursuant to this Section 7.6, however, shall be deemed to amend or supplement the Disclosure Schedule or prevent or cure any misrepresentations, breach of warranty or breach of covenant.

Section 7.7. Public Disclosure.  Neither party will issue any press release or make any other public announcement relating to the transactions contemplated by this Agreement without the prior consent of the other party, not to be unreasonably withheld, except that either party may make any disclosure required to be made under the securities laws and the rules and regulations of the Nasdaq Stock Market or the New York Stock Exchange, as the case may be.

Section 7.8. Consents.  Seller shall use its commercially reasonable efforts to obtain the consents, waivers and approvals under any of the Assumed Contracts or under any contractual restrictions relating to the Tangible Assets and Transferred Technology that are necessary to permit the transfer of such Assumed Contracts or Tangible Assets to Purchaser as may be required in connection with this Agreement; provided that no payment shall be required to be made in

38

connection therewith.  Purchaser shall reasonably cooperate in Seller’s efforts to obtain such consents, waivers and approvals.

Section 7.9. Applicable Laws.  Each of Purchaser and Seller will take all reasonable actions necessary to comply promptly with all Applicable Laws which may be imposed on such party with respect to this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby and will promptly cooperate with and furnish information to any other party hereto in connection with any such requirements imposed upon such other party in connection herewith or therewith.  Each party will take all reasonable actions to obtain (and will cooperate with the other parties in obtaining) any consent, authorization, order or approval of, or any registration, declaration, or filing with, or an exemption by, any Governmental or Regulatory Authority, or other third party, required to be obtained or made by such party or its subsidiaries in connection with this Agreement and the Ancillary Agreements and consummating the transactions contemplated hereby and thereby or the taking of any action contemplated by this Agreement or the Ancillary Agreements.

Section 7.10. Updated Schedules.  On the close of business that is two business days prior to the Closing Date, Seller will cause the Seller Disclosure Schedule to be updated to reflect the then-current circumstances and any resulting additions, deletions or modifications to the Schedules set forth herein since the date of this Agreement (the “Updated Schedules”); provided, however, that the delivery of any such updates pursuant to this Section 7.10 shall not affect the accuracy of such representations and warranties made by Seller under this Agreement as of the date hereof.  Such additions, deletions or modifications to the Seller Disclosure Schedule set forth herein shall be separately transmitted by facsimile to Purchaser and its counsel on such date and to the extent practicable shall be clearly marked to indicate the changes made to the then existing Seller Disclosure Schedule.

Section 7.11. Seller Closing Financial Statements.

(a)           The Seller shall use commercially reasonable efforts to cause the Audited Financial Statements to be delivered to the Purchaser as promptly as practicable.

Section 7.12. Covenants Regarding Continuing Employees.

(a)           Continuing Employees.  On the Closing Date, Employees who accept employment with Purchaser will be considered to have resigned from their employment with Seller or one of its Subsidiaries, as applicable, and Purchaser shall thereafter, either directly or through one of its subsidiaries, employ all such Continuing Employees on terms and conditions no less favorable than those provided to similarly situated employees of Purchaser.  Notwithstanding the foregoing, the Employees shall be offered such employment positions, base salary and grants by Purchaser of such number of restricted stock units, to be settled in shares of Purchaser common stock with no cash consideration to be paid by Employees for such shares, as set forth in a schedule previously provided and consented to by the Seller prior to the signing of this Agreement. Additionally and notwithstanding the foregoing, nothing in this Section 7.12(a) is intended to limit Purchaser’s ability and discretion, at any time on and after the Closing Date, to change or amend the base salary of

39

Continuing Employees or any other terms of employment of any of the Continuing Employees or adopt, change or amend any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation or employee benefits, including without limitation severance, termination pay, deferred compensation, performance awards, stock-related awards, or fringe benefits.  After the date of this Agreement, Seller shall permit Purchaser to review employee files (to the extent not in violation of Applicable Law), compensation data, and job information for the Employees.  After the date of this Agreement, Seller shall promptly provide, or cause its Subsidiaries to provide, Purchaser with copies of the employment files of all Employees and shall promptly provide any additional information about such Employees upon Purchaser’s reasonable request (in each case to the extent not in violation of Applicable Law).  After the date of this Agreement, Seller shall permit Purchaser to contact and meet with all Employees at Seller’s premises during normal business hours, and Seller shall cooperate fully with Purchaser in all such respects.  After the date of this Agreement, if Purchaser believes there is an employee of Seller dedicated to the Acquired Business who was not previously identified, then Seller may, in its reasonable discretion, permit Purchaser to offer employment to such individual subject to the terms applicable hereunder to an Employee.  Purchaser shall be responsible for any liability arising out of its decision to hire or retain, or not hire or not retain, any Employee or contractor (in each case excluding any severance obligations, other than as set forth in Section 7.12(f)(ii), on account of Seller’s termination of such Employee or contractor).

(b)           Employment Offers to U.S. Employees.  Prior to Closing, Purchaser shall make offers of “at-will” employment effective as of the Closing Date to certain U.S. Employees.  Any such “at-will” employment offers will (a) be contingent on Closing; (b) be subject to and in compliance with Purchaser’s standard human resources policies and procedures, including requirements for proof evidencing a legal right to work in the offeree’s country of current employment; and (c) have terms which will be determined by Purchaser in its sole discretion, subject to Section 7.12(a).  Except as limited by Section 7.12(c), the terms of a U.S. Employee’s employment with Purchaser shall be governed solely by any such employment agreement or arrangement entered into by and between Purchaser and the U.S. Employee, and Purchaser shall have no obligation to perform under or liability to the U.S. Employee with respect to any Employment Agreements entered into by and between Seller and the U.S. Employee that are in effect prior to the Closing Date, except with respect to obligations assumed under Section 7.12(h).

(c)           Waiver.  Seller hereby agrees to waive, but only with respect to their hiring or employment in connection with the Acquired Business, any condition or restriction that Seller may have the contractual right to impose on the hiring and employment of Employees by Purchaser.  Notwithstanding the foregoing, such waiver shall not include any waiver of the restrictions set forth in Section 7.5(b) and any non-solicitation provisions in any Employment Agreement between Seller and an Employee.

(d)           Employees.  Between the date of this Agreement and the Closing Date, Seller will notify Purchaser as soon as reasonably practicable of Employees who terminate or resign from their employment with Seller or one of its Subsidiaries.  Between the date of this Agreement and the

40

Closing Date, Seller will not, and Seller will not permit any of its Subsidiaries to, without the prior written consent of Purchaser:

(i)            terminate the employment of any Employee, except for cause as defined in an Employment Agreement or other arrangement entered into by and between Seller (or any of Seller’s Subsidiaries) and the Employee, or in the absence of such a definition or Employment Agreement or other arrangement, as defined by Applicable Law, provided Seller provides notice to Purchaser prior to any such termination;

(ii)           reassign any Employee to another business unit of Seller;

(iii)          hire any employees relating to the Acquired Business;

(iv)          change, increase or amend the rate of remuneration (cash, equity or otherwise) or any other terms of employment of any of the Employees or adopt, grant extend or increase the rate or terms of any bonus, insurance pension or other employee benefit plan, payment or arrangement made to, for or with any such Employees, except increases pursuant to any Applicable Law, rule or regulation and any changes communicated to Purchaser prior to the date of this Agreement;

(v)           grant any severance or termination pay (whether payable in cash, stock or other equity instruments) to any Employee; or

(vi)          adopt or amend any agreement with an Employee except in the Ordinary Course of Business, provided Seller provides notice to Purchaser within three (3) business days of Seller’s offer of employment or by the day before the Closing Date, if earlier.

(e)           COBRA Continuation Coverage.  Seller agrees and acknowledges that the selling group (as defined in Treasury Regulation Section 54.4980B-9, Q&A-3(a)) of which it is a part (the “Selling Group”) will continue to offer a group health plan to employees after the Closing Date and, accordingly, that Seller and the Selling Group shall be solely responsible for providing continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) to those individuals who are M&A qualified beneficiaries (as defined in Treasury Regulation Section 54.4980B-9, Q&A-4(a)) with respect to the transactions contemplated by this Agreement (collectively, the “M&A Qualified Beneficiaries”). Seller further agrees and acknowledges that in the event that the Selling Group ceases to provide any group health plan to any employee prior to the expiration of the continuation coverage period for all M&A Qualified Beneficiaries (pursuant to Treasury Regulation Section 54.4980B-9, Q&A-8(c)), then Seller shall provide Purchaser with (a) written notice of such cessation as far in advance of such cessation as is reasonably practicable (and, in any event, at least thirty (30) days prior to such cessation), and (b) all information necessary or appropriate for Parent or Purchaser to offer continuation coverage to such M&A Qualified Beneficiaries.

41

(f)            Employee Liability Claims.

(i)    As between the parties, the Seller and any ERISA Affiliate shall (i) sponsor and (ii) assume or retain, as the case may be, and be solely responsible for all of the following from and after Closing, which will be considered “Employee Excluded Liabilities” for purposes of this Agreement, including Section 2.3 hereof:

(1)           Employment Liabilities, including but not limited to payments or entitlements that Seller may owe or have promised to pay to any Employees, including wages, other remuneration, holiday or vacation pay, bonus, severance pay (statutory or otherwise), commission, pension contributions, taxes, and any other liability, payment or obligations related to Employees, consultants or contractors;

(2)           all payments with respect to the Employees that are due to be paid prior to or on the Closing Date (including, without prejudice to the generality of the foregoing, pension contributions, insurance premiums and taxation) to any third party in connection with the employment of any of the Employees; and

(3)           any non-forfeitable claims or expectancies of any Employees from their prior employment with Seller or an ERISA Affiliate which have been incurred or accrued on or prior to the Closing Date.

(ii)   All costs and disbursements, if any, incurred in connection with the termination by Seller of any employment of any Employee prior to or in connection with the Closing Date (including any Employee who does not accept an offer of employment with Purchaser) shall be borne by Seller; provided, however, that Purchaser shall promptly reimburse Seller for (A) up to $515,000 in actual costs and disbursements incurred by Seller or any of the Subsidiaries (1) in connection with the termination by Seller or any of the Subsidiaries within 120 days following the Closing of any Employees who do not become Continuing Employees or (2) in connection with the termination by Seller or any of the Subsidiaries of the first Employee listed on Schedule 7.12(f) within 120 days following the date on which such individual ceases to provide services under the Transition Services Agreement, plus (B) the actual costs and disbursements incurred by Seller or any of the Subsidiaries in connection with the termination by Seller or any of the Subsidiaries within 120 days following the Closing of all other Employees listed on Schedule 7.12(f);

(iii)  All costs and disbursements incurred in connection with the termination by the Purchaser of any employment of any Employee on or after the Closing Date shall be borne by the Purchaser.

(g)           Purchaser Employee Plans.

(i)      With respect to Continuing Employees, (i) Purchaser will allow such Continuing Employees and their eligible dependents to participate in the employee benefit plans maintained by Purchaser or its subsidiaries on terms no less favorable than those provided to similarly situated employees of Purchaser and its subsidiaries, (ii) each such Continuing Employee will receive credit for purposes of eligibility to participate and vesting under such plans for years of

42

service with Seller or any ERISA Affiliate prior to the Closing Date, and (iii) Purchaser will cause any and all pre-existing condition limitations, eligibility waiting periods and evidence of insurability requirements under any group health plans of Purchaser in which such Continuing Employees and their eligible dependents will participate to be waived and will provide credit for any co-payments and deductibles prior to the Closing Date for purposes of satisfying any applicable deductible, out-of-pocket or similar requirements under any such plans that may apply after the Closing Date.

(ii)     Purchaser shall cause a tax qualified defined contribution retirement plan established or maintained by Purchaser (the “Purchaser Plan”) to accept eligible rollover contributions as defined in Section 402(c)(4) of the Code) from Continuing Employees who were U.S. Employees (and any other Continuing Employee on the U.S. payroll) with respect to any account balance distributed to them on or as of the Closing Date by the Analog Devices, Inc. The Investment Partnership (the “401k Plan”). To the extent permitted by the Purchaser Plan, rollovers of outstanding loans from such 401k Plan shall be permitted. The distributions and rollovers described herein shall comply with Applicable Law and each party shall make all filings and take any actions required of such party under Applicable Law in connection therewith.

(iii)    Immigration Issues.      Purchaser shall assume any of Seller’s United States immigration related obligations and liabilities relating to Employees who are foreign nationals, such as (but not limited to), those arising in connection with filings by the Seller of Labor Condition Applications, nonimmigrant/immigrant visa petitions, and Applications for Alien Employment (Labor) Certification.

Section 7.12A.  Non-U.S. Employee employed in Canada.  Not less than five business days prior to the Closing Date, Seller shall notify Non-U.S. Employees employed in Canada about the sale of the Acquired Business to Purchaser.  Not less than five business days prior to the Closing Date, but effective as of the Closing Date, Purchaser shall offer employment to such Non-U.S. Employees.  Such offers of employment to be made by Purchaser shall be (a) conditional upon the completion of the Closing; (b) subject to and in compliance with Purchaser’s standard human resources policies and procedures including requirements for proof evidencing a legal right to work in Canada; and (c) have terms, including the position, salary and responsibilities of such Non-U.S. Employee, which will be determined by Purchaser in its sole discretion, subject to Section 7.12(a).  Except as limited in Section 7.12, the terms of a Non-U.S. Employee’s employment with Purchaser shall be governed solely by any such employment agreement or arrangement entered into by and between Purchaser and the Non-U.S. Employee, and Purchaser shall have no obligation to perform under or liability to the Non-U.S. Employees employed in Canada with respect to any Employment Agreements and other arrangements entered into by and between Seller and the Non-U.S. Employee that are in effect prior to the Closing Date.

Section 7.13. Attorney-in-Fact.  Effective on the Closing Date, Seller hereby constitutes and appoints Purchaser the true and lawful attorneys of Seller, with full power of substitution, in the name of Seller or Purchaser, but on behalf of and for the benefit of Purchaser to demand and receive from time to time any and all of the Acquired Assets and to make endorsements and give receipts and releases for and in respect of the same and any part thereof; provided, however, that if any of the

43

actions authorized by this Section 7.11(a) could reasonably be determined to result in a claim for indemnification by Purchaser against Seller, then Purchaser shall not take any such actions without complying with the procedures set forth in Article X of this Agreement.  Seller hereby acknowledges that the appointment hereby made and the powers hereby granted are coupled with an interest and are not and shall not be revocable by it in any manner or for any reason.  Seller shall deliver to Purchaser at the Closing an acknowledged power of attorney to the foregoing effect executed by Seller.

Section 7.14. Tax Matters.

(a)               Allocation of Purchase Price.  The parties hereto intend that the purchase be treated as a taxable transaction for federal and state income tax purposes.  Within thirty (30) days of the Closing Date, Purchaser shall provide Seller with an allocation among the Acquired Assets of the Purchase Price to the extent properly taken into account under Section 1060 of the Code and the regulations promulgated thereunder (the “Allocation”).  The Allocation shall be conclusive and binding upon Purchaser and Seller for all purposes, and the parties agree that all returns and reports (including IRS Form 8594) and all financial statements shall be prepared in a manner consistent with (and the parties shall not otherwise file a Tax return position inconsistent with) the Allocation unless required by the IRS or any other applicable taxing authority or applicable law.

(b)              Transfer Taxes.  Purchaser shall be responsible for and shall pay when due any GST, sales, use, excise or similar transfer taxes that may be payable in connection with the sale or purchase of the Acquired Assets (the “Transfer Taxes”).  The parties hereto shall cooperate with each other and use their commercially reasonable efforts to minimize such Transfer Taxes, including but not limited to the transfer of all Transferred Intellectual Property Rights, Transferred Technology, Web Content and other Acquired Assets by remote electronic transmission, and not in tangible form, to the maximum extent possible and the delivery of applicable exemption and resale certificates.

(c)               Responsibility for Taxes and Tax Returns.  In the case of any real or personal property taxes or any similar ad valorem taxes attributable to the Acquired Assets for which Taxes are reported for a period commencing before the Closing Date and ending thereafter (a “Straddle Period Taxes”), any such Straddle Period Taxes shall be prorated between Purchaser and Seller on a per diem basis.  The party required by law to pay any such Straddle Period Taxes (the “Paying Party”) to the extent such payment exceeds the obligation of the Paying Party hereunder shall provide the other party (the “Non-Paying Party”) with proof of payment, and within ten (10) days of receipt of such proof of payment, the Non-Paying Party shall reimburse the Paying Party for the Non-Paying Party’s share of such Straddle Period Taxes.  The party required by law to file a Tax Return with respect to Straddle Period Taxes shall do so within the time period prescribed by law.

(d)              Cooperation.  To the extent relevant to the Acquired Business or the Acquired Assets, each party shall (i) provide the other with such assistance as may reasonably be required in connection with the preparation of any Tax Return and the conduct of any audit or other examination by any taxing authority or in connection with judicial or administrative proceedings relating to any

44

liability for Taxes and (ii) retain and provide the other with all records or other information that may be relevant to the preparation of any Tax Returns, or the conduct of any audit or examination, or other proceeding relating to Taxes.  Seller shall retain all documents, including prior years’ Tax Returns, supporting work schedules and other records or information with respect to all sales, use and employment tax returns and, absent the receipt by Seller of the relevant tax clearance certificates, shall not destroy or otherwise dispose of any such records for six (6) years after Closing without the prior written consent of Purchaser.  Purchaser and Seller shall have executed the election referred to in Section 4.6 and Purchaser has possession of any and all executed forms required for filing the election.

(e)               Employee Withholding.  Purchaser shall prepare and furnish to each of the Continuing Employees who are U.S. Employees or are Non-U.S. Employees who are required to pay income taxes in the United States a Form W-2, which shall reflect all wages and compensation paid to such Continuing Employees for that portion of the calendar year in which the Closing Date occurs during which the Continuing Employees were employed by Seller and were employed in connection with the operation of the Acquired Business.  Seller shall furnish to Purchaser the Forms W-4 and W-5 of each such Continuing Employee.  Purchaser shall send to the appropriate Social Security Administration office a duly completed Form W-3 and accompanying copies of the duly completed Forms W-2.  It is the intent of the parties hereunder that the obligations of Purchaser and Seller under this Section 7.14(e) shall be carried out in accordance with Section 5 of Revenue Procedure 2004-53.

Section 7.15. Additional Delivery.

(a)               In the event of a breach of Section 5.23 above, Seller shall immediately transfer and deliver such tangible assets and tangible properties to Purchaser (excluding Intellectual Property Rights that are not Transferred Intellectual Property Rights).

(b)              If any Added Patent would be infringed by the current operation of the Acquired Business as conducted as of the Closing Date (and as conducted in substantially the same manner following Closing (including the Use of Products or services currently under development)), then each such Added Patent shall be deemed a Licensed Patent under the Licensing Agreement, notwithstanding the fact it is not listed as on the Appendix A to the Licensing Agreement.  For the purposes of this Section, “Added Patent” shall mean any Patent (1) Controlled by Seller as of the Closing Date that is not a Transferred Patent, or (2) that comes under the Control of Seller following the Closing Date (but prior to the one year anniversary of the Closing Date), including without limitation, any patent applications that have a first effective filing date after the Closing Date but prior to the one year anniversary of the Closing Date.

(c)               If, following the Closing Date, Purchaser or Seller identifies any Technology or Intellectual Property Rights of any third party which by the terms cannot be delivered or licensed to Purchaser under the terms of this Agreement and the Licensing Agreement, Seller shall use its commercially reasonable efforts to assist Purchaser in obtaining such delivery and sub-license or a stand-alone license from the third party owner of such Technology or right.

45

ARTICLE VIII
CONDITIONS TO CLOSING

Section 8.1. Conditions to Obligations of Seller and Purchaser.  The obligations of Seller and Purchaser to consummate the Closing are subject to the satisfaction or waiver in a writing (which waiver shall not be considered a waiver of any other provision of this Agreement unless it specifically so states) of the following conditions:

(a)               Antitrust Notification.  Any applicable waiting period under the merger, antitrust or competition laws of any applicable jurisdiction where the parties are required to submit premerger notification forms, relating to the sale and purchase of the Acquired Assets shall have expired or been terminated.

(b)              No Order.  No provision of any Applicable Law or regulation and no judgment, injunction, order or decree prohibiting the consummation of the Closing shall be in effect.

(c)               No Injunctions or Restraints; Illegality.  No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect, nor shall any proceeding brought by a Governmental or Regulatory Authority seeking any of the foregoing be pending.

(d)              Regulatory Consents and Approvals.  All consents, approvals and actions of, filings with and notices to any governmental or regulatory authority necessary to permit Seller and Purchaser to perform their obligations under this Agreement and to consummate the transactions contemplated hereby and shall have been duly obtained, made or given, and all terminations or expirations of waiting periods imposed by any governmental or regulatory authority necessary for the consummation of the transactions contemplated by this Agreement shall have occurred.

Section 8.2. Conditions to Obligations of Seller.  The obligation of Seller to consummate the Closing is subject to the satisfaction or waiver in a writing (which waiver shall not be considered a waiver of any other provision of this Agreement unless it specifically so states) of the following further conditions:

(a)               Representations, Warranties and Covenants.  The representations and warranties of Purchaser set forth in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as though such representations and warranties were made on and as of such date (except for representations and warranties which address matters only as to a specified date, which representations and warranties shall be true and correct with respect to such specified date), except for changes contemplated or permitted by this Agreement and except where the failure of the representations and warranties to be true and correct would not reasonably be expected to result in a Purchaser Material Adverse Effect or a material adverse effect on the ability of the Purchaser to consummate the transactions contemplated hereby.

46

(b)              Performance.  Purchaser shall have performed and complied with each agreement, covenant and obligation required by this Agreement to be so performed or complied with by Purchaser at or before the Closing, except where the failure to so perform or comply would not reasonably be expected to result in a Purchaser Material Adverse Effect or a material adverse effect on the ability of the Purchaser to consummate the transactions contemplated hereby.

(c)               Secretary’s Certificate.  Purchaser shall have delivered to Seller a certificate, dated the Closing Date and validly executed by the Secretary of Purchaser, certifying as to (i) the terms and effectiveness of the articles of incorporation and the bylaws of Purchaser and (ii) the valid adoption of resolutions of the Board of Directors of Purchaser approving this Agreement and the consummation of the transactions contemplated hereby.

(d)              Officer’s Certificate.  Seller shall have received a certificate, validly executed by the Chief Executive Officer of Purchaser for and on Purchaser’s behalf, to the effect that, as of the Closing, each of the conditions to the obligations of Purchaser set forth in Section 8.2(a) and (b) has been satisfied (unless otherwise waived by Seller in accordance with the terms hereof).

(e)               India Requirements.  Purchaser shall have delivered each of the following to Seller or taken each of the following actions:

(i)         an executed fresh lease deed in favor of Ikanos Communications (India) Private Limited (“Ikanos India”) as lessee for a portion of the property covered by the lease for the Premises situated at Unit No. 501-512, 4^th Floor ‘Srinilaya Cyber Spazio’ Road No. 2, Banjara Hills, Shaikpet Village Golconda Mandal, Hyderabad, India (the “Facility Lease”), a form of which is attached as Exhibit A to the Indian Asset Purchase Agreement, which caused the Facility Lease to be bifurcated;

(ii)        pursuant to the provisions of the Software Technology Parks Scheme, cooperated with Seller in taking all necessary steps and completing all prescribed forms and related documents in order to receive all necessary approvals for purposes of the Software Technology Parks of India (including the Customs and Excise Authorities) (the “STPI”) and cooperated with Seller in completing all formalities with respect to Debonding and Bonding of the Duty Free assets and the sale of Acquired Assets located in India to Ikanos India;

(iii)       cooperated with Seller in filing an application with the STPI, Customs and Excise Authorities in order to receive approval for the sale of the assets of Analog Devices India Private Limited to Ikanos India; and

(iv)       a copy of the Indian Asset Purchase Agreement executed by Ikanos India.

Section 8.3. Conditions to Obligations of Purchaser.  The obligations of Purchaser to consummate the Closing are subject to the satisfaction or waiver in a writing (which waiver shall not be considered a waiver of any other provision of this Agreement unless it specifically so states) of the following further conditions:

47

(a)               Representations, Warranties and Covenants.  The representations and warranties of the Seller set forth in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date (except for representations and warranties expressly made only as of a specified date, which shall be true and correct in all respects as of such specified date), except for changes contemplated or permitted by this Agreement and except where the failure of the representations and warranties to be true and correct would not reasonably be expected to result in a Material Adverse Effect; provided, however, that in determining the accuracy of such representations and warranties for purposes of this Section 8.3(a), (x) all materiality qualifications that are contained in such representations and warranties shall be disregarded and (y) any update of or modification to the Seller Disclosure Schedule made or purported to have been made on or after the date of this Agreement shall be disregarded.

(b)              Performance.  Seller shall have performed and complied with, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by Seller at or before the Closing except where the failure to so perform would not reasonably be expected to result in a Material Adverse Effect.

(c)               Secretary’s Certificate.  Seller shall have delivered to Purchaser a certificate, dated the Closing Date and validly executed by the Secretary of Seller, certifying as to (i) the terms and effectiveness of the articles of incorporation and the bylaws of Seller and (ii) the valid adoption of resolutions of the Board of Directors of Seller approving this Agreement and the consummation of the transactions contemplated hereby.

(d)              Third Party Consents.  Purchaser shall have received all consents (or in lieu thereof waivers) relating to any Assumed Contract as set forth in Schedule 8.3(d).

(e)               Releases from All Liens.  Releases from all Liens against the Acquired Assets, if any, shall have been obtained in form satisfactory to Purchaser.

(f)               No Material Adverse Effect.  No material adverse effect on the Acquired Assets shall have occurred since the date of this Agreement.

(g)              Proceedings.  All proceedings to be taken on the part of Seller in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchaser, and Purchaser shall have received copies of all such documents and other evidences as Purchaser may reasonably request in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith.

(h)              Actions or Proceedings.  There shall be no Action or Proceeding pending wherein an unfavorable judgment, order, decree, stipulation or injunction would (i) prevent consummation of the transactions contemplated by this Agreement, (ii) cause the transactions contemplated by this Agreement to be rescinded following consummation, (iii) affect adversely the right of the Purchaser to own, operate or control any of the Acquired Assets, or to conduct the business of the Seller and its Subsidiaries as currently conducted, following the Closing, or (iv) contain a prayer for relief payable

48

by the Purchaser in an amount in excess of $1,000,000 and no such judgment, order, decree, stipulation or injunction shall be in effect.

(i)                Employees.  At least 50% of the Employees to whom Purchaser extends offers in compliance with Section 7.12(a) shall have accepted such offers.

(j)                Officer’s Certificate.  Purchaser shall have received a certificate, validly executed by the Treasurer of Seller for and on Seller’s behalf, to the effect that, as of the Closing, each of the conditions to the obligations of Seller set forth in this Section 8.2(a) and Section 8.2(b)  has been satisfied (unless otherwise waived by Purchaser in accordance with the terms hereof).

(k)               Officer’s Closing Inventory Certificate.  Purchaser shall have received a certificate, validly executed by the Treasurer of Seller for and on Seller’s behalf, as of the Closing, certifying in good faith as to the dollar value of the Inventory related to the Acquired Business at Closing (the “Officer’s Closing Inventory Certificate”).

(l)                Opinion.  Purchaser shall have received a legal opinion from Wilmer Cutler Pickering Hale and Dorr LLP, legal counsel to Seller, in form reasonably acceptable to the Purchaser.

(m)              India Requirements.  Seller shall have delivered each of the following to Purchaser or taken each of the following actions:

(i)            an executed fresh lease deed in favor of Analog Devices India Private Limited as lessee for a portion of the premises covered by the Facility Lease;

(ii)           pursuant to the provisions of the Software Technology Parks Scheme, taken all necessary steps and completed all prescribed forms and related documents and received all necessary approvals for purposes of the STPI (including the Customs and Excise Authorities) and completed all formalities with respect to Debonding and Bonding of the Duty Free assets and the sale of Acquired Assets located in India to Ikanos India;

(iii)          filed and received approval for the sale of the assets of Analog Devices India Private Limited to Ikanos India pursuant to an application filed with the STPI, Customs and Excise Authorities; and

(iv)          a copy of the Indian Asset Purchase Agreement executed by Analog Devices India Private Limited.

(n)                   Audited Closing Financial Statements.  Purchaser shall have received the audited Closing Financial Statements from Seller.

(o)                   Workplace Safety and Insurance Board Purchase Certificate.  Purchaser shall receive from Seller a valid and current Workplace Safety and Insurance Board Purchase Certificate

49

with respect to the Acquired Business that waives the right of the Workplace Safety and Insurance Board to hold Purchase liable for any amounts owed by Seller to the Workplace Safety and Insurance Board.

ARTICLE IX
NON-COMPETITION AGREEMENT

Section 9.1. Non-Competition.

(a)               Subject to the Closing, and without limiting Seller’s ability to prosecute antitrust claims against third parties, beginning on the Closing Date and ending on the third (3^rd) anniversary of the Closing Date, Seller shall not directly or indirectly, without the prior written consent of Purchaser, engage in a Competitive Business Activity (as defined below) anywhere in the Restricted Territory (as defined below).  For all purposes of and under this Agreement, the term “Competitive Business Activity” shall mean engaging in, managing or directing persons engaged in, or having an ownership interest in any entity which derives revenue from (except for ownership of three percent (3%) or less of any entity whose securities have been registered under the Securities Act or Section 12 of the Exchange Act), activities constituting the Prohibited Field of Use.  For all purposes of and under this Agreement, the term “Restricted Territory” shall mean each and every country, province, state, city or other political subdivision of the world, including those in which Seller is currently engaged in business or otherwise distributes, licenses or sells any Products, and the term “Prohibited Field of Use” shall mean using, developing (including but not limited to design and modification), manufacturing, licensing, sale or other distribution of any product or Technology in the wired communications field that is: a DSL solution and/or broadband network processors and routers whose primary purpose is network processing and/or routing.  Notwithstanding the foregoing, (i) Prohibited Field of Use shall not include using, developing (including but not limited to design and modification), manufacturing, licensing, sale or other distribution of general purpose processors, general purpose DSPs, analog components and mixed signal components and (ii) Seller shall not be prohibited from selling and supporting the products listed on Schedule 9.1 attached hereto to current customers which shall, other than AD6472, be on a “last-time-buy basis.”  Seller will not explicitly market its general purpose DSPs, Licensed AFEs and/or general purpose processors in the wired communications field that are: DSL solutions and/or broadband network processors and/or routers which have the primary purpose of providing network processing and/or routing.

