10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

(Mark One)

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

For the fiscal year ended October 31, 2006

or

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

Commission File Number: 000-52038

VERIGY LTD.

(Exact Name of Registrant as Specified in Its Charter)

SINGAPORE	N/A
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
NO. 1 YISHUN AVE 7 SINGAPORE 768923	N/A
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code (+65) 6377-1688

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

Title of Each Class	Name of Each Exchange on Which Registered
Ordinary Shares, no par value	The NASDAQ Global Select Market

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