(b)              The parties hereto agree that the duration and area for which the covenant not to compete set forth in this Section 9.1(b) is to be effective is reasonable.  In the event that any court determines that the time period or the area or both of them are unreasonable and such covenant is to that extent unenforceable, the parties hereto agree that the covenant shall remain in full force and effect for the greatest time period and in the greatest area that would not render it unenforceable.  The parties hereto agree that damages are an inadequate remedy for any breach of this covenant and that Purchaser shall, whether or not it is pursuing any potential remedies at law, be entitled to equitable relief in the form of preliminary and permanent injunctions without bond or other security

50

upon any actual or threatened breach of this covenant.  No waiver of any breach of the foregoing covenant shall be implied from the forbearance or failure of Purchaser to take action thereon.

ARTICLE X
SURVIVAL; INDEMNIFICATION; WAIVER

Section 10.1. Survival.

(a)               Notwithstanding any right of a party (whether or not exercised) to investigate the affairs of the other party (whether pursuant to Section 7.1 or otherwise) or a waiver or non-assertion by a party of any closing condition set forth in Article VIII or any termination right set forth in Article XI, each party shall have the right to rely fully upon the representations and warranties of the other party or parties hereto set forth in this Agreement, the Ancillary Agreements and the certificates and other instruments delivered in connection herewith or therewith.

(b)

(i)         The representations and warranties of Seller, on behalf of itself and the Subsidiaries, contained in this Agreement or in any certificate delivered pursuant hereto or in connection herewith shall survive the Closing until one year after the Closing Date solely as a basis for an indemnification claim; provided, however, that notwithstanding the foregoing, (x) the representations and warranties of the Seller set forth in Section 5.14 (Intellectual Property) shall survive for eighteen months and (y) the representations and warranties of the Seller set forth in Section 5.17 (Tax Matters) shall survive until the expiration of the statute of limitations (including any extensions thereof) (the representations and warranties described in the foregoing clauses (x) and (y) being referred to herein as the “Special Representations”).

(ii)        The representations and warranties of Purchaser contained in this Agreement or in any certificate delivered pursuant hereto or in connection herewith shall survive the Closing until one year after the Closing Date.

(iii)       Notwithstanding anything to the contrary in clauses (i) and (ii), any representation or warranty in respect of which indemnity may be sought under this Agreement shall survive the time at which it would otherwise terminate pursuant to the preceding clauses (i) and (ii), if notice of the inaccuracy or breach thereof (or of the matters giving rise to the inaccuracy or breach thereof) giving rise to such right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time (in which case such representation or warranty shall survive solely for purposes of permitting the resolution of such claim).

(c)                   Notwithstanding anything to the contrary set forth in this Agreement, the covenants and other agreements set forth in this Agreement or in the Ancillary Agreements shall survive indefinitely in accordance with their respective terms.

51

Section 10.2. Indemnification.

(a)               Seller (for purposes of this Article X, the “Seller Indemnifying Party”) hereby agrees, following the Closing, to indemnify Purchaser (the “Purchaser Indemnified Party”) against and agrees to hold each of them harmless from any and all claims, losses, liabilities, damages,  interest and penalties, costs and expenses, including, without limitation, reasonable attorneys’ fees and expenses and reasonable expenses of investigation and defense in connection therewith arising out of any claim, damages, complaint, demand, cause of action, investigation, suit or other proceeding) (hereinafter individually a “Loss” and collectively “Losses”“), including Losses incurred by Purchaser with respect to its officers, directors, employees, agents and Affiliates, arising out of or relating to (i) the inaccuracy of any representation or warranty made by Seller, on behalf of itself or any of the Subsidiaries, in this Agreement; (ii) any breach of or default in connection with any of the covenants or agreements made by the Seller in this Agreement or the Seller Disclosure Schedule (including any exhibit or schedule to the Seller Disclosure Schedule); or (iii) the Excluded Liabilities.

(b)              Purchaser (for purposes of this Article X, the “Purchaser Indemnifying Party”, and together with the Seller Indemnifying Party, as the case may be, the “Indemnifying Party”) hereby agrees, following the Closing, to indemnify Seller (the “Seller Indemnified Party”, and together with the Purchaser Indemnified Party, as the case may be, the “Indemnified Party”) against and agrees to hold it harmless from any and all Losses, including Losses incurred by Seller with respect to its officers, directors, employees, agents and Affiliates, arising out of or relating to (i) the inaccuracy of any representation or warranty made by Purchaser in this Agreement; (ii) any breach of or default in connection with any of the covenants or agreements made by the Purchaser in this Agreement or the Purchaser Disclosure Schedule (including any exhibit or schedule to the Purchaser Disclosure Schedule); or (iii) the Assumed Liabilities.

(c)               In determining the amount of any Losses in respect of the failure of any representation or warranty to be true and correct as of any particular date (but not in determining whether any such representations and warranties failed to be true and correct as of any particular date), any materiality standard or qualification contained in such representation or warranty shall be disregarded.

Section 10.3. Indemnification Claim Procedures.

(a)               The Indemnified Party may deliver to the Indemnifying Party a certificate signed by any officer of the Indemnified Party (an “Officer’s Certificate”):

(i)            stating that an Indemnified Party has paid, suffered, incurred or sustained (or reasonably anticipates that it may pay, suffer, incur or sustain) Losses for which such Indemnified Party is entitled to indemnification pursuant to Section 10.2 or Section 10.3;

52

(ii)           stating the amount of such Losses (which, in the case of Losses not yet paid, suffered, incurred, sustained, may be the maximum amount reasonably anticipated to be so paid, suffered, incurred or sustained);

(iii)          specifying in reasonable detail (based upon the information then possessed by the Indemnified Party) the individual items of such Losses included in the amount so stated and the nature of the claim for indemnification to which such Losses relate; and

(iv)          the specific provisions of this Agreement that form the basis for such claim for indemnification for such Losses.

(b)              The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have prejudiced the Indemnifying Party.

(c)               The Indemnifying Party shall make payment having a value equal to such Losses to the Indemnified Party in accordance with this Section 10.3 within twenty (20) business days following receipt of the Officer’s Certificate.  If the Indemnifying Party objects in writing to any claim made by the Indemnified party in any Officer’s Certificate within the twenty (20) business days allowed for payment of the Losses, the Indemnified Party and the Indemnifying Party shall attempt in good faith for ten (10) business days after Indemnified Party’s receipt of such written objection to resolve such objection.  If the Indemnified Party and the Indemnifying Party shall reach agreement on the objection, the Indemnifying Party shall distribute payment to the Indemnified Party in accordance with the terms of such agreement.

(d)              If no such agreement can be reached during such 20-business day period for good faith negotiation, but in any event upon the expiration of such 20-business day period, the parties shall submit the dispute to JAMS, or any other mutually selected mediator (the “Mediator”) for non-binding mediation.  The parties will cooperate with the Mediator and with one another in selecting the Mediator (in the case of JAMS, in selecting an individual to mediate from JAM’s panel of neutrals), and in promptly scheduling the mediation proceedings.  The parties covenant that they will participate in the mediation in good faith, and that they will share equally in its costs.  All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees, experts and attorneys, and by the Mediator, are confidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving the parties; provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation.  If the dispute is not resolved within thirty (30) days from the date of the submission of the dispute to mediation (or such later date as the parties may mutually agree in writing), the dispute shall be submitted to arbitration in accordance with Section 10.3(e) below.  The mediation may continue, if the parties so agree, after the appointment of the arbitrators.  Unless otherwise agreed by the parties, the Mediator shall be disqualified from serving as arbitrator in the case.  The pendency of a mediation shall not preclude a party from seeking provisional remedies in aid of the arbitration

53

from a court of appropriate jurisdiction, and the parties agree not to defend against any application for provisional relief on the ground that a mediation is pending.

(e)               In the event the parties do not settle the dispute through mediation, the parties will submit the matter(s) to binding arbitration in Chicago, Illinois, in accordance with the Commercial Arbitration Rules of the American Arbitration Association.  Each party shall appoint one arbitrator, and the two arbitrators thus appointed will appoint a third arbitrator.  The parties shall instruct the arbitrators to make a determination within thirty (30) days after submission of the dispute to arbitration.  Each party shall bear its own arbitration costs and expenses; provided, however, that the arbitrators may modify the allocation of fees, costs and expenses in the award in those cases where fairness dictates other than each party bearing its own fees, costs and expenses.  The award shall be final and binding on the parties, and judgment on the award may be entered in and enforced by any court of competent jurisdiction.

Section 10.4. Third Party Claims.

(a)               An Indemnified Party shall give written notification to the Indemnifying Party of the commencement of any third party claim which the Indemnified Party believes may result in a claim for indemnification hereunder (a “Third Party Claim”).  Such notification shall be given within 20 days after receipt by the Indemnified Party of notice of such Third Party Claim, and shall describe in reasonable detail (to the extent known by the Indemnified Party) the facts constituting the basis for such Third Party Claim and the amount of the claimed damages; provided, however, that no delay or failure on the part of the Indemnified Party in so notifying the Indemnifying Party shall relieve the Indemnifying Party of any liability or obligation hereunder except to the extent such failure shall have prejudiced the Indemnifying Party.  Within 20 days after delivery of such notification, the Indemnifying Party may, upon written notice thereof to the Indemnified Party, assume control of the defense of such Third Party Claim with counsel reasonably satisfactory to the Indemnified Party; provided that (i) the Indemnifying Party may only assume control of such defense if (A) it acknowledges in writing to the Indemnified Party that any damages, fines, costs or other liabilities that may be assessed against the Indemnified Party in connection with such Third Party Claim constitute Losses for which the Indemnified Party shall be indemnified in full pursuant to this Article X and (B) the ad damnum is less than or equal to the amount of Losses for which the Indemnifying Party is liable under this Article X and (ii) the Indemnifying Party may not assume control of the defense of a Third Party Claim involving criminal liability or in which equitable relief is sought against the Indemnified Party.  If the Indemnifying Party does not, or is not permitted under the terms hereof to, so assume control of the defense of a Third Party Claim, the Indemnified Party shall control such defense.  The non-controlling party may participate in such defense at its own expense.  The controlling party shall keep the non-controlling party advised of the status of such Third Party Claim and the defense thereof and shall consider in good faith recommendations made by the non-controlling party with respect thereto.  The non-controlling party shall furnish the controlling party with such information as it may have with respect to such Third Party Claim (including copies of any summons, complaint or other pleading which may have been served on such party and any written claim, demand, invoice, billing or other document evidencing or asserting the

54

same) and shall otherwise cooperate with and assist the controlling party in the defense of such Third Party Claim.  The fees and expenses of counsel to the Indemnified Party with respect to a Third Party Claim shall be considered Losses for purposes of this Agreement if (i) the Indemnified Party controls the defense of such Third Party Claim pursuant to the terms of this Section 10.4 or (ii) the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes that the Indemnifying Party and the Indemnified Party have conflicting interests or different defenses available with respect to such Third Party Claim.  The Indemnifying Party shall not agree to any settlement of, or the entry of any judgment arising from, any Third Party Claim without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld, conditioned or delayed; provided that the consent of the Indemnified Party shall not be required if the Indemnifying Party agrees in writing to pay any amounts payable pursuant to such settlement or judgment and such settlement or judgment includes a complete release of the Indemnified Party from further liability and has no other adverse effect on the Indemnified Party.  The Indemnified Party shall not agree to any settlement of, or the entry of any judgment arising from, any such Third Party Claim without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld, conditioned or delayed.

Section 10.5. Inventory Claims.

(a)               Notwithstanding the foregoing, in case either party shall object in writing to any claim or claims made in any Officer’s Certificate with respect to the determination of the Actual Closing Inventory within 20 days after delivery of such Officer’s Certificate, the parties shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims.  If such parties should so agree, a memorandum setting forth such agreement shall be prepared and signed by all parties and the claim shall be paid in accordance with Section 10.3 above.

(b)              If no such agreement can be reached after good faith negotiation and prior to 40 days after delivery of an Officer’s Certificate, the Indemnified Party on the one hand, and the Indemnifying Party, as the case may be, on the other hand, may demand review by an independent auditor for binding resolution of the claim or claims.

(c)               The independent auditor shall determine how all expenses relating to how the review shall be paid, including without limitation, the respective expenses of each party and the fees of the independent auditor.  The independent auditor shall set a limited time period and establish procedures designed to reduce the cost while allowing the parties an opportunity, adequate in the sole judgment of independent auditor, to discover relevant information from the opposing parties about the subject matter of the dispute.  The decision of the independent auditor as to the validity and amount of any claim in such Officer’s Certificate shall be final, binding, and conclusive upon the parties to this Agreement.  Such decision shall be written and shall be supported by written findings of fact and conclusions that shall set forth the scope of the award that may be awarded by independent auditor.  Within 30 days of a decision of independent auditor requiring payment by one party to another, such party shall make the payment to such other party

55

(d)              Judgment upon any award rendered by independent auditor may be entered in any court having jurisdiction.

Section 10.6. Limitations.

(a)               Notwithstanding anything to the contrary herein, (i) the aggregate liability of the Seller for Losses under Section 10.2(a) shall not exceed $2,500,000 (the “Cap Limitation”), provided, however, that notwithstanding the foregoing, the Cap Limitation shall not apply to (A) claims for indemnification for Losses arising out of fraud, (B) the Special Representations, Section 5.1 (Organization, Good Standing and Qualification) and Section 5.2 (Corporate Authorization) and (C) the Excluded Liabilities; provided, further, that the claims for indemnification described in the foregoing clause (B) shall not exceed the Closing Cash Payment; and (ii)  Seller shall be liable for only that portion of the aggregate Losses under Section 10.2(a) for which it would otherwise be liable which exceeds $300,000.

(b)              Notwithstanding anything to the contrary herein, (i) the aggregate liability of the Purchaser for Losses under Section 10.2(b) (other than the obligation to pay the purchase price hereunder, with respect to which the Cap Limitation shall not apply) shall not exceed the Cap Limitation; provided, however, that notwithstanding the foregoing, the Cap Limitation shall not apply to (A) Section 6.1 (Organization, Good Standing and Qualification) and Section 6.2 (Corporate Authorization) and (B) the Assumed Liabilities; provided, further, that the claims for indemnification described in the foregoing clause (A) shall not exceed the Closing Cash Payment; and (ii) Purchaser shall be liable for only that portion of the aggregate Losses under Section 10.2(b) for which it would otherwise be liable which exceeds $300,000 (other than the obligation to pay the purchase price hereunder, with respect to which such limitation shall not apply).

(c)               The Purchaser agrees that Seller shall have no liability to Purchaser arising out of or relating to the inaccuracy of Section 5.3 or Section 5.4 of this Agreement with respect to any Assumed Contract with an entity specified in Schedule 10.6(c).

Section 10.7. Assignment of Claims.

(a)               The amount of Losses recoverable by an Indemnified Party under this Article X with respect to an indemnity claim shall be reduced by any proceeds received by such Indemnified Party or an Affiliate, with respect to the Losses to which such indemnity claim relates, from an insurance carrier; provided, however, that the neither party shall not be required to maintain such insurance or to make claims under any such policy.  If the Indemnified Party receives any payment from the Indemnifying Party in respect of any Losses pursuant to Section 10.2 and the Indemnified Party could have recovered all or part of such Losses from a third party (a “Potential Contributor”) based on the underlying claim asserted against the Indemnifying Party, the Indemnified Party shall assign such of its rights to proceed against the Potential Contributor as are necessary to permit the Indemnifying Party to recover from the Potential Contributor the amount of such payment; provided that in the event such third party is an insurer, the Indemnifying Party shall reimburse the Indemnified Party for any increased premium directly attributable to any such recovery of Losses.

56

(b)              Except with respect to claims based on fraud and claims for equitable relief, after the Closing, the rights of the Indemnified Parties under this Article X shall be the exclusive remedy of the Indemnified Parties with respect to matters involving breaches of the representations and warranties set forth in this Agreement or otherwise covered by the indemnification provisions hereof (provided that the foregoing shall not apply to the Licensing Agreement).

Section 10.8. Treatment of Indemnity Payments.Any payments made to an Indemnified Party pursuant to this Article X shall be treated as an adjustment to the Purchase Price for tax purposes and shall be increased by the amount of any GST deemed to be included in such payments.

ARTICLE XI
TERMINATION

Section 11.1. Grounds for Termination.  The Parties may terminate this Agreement prior to the Closing as provided below:

(a)               the Parties may terminate this Agreement by mutual written consent;

(b)              the Purchaser may terminate this Agreement by giving written notice to the Seller in the event the Seller is in breach of any representation, warranty or covenant contained in this Agreement, and such breach (i) individually or in combination with any other such breach, would cause the conditions set forth in clauses (a) or (b) of Section 8.2 not to be satisfied and (ii) is not cured within 20 days following delivery by the Purchaser to the Seller of written notice of such breach;

(c)               the Seller may terminate this Agreement by giving written notice to the Purchaser in the event the Purchaser is in breach of any representation, warranty or covenant contained in this Agreement, and such breach (i) individually or in combination with any other such breach, would cause the conditions set forth in clauses (a) or (b) of Section 8.3 not to be satisfied and (ii) is not cured within 20 days following delivery by the Seller to the Purchaser of written notice of such breach;

(d)              the Purchaser may terminate this Agreement by giving written notice to the Seller if the Closing shall not have occurred on or before March 15, 2006 by reason of the failure of any condition precedent under Section 8.1 or 8.3 (unless the failure results primarily from a breach by the Purchaser of any representation, warranty or covenant contained in this Agreement); or

(e)               the Seller may terminate this Agreement by giving written notice to the Purchaser if the Closing shall not have occurred on or before March 15, 2006 by reason of the failure of any condition precedent under Section 8.1 or 8.2 (unless the failure results primarily from a breach by the Seller of any representation, warranty or covenant contained in this Agreement).

The party desiring to terminate this Agreement pursuant to clauses (b) through (e) shall give notice of such termination to the other parties.

57

Section 11.2. Effect of Termination.

If this Agreement is terminated as permitted by Section 11.1, such termination shall be without liability of any party (or any stockholder, director, officer, employee, agent, consultant or representative of such party) to the other parties to this Agreement; provided that each party shall remain liable for any willful breaches of this Agreement prior to its termination; and provided further that, the provisions of Section 7.4 (Confidentiality), Section 7.7 (Public Announcements), Article XII (Miscellaneous), this Section 11.2 and the applicable definitions set forth in Section 1.1 shall remain in full force and effect and survive any termination of this Agreement.  Notwithstanding the foregoing, nothing contained herein shall relieve any party from liability for any breach hereof.

Section 11.3. Procedure Upon Termination.  In the event of termination of this Agreement by Purchaser or Seller or by both Purchaser and Seller pursuant to Section 11.1 hereof, written notice thereof shall forthwith be given to the other party hereto and the transactions contemplated herein shall be abandoned without further action by Purchaser or Seller or any other party hereto.  In addition, if this Agreement is terminated as provided herein:

(a)               Each party will redeliver (or destroy, if agreed to by the other party or if such party requests that they may destroy, and such request is unreasonably denied by the other party) all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same; and

(b)              The confidentiality of all information of a confidential nature received by any party hereto with respect to the business of any other party (other than information which is a matter of public knowledge or which has heretofore been or is hereafter published in any publication for public distribution or filed as public information with any governmental authority in each case without violation of the confidentiality obligations of the receiving party) shall be maintained in accordance with the Nondisclosure Agreement, which shall survive termination of this Agreement.

ARTICLE XII
MISCELLANEOUS

Section 12.1. Notices.  All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given,

if to Seller, to:

Analog Devices, Inc.
Three Technology Way
Norwood, Massachusetts 02062-9106

Attention:       William A. Martin, Treasurer

Telecopy:        (781) 461-3491

Telephone:      (781) 461-4033

58

with a copy to:

Wilmer Cutler Pickering Hale and Dorr LLP

60 State Street

Boston, MA 02109

Attention:       Jeff Stein, Esq.

Telecopy:        (617) 526-5000

if to Purchaser, to:

Ikanos Communications

47669 Fremont Blvd.,

Fremont, CA 94538

Attention:       Chief Financial Officer

Telecopy:        (510) 979-0500

with a copy to:

Wilson Sonsini Goodrich & Rosati, PC

650 Page Mill Road

Palo Alto, California 94034

Attention:       Arthur Schneiderman, Esq.

John T. Sheridan, Esq.

Telecopy:        (650) 493-6811

Telephone:      (650) 493-9300

All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a business day in the place of receipt.  Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt.  In the case of facsimile transmissions, receipt shall be evidenced by written confirmation that such facsimile was successfully transmitted.

Section 12.2. Amendments and Waivers.

(a)               Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective.

(b)              No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any or other further exercise thereof or the exercise of any other right, power or privilege.  The rights

59

and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 12.3. Expenses.  All costs and expenses incurred in connection with this Agreement and the Ancillary Agreements shall be paid by the party incurring such cost or expense.

Section 12.4. Successors and Assigns.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, that no party may assign its rights or obligations hereunder without the prior written consent of Seller in the case of Purchaser, or Purchaser, in the case of Seller, except that Seller may assign its rights hereunder by operation of law or otherwise in connection with a merger of Seller with or into another Person or the sale of all or substantially all of the assets of Seller.

Section 12.5. Governing Law.  This agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law rules of such state.

Section 12.6. Counterparts; Third Party Beneficiaries.  This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other parties hereto.  No provision of this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

Section 12.7. Entire Agreement; Severability.  This Agreement, the exhibits and schedules hereto, together with the Ancillary Agreements and the Nondisclosure Agreement, constitutes the entire agreement between the parties hereto and any of such parties’ respective Affiliates with respect to the subject matter of this Agreement and supersedes all prior communications, agreements and understandings, both oral and written, with respect to the subject matter of this Agreement.  In the event any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, and the parties agree to negotiate, in good faith, a legal and enforceable substitute provision which most nearly effects the parties’ intent in entering into this Agreement.

Section 12.8. Captions.  The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

Section 12.9. Representation by Counsel; Interpretation.  Seller and Purchaser each acknowledge that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement.  Accordingly, any rule of law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived.  The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of Seller and Purchaser.

60

Section 12.10. Other Remedies; Specific Performance.  Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy.  The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the Parties shall be entitled to seek an injunction to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.

Section 12.11.  Waiver of Jury Trial.   Each of Seller and Purchaser hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this agreement or the subject matter hereof.

Section 12.12. Existing Asset Purchase Agreement.  The Existing Asset Purchase Agreement is hereby terminated and is of no further force or effect, except that the Seller Disclosure Schedules to the Existing Asset Purchase Agreement shall survive and constitute the Seller Disclosure Schedules to this Agreement.  For purposes of the Licensing Agreement and the Product Transition Agreement, all references to the “Asset Purchase Agreement” shall mean this Agreement.

(The remainder of this page is intentionally left blank.)

61

IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Asset Purchase Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

SELLER
Analog Devices, Inc.
By:	/s/ Brian P. McAloon
	Name: Brian P. McAloon
	Title: V.P.
Analog Devices Canada Ltd.
By:	/s/ William A. Martin
	Name:
	Title:
Analog Devices B.V.
By:	/s/ Robert P. McAdam
	Name: Robert P. McAdam
	Title: Managing Director/G.M.
PURCHASER:
Ikanos Communications, Inc.
By:	/s/ Daniel K. Atler
	Name: Daniel K. Atler
	Title: Vice President and Chief Financial Officer

(Signature Page to Asset Purchase Agreement)

EX-10.5

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.5

        [California Net Lease]

LEASE AGREEMENT

        THIS LEASE AGREEMENT is made this 7^TH day of February, 2006, between ProLogis, a Maryland real estate investment trust ("Landlord"), and the Tenant named below.

Tenant:	Ikanos Communications, a California corporation
Tenant's Representative, Address, and Telephone:	Dan Atler Ikanos Communications 47669 Fremont Blvd. Fremont, CA, 94538
Premises:	That portion of the Building, containing approximately 37,266 rentable square feet, as determined by Landlord, as shown on Exhibit A.
Project:	Bayside Corporate Center (based upon 311,277 rentable square feet in the Project)
Building:	Building 6 (sba00806), 47669 Fremont Blvd, Fremont, CA 94538 (based upon 37,266 rentable square feet in the Building)
Tenant's Proportionate Share of Project:	11.97%
Tenant's Proportionate Share of Building:	100%
Lease Term:	Beginning on the Commencement Date and ending on the last day of the 60th full calendar month thereafter, subject to the provisions of Addendum 3 and Addendum 4, and subject further to any termination rights as granted under this Lease with respect to an event of casualty or condemnation.
Commencement Date:	April 1, 2006
Initial Monthly Base Rent:	See Addendum 1
Initial Estimated Monthly
Operating Expense Payments: (estimates only and subject to	1.	Common Area Charges:	$	2,072.50
adjustment to actual costs and expenses according to the provisions of this Lease)	2.	Taxes:	$	5,475.16
	3.	Insurance:	$	256.00
	4.	Other:	$	115.37
Initial Estimated Monthly Operating Expense Payments:			$	7,919.03
Initial Monthly Base Rent and Operating Expense Payments:			$	26,924.69
Security Deposit:	Letter of Credit in the amount of $36,242.00
Broker:	Brad Werner—CB Richard Ellis
Addenda:	1. Base Rent Adjustments 2. Construction (Allowance) 3. Renewal Option (Baseball Arbitration) 4. Cancellation Option 5. Misc. Provisions 6. Move Out Conditions 7. Letter of Credit for Security Deposit
Exhibits:	A. Site Plan; B. Sign Criteria; C. Floor Plan

        1.    Granting Clause.    In consideration of the obligation of Tenant to pay rent as herein provided and in consideration of the other terms, covenants, and conditions hereof, Landlord leases to Tenant,

and Tenant takes from Landlord, the Premises, to have and to hold for the Lease Term, subject to the terms, covenants and conditions of this Lease.

        2.    Acceptance of Premises.    Tenant shall accept the Premises in its condition as of the Commencement Date, subject to all applicable laws, ordinances, regulations, covenants and restrictions. Except as otherwise set forth in this Lease, Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenant's business, and Tenant waives any implied warranty that the Premises are suitable for Tenant's intended purposes. Except as provided in this paragraph and Paragraph 10 and as otherwise expressly set forth herein, in no event shall Landlord have any obligation for any defects in the Premises or any limitation on its use. The taking of possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken except for items that are Landlord's responsibility (or for which Landlord has provided a representation or warranty) under this paragraph and/or Paragraph 10 as well as any punchlist items agreed to in writing by Landlord and Tenant; provided, however, that Tenant's acceptance of the Premises shall not be deemed a waiver of Landlord's delivery condition obligations hereunder. Landlord acknowledges and covenants that as of the Commencement Date (i) the Building's HVAC, electrical, plumbing and other mechanical systems are in good working order and Landlord warrants such systems for a period of six (6) months from the Commencement Date, and (ii) the Premises are in compliance with applicable Legal Requirements.

        3.    Use.    The Premises shall be used only for the purpose of light manufacturing and assembly, receiving, storing, shipping and selling (but limited to wholesale sales) products, materials and merchandise made and/or distributed by Tenant, for general office use by Tenant, and for such other lawful purposes as may be incidental thereto. Tenant shall not conduct or give notice of any auction, liquidation, or going out of business sale on the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit waste, overload the floor or structure of the Premises or subject the Premises to use that would damage the Premises. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise, or vibrations to emanate from the Premises, or take any other action that would constitute a nuisance or would disturb, unreasonably interfere with, or endanger Landlord or any tenants of the Project. Outside storage, including without limitation, storage of non-operable trucks and other non-operable vehicles, is prohibited without Landlord's prior written consent. Subject to Landlord's representation and warranty in Paragraph 2 hereof, Tenant, at its sole expense, shall use and occupy the Premises in compliance with all laws with respect to Tenant's particular use of the Premises, including, without limitation, the Americans With Disabilities Act, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions (including, without limitation, any covenants, conditions, and restrictions affecting the Project) now or hereafter applicable to such use of the Premises (collectively, "Legal Requirements"). Tenant shall, at its expense, make any alterations or modifications, within or without the Premises, that are required by Legal Requirements related to Tenant's particular use of the Premises. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant's or Landlord's insurance, increase the insurance risk. If any increase in the cost of any insurance on the Premises or the Project is caused by Tenant's use or occupation of the Premises beyond that cost that would normally be incurred with respect to a tenant engaging in the uses permitted herein, or because Tenant vacates the Premises, then Tenant shall pay the amount of such increase to Landlord. Landlord and Tenant agree that Tenant shall have the right to occupy the Premises upon full execution of this Lease by both parties hereto and delivery by Tenant to Landlord of the insurance certificates required hereunder for the purpose of Tenant's preparation of the Premises for occupancy (including without limitation, commencement of any tenant improvements permitted by Landlord or this Lease). Any such occupation of the Premises by Tenant occurring prior to the Commencement Date shall be subject to the terms and conditions of this Lease, other than any obligation of Tenant to pay Base Rent or Operating Expenses as defined below.

2

Notwithstanding anything contained herein to the contrary, Tenant's obligations hereunder shall relate only to legally required changes to the interior of the Premises after Tenant's occupancy of the Premises that relate solely to the specific manner of use of the Premises by Tenant; and Landlord shall make all other additions to or modifications of the Project required from time to time by Legal Requirements. The cost of such additions or modifications made by Landlord may be included in Operating Expenses pursuant to Paragraph 6 of this Lease to the extent permitted thereunder, except for those additions or modifications which are Landlord's sole responsibility pursuant to Paragraph 10 of this Lease or due to violations of law by Landlord in existence as of the Commencement Date.

        4.    Base Rent.    Tenant shall pay Base Rent in the amount set forth above. The first month's Base Rent, the Security Deposit, and the first monthly installment of estimated Operating Expenses (as hereafter defined) shall be due and payable on the date hereof, and, except as otherwise set forth in this Lease, Tenant promises to pay to Landlord in advance, without demand, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month succeeding the Commencement Date. Payments of Base Rent for any fractional calendar month shall be prorated. All payments required to be made by Tenant to Landlord hereunder (or to such other party as Landlord may from time to time specify in writing) shall be made by check or Electronic Fund Transfer ("EFT") of immediately available federal funds before 11:00 a.m., Eastern Time, at such place, within the continental United States, as Landlord may from time to time designate to Tenant in writing. Except as otherwise set forth herein, the obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any rent due hereunder except as may be expressly provided in this Lease. If Tenant is delinquent in any monthly installment of Base Rent or of estimated Operating Expenses for more than 5 days, Tenant shall pay to Landlord on demand a late charge equal to 5 percent of such delinquent sum. Tenant shall not be obligated to pay the late charge until Landlord has given Tenant 5 days written notice of the delinquent payment (which may be given at any time during the delinquency); provided, however, that Landlord shall not be required to give such notices more than twice in any calendar year or 4 times over the term of the Lease. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as a penalty.

        5.    Security Deposit.    The Security Deposit shall be held by Landlord as security for the performance of Tenant's obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon each occurrence of an Event of Default (hereinafter defined), Landlord may use all or part of the Security Deposit to pay delinquent payments due under this Lease, and the cost of any damage, injury, expense or liability caused by such Event of Default, without prejudice to any other remedy provided herein or provided by law. Tenant shall pay Landlord no later than ten (10) days following Landlord's demand the amount that will restore the Security Deposit to its original amount. Landlord's obligation respecting the Security Deposit is that of a debtor, not a trustee; no interest shall accrue thereon. The Security Deposit shall be the property of Landlord, but shall be paid to Tenant when Tenant's obligations under this Lease have been completely fulfilled. Landlord shall be released from any obligation with respect to the Security Deposit upon transfer of this Lease, the Security Deposit (and the Premises to a person or entity assuming Landlord's obligations under this Paragraph 5.

        6.    Operating Expense Payments.    During each month of the Lease Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to ¹/12 of the annual cost, as reasonably estimated by Landlord from time to time, of Tenant's Proportionate Share (hereinafter defined) of Operating Expenses for the Project. Payments thereof for any fractional calendar month shall be prorated. The term "Operating Expenses" means all reasonable costs and expenses actually incurred by Landlord with respect to the ownership, maintenance, and operation of the Project including, but not limited to costs of: Taxes (hereinafter defined) and fees payable to tax consultants and attorneys for consultation and contesting taxes; insurance; utilities; maintenance, repair and replacement of all

3

portions of the Project, including without limitation, paving and parking areas, roads, roofs (including the roof membrane), alleys, and driveways, mowing, landscaping, exterior painting, utility lines, heating, ventilation and air conditioning systems, lighting, electrical systems and other mechanical and building systems; amounts paid to contractors and subcontractors for work or services performed in connection with any of the foregoing; charges or assessments of any association to which the Project is subject; property management fees payable to a property manager, including any affiliate of Landlord, not to exceed 3% of gross receipts; security services, if any; trash collection, sweeping and removal; and additions or alterations made by Landlord to the Project or the Building in order to comply with Legal Requirements enacted after the Commencement Date of this Lease (other than those expressly required herein to be made by Tenant) provided that the cost of additions or alterations that may be capitalized for federal income tax purposes in accordance with Generally Accepted Accounting Principles shall be amortized on a straight line basis over a period equal to the lesser of the useful life thereof for federal income tax purposes. Operating Expenses do not include costs, expenses, depreciation or amortization for capital repairs and capital replacements required to be made by Landlord under Paragraph 10 of this Lease, debt service under mortgages or ground rent under ground leases, or condemnation in excess of Landlord's deductible as set forth in Paragraph 15 of this Lease, leasing commissions, or the costs of renovating space for tenants. Further, Operating Expenses shall not mean or include, and Tenant shall in no event have any obligation to perform or to pay directly, or to reimburse Landlord for, all or any portion of the following: (i) costs incurred in connection with the construction or remodeling of the Project or any other improvements now or hereafter located thereon, or correction of defects in design or construction or compliance with any covenant, condition, restriction, underwriter's requirement or law applicable to the Premises or the Project on the Commencement Date; (ii) interest, principal, or other payments on account of any indebtedness that is secured by any encumbrance on any part of the Project, or rental or other payments under any ground lease, or any payments in the nature of returns on or of equity of any kind; (iii) costs of selling, syndicating, financing, mortgaging or hypothecating any part of or interest in the Project; (iv) taxes on the income of Landlord or Landlord's franchise taxes, inheritance, gift, transfer, estate or state taxes (unless any of said taxes are hereafter instituted by applicable taxing authorities in substitution for ad valorem real property taxes); (v) depreciation, reserves of any kind, including replacement reserves and reserves for bad debt or lost rent, or any other charge not involving the payment of money to third parties; (vi) Landlord's overhead costs, including equipment, supplies, accounting and legal fees, rent and other occupancy costs or any other costs associated with the operation or internal organization and function of Landlord as a business entity (but this provision does not prevent the payment of a management fee to Landlord as provided in this Paragraph 6); (vii) fees or other costs for professional services provided by space planners, architects, engineers, and other similar professional consultants, real estate commissions, and marketing and advertising expenses; (viii) costs of defending or prosecuting litigation with any party, unless a favorable judgment would reduce or avoid an increase in Operating Expenses, or unless the litigation is to enforce compliance with Rules and Regulations of the Project, or other standards or requirements for the general benefit of the tenants in the Project; (ix) costs incurred as a result of Landlord's violation of any lease, contract, law or ordinance, including fines and penalties; (x) late charges, interest or penalties of any kind for late or other improper payment of any public or private obligation, including ad valorem taxes; (xi) costs of removing Hazardous Materials or of correcting any other conditions in order to comply with any environmental law or ordinance (but this exclusion shall not constitute a release by Landlord of Tenant for any such costs for which Tenant is liable pursuant to Paragraph 30 of this Lease); (xii) costs for which Landlord is reimbursed from any other source; (xiii) costs related to any building or land not included in the Project, including any allocation of costs incurred on a shared basis, such as centralized accounting costs, unless the allocation is made on a reasonable and consistent basis that fairly reflects the share of costs actually attributable to the Project; (xiv) the part of any costs or other sum paid to any affiliate of Landlord that may exceed the fair market price or cost generally payable for substantially similar goods or services in the area of the Project; (xv) insurance deductibles, except to the extent arising from damage or injury caused by Tenant; (xvi) costs occasioned by the act, omission or violation

4

of any law by Landlord, any other occupant of the Project, or their respective agents, employees or contractors; (xvii) costs occasioned by casualties or by the exercise of the power of eminent domain; (xviii) costs of structural repairs to the Project; (xiv) costs which could properly be capitalized under generally accepted accounting principles, except to the extent amortized in the manner provided herein; and (xx) costs of capital improvements made for tenants other than Tenant.

Landlord shall provide Tenant within 90 days following the final day of the calendar year Landlord's itemized year-end common area maintenance reconciliation reports which reference and include all applicable Operating Expenses for such year. Upon Tenant's written request (which request must be made within 60 days following Tenant's receipt of Landlord's reconciliation report as described in the preceding sentence), Landlord shall provide photocopies of invoices of major expenditures, as well as other standard Landlord reports to substantiate such costs, for the expenses as provided in such reconciliation reports. If Tenant's total payments of Operating Expenses for any year are less than Tenant's Proportionate Share of actual Operating Expenses for such year, then Tenant shall pay the difference to Landlord within 30 days after demand, and if more, then Landlord shall retain such excess and credit it against Tenant's next payments. For purposes of calculating Tenant's Proportionate Share of Operating Expenses, a year shall mean a calendar year except the first year, which shall begin on the Commencement Date, and the last year, which shall end on the expiration of this Lease. With respect to Operating Expenses which Landlord allocates to the entire Project, Tenant's "Proportionate Share" shall be the percentage set forth on the first page of this Lease as Tenant's Proportionate Share of the Project as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Project; and, with respect to Operating Expenses which Landlord allocates only to the Building, Tenant's "Proportionate Share" shall be the percentage set forth on the first page of this Lease as Tenant's Proportionate Share of the Building as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Building. Landlord may equitably increase Tenant's Proportionate Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project or Building that includes the Premises or that varies with occupancy or use. The estimated Operating Expenses for the Premises set forth on the first page of this Lease are only estimates, and Landlord makes no guaranty or warranty that such estimates will be accurate.

        7.    Utilities.    Tenant shall pay for all water, gas, electricity, heat, light, power, telephone, sewer, sprinkler services, refuse and trash collection, and other utilities and services used on the Premises, all maintenance charges for utilities, and any storm sewer charges or other similar charges for utilities imposed by any governmental entity or utility provider, together with any taxes, penalties, surcharges or the like pertaining to Tenant's use of the Premises. All utilities shall be separately metered or charged directly to Tenant by the provider, except for water and sewer which shall be jointly metered. Tenant shall pay its share of all charges for jointly metered utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of utilities shall result in the termination of this Lease or the abatement of rent. Tenant agrees to limit use of water and sewer for normal restroom use.

Notwithstanding anything to the contrary contained in Paragraph 7 of this Lease, if an interruption or cessation of utilities results from a cause within the Landlord's reasonable control and the Premises are not usable by Tenant for the conduct of Tenant's business as a result thereof, Base Rent and applicable Operating Expenses not actually incurred by Tenant shall be abated for the period which commences five (5) business days after the date Tenant gives to Landlord notice of such interruption until such utilities are restored.

        8.    Taxes.    Landlord shall pay all taxes, assessments and governmental charges (collectively referred to as "Taxes") that accrue against the Project during the Lease Term, which shall be included as part of the Operating Expenses charged to Tenant. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens thereof. All capital levies or other taxes assessed or imposed on Landlord upon the rents payable to Landlord under this Lease and any franchise tax, any excise, transaction, sales or privilege tax, assessment, levy or charge measured by or

5

based, in whole or in part, upon such rents from the Premises and/or the Project or any portion thereof shall be paid by Tenant to Landlord monthly in estimated installments or upon demand, at the option of Landlord, as additional rent; provided, however, in no event shall Tenant be liable for any net income taxes imposed on Landlord unless such net income taxes are in substitution for any Taxes payable hereunder or any inheritance or estate taxes of Landlord. If any such tax or excise is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall be liable for all taxes levied or assessed against any personal property or fixtures placed in the Premises, whether levied or assessed against Landlord or Tenant.

        9.    Insurance.    Landlord shall maintain all risk property insurance covering the full replacement cost of the Building. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, commercial liability insurance and rent loss insurance. All such insurance shall be included as part of the Operating Expenses charged to Tenant. The Project or Building may be included in a blanket policy (in which case the cost of such insurance allocable to the Project or Building will be determined by Landlord based upon the insurer's cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenant's use of the Premises in a manner different than the permitted use hereunder.

        Tenant, at its expense, shall maintain during the Lease Term: all risk property insurance covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenant's expense; worker's compensation insurance with no less than the minimum limits required by law; employer's liability insurance with such limits as required by law; and commercial liability insurance, with a minimum limit of $1,000,000 per occurrence and a minimum umbrella limit of $1,000,000, for a total minimum combined general liability and umbrella limit of $2,000,000 (together with such additional umbrella coverage as Landlord may reasonably require) for property damage, personal injuries, or deaths of persons occurring in or about the Premises. The commercial liability policies shall name Landlord as an additional insured, insure on an occurrence and not a claims-made basis, be issued by insurance companies which are reasonably acceptable to Landlord, not be cancelable unless 30 days' prior written notice shall have been given to Landlord, contain a hostile fire endorsement and a contractual liability endorsement and, except as provided in the waiver of subrogation language below, provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant's policies). Such policies or certificates thereof shall be delivered to Landlord by Tenant upon commencement of the Lease Term and upon each renewal of said insurance.

        The all risk property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, their officers, directors, employees, managers, agents, invitees and contractors, in connection with any loss or damage thereby insured against. Notwithstanding anything to the contrary in this Lease, neither party hereto nor its officers, directors, employees, managers, agents, invitees or contractors shall be liable to the other for loss or damage caused by any risk coverable by all risk property insurance, and each party waives any claims against the other party, and its officers, directors, employees, managers, agents, invitees and contractors for such loss or damage regardless of the negligence or willful misconduct of the party so released. The failure of a party to insure its property shall not void this waiver. Landlord and its agents, employees and contractors shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and business interruption losses occasioned thereby (such as lost profits and the like) sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever, including without limitation, damage caused in whole or in part, directly or indirectly, by the negligence of Landlord or its agents, employees or contractors.

6

        10.    Landlord's Repairs.    Landlord shall maintain, at its expense, the structural soundness of the roof, foundation, exterior walls and interior load bearing walls of the Building, and all underground and subsurface utility piping in good repair, reasonable wear and tear and damages caused by Tenant, its agents and contractors not covered by the waiver of subrogation contained herein excluded. The term "walls" as used in this Paragraph 10 shall not include windows, glass or plate glass, doors or overhead doors, special store fronts, dock bumpers, dock plates or levelers, or office entries. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Paragraph 10, after which Landlord shall have a reasonable opportunity to repair.

In the event of an emergency, Tenant shall have the right to make such temporary, emergency repairs (and only such temporary, emergency repairs) to the roof, foundation, exterior walls and interior load bearing walls of the Building as may be reasonably necessary to prevent material damage to Tenant's property at the Premises and/or personal injury to Tenant's employees at the Premises (provided Tenant first attempts to notify Landlord telephonically of such emergency and notifies Landlord of such circumstances in writing as soon as practicable thereafter). In such event, Landlord shall reimburse Tenant for the reasonable, out-of-pocket costs actually incurred by Tenant in making such repairs, up to but not to exceed $25,000. If Landlord fails to reimburse Tenant for the reasonable, out-of-pocket costs incurred by Tenant in making such repairs with respect to such emergency, within 30 days after demand therefor, accompanied by supporting evidence of the costs incurred by Tenant, then Tenant may bring an action for damages against Landlord to recover such costs, together with interest thereof at the rate provided for in Paragraph 37(j) of the Lease, and reasonable attorney's fees incurred by Tenant in bringing such action for damages. In no event, however, shall Tenant have a right to terminate the Lease.

        Landlord, at Tenant's expense as provided in Paragraph 6, shall maintain in good repair and condition the roof membrane, the parking areas and other common areas of the Building and the Project, including, but not limited to driveways, alleys, landscape and grounds surrounding the Premises.

        11.    Tenant's Repairs.    Subject to Landlord's obligation in Paragraph 10 and subject to Paragraphs 9 and 15, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises and all areas, improvements and systems exclusively serving the Premises including, without limitation, dock and loading areas, truck doors, plumbing, water and sewer lines up to points of common connection, fire sprinklers and fire protection systems, entries, doors, ceilings, windows, interior walls, and the interior side of demising walls, and heating, ventilation and air conditioning systems. Such repair and replacements include capital expenditures and repairs whose benefit may extend beyond the Term, and such capital expenditures and repairs shall be amortized in accordance with the Formula (defined hereafter) over the remainder of the Lease Term, without regard to any extension or renewal option not then exercised. The "Formula" shall mean that number, the numerator of which shall be the number of months of the Lease Term remaining after the replacement of any such capital expenditures, and the denominator of which shall be the maximum amortization period (in months) allowable for determining depreciation of such capital expenditures for federal income tax purposes. Landlord shall pay for such capital expenditures and repairs and Tenant shall reimburse Landlord for its amortized share of same (determined as hereinabove set forth) in equal monthly installments in the same manner as the payment by Tenant to Landlord of the Operating Expenses. Heating, ventilation and air conditioning systems and other mechanical and building systems serving the Premises shall be maintained at Tenant's expense pursuant to maintenance service contracts entered into by Tenant or, if not done so by Tenant, by Landlord. The scope of services and contractors under such maintenance contracts shall be reasonably approved by Landlord. If Tenant fails to perform any repair or replacement for which it is responsible, Landlord may perform such work and be reimbursed by Tenant within 10 days after demand therefor. Subject to Paragraphs 9 and 15, Tenant shall bear the full cost of any repair or replacement to any part of the Building or Project that results

7

from damage caused by Tenant, its agents, contractors, or invitees and any repair that benefits only the Premises.

        12.    Tenant-Made Alterations and Trade Fixtures.    Any alterations, additions, or improvements made by or on behalf of Tenant to the Premises ("Tenant-Made Alterations") in excess of $10,000 shall be subject to Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed, provided that such alteration does not materially affect the structure or the roof of the Building, modify the exterior of the Building, or modify the utility systems of the Project, in which case such alteration (regardless of cost) shall be subject to Landlord's written consent, which such consent shall be either approved or rejected by Landlord in Landlord's sole discretion. Tenant shall cause, at its expense, all Tenant-Made Alterations to comply with insurance requirements and with Legal Requirements and shall construct at its expense any alteration or modification required by Legal Requirements as a result of any Tenant-Made Alterations. All Tenant-Made Alterations shall be constructed in a good and workmanlike manner by contractors reasonably acceptable to Landlord and only good grades of materials shall be used. All plans and specifications for any Tenant-Made Alterations shall be submitted to Landlord for its approval. Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall reimburse Landlord for its reasonable third-party, out-of-pocket costs in reviewing plans and specifications and in monitoring construction. Landlord's right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to see that such plans and specifications or construction comply with applicable laws, codes, rules and regulations. Tenant shall provide Landlord with the identities and mailing addresses of all persons performing work or supplying materials, prior to beginning such construction, and Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all work free and clear of liens and shall provide certificates of insurance for worker's compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Tenant-Made Alterations, Tenant shall deliver to Landlord sworn statements setting forth the names of all contractors and subcontractors who did work on the Tenant-Made Alterations and final lien waivers from all such contractors and subcontractors. Upon surrender of the Premises, all Tenant-Made Alterations and any leasehold improvements constructed by Landlord or Tenant shall remain on the Premises as Landlord's property, except to the extent Landlord requires removal at Tenant's expense of any such items or Landlord and Tenant have otherwise agreed in writing in connection with Landlord's consent to any Tenant-Made Alterations. At Tenant's request, Landlord shall provide Tenant, at the time of Tenant's request for approval of Tenant-Made Alterations, a list of which Tenant-Made Alterations Landlord will require Tenant to remove upon surrender of the Premises. Tenant shall repair any damage caused by such removal.

        Tenant, at its own cost and expense and without Landlord's prior approval, may erect such shelves, bins, machinery and trade fixtures (collectively "Trade Fixtures") in the ordinary course of its business provided that such items do not alter the basic character of the Premises, do not overload or damage the Premises, and may be removed without injury to the Premises, and the construction, erection, and installation thereof complies with all Legal Requirements and with Landlord's requirements set forth above. Tenant shall remove its Trade Fixtures and shall repair any damage caused by such removal.

        13.    Signs.    Tenant shall not make any changes to the exterior of the Premises, install any exterior lights, decorations, balloons, flags, pennants, banners, or painting, or erect or install any signs, windows or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises, without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. Upon surrender or vacation of the Premises, Tenant shall have removed all signs and repair, paint, and/or replace the building facia surface to which its signs are attached. Tenant shall obtain all applicable governmental permits and approvals for sign and exterior

8

treatments. All signs, decorations, advertising media, blinds, draperies and other window treatment or bars or other security installations visible from outside the Premises shall be subject to Landlord's approval and conform in all respects to Landlord's requirements. Tenant may, at its sole cost and expense, place its name on the two (2) existing monument signs as more fully described on Exhibit A, subject to Landlord's prior approval of Tenant's plans and specifications related to such signage and subject to Landlord's standard sign specifications for the Project.

        14.    Parking.    Tenant shall be entitled to park in those areas as designated on Exhibit A and shall be entitled to park in common with other tenants of the Project in those areas designated for nonreserved parking. Landlord may allocate parking spaces among Tenant and other tenants in the Project if Landlord determines that such parking facilities are becoming crowded. Landlord shall not be responsible for enforcing Tenant's parking rights against any third parties, but shall reasonably cooperate with Tenant in carrying out such enforcement.

        15.    Restoration.    If at any time during the Lease Term the Premises are damaged by a fire or other casualty, Landlord shall notify Tenant within 45 days after such damage as to the amount of time Landlord reasonably estimates it will take to restore the Premises. If the restoration time is estimated to exceed 6 months, (or actually does exceed 6 months, subject to Force Majeure events and Tenant caused delays), Tenant may elect to terminate this Lease upon notice to Landlord given no later than 30 days after Landlord's notice. If Tenant does not elect to terminate this Lease as permitted hereunder, then, Landlord shall promptly restore the Premises excluding Tenant's Tenant-Made Alterations, Trade Fixtures and/or personal property, subject to delays arising from Force Majeure events. Tenant at Tenant's expense shall promptly perform, subject to delays arising from the collection of insurance proceeds, or from Force Majeure events, all repairs or restoration to Tenant's Tenant-Made Alterations, which Landlord requires to remain as Landlord's property upon surrender of the Premises pursuant to the terms of Paragraph 12 with this Lease. Notwithstanding the foregoing, either party may terminate this Lease if the Premises are damaged during the last year of the Lease Term and Landlord reasonably estimates that it will take more than one month to repair such damage. Base Rent and Operating Expenses shall be abated for the period of repair and restoration in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises. Such abatement shall be the sole remedy of Tenant, and except as provided herein, Tenant waives any right to terminate the Lease by reason of damage or casualty loss.

        16.    Condemnation.    If any part of the Premises or the Project should be taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a "Taking" or "Taken"), and the Taking would prevent or materially interfere with Tenant's use of the Premises or in Landlord's judgment would materially interfere with or impair its ownership or operation of the Project, then upon written notice by Landlord or Tenant to the other this Lease shall terminate and Base Rent and Operating Expenses shall be apportioned as of said date. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, the Base Rent and Operating Expenses payable hereunder during the unexpired Lease Term shall be reduced to such extent as may be fair and reasonable under the circumstances. In the event of any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant. Tenant shall have the right, to the extent that same shall not diminish Landlord's award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant.

        17.    Assignment and Subletting.    Without Landlord's prior written consent, which Landlord shall not unreasonably withhold, condition, or delay, Tenant shall not assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises and any attempt to do any of the foregoing shall be void and of no effect. In the event that Landlord fails to provide its consent of such assignment or sublet within 15 days following Tenant's request thereof, then Landlord's consent shall be deemed denied for

9

purposes hereunder. For purposes of this paragraph, a transfer of 50% or more of the ownership interests controlling Tenant shall be deemed an assignment of this Lease unless such ownership interests are publicly traded. Notwithstanding the above, Tenant may assign or sublet the Premises, or any part thereof, to any entity controlling Tenant, controlled by Tenant or under common control with Tenant (a "Tenant Affiliate"), without the prior written consent of Landlord. Tenant shall reimburse Landlord for all of Landlord's reasonable out-of-pocket expenses in connection with any assignment or sublease, not to exceed $2,000 per event of assignment or subletting. Upon Landlord's receipt of Tenant's written notice of a desire to assign or sublet substantially all of the Premises for substantially all of the remaining Lease Term (excluding any transfer permitted to be done without Landlord's consent in this Paragraph 17, and further excluding any transfer of ownership interests as set forth above which is deemed to be an assignment hereunder), Landlord may, by giving written notice to Tenant within 30 days after receipt of Tenant's notice, terminate this Lease with respect to the space described in Tenant's notice, as of the date specified in Tenant's notice for the commencement of the proposed assignment or sublease. If Landlord so terminates the Lease, Landlord may enter into a lease directly with the proposed sublessee or assignee. Tenant may withdraw its notice to sublease or assign by notifying Landlord within 10 days after Landlord has given Tenant notice of such termination, in which case the Lease shall not terminate but shall continue.

        Notwithstanding anything contained herein to the contrary, provided no Event of Default has occurred and is continuing under this Lease beyond any applicable cure period, upon 10 days prior written notice to Landlord, Tenant may, without Landlord's prior written consent, assign this Lease to an entity into which or with which Tenant is merged or consolidated or to an entity to which substantially all of Tenant's assets are transferred, provided (x) such merger, consolidation, or transfer of assets is for a good business purpose and not principally for the purpose of transferring Tenant's leasehold estate, and (y) the assignee or successor entity has a net worth at least equal to the net worth of Tenant immediately prior to such merger, consolidation, or transfer (collectively, a "Permitted Transfer").

        It shall be reasonable for the Landlord to withhold its consent to any assignment or sublease in any of the following instances: (i) an Event of Default has occurred and is continuing beyond any applicable cure period that would not be cured upon the proposed sublease or assignment; (ii) the assignee or sublessee does not have a net worth calculated according to generally accepted accounting principles at least equal to the greater of the net worth of Tenant immediately prior to such assignment or sublease or the net worth of the Tenant at the time it executed the Lease; (iii) the intended use of the Premises by the assignee or sublessee is not a permitted use hereunder; (iv) the intended use of the Premises by the assignee or sublessee would materially increase the pedestrian or vehicular traffic to the Premises or the Project; (v) occupancy of the Premises by the assignee or sublessee would, in Landlord's opinion, violate an agreement binding upon Landlord or the Project with regard to the identity of tenants, usage in the Project, or similar matters; (vi) the identity or business reputation of the assignee or sublessee will, in the good faith judgment of Landlord, tend to damage the goodwill or reputation of the Project; (vii) the assignment or sublet is to another tenant in the Project and is at rates which are below those charged by Landlord for comparable space in the Project; (viii) in the case of a sublease, the subtenant has not acknowledged that the sublease is subject to all of the terms and conditions of the Lease; or (ix) the proposed assignee or sublessee is a governmental agency. Tenant and Landlord acknowledge that each of the foregoing criteria are reasonable as of the date of execution of this Lease. The foregoing criteria shall not exclude any other reasonable basis for Landlord to refuse its consent to such assignment or sublease. Any approved assignment or sublease shall be expressly subject to the terms and conditions of this Lease. Tenant shall provide to Landlord all information concerning the assignee or sublessee as Landlord may request.

        Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant's obligations under this Lease shall at all times remain fully responsible and liable for the payment of the

10

rent and for compliance with all of Tenant's other obligations under this Lease (regardless of whether Landlord's approval has been obtained for any such assignments or sublettings). In the event that the rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus received in lieu of rent therefor or incident thereto) exceeds the rental payable under this Lease, except as the same relates to an Tenant Affiliate or a Permitted Transfer or any transfer of ownership of interests as set forth above which is deemed to be an assignment hereunder, then Tenant shall be bound and obligated to pay Landlord as additional rent hereunder 50% of all such excess rental actually received by Tenant within 10 days following receipt thereof by Tenant, after deducting reasonable tenant improvements and marketing costs, reasonable brokerage fees, and reasonable attorney's fees.

        If this Lease be assigned or if the Premises be subleased (whether in whole or in part) or in the event of the mortgage, pledge, or hypothecation of Tenant's leasehold interest or grant of any concession or license within the Premises or if the Premises be occupied in whole or in part by anyone other than Tenant, then upon a default by Tenant hereunder beyond any applicable cure period, Landlord may collect rent from the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold interest was hypothecated, concessionee or licensee or other occupant and, except to the extent set forth in the preceding paragraph, apply the amount collected to the next rent payable hereunder; and all such rentals collected by Tenant shall be held in trust for Landlord and immediately forwarded to Landlord. No such transaction or collection of rent or application thereof by Landlord, however, shall be deemed a waiver of these provisions or a release of Tenant from the further performance by Tenant of its covenants, duties, or obligations hereunder.

        18.    Indemnification.    Except for the negligence or willful misconduct of or breach of this Lease by Landlord, its agents, employees or contractors, and to the extent permitted by law, Tenant agrees to indemnify, defend and hold harmless Landlord, and Landlord's agents, employees and contractors, from and against any and all losses, liabilities, damages, costs and expenses (including attorneys' fees) resulting from claims by third parties for injuries to any person and damage to or theft or misappropriation or loss of property occurring in or about the Project and arising from the use and occupancy of the Premises or from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises or due to any other act or omission of Tenant, its subtenants, assignees, invitees, employees, contractors and agents. The furnishing of insurance required hereunder shall not be deemed to limit Tenant's obligations under this Paragraph 18.

        19.    Inspection and Access.    Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose upon 24 hour advance notice (except in case of emergency, where no such notice shall be required). In any entry of the Premises, Landlord and Landlord's representatives shall not unreasonably or materially interfere with Tenant's operations in the Premises and shall abide by Tenant's reasonable security and health and safety requirements. Landlord and Landlord's representatives may enter the Premises during business hours for the purpose of showing the Premises to prospective purchasers and, during the last six (6) months of the Lease Term, to prospective tenants. Landlord may erect a suitable sign on the Premises stating the Premises are available to let during the last six (6) months of the Lease Term or at any time during the Lease Term that the Project is available for sale. Landlord may grant easements, make public dedications, designate common areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially interferes with Tenant's use or occupancy of the Premises or materially increased Tenant's obligations or decreases Tenant's rights hereunder. At Landlord's request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions.

        20.    Quiet Enjoyment.    If Tenant shall perform all of the covenants and agreements herein required to be performed by Tenant within applicable notice and cure periods, Tenant shall, subject to

11

the terms of this Lease, at all times during the Lease Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.

        21.    Surrender.    Upon termination of the Lease Term or earlier termination of Tenant's right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Paragraphs 15 and 16, and Hazardous Materials that are not Tenant Contamination excepted. Any Trade Fixtures, Tenant-Made Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord's retention and disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Lease Term shall survive the termination of the Lease Term, including without limitation, indemnity obligations, payment obligations with respect to Operating Expenses and obligations concerning the condition and repair of the Premises.

        22.    Holding Over.    If Tenant retains possession of the Premises after the termination of the Lease Term, unless otherwise agreed in writing, such possession shall be subject to immediate termination by Landlord at any time, and all of the other terms and provisions of this Lease (excluding any expansion or renewal option or other similar right or option) shall be applicable during such holdover period, except that Tenant shall pay Landlord from time to time, upon demand, as Base Rent for the holdover period, an amount equal to 150% of the Base Rent in effect on the termination date, computed on a monthly basis for each month or part thereof during such holding over. All other payments shall continue under the terms of this Lease. In addition, Tenant shall be liable for all damages incurred by Landlord as a result of such holding over. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Paragraph 22 shall not be construed as consent for Tenant to retain possession of the Premises.

        23.    Events of Default.    Each of the following events shall be an event of default ("Event of Default") by Tenant under this Lease:

          (i)  Tenant shall fail to pay any installment of Base Rent or any other payment required herein when due, and such failure shall continue for a period of 5 days after written notice from Landlord to Tenant that such payment was due; provided, however, that Landlord shall not be obligated to provide written notice of such failure more than 2 times in any consecutive 12-month period, and the failure of Tenant to pay any third or subsequent installment of Base Rent or any other payment required herein when due in any consecutive 12-month period shall constitute an Event of Default by Tenant under this Lease without the requirement of notice or opportunity to cure, and provided, further however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 and 1161(a) as amended.

         (ii)  Tenant or any guarantor or surety of Tenant's obligations hereunder shall (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a "proceeding for relief"); (C) become the subject of any proceeding for relief which is not dismissed within 60 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).

12

        (iii)  Any insurance required to be maintained by Tenant pursuant to this Lease shall be cancelled or terminated or shall expire or shall be reduced or materially and adversely changed, except, in each case, as permitted in this Lease.

        (iv)  Tenant shall not occupy or shall vacate the Premises or shall fail to continuously operate its business at the Premises for the permitted use set forth herein, whether or not Tenant is in monetary or other default under this Lease. Tenant's vacating of the Premises shall not constitute an Event of Default if, prior to vacating the Premises, Tenant has made arrangements reasonably acceptable to Landlord to (a) insure that Tenant's insurance for the Premises will not be voided or cancelled with respect to the Premises as a result of such vacancy, (b) insure that the Premises are secured and not subject to vandalism, and (c) insure that the Premises will be properly maintained after such vacation. Tenant shall inspect the Premises at least once each month and report monthly in writing to Landlord on the condition of the Premises.

         (v)  Tenant shall attempt or there shall occur any assignment, subleasing or other transfer of Tenant's interest in or with respect to this Lease except as otherwise permitted in this Lease.

        (vi)  Tenant shall fail to discharge any lien placed upon the Premises in violation of this Lease within 30 days after any such lien or encumbrance is filed against the Premises.

       (vii)  Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Paragraph 23, and except as otherwise expressly provided herein, such default shall continue for more than 30 days after Landlord shall have given Tenant written notice of such default; provided, however, that in the event that such default cannot reasonably be cured within such 30 day period, Tenant shall not be in default hereunder so long as Tenant commences to cure such default within such thirty day period and diligently prosecutes it to completion, and subject to Paragraph 33 hereof, completes such cure within 90 days.

        24.    Landlord's Remedies.    Upon each occurrence of an Event of Default and so long as such Event of Default shall be continuing, Landlord may at any time thereafter at its election: terminate this Lease or Tenant's right of possession, (but Tenant shall remain liable as hereinafter provided) and/or pursue any other remedies at law or in equity. Upon the termination of this Lease or termination of Tenant's right of possession, it shall be lawful for Landlord, without formal demand or notice of any kind, to re-enter the Premises by summary dispossession proceedings or any other action or proceeding authorized by law and to remove Tenant and all persons and property therefrom. If Landlord re-enters the Premises, Landlord shall have the right to keep in place and use, or remove and store, all of the furniture, fixtures and equipment at the Premises.

        Except as otherwise provided in the next paragraph, if Tenant breaches this Lease and abandons the Premises prior to the end of the term hereof, or if Tenant's right to possession is terminated by Landlord because of an Event of Default by Tenant under this Lease, this Lease shall terminate. Upon such termination, Landlord may recover from Tenant the following, as provided in Section 1951.2 of the Civil Code of California: (i) the worth at the time of award of the unpaid Base Rent and other charges under this Lease that had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the reasonable value of the unpaid Base Rent and other charges under this Lease which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award by which the reasonable value of the unpaid Base Rent and other charges under this Lease for the balance of the term of this Lease after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or that in the ordinary course of things would be likely to result therefrom. As used herein, the following terms are defined: (a) the "worth at the time of award" of the amounts referred to in Sections (i) and (ii) is computed by allowing interest at the lesser of 12 percent

13

per annum or the maximum lawful rate. The "worth at the time of award" of the amount referred to in Section (iii) is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent; (b) the "time of award" as used in clauses (i), (ii), and (iii) above is the date on which judgment is entered by a court of competent jurisdiction; (c) The "reasonable value" of the amount referred to in clause (ii) above is computed by determining the mathematical product of (1) the "reasonable annual rental value" (as defined herein) and (2) the number of years, including fractional parts thereof, between the date of termination and the time of award. The "reasonable value" of the amount referred to in clause (iii) is computed by determining the mathematical product of (1) the annual Base Rent and other charges under this Lease and (2) the number of years including fractional parts thereof remaining in the balance of the term of this Lease after the time of award.

        Even though Tenant has breached this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord may enforce all its rights and remedies under this Lease, including the right to recover rent as it becomes due. This remedy is intended to be the remedy described in California Civil Code Section 1951.4 and the following provision from such Civil Code Section is hereby repeated: "The Lessor has the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign, subject only to reasonable limitations)." Any such payments due Landlord shall be made upon demand therefor from time to time and Tenant agrees that Landlord may file suit to recover any sums falling due from time to time. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect in writing to terminate this Lease for such previous breach.

        Exercise by Landlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, whether by agreement or by operation of law, it being understood that such surrender and/or termination can be effected only by the written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same. Tenant and Landlord further agree that forbearance or waiver by Landlord to enforce its rights pursuant to this Lease or at law or in equity, shall not be a waiver of Landlord's right to enforce one or more of its rights in connection with any subsequent default. A receipt by Landlord of rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. The terms "enter," "re-enter," "entry" or "re-entry," as used in this Lease, are not restricted to their technical legal meanings. Any reletting of the Premises shall be on such terms and conditions as Landlord in its sole discretion may determine (including without limitation a term different than the remaining Lease Term, rental concessions, alterations and repair of the Premises, lease of less than the entire Premises to any tenant and leasing any or all other portions of the Project before reletting the Premises). Landlord shall not be liable, nor shall Tenant's obligations hereunder be diminished because of, Landlord's failure to relet the Premises or collect rent due in respect of such reletting, provided that Landlord has made commercially reasonable efforts to relet the Premises and otherwise mitigate its damages; provided, however, (a) Landlord shall not be obligated to accept any tenant proposed by Tenant, (b) Landlord shall have the right to lease any other space controlled by Landlord first, and (c) any proposed tenant shall meet all of Landlord's leasing criteria.

14

        25.    Tenant's Remedies/Limitation of Liability.    Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary so long a Landlord is continuously and diligently pursuing a cure). If such default by Landlord shall occur, Tenant may pursue any legal or equitable remedy for which it is entitled. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord's obligations hereunder. All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter so long as any successor to Landlord has assumed Landlord's obligations in writing. The term "Landlord" in this Lease shall mean only the owner, for the time being of the Premises, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Lease Term upon each new owner for the duration of such owner's ownership. Any liability of Landlord under this Lease shall be limited solely to its interest in the Project, and in no event shall any personal liability be asserted against Landlord in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord. Landlord's interest in the Project shall be deemed to include: (i) the rents or other income from the Project received by Landlord after Tenant obtains a final judgment against Landlord, (ii) the net proceeds received by Landlord from the sale or other disposition of all or any part of Landlord's right, title and interest in the Project after Tenant obtains a final judgment against Landlord, (iii) the net proceeds received by Landlord from any condemnation or conveyance in lieu of condemnation of all or any portion of the Project after Tenant obtains a final judgment against Landlord, and (iv) the net proceeds of insurance received by Landlord from any casualty loss of all or any portion of the Project after Tenant obtains a final judgment against Landlord.

        26.    Waiver of Jury Trial.    TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

        27.    Subordination.    This Lease and Tenant's interest and rights hereunder are and shall be subject and subordinate at all times to the lien of any mortgage, now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant. Tenant agrees, at the election of the holder of any such mortgage, to attorn to any such holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination and such instruments of attornment as shall be requested by any such holder. Notwithstanding the foregoing, any such holder may at any time subordinate its mortgage to this Lease, without Tenant's consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution, delivery or recording and in that event such holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such mortgage and had been assigned to such holder. The term "mortgage" whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the "holder" of a mortgage shall be deemed to include the beneficiary under a deed of trust.

15

Notwithstanding anything contained herein to the contrary, Tenant shall not be obligated to subordinate the Lease or its interest therein to any mortgage, deed of trust or ground lease on the Project unless concurrently with such subordination the holder of such mortgage or deed of trust or the ground lessor under such ground lease agrees not to disturb Tenant's possession of the Premises under the terms of the Lease in the event such holder or ground lessor acquires title to the Premises through foreclosure, deed in lieu of foreclosure or otherwise. Tenant shall be solely responsible for any fees or expenses charged by the holder of such mortgage or deed of trust in connection with the granting of such non-disturbance agreement

        28.    Mechanic's Liens.    Tenant has no express or implied authority to create or place any lien or encumbrance of any kind upon, or in any manner to bind the interest of Landlord or Tenant in, the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises and that it will save and hold Landlord harmless from all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the interest of Landlord in the Premises or under this Lease. Tenant shall give Landlord immediate written notice of the placing of any lien or encumbrance against the Premises and cause such lien or encumbrance to be discharged within 30 days of the filing or recording thereof; provided, however, Tenant may contest such liens or encumbrances as long as such contest prevents foreclosure of the lien or encumbrance and Tenant causes such lien or encumbrance to be bonded or insured over in a manner satisfactory to Landlord within such 30 day period.

        29.    Estoppel Certificates.    Tenant agrees, from time to time, within 10 days after request of Landlord, to execute and deliver to Landlord, or Landlord's designee, any estoppel certificate requested by Landlord, stating that this Lease is in full force and effect, the date to which rent has been paid, that Landlord is not in default hereunder (or specifying in detail the nature of Landlord's default), the termination date of this Lease and such other matters pertaining to this Lease as may be reasonably requested by Landlord. Tenant's obligation to furnish each estoppel certificate in a timely fashion is a material inducement for Landlord's execution of this Lease. No cure or grace period provided in this Lease shall apply to Tenant's obligations to timely deliver an estoppel certificate.

        30.    Environmental Requirements.    Except for Hazardous Material contained in products used by Tenant in de minimis quantities for (i) ordinary cleaning and office purposes or (ii) Tenant's normal business operations in connection with its lab operations, Tenant shall not permit or cause any party to bring any Hazardous Material upon the Premises or transport, store, use, generate, manufacture or release any Hazardous Material in or about the Premises without Landlord's prior written consent which shall not be unreasonably withheld or delayed. Tenant, at its sole cost and expense, shall operate its business in the Premises in strict compliance with all Environmental Requirements and shall remediate in a manner satisfactory to Environmental Requirements any Hazardous Materials released on or from the Project by Tenant, its agents, employees, contractors, subtenants or invitees ("Tenant Contamination"). Tenant shall complete and certify to disclosure statements as requested by Landlord from time to time relating to Tenant's transportation, storage, use, generation, manufacture or release of Hazardous Materials on the Premises. The term "Environmental Requirements" means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any governmental authority or agency regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies having the force of law promulgated or issued thereunder. The term "Hazardous Materials" means and includes any substance, material, waste, pollutant, or contaminant listed or

16

defined as hazardous or toxic, under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquified natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the "operator" of Tenant's "facility" that Tenant operates in or about the Premises during the Lease Term and the "owner" of all Hazardous Materials brought on the Premises by Tenant, its agents, employees, contractors or invitees, and the wastes, by-products, or residues generated, resulting, or produced therefrom.

        Tenant shall indemnify, defend, and hold Landlord harmless from and against any and all losses (including, without limitation, diminution in value of the Premises or the Project and loss of rental income from the Project), claims, demands, actions, suits, damages (including, without limitation, punitive damages), expenses (including, without limitation, remediation, removal, repair, corrective action, or cleanup expenses), and costs (including, without limitation, actual attorneys' fees, consultant fees or expert fees and including, without limitation, removal or management of any asbestos brought into the property by Tenant, its agents, employees, contractors, subtenants, assignees or invitees or disturbed by Tenant, its agents, employees, contractors, subtenants, assignees, or invitees in breach of the requirements of this Paragraph 30, regardless of whether such removal or management is required by law) which are brought or recoverable against, or suffered or incurred by Landlord as a result of any release of Hazardous Materials for which Tenant is obligated to remediate as provided above or any other breach of the requirements under this Paragraph 30 by Tenant, its agents, employees, contractors, subtenants, assignees or invitees, regardless of whether Tenant had knowledge of such noncompliance. The obligations of Tenant under this Paragraph 30 shall survive any termination of this Lease.

        Landlord shall have access to, and a right to perform inspections and tests of, the Premises to determine Tenant's compliance with Environmental Requirements, its obligations under this Paragraph 30, or the environmental condition of the Premises. Access shall be granted to Landlord upon Landlord's prior notice to Tenant and at such times so as to minimize, so far as may be reasonable under the circumstances, any disturbance to Tenant's operations. Such inspections and tests shall be conducted at Landlord's expense, unless such inspections or tests reveal that Tenant has not complied with any Environmental Requirement, in which case Tenant shall reimburse Landlord for the reasonable cost of such inspection and tests. Landlord's receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord holds against Tenant.

Notwithstanding anything to the contrary in this Paragraph 30, Tenant shall have no liability of any kind to Landlord as to Hazardous Materials on the Premises prior to Tenant's occupancy of the Premises or caused or permitted by (i) Landlord, its agents, employees, contractors or invitees; or (ii) any other tenants in the Project or their agents, employees, contractors, subtenants, assignees or invitees; or (iii) any other person or entity located outside of the Premises or the Project. Landlord represents and warrants that Landlord, to Landlord's knowledge and without further inquiry, is unaware of any environmental conditions affecting the Premises.

        31.    Rules and Regulations.    Tenant shall, at all times during the Lease Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. The current rules and regulations are attached hereto. In the event of any conflict between said rules and regulations and other provisions of this Lease, the other terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project.

        32.    Security Service.    Tenant acknowledges and agrees that, while Landlord may patrol the Project, Landlord is not providing any security services with respect to the Premises and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises.

17

        33.    Force Majeure.Except for monetary obligations, neither Landlord not Tenant shall be held responsible for delays in the performance of its obligations hereunder when caused by strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, delay in issuance of permits, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of Landlord or Tenant, as the case may be ("Force Majeure").

        34.    Entire Agreement.    This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof. No representations, inducements, promises or agreements, oral or written, have been made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not contained herein, and any prior agreements, promises, negotiations, or representations are superseded by this Lease. This Lease may not be amended except by an instrument in writing signed by both parties hereto.

        35.    Severability.    If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.

        36.    Brokers.Each party represents and warrants to the other that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than the broker, if any, set forth on the first page of this Lease, and each party agrees to indemnify and hold the other harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with the indemnifying party with regard to this leasing transaction. Landlord hereby acknowledges and agrees that the broker referenced on Page One of this Lease shall be entitled to a leasing commission from Landlord by virtue of this Lease, which leasing commission shall be deemed earned and shall be paid by Landlord to said broker in accordance with, and subject to the terms of, a separate written agreement.

        37.    Miscellaneous.    (a)    Any payments or charges due from Tenant to Landlord hereunder shall be considered rent for all purposes of this Lease.

        (b)   If and when included within the term "Tenant," as used in this instrument, there is more than one person, firm or corporation, each shall be jointly and severally liable for the obligations of Tenant.

        (c)   All notices required or permitted to be given under this Lease shall be in writing and shall be sent by registered or certified mail, return receipt requested, or by a reputable national overnight courier service, postage prepaid, or by hand delivery addressed to the parties at their addresses below, and with a copy sent to Landlord at 14100 East 35th Place, Aurora, Colorado 80011. Either party may by notice given aforesaid change its address for all subsequent notices. Except where otherwise expressly provided to the contrary, notice shall be deemed given upon delivery.

        (d)   Except as otherwise expressly provided in this Lease or as otherwise required by law, Landlord retains the absolute right to withhold any consent or approval. Whenever the Lease requires an approval, consent, determination, selection or judgment by either Landord or Tenant, unless another standard is expressly set forth, such approval, consent, determination, selection or judgment and any conditions imposed thereby shall be reasonable and shall not be unreasonably withheld or delayed and, in exercising any right or remedy hereunder, each party shall at all times act reasonably and in good faith.

        (e)   At Landlord's request from time to time Tenant shall furnish Landlord with true and complete copies of its most recent annual and quarterly financial statements prepared by Tenant or Tenant's

18

accountants and any other financial information or summaries that Tenant typically provides to its lenders or shareholders. Landlord hereby agrees to keep such financial information confidential pursuant to the terms of a separate confidentiality agreement between Landlord and Tenant.

        (f)    Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.

        (g)   The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto.

        (h)   The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.

        (i)    Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

        (j)    Any amount not paid by Tenant within 5 days after its due date in accordance with the terms of this Lease shall bear interest from such due date until paid in full at the lesser of the highest rate permitted by applicable law or 15 percent per year. It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord's and Tenant's express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.

        (k)   Construction and interpretation of this Lease shall be governed by the laws of the state in which the Project is located, excluding any principles of conflicts of laws.

        (l)    Time is of the essence as to the performance of Tenant's obligations under this Lease.

        (m)  All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. In the event of any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.

        (n)   In the event either party hereto initiates litigation to enforce the terms and provisions of this Lease, the non-prevailing party in such action shall reimburse the prevailing party for its reasonable attorney's fees, filing fees, and court costs.

        38.    Landlord's Lien/Security Interest.    Intentionally deleted.

        39.    Limitation of Liability of Trustees, Shareholders, and Officers of ProLogis.    Any obligation or liability whatsoever of ProLogis, a Maryland real estate investment trust, which may arise at any time under this Lease or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction, or undertaking contemplated hereby shall not be personally binding upon, nor shall resort for the enforcement thereof be had to the property of, its trustees, directors, shareholders,

19

officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort, or otherwise.

        IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.

TENANT:		LANDLORD:
Ikanos Communications, a California corporation		ProLogis, a Maryland real estate investment trust
By:	/s/  DAN ATLER	By:	/s/  W. SCOTT LAMSON
Name:	Dan Atler	Name:	W. Scott Lamson
Title:	Chief Financial Officer	Title:	Senior Vice President
Address:		Address:
47669 Fremont Blvd. Fremont, CA 94538		47775 Fremont Blvd. Fremont, CA 94538

20

Rules and Regulations

1.

The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or its agents, or used by them for any purpose other than ingress and egress to and from the Premises.

2.

Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project.

3.

Except for seeing-eye dogs, no animals shall be allowed in the offices, halls, or corridors in the Project.

4.

Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.

5.

If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant's expense.

6.

Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project.

7.

Parking any type of recreational vehicles is specifically prohibited on or about the Project. Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no "For Sale" or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord.

8.

Tenant shall maintain the Premises free from rodents, insects and other pests.

9.

Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.

10.

Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person.

11.

Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.

12.

Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.

13.

All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.

14.

No auction, public or private, will be permitted on the Premises or the Project.

15.

No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.

21

16.

The Premises shall not be used for lodging, sleeping or cooking or for any immoral or illegal purposes or for any purpose other than that specified in the Lease. No gaming devices shall be operated in the Premises.

17.

Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlord's consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity.

18.

Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage.

19.

Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant's ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises.

22

ADDENDUM 1

BASE RENT ADJUSTMENTS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED 2/7/06, BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

        Base Rent shall equal the following amounts for the respective periods set forth below:

Period	Monthly Base Rent
April 1st, 2006 to June 30, 2006	$	00.00	*
July 1st, 2006 to March 31st, 2007	$	19,005.66
April 1st, 2007 to March 31st, 2008	$	22,732.26
April 1st, 2008 to March 31st, 2009	$	24,595.56
April 1st, 2009 to March 31st, 2010	$	26,458.86
April 1st, 2010 to March 31st, 2011	$	28,322.16

*

Tenant shall be responsible for operating expenses during the free rent period (April 1, 2006-June 30, 2006)

23

ADDENDUM 2

CONSTRUCTION
(ALLOWANCE)

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATE 2/7/06, BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

a.

Initial Tenant Improvements; Allowance.    The leasehold improvements to be constructed by Tenant (the "Initial Tenant Improvements)", at Tenant's sole cost and expense (except for the hereinbelow described "Allowance", are generally described in the preliminary plans and specifications (the "Preliminary Plans") identified on Attachment 1 to this Addendum and shall be constructed in accordance with the Final Plans to be submitted by Tenant and reviewed and approved by Landlord in accordance with the provisions of Paragraph (b) of this Addendum.

Landlord shall pay for the Initial Improvements up to a maximum amount of $30,000.00 and in no event shall Landlord have any obligation to pay for any costs of the Initial Improvements in excess of such amount. If the cost of the Initial Improvements exceeds such amount, such overage shall be borne by Tenant, and repaid to Landlord, in equal monthly installments over the Lease Term; provided that Landlord increases the monthly base rent by $0.01 per square foot for every dollar expended by Tenant. In no event shall the excess overage exceed $75,990.00.

Landlord's payment of the Allowance, or such portion thereof as Tenant may be entitled to, shall be made within thirty (30) days of invoice. If Landlord claims any credits against the Allowance for any costs paid directly by Landlord to third parties, Landlord shall provide Tenant with evidence of payment of such costs.

b.

Preparation and Review of Plans for Initial Tenant Improvements.    The Preliminary Plans identified on Attachment 1 to this Addendum 2 have been approved by Landlord and signed by Landlord and Tenant for identification. However, such Preliminary Plans shall not be used by Tenant for the purposes of constructing or installing the Initial Tenant Improvements. Tenant, using licensed architectural and engineering firms selected by Tenant and approved by Landlord (which approval shall not be unreasonably withheld or delayed), shall prepare or cause to be prepared and submitted, concurrently, and in each case by receipted courier or delivery service, to (i) Landlord's construction representative, (i) Lisa Hooton/Brian Erlanson, 47775 Fremont Boulevard, Fremont, California, 94538, and (ii) Landlord's offices at 14100 East 35th Place, Aurora, Colorado 80011, for Landlord's review, complete and final architectural and engineering drawings and specifications (hereinafter collectively referred to as the "Final Plans"), consistent with the description of the Initial Tenant Improvements set forth on the Preliminary Plans. Subject to the provisions of Paragraph (c) of this Addendum 2, Landlord agrees that Tenant may commence construction of the Initial Tenant Improvements prior to finalization of the Final Plans and Landlord agrees that it shall cooperate with Tenant to review and approve portions of the Final Plans for different stages or elements of the work, or proposed Final Plans submitted at less than 100% completion, so that construction can proceed on a "fast track" basis. The approval process for all such portions of the Final Plans shall be substantially as set forth below, but any objection by Landlord to Final Plans submitted to Landlord may not be inconsistent with previously approved portions of the Final Plans. However, in no event shall any portion of the Initial Tenant Improvements be constructed or installed unless and until Landlord has approved (or id deemed to have approved) Final Plans at 100% completion for such portion of the work.

24

Each set of proposed Final Plans furnished by Tenant shall include at least two (2) sets of prints. The Final Plans shall be compatible with the design, construction, and equipment of the building, and shall be capable of logical measurement and construction. Unless Landlord shall otherwise agree in writing, the Final Plans shall be signed/stamped by Tenant's architect or engineer, as applicable, and shall include (to the extent relevant or applicable to the portion of the work for which Tenant is seeking Final Plan approval) each and all of the following: (i) a Partition (Floor) Plan, @ ¹/8" = 1'-0" minimum scale, including partition types, partition construction sections and details, and door/frame/hardware schedules; (ii) a Reflected Ceiling Plan, @ ¹/8" = 1'-0" minimum scale, including ceiling construction and specifications for ceiling lighting fixtures; (iii) a Telephone/Electrical/Communications Plan, @ ¹/8" = 1'-0" minimum scale, including a complete schedule, cross-referenced to said plan, of Tenant's telephone/electrical/communications equipment and providing said equipment's electrical power specifications, requirements and heat output: (iv) a Final Plan, including all finish specifications and U.L. and/or County "approval numbers' where required; (v) Elevations, @ ¹/2" = 1'0" minimum scale, interior, of all walls, with detail/section cross- references where appropriate; exterior, of Tenant's portion of the permitted Building-front wall, clearly indicating the appearance of Tenant's space, including its signage, at/through Tenant's permitted Building window wall (if any); (vi) details and sections, scale as required, for all partition types, structural elements and connections, and custom installations where they occur (HVAC, lighting, etc); (vii) details and sections, scale as required, for all signage and graphics; (viii) a Structural Engineering plan, locating and detailing any modifications to the Building required to attach and/or support the Initial Tenant Improvements or Tenant's trade fixtures or equipment (this plan must be signed/stamped by a structural engineer licensed in the State in which the Premises are situated); (ix) Electrical Engineering Plans, for both electrical power and for lighting, including but not limited to: circulating diagrams; panel schedules; electrical equipment and lighting fixture schedules and sections; and electrical equipment and lighting fixture electrical load tabulations (these plans and calculations must be signed/stamped by an electrical engineer licensed in the State in which the Premises are situated); (x) Mechanical Engineering Plans, for both plumbing and for HVAC, including but not limited to: plumbing water and waste line plans; HVAC supply, return and exhaust plans; and HVAC tabulations for electrical equipment and lighting heat loads, cooling loads and air supply (these plans and calculations must be signed/stamped by a mechanical engineer licenses in the State in which the Premises are situated); (xi) a Fire Protection Plan, locating and detailing any fire protection/fire suppression system as may be required by code or other regulations governing Tenant's operations in the Premises (this plan must be signed/stamped by a fire protection engineer licensed in the State in with the Premises are situated); and (xii) any other or additional plans as may be related to Tenant's specific use of the Premises, such as plans for rooms enclosures, equipment or devices related to Tenant's permitted storage or use of Hazardous materials at the Premises (if any), or as may be required by local city ordinance or building code.

Tenant shall submit all Final Plans (or portions thereof) concurrently to Landlord's construction representative and offices, as designated above, for Landlord's review and approval. Landlord shall have five (5) business days after Landlord's receipt of the proposed Final Plans (or each such portion thereof) to review the same and notify Tenant in writing of any comments or required changes, or to otherwise give its approval or disapproval of such proposed Final Plans (or the portion thereof submitted to Landlord). If Landlord fails to give written comments to or disapprove the Final Plans (or the portion thereof submitted to Landlord) within such five (5) business day period, then Landlord shall be deemed to have approved the Final Plans (or portion thereof) as submitted. Tenant shall have five (5) business days following its receipt for Landlord's comments and objections to redraw the proposed Final Plans (or portion thereof submitted to Landlord) in compliance with Landlord's request and to resubmit the same for Landlord's final review and approval or comment within three (3) business days of Landlord's

25

receipt of such revised plans. Such process shall be repeated as necessary until final approval or deemed approval by Landlord of the proposed Final Plans (or each portion thereof), at 100% completion, has been obtained. Landlord may at any time by written notice given in accordance with the notice provisions of the Lease change the name and/or address of the designated Landlord's construction representative to receive plans delivered by Tenant to Landlord.

In the event that Tenant disagrees with any of the changes to the proposed Final Plans (or portion thereof) required by Landlord, then Landlord and Tenant shall consult with respect thereto and each party shall use all reasonable efforts to promptly resolve any disputed elements of such proposed Final Plans (or portion thereof). Landlord and Tenant agree that if after consultation with each other and their respective architects they are unable to resolve any disputed items within three (3) business days of Landlord's written objection, then within three (3) business days thereafter (i) Landlord's architect shall select an architect who is unaffiliated with Landlord or Tenant to resolve the dispute (the "Arbitrator")., and (ii) each party shall state to the Arbitrator its final position in writing as respects the disputed matter(s) The Arbitrator shall decide on each disputed matter within three (3) business days of submission of such matter, based solely on such written submissions and the consistency of the parties' submissions with the Preliminary Plans or previously approved portion of the Final Plans, as applicable, the Tenant's permitted use of the Premises and the general nature and design of the Project and adjacent properties. The parties consent to the jurisdiction of any appropriate court to enforce and enter judgments upon the decision of the Arbitrator. The losing party shall pay the cost of the Arbitrator, but each party shall otherwise bear its own costs and expenses in connection with the dispute.

For purposes here, "business days" shall be all calendar days except Saturdays, Sundays and holidays observed by national banks in Alameda County, California.

Notwithstanding the preceding provisions of this Paragraph (b), under no circumstances whatsoever shall (i) any combustible materials be utilized above finished ceiling or in any concealed space, (ii) any structural load, temporary or permanent, be exerted on any part of the Building without the prior written approval of Landlord, or (iii) any holes be cut or drilled in any part of the roof or other portion of the Building shell without the prior written approval of Landlord.

In the event that Tenant proposes any changes to the Final Plans (or any portion thereof) after the same have been approved by Landlord, Landlord shall not unreasonably withhold its consent to any such changes, provided the changes do not, in Landlord's reasonable opinion, adversely affect the Building structure, systems, or equipment, or the external appearance of the Premises.

As soon as the Final Plans (or a portion thereof sufficient to permit commencement of construction or installation of the Initial Tenant Improvements, if Tenant elects to proceed with a "fast track" construction) are mutually agreed upon, Tenant shall use diligent efforts to obtain all required permits authorizations, and licenses from appropriate governmental authorities for construction of the Initial Tenant Improvements (or such portion thereof, as applicable). Tenant shall be solely responsible for obtaining any business or other license or permit required for the conduct of its business at the Premises.

c.

Construction of the Initial Tenant Improvements.    Construction or installation of the Initial Tenant Improvements shall be performed by a licensed general contractor or contractors selected by Tenant and approved by Landlord, such approval not to be unreasonably withheld or delayed (the "Tenant's Contractor", whether one or more), pursuant to a written construction contract negotiated and entered into by and between the Tenant's Contractor and Tenant and approved by Landlord (such approval not to be unreasonably withheld or delayed). Each such contract shall (i) obligate Tenant's Contractor to work in harmony with the employees, contractors and suppliers of Landlord involved in the construction work being performed by Landlord pursuant to Addendum 2 to the Lease, and to comply with all rules and regulations of Landlord of general

26

applicability relating to construction activities in the Project, (ii) name Landlord as an additional indemnitee under the provisions of the contract whereby the Tenant's Contractor holds Tenant harmless form and against any and all claims, damages, losses, liabilities and expenses arising out of or resulting form the performance of such work, (iii) name Landlord as an additional beneficiary of (and a party entitled to enforce) all of the warranties for the Tenant's Contractor with respect to the work performed thereunder and the obligation of the Tenant's Contractor to replace defective materials and correct defective ownership for a period of not less than one (1) year following substantial completion of the work under such contract, (iv) evidence the agreement of the Tenant's Contractor that the provisions of the Lease shall control over the provisions of the Contract with respect to distribution or use of insurance proceed, in the event of a casualty during construction, and (v) evidence with waiver and release by the Tenant's Contractor of any lien or right to assert a lien on all or any portion of the fee estate of Landlord in and to the Project as a result for the work performed or to be performed hereunder (and obligating the Tenant's Contractor to include a substantially similar release and waiver provision in all subcontracts and purchase orders entered under or pursuant to the contract).

Tenant acknowledges and understands that all roof penetrations involved in eh construction of the Initial Tenant Improvements must be performed by the Building shell roofing contractor. All costs, fees and expenses incurred with such contractor in performing such work shall be a cost for the Initial Tenant Improvements, payable in accordance with the provisions of this Addendum. Tenant or Tenant's Contractor shall be responsible for all water, gas, electricity, sewer or other utilities used or consumed at the Premises during the construction of the Initial Tenant Improvements.

Tenant specifically agrees to carry, or cause the Tenant's Contractor to carry, during all such items as the Tenant's work is being performed, (a) builder's risk completed value insurance on the Initial Tenant Improvements, in an amount not less than Four Million Dollars ($4,000,000.00), (b)a policy of insurance covering commercial general liability, in an amount not less than One Million Dollars ($1,000,000.00), combined single limit for bodily injury and property damage per occurrence (and combined single limit coverage of $2,000,000.00 in the aggregate), and automobile liability coverage (including owned, non-owned and hired vehicles) in an amount not less than One Million Dollars ($1,000,000.00) combined single limit (each person, each accident), and endorsed to show Landlord as an additional insured, and (c) workers' compensation insurance as required by law, endorsed to show a waiver of subrogation by the insurer to any claim the Tenant's Contractor may have against Landlord. Tenant shall not commence construction of the Initial Tenant Improvements (or any portion thereof) until Landlord has issued to Tenant a written authorization to proceed with construction, which Landlord agrees to issue to Tenant within one (1) business day after Tenant has delivered to Landlord's construction representative (i) certificates for the insurance policies described above, (ii) copies of all permits required for construction of the Initial Tenant Improvements (or applicable portion thereof, if Tenant elects to proceed with a "fast track" construction) and a copy of the permitted Final Plans (or applicable portion thereof) as approved by the appropriate governmental agency, (iii) a copy of each signed construction contract for the Initial Tenant Improvements (a copy of each subsequently signed contract shall be forwarded to Landlord's construction representative without request or demand, promptly after execution thereof and prior to the performance of any work thereunder), and (iv) list of names, addresses and phone numbers of all subcontractors, contractors and suppliers involved in performing the Initial Tenant Improvements. All of the construction shall be the responsibility of and supervised by Tenant.

d.

Requirements for Tenant's Work.    All of Tenant's construction with respect to the Premises shall be performed in substantial compliance with this Addendum and the Final Plans therefor previously approved in writing by Landlord (and any changes thereto approved by Landlord as herein provided), and in a good and workmanlike manner, utilizing only new materials. All such work

27

shall be performed by Tenant in strict compliance with all applicable building codes, regulations and all other legal requirements. All materials utilized in the construction of Tenant's work must be confined to within the Premises. All trash and construction debris not located wholly within the Premises must be removed each day form the Project at the sole cost and expense of Tenant. Landlord shall have the right at all times to monitor the work for compliance with the requirements of this Addendum. If Landlord determines that any such requirements are not being strictly complied with, Landlord may immediately require the cessation of all work being performed in or around the Premises or the Project until such time as Landlord is satisfied that the applicable requirements will be observed. Any approval given by Landlord with respect to Tenant's construction of the Preliminary plans or Final Plans therefor, and/or any monitoring of Tenant's work by Landlord, shall not make Landlord liable or responsible in any way for the condition, quality or function of such matters or constitute any undertaking, warranty or representation by Landlord with respect to any of such matters. So long as Landlord reviews and responds to the plan submissions to Landlord as provided in this Addendum, no delays in plan approval, and no delays in construction of the Initial Tenant Improvements, shall delay the Commencement Date of this Lease.

e.

No Liens; Indemnification.    Tenant shall have no authority to place any lien upon the Premises or the Project or any portion thereof or interest therein, nor shall Tenant have any authority in any way to bind Landlord, and any attempt to do so shall be void and of no effect. If, because of any actual or alleged act or omission of Tenant, or Tenant's Contractor, or any subcontractors or materialmen, any lien, affidavit, charge or other for the payment of money shall be filed against Landlord, the Premises, the Project, or any portion thereof, or interest herein, whether or not such lien, affidavit, charge or order is valid or enforceable, Tenant shall, at its sole cost and expense, cause the same to be discharged of record by payment, bonding or otherwise no later than fifteen (15) days after notice to Tenant of the filing hereof, but in any event prior to the foreclosure thereof.

With respect to the contract for labor or materials for construction of the Initial Tenant Improvements, Tenant acts as principal and not as the agent of Landlord. Landlord expressly disclaims liability of the cost of labor preformed for or supplies or materials furnished to Tenant. Landlord may post one or more "notices of non-responsibility" for Tenant's work on the Project. No contractor of Tenant is intended to be a third-party beneficiary with respect to the costs for construction of the Initial Tenant Improvements. Tenant agrees to indemnify, defend and hold Landlord, the Premises and the Project, harmless form all claims (including all costs and expenses of defending against such claims) arising or alleged to arise from any act or omission of Tenant or Tenant's agents, employees, contractor, subcontractors, suppliers, materialmen, architects, designers, surveyors, engineers, consultants, laborers, or invitees, or arising from any bodily injury or property damage occurring or alleged to have occurred incident to any of the work to be performed by Tenant or its contractors or subcontractors with respect to the Premises.

Default by Tenant under this Addendum 2 shall constitute a default by Tenant under the Lease for all purposes.

28

ADDENDUM 3

RENEWAL OPTION
(BASEBALL ARBITRATION)

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED 2/7/06, BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

        (a)   Provided that as of the time of the giving of the Extension Notice and the Commencement Date of the Extension Term, (x) Tenant is the Tenant originally named herein (or a Tenant Affiliate or a party to a Permitted Transfer), (y) Tenant (or a Tenant Affiliate or a party to a Permitted Transfer) actually occupies all of the Premises initially demised under this Lease and any space added to the Premises, and (z) no Event of Default exists or would exist but for the passage of time or the giving of notice, or both; then Tenant shall have the right to extend the Lease Term for an additional term of 3 years (such additional term is hereinafter called the "Extension Term") commencing on the day following the expiration of the Lease Term (hereinafter referred to as the "Commencement Date of the Extension Term"). Tenant shall give Landlord notice (hereinafter called the "Extension Notice") of its election to extend the term of the Lease Term at least 9 months prior to the scheduled expiration date of the Lease Term.

        (b)   The Base Rent payable by Tenant to Landlord during the Extension Term shall be the greater of:

          (i)  the Base Rent in effect on the expiration of the Lease Term (if the Base Rent is stated as an annual or other periodic rate, adjusted for the length of the Lease Term), and

         (ii)  95% of the Fair Market Rent, as defined and determined pursuant to Paragraphs (c), (d), and (e) below.

        (c)   The term "Fair Market Rent" shall mean the Base Rent, expressed as an annual rent per square foot of floor area, which Landlord would have received from leasing the Premises for the Extension Term to an unaffiliated person which is not then a tenant in the Project, assuming that such space were to be delivered in "as-is" condition, and taking into account the rental which such other tenant would most likely have paid for such premises, including market escalations but excluding improvements installed in the Premises at the sole cost and expense of Tenant, provided that Fair Market Rent shall not in any event be less than the Base Rent for the Premises as of the expiration of the Lease Term. Fair Market Rent shall not be reduced by reason of any costs or expenses saved by Landlord by reason of Landlord's not having to find a new tenant for the Premises (including without limitation brokerage commissions, cost of improvements necessary to prepare the space for such tenant's occupancy, rent concession, or lost rental income during any vacancy period). Fair Market Rent means only the rent component defined as Base Rent in the Lease and does not include reimbursements and payments by Tenant to Landlord with respect to Operating Expenses and other items payable or reimbursable by Tenant under the Lease. In addition to its obligation to pay Base Rent (as determined herein), Tenant shall continue to pay and reimburse Landlord as set forth in the Lease with respect to such operating expenses and other items with respect to the Premises during the Extension Term. The arbitration process described below shall be limited to the determination of the Base Rent and shall not affect or otherwise reduce or modify the Tenant's obligation to pay or reimburse Landlord for such operating expenses and other reimbursable items.

        (d)   Landlord shall notify Tenant of its determination of the Fair Market Rent (which shall be made in Landlord's sole discretion and shall in any event be not less than the Base Rent in effect as of

29

the expiration of the Lease Term) for the Extension Term, and Tenant shall advise Landlord of any objection within 10 days of receipt of Landlord's notice. Failure to respond within the 10-day period shall constitute Tenant's acceptance of such Fair Market Rent. If Tenant objects, Landlord and Tenant shall commence negotiations to attempt to agree upon the Fair Market Rent within 30 days of Landlord's receipt of Tenant's notice. If the parties cannot agree, each acting in good faith but without any obligation to agree, then the Lease Term shall not be extended and shall terminate on its scheduled termination date and Tenant shall have no further right hereunder or any remedy by reason of the parties' failure to agree unless Tenant or Landlord invokes the arbitration procedure provided below to determine the Fair Market Rent.

        (e)   Arbitration to determine the Fair Market Rent shall be in accordance with the Real Estate Valuation Arbitration Rules of the American Arbitration Association. Unless otherwise required by state law, arbitration shall be conducted in the metropolitan area where the Project is located by a single arbitrator unaffiliated with either party. Either party may elect to arbitrate by sending written notice to the other party and the Regional Office of the American Arbitration Association within 5 days after the 30-day negotiating period provided in Paragraph (d), invoking the binding arbitration provisions of this paragraph. Landlord and Tenant shall each submit to the arbitrator their respective proposal of Fair Market Rent. The arbitrator must choose between the Landlord's proposal and the Tenant's proposal and may not compromise between the two or select some other amount. Notwithstanding any other provision herein, the Fair Market Rent determined by the arbitrator shall not be less than, and the arbitrator shall have no authority to determine a Fair Market Rent less than, the Base Rent in effect as of the scheduled expiration of the Lease Term. The cost of the arbitration shall be paid by Landlord if the Fair Market Rent is that proposed by Landlord and by Tenant if the Fair Market Rent is that proposed by Tenant; and shall be borne equally otherwise. If the arbitrator has not determined the Fair Market Rent as of the end of the Lease Term, Tenant shall pay 105 percent of the Base Rent in effect under the Lease as of the end of the Lease Term until the Fair Market Rent is determined as provided herein. Upon such determination, Landlord and Tenant shall make the appropriate adjustments to the payments between them.

        (f)    The parties consent to the jurisdiction of any appropriate court to enforce the arbitration provisions of this Addendum and to enter judgment upon the decision of the arbitrator.

        (g)   Except for the Base Rent as determined above, Tenant's occupancy of the Premises during the Extension Term shall be on the same terms and conditions as are in effect immediately prior to the expiration of the initial Lease Term; provided, however, Tenant shall have no further right to extend the Lease Term pursuant to this addendum or to any allowances, credits or abatements or options to expand, contract, renew or extend the Lease.

        (h)   If Tenant does not send the Extension Notice within the period set forth in Paragraph (a), Tenant's right to extend the Lease Term shall automatically terminate. Time is of the essence as to the giving of the Extension Notice and the notice of Tenant's objection under Paragraph (d).

        (i)    Landlord shall have no obligation to refurbish or otherwise improve the Premises for the Extension Term. The Premises shall be tendered on the Commencement Date of the Extension Term in "as-is" condition.

        (j)    If the Lease is extended for the Extension Term, then Landlord shall prepare and Tenant shall execute an amendment to the Lease confirming the extension of the Lease Term and the other provisions applicable thereto.

        (k)   If Tenant exercises its right to extend the term of the Lease for the Extension Term pursuant to this Addendum, the term "Lease Term" as used in the Lease, shall be construed to include, when practicable, the Extension Term except as provided in (g) above.

30

ADDENDUM 4

CANCELLATION OPTION

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED 2/7/06, BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

        Provided no Event of Default shall then exist and no condition shall then exist which with the passage of time or giving of notice, or both, would constitute an Event of Default, Tenant shall have the right with no less than nine (9) months prior written notice (the "Termination Notice") to elect to terminate this Lease effective on the last day of the 36^th full calendar month of the Lease Term.

        If Tenant elects to terminate this Lease pursuant to the immediately preceding sentence, the effectiveness of such termination shall be conditioned upon Tenant paying to Landlord $244,706.00 contemporaneously with Tenant's delivery of the Termination Notice to Landlord. Such amount is consideration for Tenant's option to terminate and shall not be applied to rent or any other obligation of Tenant. Landlord and Tenant shall be relieved of all obligations accruing under this Lease after the effective date of such termination but not any obligations accruing under the Lease prior to the effective date of such termination.

31

ADDENDUM 5

MISCELLANEOUS PROVISIONS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED 2/7/06, BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

        Refund of Past Termination Fee:    Upon full execution of the Lease Agreement, Landlord agrees to refund the amount of $150,000.00 to Tenant. Said refund represents the termination fee paid by Tenant and received by Landlord on September 30^th, 2005.

32

ADDENDUM 6

LETTER OF CREDIT FOR SECURITY DEPOSIT

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED 2/7/06, 2006 BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

        The Security Deposit may be in the form of an unconditional, irrevocable letter of credit from a bank reasonably acceptable to Landlord. The letter of credit shall either provide that it does not expire until the 61^st day following the end of the Lease Term or, if it is for less than the full term of the Lease, shall be renewed by Tenant at least 60 days prior to its expiration during the term of the Lease. The letter of credit shall provide that it may be drawn down upon by Landlord upon Tenant's default of the Lease beyond applicable notice and cure periods and only to the extent required to cure such default. If Landlord sells or conveys the Premises, Tenant shall, at Landlord's request, cooperate in having the letter of credit transferred to the purchaser. If the letter of credit is ever drawn upon by Landlord pursuant to the terms of the Lease and this Addendum, Tenant shall within ten (10) days thereafter cause the letter of credit to be restored to its original amount.

        Notwithstanding anything contained herein to the contrary, in the event Tenant fails to renew the letter of credit in accordance with the terms and conditions as set forth in this Addendum, or in the event that Tenant shall commence any proceeding for relief, as defined in Paragraph 23(ii) of the Lease, an immediate Event of Default shall be deemed to have occurred, without the requirement of notice or opportunity to cure, in which case Landlord may immediately draw down on the letter of credit.

33

QuickLinks

LEASE AGREEMENT
ADDENDUM 1 BASE RENT ADJUSTMENTS ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED 2/7/06, BETWEEN ProLogis, a Maryland real estate investment trust and Ikanos Communications, a California corporation
ADDENDUM 2 CONSTRUCTION (ALLOWANCE) ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATE 2/7/06, BETWEEN ProLogis, a Maryland real estate investment trust and Ikanos Communications, a California corporation
ADDENDUM 5 MISCELLANEOUS PROVISIONS ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED 2/7/06, BETWEEN ProLogis, a Maryland real estate investment trust and Ikanos Communications, a California corporation
ADDENDUM 6 LETTER OF CREDIT FOR SECURITY DEPOSIT ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED 2/7/06, 2006 BETWEEN ProLogis, a Maryland real estate investment trust and Ikanos Communications, a California corporation

EX-10.23

EXHIBIT 10.23

SUMMARY OF

2006 EXECUTIVE BONUS PLAN

The registrant maintains the Executive Bonus Plan to provide vice presidents of the registrant the opportunity to receive a cash award based on the achievement of performance objectives in the prior fiscal year.  The Compensation Committee (the “Committee”), in consultation with the Chief Executive Officer, establishes a threshold based on the registrant’s financial performance for the year and general individual performance goals for each officer, and the Chief Executive Officer further develops specific objectives and milestones for each officer.  Awards are calculated on an executive’s annual salary as of the end of the fiscal year.  The amount of each executive’s payout is dependent on the achievement of the performance goals.  The Committee has the authority to adjust the amount of awards payable under the Executive Bonus Plan.  Payments are made following the end of the year, after the Committee has determined the degree of attainment of that year’s performance goals.

The Committee approved performance goals and target awards in February 2006 for the 2006 fiscal year.  In addition to the individual goals, objectives and milestones for each officer, the Committee adopted the threshold requirement that the registrant meet or exceed the revenue and gross margin dollar targets set in the registrant’s Annual Operating Plan for fiscal year 2006.  The Committee set target bonuses at 40% of salary.

EX-10.24

EXHIBIT 10.24

SUMMARY OF

2006 SALES COMPENSATION PLAN

The registrant maintains the Sales Compensation Plan to provide certain members of the registrant’s sales staff the opportunity to receive cash awards based on the achievement of performance objectives.  The Compensation Committee (the “Committee”), on the recommendation of the Chief Executive Officer, establishes the structure for calculating quarterly awards and incentive bonuses in the Sales Compensation Plan, and separately sets threshold targets based on the registrant’s financial performance and design win goals for each participating employee.  Awards are calculated based on individual commission and incentive dollar amounts as set forth for each participant.  The amount of each participant’s payout is then dependent on the achievement of the adopted performance goals.  Payments are made following the end of each quarter, after the degree of attainment of that quarter’s performance goals has been determined by management of the registrant.

The Committee approved performance goals and individual commission and incentive amounts under the Sales Compensation Plan for the 2006 fiscal year for Mr. Derek Obata, the registrant’s Vice President of Worldwide Sales, in February 2006.

EX-10.25

Exhibit 10.25

IKANOS COMMUNICATIONS, INC.

AMENDED AND RESTATED

2004 EQUITY INCENTIVE PLAN

NOTICE OF GRANT OF RESTRICTED STOCK UNITS

Unless otherwise defined herein, the terms defined in the amended and restated 2004 Equity Incentive Plan (the “Plan”) will have the same defined meanings in this Notice of Grant.

Name:

Address:

You have been granted the right to receive Restricted Stock Units, subject to the terms and conditions of the Plan and this Restricted Stock Unit Agreement as follows:

Grant Number

Date of Grant

Vesting Commencement Date

Total Number of Restricted Stock

Units

Vesting Schedule:

[Twenty-five percent (25%) of the Restricted Stock Units will vest and be issued to Participant on each anniversary of the Vesting Commencement Date, provided that the Participant continues to be a Service Provider through such dates.  In the event Participant ceases to be a Service Provider for any or no reason (including death or Disability) before Participant vests in the right to acquire the Shares to be issued pursuant to the Restricted Stock Unit, the Restricted Stock Unit and the Participant’s right to acquire any Shares hereunder will immediately terminate.]

By your signature and the signature of the Company’s representative below, you and the Company agree that this Award is granted under and governed by the terms and conditions of the Plan and the Terms and Conditions of Restricted Stock Units (the “Agreement”), attached hereto as Exhibit A, both of which are made a part of this document.  You further agree to execute the attached Agreement as a condition to receiving any Restricted Stock Units under this Award.

PARTICIPANT:	IKANOS COMMUNICATIONS, INC.
Signature	By
Print Name	Title

APPENDIX A

TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS

1.             Grant.  The Company hereby grants to the Participant under the Plan an Award of Restricted Stock Units, subject to all of the terms and conditions in this Agreement and the Plan.

2.             Company’s Obligation to Pay.  Each Restricted Stock Unit has a value equal to the Fair Market Value of a Share on the date it becomes vested.  Unless and until the Restricted Stock Units will have vested in the manner set forth in Sections 3 and 4, the Participant will have no right to payment of any such Restricted Stock Units.  Prior to actual payment of any vested Restricted Stock Units, such Restricted Stock Unit will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.

3.             Vesting Schedule.  Subject to Section 4, the Restricted Stock Units awarded by this Agreement will vest in the Participant according to the vesting schedule set forth on the attached Notice of Grant of Restricted Stock Units, subject to the Participant continuing to be a Service Provider through each applicable vesting date.

4.             Forfeiture upon Termination as Service Provider.  Notwithstanding any contrary provision of this Agreement, if the Participant ceases to be a Service Provider for any or no reason, the then-unvested Restricted Stock Units awarded by this Agreement will thereupon be forfeited at no cost to the Company and the Participant will have no further rights thereunder.

5.             Payment after Vesting.  Any Restricted Stock Units that vest in accordance with Section 3 will be paid to the Participant (or in the event of the Participant’s death, to his or her estate) in whole Shares, provided that to the extent determined appropriate by the Company, any federal, state and local withholding taxes with respect to such Restricted Stock Units will be paid by reducing the number of Shares actually paid to the Participant.

6.             Payments after Death.  Any distribution or delivery to be made to the Participant under this Agreement will, if the Participant is then deceased, be made to the Participant’s designated beneficiary, or if no beneficiary survives the Participant, the administrator or executor of the Participant’s estate.  Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.

7.             Withholding of Taxes.  Notwithstanding any contrary provision of this Agreement, no certificate representing the Shares will be issued to the Participant, unless and until satisfactory arrangements (as determined by the Administrator) will have been made by the Participant with respect to the payment of income, employment and other taxes which the Company determines must be withheld with respect to such Shares so issuable.  The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit the Participant to satisfy such tax withholding obligation, in whole or in part by one or more of the following (without limitation): (a) paying cash, (b) electing to have the Company withhold otherwise deliverable Shares having a Fair Market Value equal to the minimum amount required to be withheld, (c) delivering to the Company already vested and owned Shares having a Fair Market Value equal to the amount required to be withheld, or (d) selling a sufficient number of such Shares otherwise deliverable to Participant through such

means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld.  If the Participant fails to make satisfactory arrangements for the payment of any required tax withholding obligations hereunder at the time any applicable Shares otherwise are scheduled to vest pursuant to Section 3, the Participant will permanently forfeit such Shares and the Shares will be returned to the Company at no cost to the Company.

8.             Rights as Stockholder.  Neither the Participant nor any person claiming under or through the Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Participant.

9.             No Effect on Service.  Participant acknowledges and agrees that the vesting of the Restricted Stock Units pursuant to Section 3 hereof is earned only by Participant continuing to be a Service Provider through the applicable vesting dates (and not through the act of being hired or acquiring Shares hereunder).  Participant further acknowledges and agrees that this Agreement, the transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an express or implied promise of Participant’s continuation as a Service Provider for the vesting period, for any period, or at all, and will not interfere with the Participant’s right or the right of the Company to terminate Participant’s status as a Service Provider at any time, with or without cause.

10.           Address for Notices.  Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of its [TITLE] at Ikanos Communications, Inc., [ADDRESS], or at such other address as the Company may hereafter designate in writing.

11.           Grant is Not Transferable.  Except to the limited extent provided in Section 6, this grant and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process.  Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

12.           Binding Agreement.  Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

13.           Additional Conditions to Issuance of Stock.  If at any time the Company will determine, in its discretion, that the listing, registration or qualification of the Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition to the issuance of shares to the Participant (or his estate), such issuance will not occur unless and until such listing, registration, qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the Company.  Where the Company determines that the delivery of the payment of any Shares will violate federal securities laws or other Applicable Laws, the Company will defer delivery until the earliest date at which the Company reasonably anticipates

that the delivery of Shares will no longer cause such violation.  The Company will make all reasonable efforts to meet the requirements of any such state or federal law or securities exchange and to obtain any such consent or approval of any such governmental authority.

14.           Plan Governs.  This Agreement is subject to all terms and provisions of the Plan.  In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.

15.           Administrator Authority.  The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested).  All actions taken and all interpretations and determinations made by the Plan Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons.  No member of the Plan Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

16.           Captions.  Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

17.           Agreement Severable.  In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

By Participant’s signature below, Participant represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof.  Participant has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement.  Participant agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Agreement.  Participant further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant of Restricted Stock Units.

PARTICIPANT	IKANOS COMMUNICATIONS, INC.
Signature	By
Print Name	Title
Date:	Date:

EX-10.26

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.26

        [California Net Lease]

LEASE AGREEMENT

        THIS LEASE AGREEMENT is made this 7^th day of February 2006, between ProLogis, a Maryland real estate investment trust ("Landlord"), and the Tenant named below.

Tenant:	Ikanos Communications, a California corporation
Tenant's Representative, Address, and Telephone:	Dan Atler Ikanos Communications 47669 Fremont Blvd. Fremont, CA, 94538
Premises:	That portion of the Building, containing approximately 36,300 rentable square feet, as determined by Landlord, as shown on Exhibit A.
Project:	Bayside Corporate Center (based upon 311,277 rentable square feet in the Project)
Building:	Building 5 (sba00805), 47661 Fremont Blvd, Fremont, CA 94538 (based upon 36,300 rentable square feet in the Building)
Tenant's Proportionate Share of Project:	11.66%
Tenant's Proportionate Share of Building:	100%
Lease Term:	Beginning on the Commencement Date and ending on the last day of the 62nd full calendar month thereafter, subject to the provisions of Addendum 3 and Addendum 4, and subject further to any termination rights as granted under this Lease with respect to an event of casualty or condemnation.
Commencement Date:	February 6, 2006
Initial Monthly Base Rent:	See Addendum 1
Initial Estimated Monthly
Operating Expense Payments: (estimates only and subject to	1.	Common Area Charges:	$	2,062.50
adjustment to actual costs and expenses according to the provisions of this Lease)	2.	Taxes:	$	5,334.67
	3.	Insurance:	$	249.00
	4.	Other:	$	67.58
Initial Estimated Monthly Operating Expense Payments:			$	7,713.75
Initial Monthly Base Rent and Operating Expense Payments:			$	26,226.75
Security Deposit:	Letter of Credit in the amount of $35,301.75
Broker:	Brad Werner—CB Richard Ellis
Addenda:	1. Base Rent Adjustments 2. Construction (Allowance) 3. Renewal Option (Baseball Arbitration) 4. Cancellation Option 5. Misc. Provisions 6. Move Out Conditions 7. Letter of Credit for Security Deposit
Exhibits:	A. Site Plan; B. Sign Criteria; C. Floor Plan

        1.    Granting Clause.    In consideration of the obligation of Tenant to pay rent as herein provided and in consideration of the other terms, covenants, and conditions hereof, Landlord leases to Tenant,

and Tenant takes from Landlord, the Premises, to have and to hold for the Lease Term, subject to the terms, covenants and conditions of this Lease.

        2.    Acceptance of Premises.    Tenant shall accept the Premises in its condition as of the Commencement Date, subject to all applicable laws, ordinances, regulations, covenants and restrictions. Except as otherwise set forth in this Lease, Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenant's business, and Tenant waives any implied warranty that the Premises are suitable for Tenant's intended purposes. Except as provided in this paragraph and Paragraph 10 and as otherwise expressly set forth herein, in no event shall Landlord have any obligation for any defects in the Premises or any limitation on its use. The taking of possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken except for items that are Landlord's responsibility (or for which Landlord has provided a representation or warranty) under this paragraph and/or Paragraph 10 as well as any punchlist items agreed to in writing by Landlord and Tenant; provided, however, that Tenant's acceptance of the Premises shall not be deemed a waiver of Landlord's delivery condition obligations hereunder. Landlord acknowledges and covenants that as of the Commencement Date (i) the Building's HVAC, electrical, plumbing and other mechanical systems are in good working order and Landlord warrants such systems for a period of six (6) months from the Commencement Date, and (ii) the Premises are in compliance with applicable Legal Requirements.

        3.    Use.    The Premises shall be used only for the purpose of light manufacturing and assembly, receiving, storing, shipping and selling (but limited to wholesale sales) products, materials and merchandise made and/or distributed by Tenant, for general office use by Tenant, and for such other lawful purposes as may be incidental thereto. Tenant shall not conduct or give notice of any auction, liquidation, or going out of business sale on the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit waste, overload the floor or structure of the Premises or subject the Premises to use that would damage the Premises. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise, or vibrations to emanate from the Premises, or take any other action that would constitute a nuisance or would disturb, unreasonably interfere with, or endanger Landlord or any tenants of the Project. Outside storage, including without limitation, storage of non-operable trucks and other non-operable vehicles, is prohibited without Landlord's prior written consent. Subject to Landlord's representation and warranty in Paragraph 2 hereof, Tenant, at its sole expense, shall use and occupy the Premises in compliance with all laws with respect to Tenant's particular use of the Premises, including, without limitation, the Americans With Disabilities Act, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions (including, without limitation, any covenants, conditions, and restrictions affecting the Project) now or hereafter applicable to such use of the Premises (collectively, "Legal Requirements"). Tenant shall, at its expense, make any alterations or modifications, within or without the Premises, that are required by Legal Requirements related to Tenant's particular use of the Premises. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant's or Landlord's insurance, increase the insurance risk. If any increase in the cost of any insurance on the Premises or the Project is caused by Tenant's use or occupation of the Premises beyond that cost that would normally be incurred with respect to a tenant engaging in the uses permitted herein, or because Tenant vacates the Premises, then Tenant shall pay the amount of such increase to Landlord. Landlord and Tenant agree that Tenant shall have the right to occupy the Premises upon full execution of this Lease by both parties hereto and delivery by Tenant to Landlord of the insurance certificates required hereunder for the purpose of Tenant's preparation of the Premises for occupancy (including without limitation, commencement of any tenant improvements permitted by Landlord or this Lease). Any such occupation of the Premises by Tenant occurring prior to the Commencement Date shall be subject to the terms and conditions of this Lease, other than any obligation of Tenant to pay Base Rent or Operating Expenses as defined below.

2

Notwithstanding anything contained herein to the contrary, Tenant's obligations hereunder shall relate only to legally required changes to the interior of the Premises after Tenant's occupancy of the Premises that relate solely to the specific manner of use of the Premises by Tenant; and Landlord shall make all other additions to or modifications of the Project required from time to time by Legal Requirements. The cost of such additions or modifications made by Landlord may be included in Operating Expenses pursuant to Paragraph 6 of this Lease to the extent permitted thereunder, except for those additions or modifications which are Landlord's sole responsibility pursuant to Paragraph 10 of this Lease or due to violations of law by Landlord in existence as of the Commencement Date.

        4.    Base Rent.    Tenant shall pay Base Rent in the amount set forth above. The first month's Base Rent, the Security Deposit, and the first monthly installment of estimated Operating Expenses (as hereafter defined) shall be due and payable on the date hereof, and, except as otherwise set forth in this Lease, Tenant promises to pay to Landlord in advance, without demand, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month succeeding the Commencement Date. Payments of Base Rent for any fractional calendar month shall be prorated. All payments required to be made by Tenant to Landlord hereunder (or to such other party as Landlord may from time to time specify in writing) shall be made by check or Electronic Fund Transfer ("EFT") of immediately available federal funds before 11:00 a.m., Eastern Time, at such place, within the continental United States, as Landlord may from time to time designate to Tenant in writing. Except as otherwise set forth herein, the obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any rent due hereunder except as may be expressly provided in this Lease. If Tenant is delinquent in any monthly installment of Base Rent or of estimated Operating Expenses for more than 5 days, Tenant shall pay to Landlord on demand a late charge equal to 5 percent of such delinquent sum. Tenant shall not be obligated to pay the late charge until Landlord has given Tenant 5 days written notice of the delinquent payment (which may be given at any time during the delinquency); provided, however, that Landlord shall not be required to give such notices more than twice in any calendar year or 4 times over the term of the Lease. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as a penalty.

        5.    Security Deposit.    The Security Deposit shall be held by Landlord as security for the performance of Tenant's obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon each occurrence of an Event of Default (hereinafter defined), Landlord may use all or part of the Security Deposit to pay delinquent payments due under this Lease, and the cost of any damage, injury, expense or liability caused by such Event of Default, without prejudice to any other remedy provided herein or provided by law. Tenant shall pay Landlord no later than ten (10) days following Landlord's demand the amount that will restore the Security Deposit to its original amount. Landlord's obligation respecting the Security Deposit is that of a debtor, not a trustee; no interest shall accrue thereon. The Security Deposit shall be the property of Landlord, but shall be paid to Tenant when Tenant's obligations under this Lease have been completely fulfilled. Landlord shall be released from any obligation with respect to the Security Deposit upon transfer of this Lease, the Security Deposit (and the Premises to a person or entity assuming Landlord's obligations under this Paragraph 5.

        6.    Operating Expense Payments.    During each month of the Lease Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to ¹/12 of the annual cost, as reasonably estimated by Landlord from time to time, of Tenant's Proportionate Share (hereinafter defined) of Operating Expenses for the Project. Payments thereof for any fractional calendar month shall be prorated. The term "Operating Expenses" means all reasonable costs and expenses actually incurred by Landlord with respect to the ownership, maintenance, and operation of the Project including, but not limited to costs of: Taxes (hereinafter defined) and fees payable to tax consultants and attorneys for consultation and contesting taxes; insurance; utilities; maintenance, repair and replacement of all

3

portions of the Project, including without limitation, paving and parking areas, roads, roofs (including the roof membrane), alleys, and driveways, mowing, landscaping, exterior painting, utility lines, heating, ventilation and air conditioning systems, lighting, electrical systems and other mechanical and building systems; amounts paid to contractors and subcontractors for work or services performed in connection with any of the foregoing; charges or assessments of any association to which the Project is subject; property management fees payable to a property manager, including any affiliate of Landlord, not to exceed 3% of gross receipts; security services, if any; trash collection, sweeping and removal; and additions or alterations made by Landlord to the Project or the Building in order to comply with Legal Requirements enacted after the Commencement Date of this Lease (other than those expressly required herein to be made by Tenant) provided that the cost of additions or alterations that may be capitalized for federal income tax purposes in accordance with Generally Accepted Accounting Principles shall be amortized on a straight line basis over a period equal to the lesser of the useful life thereof for federal income tax purposes. Operating Expenses do not include costs, expenses, depreciation or amortization for capital repairs and capital replacements required to be made by Landlord under Paragraph 10 of this Lease, debt service under mortgages or ground rent under ground leases, or condemnation in excess of Landlord's deductible as set forth in Paragraph 15 of this Lease, leasing commissions, or the costs of renovating space for tenants. Further, Operating Expenses shall not mean or include, and Tenant shall in no event have any obligation to perform or to pay directly, or to reimburse Landlord for, all or any portion of the following: (i) costs incurred in connection with the construction or remodeling of the Project or any other improvements now or hereafter located thereon, or correction of defects in design or construction or compliance with any covenant, condition, restriction, underwriter's requirement or law applicable to the Premises or the Project on the Commencement Date; (ii) interest, principal, or other payments on account of any indebtedness that is secured by any encumbrance on any part of the Project, or rental or other payments under any ground lease, or any payments in the nature of returns on or of equity of any kind; (iii) costs of selling, syndicating, financing, mortgaging or hypothecating any part of or interest in the Project; (iv) taxes on the income of Landlord or Landlord's franchise taxes, inheritance, gift, transfer, estate or state taxes (unless any of said taxes are hereafter instituted by applicable taxing authorities in substitution for ad valorem real property taxes); (v) depreciation, reserves of any kind, including replacement reserves and reserves for bad debt or lost rent, or any other charge not involving the payment of money to third parties; (vi) Landlord's overhead costs, including equipment, supplies, accounting and legal fees, rent and other occupancy costs or any other costs associated with the operation or internal organization and function of Landlord as a business entity (but this provision does not prevent the payment of a management fee to Landlord as provided in this Paragraph 6); (vii) fees or other costs for professional services provided by space planners, architects, engineers, and other similar professional consultants, real estate commissions, and marketing and advertising expenses; (viii) costs of defending or prosecuting litigation with any party, unless a favorable judgment would reduce or avoid an increase in Operating Expenses, or unless the litigation is to enforce compliance with Rules and Regulations of the Project, or other standards or requirements for the general benefit of the tenants in the Project; (ix) costs incurred as a result of Landlord's violation of any lease, contract, law or ordinance, including fines and penalties; (x) late charges, interest or penalties of any kind for late or other improper payment of any public or private obligation, including ad valorem taxes; (xi) costs of removing Hazardous Materials or of correcting any other conditions in order to comply with any environmental law or ordinance (but this exclusion shall not constitute a release by Landlord of Tenant for any such costs for which Tenant is liable pursuant to Paragraph 30 of this Lease); (xii) costs for which Landlord is reimbursed from any other source; (xiii) costs related to any building or land not included in the Project, including any allocation of costs incurred on a shared basis, such as centralized accounting costs, unless the allocation is made on a reasonable and consistent basis that fairly reflects the share of costs actually attributable to the Project; (xiv) the part of any costs or other sum paid to any affiliate of Landlord that may exceed the fair market price or cost generally payable for substantially similar goods or services in the area of the Project; (xv) insurance deductibles, except to the extent arising from damage or injury caused by Tenant; (xvi) costs occasioned by the act, omission or violation

4

of any law by Landlord, any other occupant of the Project, or their respective agents, employees or contractors; (xvii) costs occasioned by casualties or by the exercise of the power of eminent domain; (xviii) costs of structural repairs to the Project; (xiv) costs which could properly be capitalized under generally accepted accounting principles, except to the extent amortized in the manner provided herein; and (xx) costs of capital improvements made for tenants other than Tenant.

Landlord shall provide Tenant within 90 days following the final day of the calendar year Landlord's itemized year-end common area maintenance reconciliation reports which reference and include all applicable Operating Expenses for such year. Upon Tenant's written request (which request must be made within 60 days following Tenant's receipt of Landlord's reconciliation report as described in the preceding sentence), Landlord shall provide photocopies of invoices of major expenditures, as well as other standard Landlord reports to substantiate such costs, for the expenses as provided in such reconciliation reports. If Tenant's total payments of Operating Expenses for any year are less than Tenant's Proportionate Share of actual Operating Expenses for such year, then Tenant shall pay the difference to Landlord within 30 days after demand, and if more, then Landlord shall retain such excess and credit it against Tenant's next payments. For purposes of calculating Tenant's Proportionate Share of Operating Expenses, a year shall mean a calendar year except the first year, which shall begin on the Commencement Date, and the last year, which shall end on the expiration of this Lease. With respect to Operating Expenses which Landlord allocates to the entire Project, Tenant's "Proportionate Share" shall be the percentage set forth on the first page of this Lease as Tenant's Proportionate Share of the Project as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Project; and, with respect to Operating Expenses which Landlord allocates only to the Building, Tenant's "Proportionate Share" shall be the percentage set forth on the first page of this Lease as Tenant's Proportionate Share of the Building as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Building. Landlord may equitably increase Tenant's Proportionate Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project or Building that includes the Premises or that varies with occupancy or use. The estimated Operating Expenses for the Premises set forth on the first page of this Lease are only estimates, and Landlord makes no guaranty or warranty that such estimates will be accurate.

        7.    Utilities.    Tenant shall pay for all water, gas, electricity, heat, light, power, telephone, sewer, sprinkler services, refuse and trash collection, and other utilities and services used on the Premises, all maintenance charges for utilities, and any storm sewer charges or other similar charges for utilities imposed by any governmental entity or utility provider, together with any taxes, penalties, surcharges or the like pertaining to Tenant's use of the Premises. All utilities shall be separately metered or charged directly to Tenant by the provider, except for water and sewer which shall be jointly metered. Tenant shall pay its share of all charges for jointly metered utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of utilities shall result in the termination of this Lease or the abatement of rent. Tenant agrees to limit use of water and sewer for normal restroom use.

Notwithstanding anything to the contrary contained in Paragraph 7 of this Lease, if an interruption or cessation of utilities results from a cause within the Landlord's reasonable control and the Premises are not usable by Tenant for the conduct of Tenant's business as a result thereof, Base Rent and applicable Operating Expenses not actually incurred by Tenant shall be abated for the period which commences five (5) business days after the date Tenant gives to Landlord notice of such interruption until such utilities are restored.

        8.    Taxes.    Landlord shall pay all taxes, assessments and governmental charges (collectively referred to as "Taxes") that accrue against the Project during the Lease Term, which shall be included as part of the Operating Expenses charged to Tenant. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens thereof. All capital levies or other taxes assessed or imposed on Landlord upon the rents payable to Landlord under this Lease and any franchise tax, any excise, transaction, sales or privilege tax, assessment, levy or charge measured by or

5

based, in whole or in part, upon such rents from the Premises and/or the Project or any portion thereof shall be paid by Tenant to Landlord monthly in estimated installments or upon demand, at the option of Landlord, as additional rent; provided, however, in no event shall Tenant be liable for any net income taxes imposed on Landlord unless such net income taxes are in substitution for any Taxes payable hereunder or any inheritance or estate taxes of Landlord. If any such tax or excise is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall be liable for all taxes levied or assessed against any personal property or fixtures placed in the Premises, whether levied or assessed against Landlord or Tenant.

        9.    Insurance.    Landlord shall maintain all risk property insurance covering the full replacement cost of the Building. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, commercial liability insurance and rent loss insurance. All such insurance shall be included as part of the Operating Expenses charged to Tenant. The Project or Building may be included in a blanket policy (in which case the cost of such insurance allocable to the Project or Building will be determined by Landlord based upon the insurer's cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenant's use of the Premises in a manner different than the permitted use hereunder.

        Tenant, at its expense, shall maintain during the Lease Term: all risk property insurance covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenant's expense; worker's compensation insurance with no less than the minimum limits required by law; employer's liability insurance with such limits as required by law; and commercial liability insurance, with a minimum limit of $1,000,000 per occurrence and a minimum umbrella limit of $1,000,000, for a total minimum combined general liability and umbrella limit of $2,000,000 (together with such additional umbrella coverage as Landlord may reasonably require) for property damage, personal injuries, or deaths of persons occurring in or about the Premises. The commercial liability policies shall name Landlord as an additional insured, insure on an occurrence and not a claims-made basis, be issued by insurance companies which are reasonably acceptable to Landlord, not be cancelable unless 30 days' prior written notice shall have been given to Landlord, contain a hostile fire endorsement and a contractual liability endorsement and, except as provided in the waiver of subrogation language below, provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant's policies). Such policies or certificates thereof shall be delivered to Landlord by Tenant upon commencement of the Lease Term and upon each renewal of said insurance.

        The all risk property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, their officers, directors, employees, managers, agents, invitees and contractors, in connection with any loss or damage thereby insured against. Notwithstanding anything to the contrary in this Lease, neither party hereto nor its officers, directors, employees, managers, agents, invitees or contractors shall be liable to the other for loss or damage caused by any risk coverable by all risk property insurance, and each party waives any claims against the other party, and its officers, directors, employees, managers, agents, invitees and contractors for such loss or damage regardless of the negligence or willful misconduct of the party so released. The failure of a party to insure its property shall not void this waiver. Landlord and its agents, employees and contractors shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and business interruption losses occasioned thereby (such as lost profits and the like) sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever, including without limitation, damage caused in whole or in part, directly or indirectly, by the negligence of Landlord or its agents, employees or contractors.

6

        10.    Landlord's Repairs.    Landlord shall maintain, at its expense, the structural soundness of the roof, foundation, exterior walls and interior load bearing walls of the Building, and all underground and subsurface utility piping in good repair, reasonable wear and tear and damages caused by Tenant, its agents and contractors not covered by the waiver of subrogation contained herein excluded. The term "walls" as used in this Paragraph 10 shall not include windows, glass or plate glass, doors or overhead doors, special store fronts, dock bumpers, dock plates or levelers, or office entries. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Paragraph 10, after which Landlord shall have a reasonable opportunity to repair.

In the event of an emergency, Tenant shall have the right to make such temporary, emergency repairs (and only such temporary, emergency repairs) to the roof, foundation, exterior walls and interior load bearing walls of the Building as may be reasonably necessary to prevent material damage to Tenant's property at the Premises and/or personal injury to Tenant's employees at the Premises (provided Tenant first attempts to notify Landlord telephonically of such emergency and notifies Landlord of such circumstances in writing as soon as practicable thereafter). In such event, Landlord shall reimburse Tenant for the reasonable, out-of-pocket costs actually incurred by Tenant in making such repairs, up to but not to exceed $25,000. If Landlord fails to reimburse Tenant for the reasonable, out-of-pocket costs incurred by Tenant in making such repairs with respect to such emergency, within 30 days after demand therefor, accompanied by supporting evidence of the costs incurred by Tenant, then Tenant may bring an action for damages against Landlord to recover such costs, together with interest thereof at the rate provided for in Paragraph 37(j) of the Lease, and reasonable attorney's fees incurred by Tenant in bringing such action for damages. In no event, however, shall Tenant have a right to terminate the Lease.

        Landlord, at Tenant's expense as provided in Paragraph 6, shall maintain in good repair and condition the roof membrane, the parking areas and other common areas of the Building and the Project, including, but not limited to driveways, alleys, landscape and grounds surrounding the Premises.

        11.    Tenant's Repairs.    Subject to Landlord's obligation in Paragraph 10 and subject to Paragraphs 9 and 15, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises and all areas, improvements and systems exclusively serving the Premises including, without limitation, dock and loading areas, truck doors, plumbing, water and sewer lines up to points of common connection, fire sprinklers and fire protection systems, entries, doors, ceilings, windows, interior walls, and the interior side of demising walls, and heating, ventilation and air conditioning systems. Such repair and replacements include capital expenditures and repairs whose benefit may extend beyond the Term, and such capital expenditures and repairs shall be amortized in accordance with the Formula (defined hereafter) over the remainder of the Lease Term, without regard to any extension or renewal option not then exercised. The "Formula" shall mean that number, the numerator of which shall be the number of months of the Lease Term remaining after the replacement of any such capital expenditures, and the denominator of which shall be the maximum amortization period (in months) allowable for determining depreciation of such capital expenditures for federal income tax purposes. Landlord shall pay for such capital expenditures and repairs and Tenant shall reimburse Landlord for its amortized share of same (determined as hereinabove set forth) in equal monthly installments in the same manner as the payment by Tenant to Landlord of the Operating Expenses. Heating, ventilation and air conditioning systems and other mechanical and building systems serving the Premises shall be maintained at Tenant's expense pursuant to maintenance service contracts entered into by Tenant or, if not done so by Tenant, by Landlord. The scope of services and contractors under such maintenance contracts shall be reasonably approved by Landlord. If Tenant fails to perform any repair or replacement for which it is responsible, Landlord may perform such work and be reimbursed by Tenant within 10 days after demand therefor. Subject to Paragraphs 9 and 15, Tenant shall bear the full cost of any repair or replacement to any part of the Building or Project that results

7

from damage caused by Tenant, its agents, contractors, or invitees and any repair that benefits only the Premises.

        12.    Tenant-Made Alterations and Trade Fixtures.    Any alterations, additions, or improvements made by or on behalf of Tenant to the Premises ("Tenant-Made Alterations") in excess of $10,000 shall be subject to Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed, provided that such alteration does not materially affect the structure or the roof of the Building, modify the exterior of the Building, or modify the utility systems of the Project, in which case such alteration (regardless of cost) shall be subject to Landlord's written consent, which such consent shall be either approved or rejected by Landlord in Landlord's sole discretion. Tenant shall cause, at its expense, all Tenant-Made Alterations to comply with insurance requirements and with Legal Requirements and shall construct at its expense any alteration or modification required by Legal Requirements as a result of any Tenant-Made Alterations. All Tenant-Made Alterations shall be constructed in a good and workmanlike manner by contractors reasonably acceptable to Landlord and only good grades of materials shall be used. All plans and specifications for any Tenant-Made Alterations shall be submitted to Landlord for its approval. Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall reimburse Landlord for its reasonable third-party, out-of-pocket costs in reviewing plans and specifications and in monitoring construction. Landlord's right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to see that such plans and specifications or construction comply with applicable laws, codes, rules and regulations. Tenant shall provide Landlord with the identities and mailing addresses of all persons performing work or supplying materials, prior to beginning such construction, and Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all work free and clear of liens and shall provide certificates of insurance for worker's compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Tenant-Made Alterations, Tenant shall deliver to Landlord sworn statements setting forth the names of all contractors and subcontractors who did work on the Tenant-Made Alterations and final lien waivers from all such contractors and subcontractors. Upon surrender of the Premises, all Tenant-Made Alterations and any leasehold improvements constructed by Landlord or Tenant shall remain on the Premises as Landlord's property, except to the extent Landlord requires removal at Tenant's expense of any such items or Landlord and Tenant have otherwise agreed in writing in connection with Landlord's consent to any Tenant-Made Alterations. At Tenant's request, Landlord shall provide Tenant, at the time of Tenant's request for approval of Tenant-Made Alterations, a list of which Tenant-Made Alterations Landlord will require Tenant to remove upon surrender of the Premises. Tenant shall repair any damage caused by such removal.

        Tenant, at its own cost and expense and without Landlord's prior approval, may erect such shelves, bins, machinery and trade fixtures (collectively "Trade Fixtures") in the ordinary course of its business provided that such items do not alter the basic character of the Premises, do not overload or damage the Premises, and may be removed without injury to the Premises, and the construction, erection, and installation thereof complies with all Legal Requirements and with Landlord's requirements set forth above. Tenant shall remove its Trade Fixtures and shall repair any damage caused by such removal.

        13.    Signs.    Tenant shall not make any changes to the exterior of the Premises, install any exterior lights, decorations, balloons, flags, pennants, banners, or painting, or erect or install any signs, windows or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises, without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. Upon surrender or vacation of the Premises, Tenant shall have removed all signs and repair, paint, and/or replace the building facia surface to which its signs are attached. Tenant shall obtain all applicable governmental permits and approvals for sign and exterior

8

treatments. All signs, decorations, advertising media, blinds, draperies and other window treatment or bars or other security installations visible from outside the Premises shall be subject to Landlord's approval and conform in all respects to Landlord's requirements. Tenant may, at its sole cost and expense, place its name on the two (2) existing monument signs as more fully described on Exhibit A, subject to Landlord's prior approval of Tenant's plans and specifications related to such signage and subject to Landlord's standard sign specifications for the Project.

        14.    Parking.    Tenant shall be entitled to park in those areas as designated on Exhibit A and shall be entitled to park in common with other tenants of the Project in those areas designated for nonreserved parking. Landlord may allocate parking spaces among Tenant and other tenants in the Project if Landlord determines that such parking facilities are becoming crowded. Landlord shall not be responsible for enforcing Tenant's parking rights against any third parties, but shall reasonably cooperate with Tenant in carrying out such enforcement.

        15.    Restoration.    If at any time during the Lease Term the Premises are damaged by a fire or other casualty, Landlord shall notify Tenant within 45 days after such damage as to the amount of time Landlord reasonably estimates it will take to restore the Premises. If the restoration time is estimated to exceed 6 months, (or actually does exceed 6 months, subject to Force Majeure events and Tenant caused delays), Tenant may elect to terminate this Lease upon notice to Landlord given no later than 30 days after Landlord's notice. If Tenant does not elect to terminate this Lease as permitted hereunder, then, Landlord shall promptly restore the Premises excluding Tenant's Tenant-Made Alterations, Trade Fixtures and/or personal property, subject to delays arising from Force Majeure events. Tenant at Tenant's expense shall promptly perform, subject to delays arising from the collection of insurance proceeds, or from Force Majeure events, all repairs or restoration to Tenant's Tenant-Made Alterations, which Landlord requires to remain as Landlord's property upon surrender of the Premises pursuant to the terms of Paragraph 12 with this Lease. Notwithstanding the foregoing, either party may terminate this Lease if the Premises are damaged during the last year of the Lease Term and Landlord reasonably estimates that it will take more than one month to repair such damage. Base Rent and Operating Expenses shall be abated for the period of repair and restoration in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises. Such abatement shall be the sole remedy of Tenant, and except as provided herein, Tenant waives any right to terminate the Lease by reason of damage or casualty loss.

        16.    Condemnation.    If any part of the Premises or the Project should be taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a "Taking" or "Taken"), and the Taking would prevent or materially interfere with Tenant's use of the Premises or in Landlord's judgment would materially interfere with or impair its ownership or operation of the Project, then upon written notice by Landlord or Tenant to the other this Lease shall terminate and Base Rent and Operating Expenses shall be apportioned as of said date. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, the Base Rent and Operating Expenses payable hereunder during the unexpired Lease Term shall be reduced to such extent as may be fair and reasonable under the circumstances. In the event of any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant. Tenant shall have the right, to the extent that same shall not diminish Landlord's award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant.

        17.    Assignment and Subletting.    Without Landlord's prior written consent, which Landlord shall not unreasonably withhold, condition, or delay, Tenant shall not assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises and any attempt to do any of the foregoing shall be void and of no effect. In the event that Landlord fails to provide its consent of such assignment or sublet within 15 days following Tenant's request thereof, then Landlord's consent shall be deemed denied for

9

purposes hereunder. For purposes of this paragraph, a transfer of 50% or more of the ownership interests controlling Tenant shall be deemed an assignment of this Lease unless such ownership interests are publicly traded. Notwithstanding the above, Tenant may assign or sublet the Premises, or any part thereof, to any entity controlling Tenant, controlled by Tenant or under common control with Tenant (a "Tenant Affiliate"), without the prior written consent of Landlord. Tenant shall reimburse Landlord for all of Landlord's reasonable out-of-pocket expenses in connection with any assignment or sublease, not to exceed $2,000 per event of assignment or subletting. Upon Landlord's receipt of Tenant's written notice of a desire to assign or sublet substantially all of the Premises for substantially all of the remaining Lease Term (excluding any transfer permitted to be done without Landlord's consent in this Paragraph 17, and further excluding any transfer of ownership interests as set forth above which is deemed to be an assignment hereunder), Landlord may, by giving written notice to Tenant within 30 days after receipt of Tenant's notice, terminate this Lease with respect to the space described in Tenant's notice, as of the date specified in Tenant's notice for the commencement of the proposed assignment or sublease. If Landlord so terminates the Lease, Landlord may enter into a lease directly with the proposed sublessee or assignee. Tenant may withdraw its notice to sublease or assign by notifying Landlord within 10 days after Landlord has given Tenant notice of such termination, in which case the Lease shall not terminate but shall continue.

        Notwithstanding anything contained herein to the contrary, provided no Event of Default has occurred and is continuing under this Lease beyond any applicable cure period, upon 10 days prior written notice to Landlord, Tenant may, without Landlord's prior written consent, assign this Lease to an entity into which or with which Tenant is merged or consolidated or to an entity to which substantially all of Tenant's assets are transferred, provided (x) such merger, consolidation, or transfer of assets is for a good business purpose and not principally for the purpose of transferring Tenant's leasehold estate, and (y) the assignee or successor entity has a net worth at least equal to the net worth of Tenant immediately prior to such merger, consolidation, or transfer (collectively, a "Permitted Transfer").

        It shall be reasonable for the Landlord to withhold its consent to any assignment or sublease in any of the following instances: (i) an Event of Default has occurred and is continuing beyond any applicable cure period that would not be cured upon the proposed sublease or assignment; (ii) the assignee or sublessee does not have a net worth calculated according to generally accepted accounting principles at least equal to the greater of the net worth of Tenant immediately prior to such assignment or sublease or the net worth of the Tenant at the time it executed the Lease; (iii) the intended use of the Premises by the assignee or sublessee is not a permitted use hereunder; (iv) the intended use of the Premises by the assignee or sublessee would materially increase the pedestrian or vehicular traffic to the Premises or the Project; (v) occupancy of the Premises by the assignee or sublessee would, in Landlord's opinion, violate an agreement binding upon Landlord or the Project with regard to the identity of tenants, usage in the Project, or similar matters; (vi) the identity or business reputation of the assignee or sublessee will, in the good faith judgment of Landlord, tend to damage the goodwill or reputation of the Project; (vii) the assignment or sublet is to another tenant in the Project and is at rates which are below those charged by Landlord for comparable space in the Project; (viii) in the case of a sublease, the subtenant has not acknowledged that the sublease is subject to all of the terms and conditions of the Lease; or (ix) the proposed assignee or sublessee is a governmental agency. Tenant and Landlord acknowledge that each of the foregoing criteria are reasonable as of the date of execution of this Lease. The foregoing criteria shall not exclude any other reasonable basis for Landlord to refuse its consent to such assignment or sublease. Any approved assignment or sublease shall be expressly subject to the terms and conditions of this Lease. Tenant shall provide to Landlord all information concerning the assignee or sublessee as Landlord may request.

        Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant's obligations under this Lease shall at all times remain fully responsible and liable for the payment of the

10

rent and for compliance with all of Tenant's other obligations under this Lease (regardless of whether Landlord's approval has been obtained for any such assignments or sublettings). In the event that the rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus received in lieu of rent therefor or incident thereto) exceeds the rental payable under this Lease, except as the same relates to an Tenant Affiliate or a Permitted Transfer or any transfer of ownership of interests as set forth above which is deemed to be an assignment hereunder, then Tenant shall be bound and obligated to pay Landlord as additional rent hereunder 50% of all such excess rental actually received by Tenant within 10 days following receipt thereof by Tenant, after deducting reasonable tenant improvements and marketing costs, reasonable brokerage fees, and reasonable attorney's fees.

        If this Lease be assigned or if the Premises be subleased (whether in whole or in part) or in the event of the mortgage, pledge, or hypothecation of Tenant's leasehold interest or grant of any concession or license within the Premises or if the Premises be occupied in whole or in part by anyone other than Tenant, then upon a default by Tenant hereunder beyond any applicable cure period, Landlord may collect rent from the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold interest was hypothecated, concessionee or licensee or other occupant and, except to the extent set forth in the preceding paragraph, apply the amount collected to the next rent payable hereunder; and all such rentals collected by Tenant shall be held in trust for Landlord and immediately forwarded to Landlord. No such transaction or collection of rent or application thereof by Landlord, however, shall be deemed a waiver of these provisions or a release of Tenant from the further performance by Tenant of its covenants, duties, or obligations hereunder.

        18.    Indemnification.    Except for the negligence or willful misconduct of or breach of this Lease by Landlord, its agents, employees or contractors, and to the extent permitted by law, Tenant agrees to indemnify, defend and hold harmless Landlord, and Landlord's agents, employees and contractors, from and against any and all losses, liabilities, damages, costs and expenses (including attorneys' fees) resulting from claims by third parties for injuries to any person and damage to or theft or misappropriation or loss of property occurring in or about the Project and arising from the use and occupancy of the Premises or from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises or due to any other act or omission of Tenant, its subtenants, assignees, invitees, employees, contractors and agents. The furnishing of insurance required hereunder shall not be deemed to limit Tenant's obligations under this Paragraph 18.

        19.    Inspection and Access.    Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose upon 24 hour advance notice (except in case of emergency, where no such notice shall be required). In any entry of the Premises, Landlord and Landlord's representatives shall not unreasonably or materially interfere with Tenant's operations in the Premises and shall abide by Tenant's reasonable security and health and safety requirements. Landlord and Landlord's representatives may enter the Premises during business hours for the purpose of showing the Premises to prospective purchasers and, during the last six (6) months of the Lease Term, to prospective tenants. Landlord may erect a suitable sign on the Premises stating the Premises are available to let during the last six (6) months of the Lease Term or at any time during the Lease Term that the Project is available for sale. Landlord may grant easements, make public dedications, designate common areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially interferes with Tenant's use or occupancy of the Premises or materially increased Tenant's obligations or decreases Tenant's rights hereunder. At Landlord's request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions.

        20.    Quiet Enjoyment.    If Tenant shall perform all of the covenants and agreements herein required to be performed by Tenant within applicable notice and cure periods, Tenant shall, subject to

11

the terms of this Lease, at all times during the Lease Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.

        21.    Surrender.    Upon termination of the Lease Term or earlier termination of Tenant's right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Paragraphs 15 and 16, and Hazardous Materials that are not Tenant Contamination excepted. Any Trade Fixtures, Tenant-Made Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord's retention and disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Lease Term shall survive the termination of the Lease Term, including without limitation, indemnity obligations, payment obligations with respect to Operating Expenses and obligations concerning the condition and repair of the Premises.

        22.    Holding Over.    If Tenant retains possession of the Premises after the termination of the Lease Term, unless otherwise agreed in writing, such possession shall be subject to immediate termination by Landlord at any time, and all of the other terms and provisions of this Lease (excluding any expansion or renewal option or other similar right or option) shall be applicable during such holdover period, except that Tenant shall pay Landlord from time to time, upon demand, as Base Rent for the holdover period, an amount equal to 150% of the Base Rent in effect on the termination date, computed on a monthly basis for each month or part thereof during such holding over. All other payments shall continue under the terms of this Lease. In addition, Tenant shall be liable for all damages incurred by Landlord as a result of such holding over. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Paragraph 22 shall not be construed as consent for Tenant to retain possession of the Premises.

        23.    Events of Default.    Each of the following events shall be an event of default ("Event of Default") by Tenant under this Lease:

          (i)  Tenant shall fail to pay any installment of Base Rent or any other payment required herein when due, and such failure shall continue for a period of 5 days after written notice from Landlord to Tenant that such payment was due; provided, however, that Landlord shall not be obligated to provide written notice of such failure more than 2 times in any consecutive 12-month period, and the failure of Tenant to pay any third or subsequent installment of Base Rent or any other payment required herein when due in any consecutive 12-month period shall constitute an Event of Default by Tenant under this Lease without the requirement of notice or opportunity to cure, and provided, further however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 and 1161(a) as amended.

         (ii)  Tenant or any guarantor or surety of Tenant's obligations hereunder shall (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a "proceeding for relief"); (C) become the subject of any proceeding for relief which is not dismissed within 60 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).

12

        (iii)  Any insurance required to be maintained by Tenant pursuant to this Lease shall be cancelled or terminated or shall expire or shall be reduced or materially and adversely changed, except, in each case, as permitted in this Lease.

        (iv)  Tenant shall not occupy or shall vacate the Premises or shall fail to continuously operate its business at the Premises for the permitted use set forth herein, whether or not Tenant is in monetary or other default under this Lease. Tenant's vacating of the Premises shall not constitute an Event of Default if, prior to vacating the Premises, Tenant has made arrangements reasonably acceptable to Landlord to (a) insure that Tenant's insurance for the Premises will not be voided or cancelled with respect to the Premises as a result of such vacancy, (b) insure that the Premises are secured and not subject to vandalism, and (c) insure that the Premises will be properly maintained after such vacation. Tenant shall inspect the Premises at least once each month and report monthly in writing to Landlord on the condition of the Premises.

         (v)  Tenant shall attempt or there shall occur any assignment, subleasing or other transfer of Tenant's interest in or with respect to this Lease except as otherwise permitted in this Lease.

        (vi)  Tenant shall fail to discharge any lien placed upon the Premises in violation of this Lease within 30 days after any such lien or encumbrance is filed against the Premises.

       (vii)  Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Paragraph 23, and except as otherwise expressly provided herein, such default shall continue for more than 30 days after Landlord shall have given Tenant written notice of such default; provided, however, that in the event that such default cannot reasonably be cured within such 30 day period, Tenant shall not be in default hereunder so long as Tenant commences to cure such default within such thirty day period and diligently prosecutes it to completion, and subject to Paragraph 33 hereof, completes such cure within 90 days.

        24.    Landlord's Remedies.    Upon each occurrence of an Event of Default and so long as such Event of Default shall be continuing, Landlord may at any time thereafter at its election: terminate this Lease or Tenant's right of possession, (but Tenant shall remain liable as hereinafter provided) and/or pursue any other remedies at law or in equity. Upon the termination of this Lease or termination of Tenant's right of possession, it shall be lawful for Landlord, without formal demand or notice of any kind, to re-enter the Premises by summary dispossession proceedings or any other action or proceeding authorized by law and to remove Tenant and all persons and property therefrom. If Landlord re-enters the Premises, Landlord shall have the right to keep in place and use, or remove and store, all of the furniture, fixtures and equipment at the Premises.

        Except as otherwise provided in the next paragraph, if Tenant breaches this Lease and abandons the Premises prior to the end of the term hereof, or if Tenant's right to possession is terminated by Landlord because of an Event of Default by Tenant under this Lease, this Lease shall terminate. Upon such termination, Landlord may recover from Tenant the following, as provided in Section 1951.2 of the Civil Code of California: (i) the worth at the time of award of the unpaid Base Rent and other charges under this Lease that had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the reasonable value of the unpaid Base Rent and other charges under this Lease which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award by which the reasonable value of the unpaid Base Rent and other charges under this Lease for the balance of the term of this Lease after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or that in the ordinary course of things would be likely to result therefrom. As used herein, the following terms are defined: (a) the "worth at the time of award" of the amounts referred to in Sections (i) and (ii) is computed by allowing interest at the lesser of 12 percent

13

per annum or the maximum lawful rate. The "worth at the time of award" of the amount referred to in Section (iii) is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent; (b) the "time of award" as used in clauses (i), (ii), and (iii) above is the date on which judgment is entered by a court of competent jurisdiction; (c) The "reasonable value" of the amount referred to in clause (ii) above is computed by determining the mathematical product of (1) the "reasonable annual rental value" (as defined herein) and (2) the number of years, including fractional parts thereof, between the date of termination and the time of award. The "reasonable value" of the amount referred to in clause (iii) is computed by determining the mathematical product of (1) the annual Base Rent and other charges under this Lease and (2) the number of years including fractional parts thereof remaining in the balance of the term of this Lease after the time of award.

        Even though Tenant has breached this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord may enforce all its rights and remedies under this Lease, including the right to recover rent as it becomes due. This remedy is intended to be the remedy described in California Civil Code Section 1951.4 and the following provision from such Civil Code Section is hereby repeated: "The Lessor has the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign, subject only to reasonable limitations)." Any such payments due Landlord shall be made upon demand therefor from time to time and Tenant agrees that Landlord may file suit to recover any sums falling due from time to time. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect in writing to terminate this Lease for such previous breach.

        Exercise by Landlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, whether by agreement or by operation of law, it being understood that such surrender and/or termination can be effected only by the written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same. Tenant and Landlord further agree that forbearance or waiver by Landlord to enforce its rights pursuant to this Lease or at law or in equity, shall not be a waiver of Landlord's right to enforce one or more of its rights in connection with any subsequent default. A receipt by Landlord of rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. The terms "enter," "re-enter," "entry" or "re-entry," as used in this Lease, are not restricted to their technical legal meanings. Any reletting of the Premises shall be on such terms and conditions as Landlord in its sole discretion may determine (including without limitation a term different than the remaining Lease Term, rental concessions, alterations and repair of the Premises, lease of less than the entire Premises to any tenant and leasing any or all other portions of the Project before reletting the Premises). Landlord shall not be liable, nor shall Tenant's obligations hereunder be diminished because of, Landlord's failure to relet the Premises or collect rent due in respect of such reletting, provided that Landlord has made commercially reasonable efforts to relet the Premises and otherwise mitigate its damages; provided, however, (a) Landlord shall not be obligated to accept any tenant proposed by Tenant, (b) Landlord shall have the right to lease any other space controlled by Landlord first, and (c) any proposed tenant shall meet all of Landlord's leasing criteria.

14

        25.    Tenant's Remedies/Limitation of Liability.    Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary so long a Landlord is continuously and diligently pursuing a cure). If such default by Landlord shall occur, Tenant may pursue any legal or equitable remedy for which it is entitled. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord's obligations hereunder. All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter so long as any successor to Landlord has assumed Landlord's obligations in writing. The term "Landlord" in this Lease shall mean only the owner, for the time being of the Premises, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Lease Term upon each new owner for the duration of such owner's ownership. Any liability of Landlord under this Lease shall be limited solely to its interest in the Project, and in no event shall any personal liability be asserted against Landlord in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord. Landlord's interest in the Project shall be deemed to include: (i) the rents or other income from the Project received by Landlord after Tenant obtains a final judgment against Landlord, (ii) the net proceeds received by Landlord from the sale or other disposition of all or any part of Landlord's right, title and interest in the Project after Tenant obtains a final judgment against Landlord, (iii) the net proceeds received by Landlord from any condemnation or conveyance in lieu of condemnation of all or any portion of the Project after Tenant obtains a final judgment against Landlord, and (iv) the net proceeds of insurance received by Landlord from any casualty loss of all or any portion of the Project after Tenant obtains a final judgment against Landlord.

        26.    Waiver of Jury Trial.    TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

        27.    Subordination.    This Lease and Tenant's interest and rights hereunder are and shall be subject and subordinate at all times to the lien of any mortgage, now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant. Tenant agrees, at the election of the holder of any such mortgage, to attorn to any such holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination and such instruments of attornment as shall be requested by any such holder. Notwithstanding the foregoing, any such holder may at any time subordinate its mortgage to this Lease, without Tenant's consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution, delivery or recording and in that event such holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such mortgage and had been assigned to such holder. The term "mortgage" whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the "holder" of a mortgage shall be deemed to include the beneficiary under a deed of trust.

15

Notwithstanding anything contained herein to the contrary, Tenant shall not be obligated to subordinate the Lease or its interest therein to any mortgage, deed of trust or ground lease on the Project unless concurrently with such subordination the holder of such mortgage or deed of trust or the ground lessor under such ground lease agrees not to disturb Tenant's possession of the Premises under the terms of the Lease in the event such holder or ground lessor acquires title to the Premises through foreclosure, deed in lieu of foreclosure or otherwise. Tenant shall be solely responsible for any fees or expenses charged by the holder of such mortgage or deed of trust in connection with the granting of such non-disturbance agreement

        28.    Mechanic's Liens.    Tenant has no express or implied authority to create or place any lien or encumbrance of any kind upon, or in any manner to bind the interest of Landlord or Tenant in, the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises and that it will save and hold Landlord harmless from all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the interest of Landlord in the Premises or under this Lease. Tenant shall give Landlord immediate written notice of the placing of any lien or encumbrance against the Premises and cause such lien or encumbrance to be discharged within 30 days of the filing or recording thereof; provided, however, Tenant may contest such liens or encumbrances as long as such contest prevents foreclosure of the lien or encumbrance and Tenant causes such lien or encumbrance to be bonded or insured over in a manner satisfactory to Landlord within such 30 day period.

        29.    Estoppel Certificates.    Tenant agrees, from time to time, within 10 days after request of Landlord, to execute and deliver to Landlord, or Landlord's designee, any estoppel certificate requested by Landlord, stating that this Lease is in full force and effect, the date to which rent has been paid, that Landlord is not in default hereunder (or specifying in detail the nature of Landlord's default), the termination date of this Lease and such other matters pertaining to this Lease as may be reasonably requested by Landlord. Tenant's obligation to furnish each estoppel certificate in a timely fashion is a material inducement for Landlord's execution of this Lease. No cure or grace period provided in this Lease shall apply to Tenant's obligations to timely deliver an estoppel certificate.

        30.    Environmental Requirements.    Except for Hazardous Material contained in products used by Tenant in de minimis quantities for (i) ordinary cleaning and office purposes or (ii) Tenant's normal business operations in connection with its lab operations, Tenant shall not permit or cause any party to bring any Hazardous Material upon the Premises or transport, store, use, generate, manufacture or release any Hazardous Material in or about the Premises without Landlord's prior written consent which shall not be unreasonably withheld or delayed. Tenant, at its sole cost and expense, shall operate its business in the Premises in strict compliance with all Environmental Requirements and shall remediate in a manner satisfactory to Environmental Requirements any Hazardous Materials released on or from the Project by Tenant, its agents, employees, contractors, subtenants or invitees ("Tenant Contamination"). Tenant shall complete and certify to disclosure statements as requested by Landlord from time to time relating to Tenant's transportation, storage, use, generation, manufacture or release of Hazardous Materials on the Premises. The term "Environmental Requirements" means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any governmental authority or agency regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies having the force of law promulgated or issued thereunder. The term "Hazardous Materials" means and includes any substance, material, waste, pollutant, or contaminant listed or

16

defined as hazardous or toxic, under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquified natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the "operator" of Tenant's "facility" that Tenant operates in or about the Premises during the Lease Term and the "owner" of all Hazardous Materials brought on the Premises by Tenant, its agents, employees, contractors or invitees, and the wastes, by-products, or residues generated, resulting, or produced therefrom.

        Tenant shall indemnify, defend, and hold Landlord harmless from and against any and all losses (including, without limitation, diminution in value of the Premises or the Project and loss of rental income from the Project), claims, demands, actions, suits, damages (including, without limitation, punitive damages), expenses (including, without limitation, remediation, removal, repair, corrective action, or cleanup expenses), and costs (including, without limitation, actual attorneys' fees, consultant fees or expert fees and including, without limitation, removal or management of any asbestos brought into the property by Tenant, its agents, employees, contractors, subtenants, assignees or invitees or disturbed by Tenant, its agents, employees, contractors, subtenants, assignees, or invitees in breach of the requirements of this Paragraph 30, regardless of whether such removal or management is required by law) which are brought or recoverable against, or suffered or incurred by Landlord as a result of any release of Hazardous Materials for which Tenant is obligated to remediate as provided above or any other breach of the requirements under this Paragraph 30 by Tenant, its agents, employees, contractors, subtenants, assignees or invitees, regardless of whether Tenant had knowledge of such noncompliance. The obligations of Tenant under this Paragraph 30 shall survive any termination of this Lease.

        Landlord shall have access to, and a right to perform inspections and tests of, the Premises to determine Tenant's compliance with Environmental Requirements, its obligations under this Paragraph 30, or the environmental condition of the Premises. Access shall be granted to Landlord upon Landlord's prior notice to Tenant and at such times so as to minimize, so far as may be reasonable under the circumstances, any disturbance to Tenant's operations. Such inspections and tests shall be conducted at Landlord's expense, unless such inspections or tests reveal that Tenant has not complied with any Environmental Requirement, in which case Tenant shall reimburse Landlord for the reasonable cost of such inspection and tests. Landlord's receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord holds against Tenant.

Notwithstanding anything to the contrary in this Paragraph 30, Tenant shall have no liability of any kind to Landlord as to Hazardous Materials on the Premises prior to Tenant's occupancy of the Premises or caused or permitted by (i) Landlord, its agents, employees, contractors or invitees; or (ii) any other tenants in the Project or their agents, employees, contractors, subtenants, assignees or invitees; or (iii) any other person or entity located outside of the Premises or the Project. Landlord represents and warrants that Landlord, to Landlord's knowledge and without further inquiry, is unaware of any environmental conditions affecting the Premises.

        31.    Rules and Regulations.    Tenant shall, at all times during the Lease Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. The current rules and regulations are attached hereto. In the event of any conflict between said rules and regulations and other provisions of this Lease, the other terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project.

        32.    Security Service.    Tenant acknowledges and agrees that, while Landlord may patrol the Project, Landlord is not providing any security services with respect to the Premises and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises.

17

        33.    Force Majeure.Except for monetary obligations, neither Landlord not Tenant shall be held responsible for delays in the performance of its obligations hereunder when caused by strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, delay in issuance of permits, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of Landlord or Tenant, as the case may be ("Force Majeure").

        34.    Entire Agreement.    This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof. No representations, inducements, promises or agreements, oral or written, have been made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not contained herein, and any prior agreements, promises, negotiations, or representations are superseded by this Lease. This Lease may not be amended except by an instrument in writing signed by both parties hereto.

        35.    Severability.    If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.

        36.    Brokers.Each party represents and warrants to the other that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than the broker, if any, set forth on the first page of this Lease, and each party agrees to indemnify and hold the other harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with the indemnifying party with regard to this leasing transaction. Landlord hereby acknowledges and agrees that the broker referenced on Page One of this Lease shall be entitled to a leasing commission from Landlord by virtue of this Lease, which leasing commission shall be deemed earned and shall be paid by Landlord to said broker in accordance with, and subject to the terms of, a separate written agreement.

        37.    Miscellaneous.    (a)    Any payments or charges due from Tenant to Landlord hereunder shall be considered rent for all purposes of this Lease.

        (b)   If and when included within the term "Tenant," as used in this instrument, there is more than one person, firm or corporation, each shall be jointly and severally liable for the obligations of Tenant.

        (c)   All notices required or permitted to be given under this Lease shall be in writing and shall be sent by registered or certified mail, return receipt requested, or by a reputable national overnight courier service, postage prepaid, or by hand delivery addressed to the parties at their addresses below, and with a copy sent to Landlord at 14100 East 35th Place, Aurora, Colorado 80011. Either party may by notice given aforesaid change its address for all subsequent notices. Except where otherwise expressly provided to the contrary, notice shall be deemed given upon delivery.

        (d)   Except as otherwise expressly provided in this Lease or as otherwise required by law, Landlord retains the absolute right to withhold any consent or approval. Whenever the Lease requires an approval, consent, determination, selection or judgment by either Landord or Tenant, unless another standard is expressly set forth, such approval, consent, determination, selection or judgment and any conditions imposed thereby shall be reasonable and shall not be unreasonably withheld or delayed and, in exercising any right or remedy hereunder, each party shall at all times act reasonably and in good faith.

        (e)   At Landlord's request from time to time Tenant shall furnish Landlord with true and complete copies of its most recent annual and quarterly financial statements prepared by Tenant or Tenant's

18

accountants and any other financial information or summaries that Tenant typically provides to its lenders or shareholders. Landlord hereby agrees to keep such financial information confidential pursuant to the terms of a separate confidentiality agreement between Landlord and Tenant.

        (f)    Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.

        (g)   The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto.

        (h)   The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.

        (i)    Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

        (j)    Any amount not paid by Tenant within 5 days after its due date in accordance with the terms of this Lease shall bear interest from such due date until paid in full at the lesser of the highest rate permitted by applicable law or 15 percent per year. It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord's and Tenant's express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.

        (k)   Construction and interpretation of this Lease shall be governed by the laws of the state in which the Project is located, excluding any principles of conflicts of laws.

        (l)    Time is of the essence as to the performance of Tenant's obligations under this Lease.

        (m)  All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. In the event of any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.

        (n)   In the event either party hereto initiates litigation to enforce the terms and provisions of this Lease, the non-prevailing party in such action shall reimburse the prevailing party for its reasonable attorney's fees, filing fees, and court costs.

        38.    Landlord's Lien/Security Interest.    Intentionally deleted.

        39.    Limitation of Liability of Trustees, Shareholders, and Officers of ProLogis.    Any obligation or liability whatsoever of ProLogis, a Maryland real estate investment trust, which may arise at any time under this Lease or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction, or undertaking contemplated hereby shall not be personally binding upon, nor shall resort for the enforcement thereof be had to the property of, its trustees, directors, shareholders,

19

officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort, or otherwise.

        IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.

TENANT:		LANDLORD:
Ikanos Communications, a California corporation		ProLogis, a Maryland real estate investment trust
By:	/s/  DAN ATLER	By:	/s/  W. SCOTT LAMSON
Name:	Dan Atler	Name:	W. Scott Lamson
Title:	Chief Financial Officer	Title:	Senior Vice President
Address:
47669 Fremont Blvd. Fremont, CA 94538		47775 Fremont Blvd. Fremont, CA 94538

20

Rules and Regulations

1.

The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or its agents, or used by them for any purpose other than ingress and egress to and from the Premises.

2.

Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project.

3.

Except for seeing-eye dogs, no animals shall be allowed in the offices, halls, or corridors in the Project.

4.

Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.

5.

If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant's expense.

6.

Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project.

7.

Parking any type of recreational vehicles is specifically prohibited on or about the Project. Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no "For Sale" or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord.

8.

Tenant shall maintain the Premises free from rodents, insects and other pests.

9.

Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.

10.

Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person.

11.

Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.

12.

Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.

13.

All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.

14.

No auction, public or private, will be permitted on the Premises or the Project.

15.

No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.

21

16.

The Premises shall not be used for lodging, sleeping or cooking or for any immoral or illegal purposes or for any purpose other than that specified in the Lease. No gaming devices shall be operated in the Premises.

17.

Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlord's consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity.

18.

Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage.

19.

Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant's ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises.

22

ADDENDUM 1

BASE RENT ADJUSTMENTS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED 2/7/06, BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

        Base Rent shall equal the following amounts for the respective periods set forth below:

Period	Monthly Base Rent
February 6th, 2006 to June 30, 2006	$	00.00	*
July 1st, 2006 to January 31st, 2007	$	18,513.00
February 1st, 2007 to January 31st, 2008	$	22,143.00
February 1st, 2008 to January 31st, 2009	$	23,958.00
February 1st, 2009 to January 31st, 2010	$	25,773.00
February 1st, 2010 to March 31st, 2011	$	27,588.00

*

Operating expenses will be abated during period of free rent (February 6, 2006-June 30, 2006) for 47661 Fremont Blvd. only.

23

ADDENDUM 2

CONSTRUCTION
(ALLOWANCE)

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED 2/7/06, BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

a.

Initial Tenant Improvements; Allowance.    The leasehold improvements to be constructed by Tenant (the "Initial Tenant Improvements)", at Tenant's sole cost and expense (except for the hereinbelow described "Allowance", are generally described in the preliminary plans and specifications (the "Preliminary Plans") identified on Attachment 1 to this Addendum and shall be constructed in accordance with the Final Plans to be submitted by Tenant and reviewed and approved by Landlord in accordance with the provisions of Paragraph (b) of this Addendum.

Landlord shall pay for the Initial Improvements up to a maximum amount of $170,000.00, and in no event shall Landlord have any obligation to pay for any costs of the Initial Improvements in excess of such amount. If the cost of the Initial Improvements exceeds such amount, such overage shall be borne by Tenant, and repaid to Landlord, in equal monthly installments over the Lease Term; provided that Landlord increases the monthly base rent by $0.01 per square foot for every dollar expended by Tenant. In no event shall the excess overage exceed $74,010.00.

Landlord's payment of the Allowance, or such portion thereof as Tenant may be entitled to, shall be made within thirty (30) days of invoice. If Landlord claims any credits against the Allowance for any costs paid directly by Landlord to third parties, Landlord shall provide Tenant with evidence of payment of such costs.

b.

Preparation and Review of Plans for Initial Tenant Improvements.    The Preliminary Plans identified on Attachment 1 to this Addendum 2 have been approved by Landlord and signed by Landlord and Tenant for identification. However, such Preliminary Plans shall not be used by Tenant for the purposes of constructing or installing the Initial Tenant Improvements. Tenant, using licensed architectural and engineering firms selected by Tenant and approved by Landlord (which approval shall not be unreasonably withheld or delayed), shall prepare or cause to be prepared and submitted, concurrently, and in each case by receipted courier or delivery service, to (i) Landlord's construction representative, (i) Lisa Hooton/Brian Erlanson, 47775 Fremont Boulevard, Fremont, California, 94538, and (ii) Landlord's offices at 14100 East 35th Place, Aurora, Colorado 80011, for Landlord's review, complete and final architectural and engineering drawings and specifications (hereinafter collectively referred to as the "Final Plans"), consistent with the description of the Initial Tenant Improvements set forth on the Preliminary Plans. Subject to the provisions of Paragraph (c) of this Addendum 2, Landlord agrees that Tenant may commence construction of the Initial Tenant Improvements prior to finalization of the Final Plans and Landlord agrees that it shall cooperate with Tenant to review and approve portions of the Final Plans for different stages or elements of the work, or proposed Final Plans submitted at less than 100% completion, so that construction can proceed on a "fast track" basis. The approval process for all such portions of the Final Plans shall be substantially as set forth below, but any objection by Landlord to Final Plans submitted to Landlord may not be inconsistent with previously approved portions of the Final Plans. However, in no event shall any portion of the Initial Tenant Improvements be constructed or installed unless and until Landlord has approved (or id deemed to have approved) Final Plans at 100% completion for such portion of the work.

24

Each set of proposed Final Plans furnished by Tenant shall include at least two (2) sets of prints. The Final Plans shall be compatible with the design, construction, and equipment of the building, and shall be capable of logical measurement and construction. Unless Landlord shall otherwise agree in writing, the Final Plans shall be signed/stamped by Tenant's architect or engineer, as applicable, and shall include (to the extent relevant or applicable to the portion of the work for which Tenant is seeking Final Plan approval) each and all of the following: (i) a Partition (Floor) Plan, @ ¹/8" = 1'-0" minimum scale, including partition types, partition construction sections and details, and door/frame/hardware schedules; (ii) a Reflected Ceiling Plan, @ ¹/8" = 1'-0" minimum scale, including ceiling construction and specifications for ceiling lighting fixtures; (iii) a Telephone/Electrical/Communications Plan, @ ¹/8" = 1'-0" minimum scale, including a complete schedule, cross-referenced to said plan, of Tenant's telephone/electrical/communications equipment and providing said equipment's electrical power specifications, requirements and heat output: (iv) a Final Plan, including all finish specifications and U.L. and/or County "approval numbers' where required; (v) Elevations, @ ¹/2" = 1'0" minimum scale, interior, of all walls, with detail/section cross- references where appropriate; exterior, of Tenant's portion of the permitted Building-front wall, clearly indicating the appearance of Tenant's space, including its signage, at/through Tenant's permitted Building window wall (if any); (vi) details and sections, scale as required, for all partition types, structural elements and connections, and custom installations where they occur (HVAC, lighting, etc); (vii) details and sections, scale as required, for all signage and graphics; (viii) a Structural Engineering plan, locating and detailing any modifications to the Building required to attach and/or support the Initial Tenant Improvements or Tenant's trade fixtures or equipment (this plan must be signed/stamped by a structural engineer licensed in the State in which the Premises are situated); (ix) Electrical Engineering Plans, for both electrical power and for lighting, including but not limited to: circulating diagrams; panel schedules; electrical equipment and lighting fixture schedules and sections; and electrical equipment and lighting fixture electrical load tabulations (these plans and calculations must be signed/stamped by an electrical engineer licensed in the State in which the Premises are situated); (x) Mechanical Engineering Plans, for both plumbing and for HVAC, including but not limited to: plumbing water and waste line plans; HVAC supply, return and exhaust plans; and HVAC tabulations for electrical equipment and lighting heat loads, cooling loads and air supply (these plans and calculations must be signed/stamped by a mechanical engineer licenses in the State in which the Premises are situated); (xi) a Fire Protection Plan, locating and detailing any fire protection/fire suppression system as may be required by code or other regulations governing Tenant's operations in the Premises (this plan must be signed/stamped by a fire protection engineer licensed in the State in with the Premises are situated); and (xii) any other or additional plans as may be related to Tenant's specific use of the Premises, such as plans for rooms enclosures, equipment or devices related to Tenant's permitted storage or use of Hazardous materials at the Premises (if any), or as may be required by local city ordinance or building code.

Tenant shall submit all Final Plans (or portions thereof) concurrently to Landlord's construction representative and offices, as designated above, for Landlord's review and approval. Landlord shall have five (5) business days after Landlord's receipt of the proposed Final Plans (or each such portion thereof) to review the same and notify Tenant in writing of any comments or required changes, or to otherwise give its approval or disapproval of such proposed Final Plans (or the portion thereof submitted to Landlord). If Landlord fails to give written comments to or disapprove the Final Plans (or the portion thereof submitted to Landlord) within such five (5) business day period, then Landlord shall be deemed to have approved the Final Plans (or portion thereof) as submitted. Tenant shall have five (5) business days following its receipt for Landlord's comments and objections to redraw the proposed Final Plans (or portion thereof submitted to Landlord) in compliance with Landlord's request and to resubmit the same for Landlord's final review and approval or comment within three (3) business days of Landlord's

25

receipt of such revised plans. Such process shall be repeated as necessary until final approval or deemed approval by Landlord of the proposed Final Plans (or each portion thereof), at 100% completion, has been obtained. Landlord may at any time by written notice given in accordance with the notice provisions of the Lease change the name and/or address of the designated Landlord's construction representative to receive plans delivered by Tenant to Landlord.

In the event that Tenant disagrees with any of the changes to the proposed Final Plans (or portion thereof) required by Landlord, then Landlord and Tenant shall consult with respect thereto and each party shall use all reasonable efforts to promptly resolve any disputed elements of such proposed Final Plans (or portion thereof). Landlord and Tenant agree that if after consultation with each other and their respective architects they are unable to resolve any disputed items within three (3) business days of Landlord's written objection, then within three (3) business days thereafter (i) Landlord's architect shall select an architect who is unaffiliated with Landlord or Tenant to resolve the dispute (the "Arbitrator")., and (ii) each party shall state to the Arbitrator its final position in writing as respects the disputed matter(s) The Arbitrator shall decide on each disputed matter within three (3) business days of submission of such matter, based solely on such written submissions and the consistency of the parties' submissions with the Preliminary Plans or previously approved portion of the Final Plans, as applicable, the Tenant's permitted use of the Premises and the general nature and design of the Project and adjacent properties. The parties consent to the jurisdiction of any appropriate court to enforce and enter judgments upon the decision of the Arbitrator. The losing party shall pay the cost of the Arbitrator, but each party shall otherwise bear its own costs and expenses in connection with the dispute.

For purposes here, "business days" shall be all calendar days except Saturdays, Sundays and holidays observed by national banks in Alameda County, California.

Notwithstanding the preceding provisions of this Paragraph (b), under no circumstances whatsoever shall (i) any combustible materials be utilized above finished ceiling or in any concealed space, (ii) any structural load, temporary or permanent, be exerted on any part of the Building without the prior written approval of Landlord, or (iii) any holes be cut or drilled in any part of the roof or other portion of the Building shell without the prior written approval of Landlord.

In the event that Tenant proposes any changes to the Final Plans (or any portion thereof) after the same have been approved by Landlord, Landlord shall not unreasonably withhold its consent to any such changes, provided the changes do not, in Landlord's reasonable opinion, adversely affect the Building structure, systems, or equipment, or the external appearance of the Premises.

As soon as the Final Plans (or a portion thereof sufficient to permit commencement of construction or installation of the Initial Tenant Improvements, if Tenant elects to proceed with a "fast track" construction) are mutually agreed upon, Tenant shall use diligent efforts to obtain all required permits authorizations, and licenses from appropriate governmental authorities for construction of the Initial Tenant Improvements (or such portion thereof, as applicable). Tenant shall be solely responsible for obtaining any business or other license or permit required for the conduct of its business at the Premises.

c.

Construction of the Initial Tenant Improvements.    Construction or installation of the Initial Tenant Improvements shall be performed by a licensed general contractor or contractors selected by Tenant and approved by Landlord, such approval not to be unreasonably withheld or delayed (the "Tenant's Contractor", whether one or more), pursuant to a written construction contract negotiated and entered into by and between the Tenant's Contractor and Tenant and approved by Landlord (such approval not to be unreasonably withheld or delayed). Each such contract shall (i) obligate Tenant's Contractor to work in harmony with the employees, contractors and suppliers of Landlord involved in the construction work being performed by Landlord pursuant to Addendum 2 to the Lease, and to comply with all rules and regulations of Landlord of general

26

applicability relating to construction activities in the Project, (ii) name Landlord as an additional indemnitee under the provisions of the contract whereby the Tenant's Contractor holds Tenant harmless form and against any and all claims, damages, losses, liabilities and expenses arising out of or resulting form the performance of such work, (iii) name Landlord as an additional beneficiary of (and a party entitled to enforce) all of the warranties for the Tenant's Contractor with respect to the work performed thereunder and the obligation of the Tenant's Contractor to replace defective materials and correct defective ownership for a period of not less than one (1) year following substantial completion of the work under such contract, (iv) evidence the agreement of the Tenant's Contractor that the provisions of the Lease shall control over the provisions of the Contract with respect to distribution or use of insurance proceed, in the event of a casualty during construction, and (v) evidence with waiver and release by the Tenant's Contractor of any lien or right to assert a lien on all or any portion of the fee estate of Landlord in and to the Project as a result for the work performed or to be performed hereunder (and obligating the Tenant's Contractor to include a substantially similar release and waiver provision in all subcontracts and purchase orders entered under or pursuant to the contract).

Tenant acknowledges and understands that all roof penetrations involved in eh construction of the Initial Tenant Improvements must be performed by the Building shell roofing contractor. All costs, fees and expenses incurred with such contractor in performing such work shall be a cost for the Initial Tenant Improvements, payable in accordance with the provisions of this Addendum. Tenant or Tenant's Contractor shall be responsible for all water, gas, electricity, sewer or other utilities used or consumed at the Premises during the construction of the Initial Tenant Improvements.

Tenant specifically agrees to carry, or cause the Tenant's Contractor to carry, during all such items as the Tenant's work is being performed, (a) builder's risk completed value insurance on the Initial Tenant Improvements, in an amount not less than Four Million Dollars ($4,000,000.00), (b)a policy of insurance covering commercial general liability, in an amount not less than One Million Dollars ($1,000,000.00), combined single limit for bodily injury and property damage per occurrence (and combined single limit coverage of $2,000,000.00 in the aggregate), and automobile liability coverage (including owned, non-owned and hired vehicles) in an amount not less than One Million Dollars ($1,000,000.00) combined single limit (each person, each accident), and endorsed to show Landlord as an additional insured, and (c) workers' compensation insurance as required by law, endorsed to show a waiver of subrogation by the insurer to any claim the Tenant's Contractor may have against Landlord. Tenant shall not commence construction of the Initial Tenant Improvements (or any portion thereof) until Landlord has issued to Tenant a written authorization to proceed with construction, which Landlord agrees to issue to Tenant within one (1) business day after Tenant has delivered to Landlord's construction representative (i) certificates for the insurance policies described above, (ii) copies of all permits required for construction of the Initial Tenant Improvements (or applicable portion thereof, if Tenant elects to proceed with a "fast track" construction) and a copy of the permitted Final Plans (or applicable portion thereof) as approved by the appropriate governmental agency, (iii) a copy of each signed construction contract for the Initial Tenant Improvements (a copy of each subsequently signed contract shall be forwarded to Landlord's construction representative without request or demand, promptly after execution thereof and prior to the performance of any work thereunder), and (iv) list of names, addresses and phone numbers of all subcontractors, contractors and suppliers involved in performing the Initial Tenant Improvements. All of the construction shall be the responsibility of and supervised by Tenant.

d.

Requirements for Tenant's Work.    All of Tenant's construction with respect to the Premises shall be performed in substantial compliance with this Addendum and the Final Plans therefor previously approved in writing by Landlord (and any changes thereto approved by Landlord as herein provided), and in a good and workmanlike manner, utilizing only new materials. All such work

27

shall be performed by Tenant in strict compliance with all applicable building codes, regulations and all other legal requirements. All materials utilized in the construction of Tenant's work must be confined to within the Premises. All trash and construction debris not located wholly within the Premises must be removed each day form the Project at the sole cost and expense of Tenant. Landlord shall have the right at all times to monitor the work for compliance with the requirements of this Addendum. If Landlord determines that any such requirements are not being strictly complied with, Landlord may immediately require the cessation of all work being performed in or around the Premises or the Project until such time as Landlord is satisfied that the applicable requirements will be observed. Any approval given by Landlord with respect to Tenant's construction of the Preliminary plans or Final Plans therefor, and/or any monitoring of Tenant's work by Landlord, shall not make Landlord liable or responsible in any way for the condition, quality or function of such matters or constitute any undertaking, warranty or representation by Landlord with respect to any of such matters. So long as Landlord reviews and responds to the plan submissions to Landlord as provided in this Addendum, no delays in plan approval, and no delays in construction of the Initial Tenant Improvements, shall delay the Commencement Date of this Lease.

e.

No Liens; Indemnification.    Tenant shall have no authority to place any lien upon the Premises or the Project or any portion thereof or interest therein, nor shall Tenant have any authority in any way to bind Landlord, and any attempt to do so shall be void and of no effect. If, because of any actual or alleged act or omission of Tenant, or Tenant's Contractor, or any subcontractors or materialmen, any lien, affidavit, charge or other for the payment of money shall be filed against Landlord, the Premises, the Project, or any portion thereof, or interest herein, whether or not such lien, affidavit, charge or order is valid or enforceable, Tenant shall, at its sole cost and expense, cause the same to be discharged of record by payment, bonding or otherwise no later than fifteen (15) days after notice to Tenant of the filing hereof, but in any event prior to the foreclosure thereof.

With respect to the contract for labor or materials for construction of the Initial Tenant Improvements, Tenant acts as principal and not as the agent of Landlord. Landlord expressly disclaims liability of the cost of labor preformed for or supplies or materials furnished to Tenant. Landlord may post one or more "notices of non-responsibility" for Tenant's work on the Project. No contractor of Tenant is intended to be a third-party beneficiary with respect to the costs for construction of the Initial Tenant Improvements. Tenant agrees to indemnify, defend and hold Landlord, the Premises and the Project, harmless form all claims (including all costs and expenses of defending against such claims) arising or alleged to arise from any act or omission of Tenant or Tenant's agents, employees, contractor, subcontractors, suppliers, materialmen, architects, designers, surveyors, engineers, consultants, laborers, or invitees, or arising from any bodily injury or property damage occurring or alleged to have occurred incident to any of the work to be performed by Tenant or its contractors or subcontractors with respect to the Premises.

Default by Tenant under this Addendum 2 shall constitute a default by Tenant under the Lease for all purposes.

28

ADDENDUM 3

RENEWAL OPTION
(BASEBALL ARBITRATION)

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED 2/7/06, BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

        (a)   Provided that as of the time of the giving of the Extension Notice and the Commencement Date of the Extension Term, (x) Tenant is the Tenant originally named herein (or a Tenant Affiliate or a party to a Permitted Transfer), (y) Tenant (or a Tenant Affiliate or a party to a Permitted Transfer) actually occupies all of the Premises initially demised under this Lease and any space added to the Premises, and (z) no Event of Default exists or would exist but for the passage of time or the giving of notice, or both; then Tenant shall have the right to extend the Lease Term for an additional term of 3 years (such additional term is hereinafter called the "Extension Term") commencing on the day following the expiration of the Lease Term (hereinafter referred to as the "Commencement Date of the Extension Term"). Tenant shall give Landlord notice (hereinafter called the "Extension Notice") of its election to extend the term of the Lease Term at least 9 months prior to the scheduled expiration date of the Lease Term.

        (b)   The Base Rent payable by Tenant to Landlord during the Extension Term shall be the greater of:

          (i)  the Base Rent in effect on the expiration of the Lease Term (if the Base Rent is stated as an annual or other periodic rate, adjusted for the length of the Lease Term), and

         (ii)  95% of the Fair Market Rent, as defined and determined pursuant to Paragraphs (c), (d), and (e) below.

        (c)   The term "Fair Market Rent" shall mean the Base Rent, expressed as an annual rent per square foot of floor area, which Landlord would have received from leasing the Premises for the Extension Term to an unaffiliated person which is not then a tenant in the Project, assuming that such space were to be delivered in "as-is" condition, and taking into account the rental which such other tenant would most likely have paid for such premises, including market escalations but excluding improvements installed in the Premises at the sole cost and expense of Tenant, provided that Fair Market Rent shall not in any event be less than the Base Rent for the Premises as of the expiration of the Lease Term. Fair Market Rent shall not be reduced by reason of any costs or expenses saved by Landlord by reason of Landlord's not having to find a new tenant for the Premises (including without limitation brokerage commissions, cost of improvements necessary to prepare the space for such tenant's occupancy, rent concession, or lost rental income during any vacancy period). Fair Market Rent means only the rent component defined as Base Rent in the Lease and does not include reimbursements and payments by Tenant to Landlord with respect to Operating Expenses and other items payable or reimbursable by Tenant under the Lease. In addition to its obligation to pay Base Rent (as determined herein), Tenant shall continue to pay and reimburse Landlord as set forth in the Lease with respect to such operating expenses and other items with respect to the Premises during the Extension Term. The arbitration process described below shall be limited to the determination of the Base Rent and shall not affect or otherwise reduce or modify the Tenant's obligation to pay or reimburse Landlord for such operating expenses and other reimbursable items.

        (d)   Landlord shall notify Tenant of its determination of the Fair Market Rent (which shall be made in Landlord's sole discretion and shall in any event be not less than the Base Rent in effect as of

29

the expiration of the Lease Term) for the Extension Term, and Tenant shall advise Landlord of any objection within 10 days of receipt of Landlord's notice. Failure to respond within the 10-day period shall constitute Tenant's acceptance of such Fair Market Rent. If Tenant objects, Landlord and Tenant shall commence negotiations to attempt to agree upon the Fair Market Rent within 30 days of Landlord's receipt of Tenant's notice. If the parties cannot agree, each acting in good faith but without any obligation to agree, then the Lease Term shall not be extended and shall terminate on its scheduled termination date and Tenant shall have no further right hereunder or any remedy by reason of the parties' failure to agree unless Tenant or Landlord invokes the arbitration procedure provided below to determine the Fair Market Rent.

        (e)   Arbitration to determine the Fair Market Rent shall be in accordance with the Real Estate Valuation Arbitration Rules of the American Arbitration Association. Unless otherwise required by state law, arbitration shall be conducted in the metropolitan area where the Project is located by a single arbitrator unaffiliated with either party. Either party may elect to arbitrate by sending written notice to the other party and the Regional Office of the American Arbitration Association within 5 days after the 30-day negotiating period provided in Paragraph (d), invoking the binding arbitration provisions of this paragraph. Landlord and Tenant shall each submit to the arbitrator their respective proposal of Fair Market Rent. The arbitrator must choose between the Landlord's proposal and the Tenant's proposal and may not compromise between the two or select some other amount. Notwithstanding any other provision herein, the Fair Market Rent determined by the arbitrator shall not be less than, and the arbitrator shall have no authority to determine a Fair Market Rent less than, the Base Rent in effect as of the scheduled expiration of the Lease Term. The cost of the arbitration shall be paid by Landlord if the Fair Market Rent is that proposed by Landlord and by Tenant if the Fair Market Rent is that proposed by Tenant; and shall be borne equally otherwise. If the arbitrator has not determined the Fair Market Rent as of the end of the Lease Term, Tenant shall pay 105 percent of the Base Rent in effect under the Lease as of the end of the Lease Term until the Fair Market Rent is determined as provided herein. Upon such determination, Landlord and Tenant shall make the appropriate adjustments to the payments between them.

        (f)    The parties consent to the jurisdiction of any appropriate court to enforce the arbitration provisions of this Addendum and to enter judgment upon the decision of the arbitrator.

        (g)   Except for the Base Rent as determined above, Tenant's occupancy of the Premises during the Extension Term shall be on the same terms and conditions as are in effect immediately prior to the expiration of the initial Lease Term; provided, however, Tenant shall have no further right to extend the Lease Term pursuant to this addendum or to any allowances, credits or abatements or options to expand, contract, renew or extend the Lease.

        (h)   If Tenant does not send the Extension Notice within the period set forth in Paragraph (a), Tenant's right to extend the Lease Term shall automatically terminate. Time is of the essence as to the giving of the Extension Notice and the notice of Tenant's objection under Paragraph (d).

        (i)    Landlord shall have no obligation to refurbish or otherwise improve the Premises for the Extension Term. The Premises shall be tendered on the Commencement Date of the Extension Term in "as-is" condition.

        (j)    If the Lease is extended for the Extension Term, then Landlord shall prepare and Tenant shall execute an amendment to the Lease confirming the extension of the Lease Term and the other provisions applicable thereto.

        (k)   If Tenant exercises its right to extend the term of the Lease for the Extension Term pursuant to this Addendum, the term "Lease Term" as used in the Lease, shall be construed to include, when practicable, the Extension Term except as provided in (g) above.

30

ADDENDUM 4

CANCELLATION OPTION

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED 2/7/06, BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

        Provided no Event of Default shall then exist and no condition shall then exist which with the passage of time or giving of notice, or both, would constitute an Event of Default, Tenant shall have the right with no less than nine (9) months prior written notice (the "Termination Notice") to elect to terminate this Lease effective on the last day of the 38^th full calendar month of the Lease Term.

        If Tenant elects to terminate this Lease pursuant to the immediately preceding sentence, the effectiveness of such termination shall be conditioned upon Tenant paying to Landlord $327,603.00 contemporaneously with Tenant's delivery of the Termination Notice to Landlord. Such amount is consideration for Tenant's option to terminate and shall not be applied to rent or any other obligation of Tenant. Landlord and Tenant shall be relieved of all obligations accruing under this Lease after the effective date of such termination but not any obligations accruing under the Lease prior to the effective date of such termination.

31

ADDENDUM 5

MISCELLANEOUS PROVISIONS

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED 2/7/06, BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

        Refund of Past Termination Fee:    Upon full execution of the Lease Agreement, Landlord agrees to refund the amount of $150,000.00 to Tenant. Said refund represents the termination fee paid by Tenant and received by Landlord on September 30^th, 2005.

32

ADDENDUM 6

LETTER OF CREDIT FOR SECURITY DEPOSIT

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED 2/7/2006 BETWEEN

ProLogis, a Maryland real estate investment trust
and
Ikanos Communications, a California corporation

        The Security Deposit may be in the form of an unconditional, irrevocable letter of credit from a bank reasonably acceptable to Landlord. The letter of credit shall either provide that it does not expire until the 61^st day following the end of the Lease Term or, if it is for less than the full term of the Lease, shall be renewed by Tenant at least 60 days prior to its expiration during the term of the Lease. The letter of credit shall provide that it may be drawn down upon by Landlord upon Tenant's default of the Lease beyond applicable notice and cure periods and only to the extent required to cure such default. If Landlord sells or conveys the Premises, Tenant shall, at Landlord's request, cooperate in having the letter of credit transferred to the purchaser. If the letter of credit is ever drawn upon by Landlord pursuant to the terms of the Lease and this Addendum, Tenant shall within ten (10) days thereafter cause the letter of credit to be restored to its original amount.

        Notwithstanding anything contained herein to the contrary, in the event Tenant fails to renew the letter of credit in accordance with the terms and conditions as set forth in this Addendum, or in the event that Tenant shall commence any proceeding for relief, as defined in Paragraph 23(ii) of the Lease, an immediate Event of Default shall be deemed to have occurred, without the requirement of notice or opportunity to cure, in which case Landlord may immediately draw down on the letter of credit.

33

QuickLinks

LEASE AGREEMENT
ADDENDUM 1 BASE RENT ADJUSTMENTS ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED 2/7/06, BETWEEN ProLogis, a Maryland real estate investment trust and Ikanos Communications, a California corporation
ADDENDUM 2 CONSTRUCTION (ALLOWANCE) ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED 2/7/06, BETWEEN ProLogis, a Maryland real estate investment trust and Ikanos Communications, a California corporation
ADDENDUM 5 MISCELLANEOUS PROVISIONS ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED 2/7/06, BETWEEN ProLogis, a Maryland real estate investment trust and Ikanos Communications, a California corporation
ADDENDUM 6 LETTER OF CREDIT FOR SECURITY DEPOSIT ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED 2/7/2006 BETWEEN ProLogis, a Maryland real estate investment trust and Ikanos Communications, a California corporation

EX-10.27

Exhibit 10.27

PATENT AND TECHNOLOGY LICENSE AGREEMENT

This TECHNOLOGY AND PATENT LICENSE AGREEMENT (this “Agreement”) ismade and entered into as of the Closing Date (as defined below) by and among Analog Devices, Inc., a Massachusetts corporation (“Licensor”), and Ikanos Communications, Inc. a Delaware corporation (“Licensee”).

W I T N E S S E T H:

WHEREAS, Licensor owns or is licensed to certain valuable assets and technology related to the Acquired Business (as defined below), which include integrated circuit products, software, customer lists, technical expertise, patents, mask works and other intellectual property and assets;

WHEREAS, Licensor and its Affiliates are, as of the Closing Date, assigning to Licensee all of Licensor’s and such Affiliates’ respective right, title and interest in certain assets owned by them relating exclusively to the Acquired Business as set forth in the Asset Purchase Agreement (the “Acquired Assets”).

WHEREAS, in connection with Licensee’s purchase of the Acquired Assets, Licensor desires to license to Licensee, and Licensee desires to obtain, certain additional Intellectual Property Rights (as defined below) related to the Acquired Business on the terms described in this Agreement; and

NOW, THEREFORE, in consideration of the covenants, representations, warranties and mutual agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

1.Definitions.  Capitalized terms not otherwise defined have that meaning given in the Asset Purchase Agreement.

“Affiliate”has that meaning given in the Asset Purchase Agreement.

“Asset Purchase Agreement”means that certain Asset Purchase Agreement entered into by the parties to this Agreement dated January 12, 2006.

“Closing Date”means “Closing Date”, as defined in the Asset Purchase Agreement.

“Control” means with respect to a Patent or technology, possession of the right, whether arising by ownership, license or otherwise, to grant the license, right or authorization to Licensee provided for in this Agreement without violating the terms of any written agreement between Licensor and any third party.

“Deliverables” means the items and materials described on Appendix B.

“Intellectual Property Rights”has that meaning given in the Asset Purchase Agreement.

1

“Licensed Patents”means the Patents that are listed in Appendix A.

“Licensed IP” means the Licensed Patents and Other IP.

“Licensee Exclusive Field of Use”means the use, reproduction, development (including but not limited to design and modification), manufacture (itself or through third parties), license, import, offer for sale, sale or other distribution (direct or indirect) of the Products or any other integrated circuits for wired communications which are: wired DSL solutions and/or broadband network processors and/or routers which have a primary purpose of providing network processing and/or routing.

“Licensee Nonexclusive Field of Use”means the use, reproduction, development (including but not limited to design and modification), manufacture (itself or through third parties), license, import, offer for sale, sale or other distribution (direct or indirect) of the Licensed AFEs.

“Other IP”means the Intellectual Property Rights (other than Licensed Patents and any Trademarks) Controlled by Licensor that would be infringed by the operation of the Acquired Business as currently conducted on the Closing Date or as conducted following Closing Date if conducted in substantially the same manner, including, without limitation, the design, development, reproduction, distribution, marketing, manufacture, use, import and sale or license of the Products (including Products under development as of Closing Date).

“Patents” means “Patents” as defined in the Asset Purchase Agreement.

“Products”has that meaning given in the Asset Purchase Agreement, and all predecessors, updates, upgrades, improvements and substitutions thereto.  For the avoidance of doubt Products shall also include analog front end products and materials described in Appendix B (the “Licensed AFEs”).

“Trademarks” means “Trademarks” as defined in the Asset Purchase Agreement.

2.Grant of Rights

2.01Patent License Grant.  Licensor hereby grants to Licensee a royalty-free (except as provided below), fully-paid, world-wide, perpetual, irrevocable, non-terminable, transferable (subject to Section 5.05) right and license, with the right to grant and authorize sublicenses, under the Licensed Patents to conduct and exploit the Acquired Business in the Licensee Exclusive Field of Use and the Licensee Nonexclusive Field of Use, to make, have made, use, import, offer for sale, sell and otherwise exploit Products in the Licensee Exclusive Field of Use and the Licensee Nonexclusive Field of Use.  Such license shall continue until expiration, revocation, invalidation or abandonment of the last Patent within the Licensed Patents. The foregoing license shall be exclusive in the Licensee Exclusive Field of Use (other than Licensed AFEs) and nonexclusive in the Licensee Nonexclusive Field of Use, including for Licensed AFEs.

2.02Other IP.  Licensor hereby grants to Licensee a royalty-free (except as provided below), fully-paid, world-wide, perpetual, irrevocable, non-terminable, transferable (subject to

2

Section 5.05) right and license, with the right to grant and authorize sublicenses, under the Other IP to conduct and exploit the Acquired Business in the Licensee Exclusive Field of Use and the Licensee Nonexclusive Field of Use, to use, reproduce in whole or in part, modify, create derivative works of design, develop, manufacture, reproduce, support, market, sell, license and /or lease Products in the Licensee Exclusive Field of Use and the Licensee Nonexclusive Field of Use.   The foregoing license shall be exclusive in the Licensee Exclusive Field of Use (other than Licensed AFEs) and nonexclusive in the Licensee Nonexclusive Field of Use, including for Licensed AFEs.

2.03Sublicense.  Licensee’s rights and licenses granted under this Agreement include the right to grant multiple sublicenses of Other IP and Licensed Patents in the Licensee Exclusive Field of Use to Licensee’s Affiliates, customers, distributors and sublicensees, including the right to grant sublicensees the right to grant sublicenses of Other IP and Licensed Patents in the Licensee Exclusive Field of Use, within the scope of the licenses granted above, and provided that such sublicensees are subject to Section 2.07.  Licensee’s rights and licenses granted under this Agreement include the right to grant multiple sublicenses of Licensed  Patents and Other IP in the Licensee Non-Exclusive Field of Use in connection with the distribution of Products, within the scope of the licenses granted above, and provided that such sublicensees are subject to Section 2.07.

2.04Exclusivity Covenant.  Licensor agrees not to exercise, authorize or assist any third parties to exercise, any of the exclusive rights granted to Licensee under Sections 2.01 and 2.02.  Notwithstanding anything to the contrary herein (but subject to Article IX of the Asset Purchase Agreement), (1) Licensor shall have the right to grant licenses to the Licensed Patents, as part of a cross license of all or substantially all of Licensor’s and its Affiliates’ Patents in substantially all fields of use; and (2) Licensor shall have the right to make, have made and use individual stand alone components (e.g. converters, analog front ends, digital signal processors, mixed signal components) and bundles thereof that do not substantially comprise a product in the Licensee Exclusive Field of Use, and may offer to sell, sell, and import such components and bundles thereof to third parties.

2.05Consideration.  In consideration for Licensor’s grant of rights as set forth in this Section 2 (other than the sublicense granted in Section 2.06), Licensee shall pay Licensor the amounts as set forth in the Asset Purchase Agreement.  In addition but subject to the terms of the Asset Purchase Agreement, in the event that any agreement between Licensor and a third party requires the payment of any royalties or other amounts for the exploitation of a license to any Licensed Patents or Other IP (“Third Party Agreement(s)”), Licensee shall pay the amounts specified in such Third Party Agreement to Licensor in the manner specified in such Third Party Agreement but only if Licensor provides Licensee with accurate and complete copies of Third Party Agreements prior to or on the Effective Date of this Agreement.  In the event Licensor fails to comply with the obligations of Section 2.05, Licensee shall have no such obligations to pay for third party Licensed Patents or Other IP, and Licensor shall bear all such costs.

2.06Limitation.  Notwithstanding the foregoing, and subject to the payment of the fees set forth below, Licensor’s grant above includes sublicensed rights from Licensor under its Agreement with Qualcore (formerly Virtual IP Group, Inc.) dated July 31, 2002(“Qualcore Agreement”) to use, reproduce, copy, modify, enhance and prepare derivative works of all

3

designs, inventions, know-how, methods, processes, techniques and solutions embodied in the M2181 RTL Core hardware description language code or structure of the synthesizable M2181 RTL Core developed by Qualcore and to distribute such M2181RTL Core in connection with the manufacture of  those Products that are shipped by Licensor in the Acquired Business as of the Closing Date.  In the event that Licensee seeks to add additional Products, Licensee shall have the right to obtain these additional sublicense rights by paying Licensor fifty thousand dollars ($50,000) upon the first tapeout of each such additional Product utilizing the M2181RTL Core.

2.07Confidentiality:

(a)“Confidential Information” means all nonpublic proprietary information and materials, disclosed by one party (the “Disclosing Party”) to any other party  (the “Receiving Party”) (including by former employees, consultants or contractors of Licensor) pursuant to this Agreement, irrespective of the manner in which the Disclosing Party disclosed such information and irrespective of whether such information is marked as confidential.

(b)The Receiving Party shall maintain Confidential Information obtained from a Disclosing Party in confidence, and shall not disclose, divulge or otherwise communicate such Confidential Information to third parties, or use it for any purpose, except (1) as permitted under the licenses granted herein, provided that the Receiving Party does not disclose Confidential Information of the Disclosing Party that is not inherently disclosed by the use of any Products, (2) as reasonably necessary to manufacturers and suppliers subject to confidentiality obligations consistent with this Agreement to exercise licenses granted hereunder, (3)  to Affiliates, or (4) to consultants and contractors providing services to such Receiving Party subject to confidentiality obligations consistent with this Agreement. The Receiving Party shall exercise reasonable precautions to prevent the unauthorized disclosure of such Confidential Information by its directors, officers, employees, consultants, contractors, subcontractors, advisors or agents.  Receiving Party agrees that it shall use the same degree of care and means that it uses to protect its own information of a similar nature, but in any event not less than reasonable care and means, to prevent the unauthorized use or the disclosure of such Confidential Information to third parties.

(c)The provisions of this Section 2.07 shall not apply to any Confidential Information disclosed hereunder that: (1) is lawfully disclosed to the Receiving Party by a third party rightfully in possession of the Confidential Information and under no confidentiality or fiduciary obligation not to make disclosure; (2) was in the public domain at the time it was disclosed or later becomes published or generally known to the public through no fault or omission on the part of the Receiving Party; (3) is developed independently by or for the Receiving Party without use of the Confidential Information of the Disclosing Party; or (4) is disclosed after written approval of the Disclosing Party.

(d)           Notwithstanding the obligations in this Section 2.07, in the event that any Receiving Party is required to disclose the Disclosing Party’s Confidential Information pursuant to applicable law, such Receiving Party may disclose Confidential Information to the extent that the Receiving Party is legally compelled to disclose such Confidential Information; provided, however, that the Receiving Party shall provide prompt written notice of such requirement to the Disclosing Party so that the Disclosing Party may seek a protective order or other remedy; and

4

provided, further, that in the event that such protective order or other remedy is not obtained prior to the time the Receiving Party is legally compelled to disclose such Confidential Information, the Receiving Party shall be permitted to furnish only that portion of such Confidential Information that it is legally required to provide and the Receiving Party shall exercise commercially reasonable efforts to obtain assurances that confidential treatment shall be accorded such Confidential Information.

(e)Each Receiving Party shall notify the Disclosing Party promptly and in writing of the circumstances surrounding any suspected unauthorized possession, use or knowledge of the Other Party’s Confidential Information or any part thereof at any location or by any person or entity other than those authorized by this Agreement.

2.08Reservation of Proprietary Interests.  Except as provided in Sections 2.01, 2.02 and 2.03 above, Licensor retains Licensor’s proprietary interests in and to the Licensed Patents and Other IP.  Except as provided in Section 2.09, nothing herein shall be construed as granting Licensor, by implication, estoppel or otherwise, any license or other right to any Intellectual Property Rights of Licensee.

2.09Grant Back License.  In the event that Licensee or Licensor makes any updates, modifications or enhancements to the Licensed AFEs (“AFE Mods”) during the three year period following the Closing Date, each party hereby grants to the other party a nonexclusive, worldwide, perpetual, irrevocable, royalty-free, fully paid-up, non-terminable, transferable right and license, under any and all of the Intellectual Property Rights in and to such AFE Mods to make, have made, use, offer to sell, sell and import analog front end products utilizing such AFE Mods, provided that Licensee’s rights to distribute shall be subject to the license rights in the Licensee Nonexclusive Field of Use granted under this Section 2.  Notwithstanding the foregoing, each party acknowledges and agrees that this Section 2.09 does not grant either party any right or license to use an AFE Mod that is licensed to them under this Section 2.09 to initiate the design or manufacture of an AFE product that is pin-compatible with an AFE Mod of the licensing party that constitutes a modification of the pin layout of a Licensed AFE.

2.10Delivery.   Licensor shall promptly deliver the materials and items described on Appendix B to Licensee, including but not limited to documentation, instructions, formulas, drawings, and protocols.  Commencing on the Closing Date and for a term of three years thereafter (unless extended upon the mutual agreement of the parties), each party shall promptly notify the other party of any AFE Mods, and shall upon the request of such other party promptly deliver such AFE Mods to the requesting party.

3.Representations and Warranties

3.01Licensor.  Licensor represents and warrants that it has the right to grant the rights and licenses granted herein.  The parties acknowledge that additional representations and warranties between the parties are provided under the Asset Purchase Agreement.

3.02Disclaimer.  EXCEPT AS PROVIDED IN THIS ARTICLE 3, NEITHER PARTY MAKES ANY WARRANTIES OR CONDITIONS (EXPRESS, IMPLIED, STATUTORY OR OTHERWISE) UNDER THIS AGREEMENT WITH RESPECT TO THE

5

SUBJECT MATTER HEREOF, AND EXCEPT AS MAY BE PROVIDED IN THE ASSET PURCHASE AGREEMENT AND OTHER ANCILLARY AGREEMENTS, EACH PARTY SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.

4.Term and Termination.

The Term of this Agreement shall commence on the Closing Date and shall be perpetual, unless terminated upon the mutual agreement of both Parties in their sole discretion.

5.General Provisions

5.01Notices.

All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given,

(a)if to Licensor:

Analog Devices, Inc.
Three Technology Way
Norwood, MA  02062-9106
Attention:  General Counsel
Facsimile:  (781) 461-3491

with a copy to:

Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, MA  02109
Attention:  Jeffrey A. Stein, Esq.
Facsimile:  (617) 526-5000

(b)if to Licensee:

Ikanos Communications
47669 Fremont Blvd.,

Fremont, CA 94538

Attention:  Chief Financial Officer
Facsimile:  (510) 979-0500

with a copy to:

Wilson, Sonsini, Goodrich & Rosati

650 Page Mill Road

Palo Alto, CA 94304
Attention:  Jack Sheridan. Esq.
Facsimile: (650) 493-6811

6

All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a business day in the place of receipt.  Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt.  In the case of facsimile transmissions, receipt shall be evidenced by written confirmation that such facsimile was successfully transmitted.

5.02Headings.  The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

5.03Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provision of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

5.04Entire Agreement.  This Agreement and the Appendices hereto constitute the entire agreement between the parties hereto and any of such parties’ respective Affiliates with respect to the subject matter and supersedes all prior communications, agreements and understandings, both oral and written, with respect to the subject matter of this Agreement.  In the event any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, and the parties agree to negotiate, in good faith, a legal and enforceable substitute provision which most nearly effects the parties’ intent in entering into this Agreement.

5.05Assignment.  This Agreement shall not be assigned by Licensee without the prior written consent of the Licensor, provided, however, that Licensee may assign this Agreement without consent in connection with the sale of all or substantially all of the its assets related to this Agreement or merger, reorganization or change of control of Licensee; and provided, further, that the assignee shall agree in writing to be bound by this Agreement.

5.06No Third-Party Beneficiaries.  This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

5.07Amendments and Waivers.   Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any or other further exercise thereof or the exercise of any other right,

7

power or privilege.  The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

5.08Governing Law; Jurisdiction and Venue.  This Agreement shall be governed by, and construed in accordance with, the internal laws of the Delaware.  Sections 12.11 and 12.12 of the Asset Purchase Agreement are hereby incorporated as if fully set forth herein.

5.09Construction of “Licensor”.  The term “Licensor”, wherever used in this Agreement, shall be deemed to refer to each, any and/or all of Analog Devices, Inc. and its subsidiaries and Affiliates except where Licensee otherwise consents or unilaterally specifies in a written notice to Licensor.  Collective references to Licensor will be construed as if all such entities are a single entity, so that, for example, verbs used therewith can be as if “Licensor” referred to a single entity, even though it refers to multiple entities.

5.10Counterparts.  This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other parties hereto.  No provision of this Agreement is intended to confer upon any person or entity other than the parties hereto any rights or remedies hereunder.

(Remainder of page intentionally left blank)

8

IN WITNESS WHEREOF, Licensor and Licensee have caused this Agreement to be executed as of the Closing Date by their respective officers thereunto duly authorized.

“LICENSOR”		“LICENSEE”
ANALOG DEVICES, INC.		IKANOS COMMUNICATIONS, INC.
By:	/s/ BRIAN P. MCALOON	By:	/s/ DANIEL K. ATLER
	Brian P. McAloon		Daniel K. Atler
	Executive Vice President		Vice President and Chief Financial Officer

(Signature page to Patent and Technology License Agreement)

9

EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant
Name	Jurisdiction
Ikanos Communications International, Inc.	California
Ikanos Communications (India) Private, Ltd.	India
Ikanos Communications Japan KK	Japan
Ikanos Communications GmbH, a wholly owned subsidiary Ikanos Communications International, Inc.	Germany
Ikanos Communications Europe	France

EX-23.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-128645) of Ikanos Communication, Inc. of our report dated February 27, 2006 relating to the financial statements, which appears in this Form 10-K.

/s/  PRICEWATERHOUSECOOPERS, LLP

San Jose, California
February 27, 2006

QuickLinks

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-31.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.1

CERTIFICATIONS

I, Rajesh Vashist, certify that:

1.

I have reviewed this annual report on Form 10-K of Ikanos Communications, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 27, 2006

Rajesh Vashist
President, Chief Executive Officer and
Chairman of the Board

QuickLinks

CERTIFICATIONS

EX-31.2

Exhibit 31.2

I, Daniel K. Atler, certify that:

1.

I have reviewed this annual report on Form 10-K of Ikanos Communications, Inc..;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(c)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 27, 2006

/s/  DANIEL K. ATLER Daniel K. Atler
Vice President and Chief Financial Officer

EX-32.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

        I, Rajesh Vashist, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003, that the Annual Report of Ikanos Communications, Inc. on Form 10-K for the fiscal year ended December 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this Form 10-K fairly presents in all material respects the financial condition and results of operations of Ikanos Communications, Inc.

Date: February 27, 2006

Rajesh Vashist
President, Chief Executive Officer and
Chairman of the Board

QuickLinks

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

EX-32.2

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

        I, Daniel K. Atler, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003, that the Annual Report of Ikanos Communications, Inc. on Form 10-K for the fiscal year ended December 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this Form 10-K fairly presents in all material respects the financial condition and results of operations of Ikanos Communications, Inc.

Date: February 27, 2006

/s/  DANIEL K. ATLER Daniel K. Atler
Vice President and Chief Financial Officer

QuickLinks

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003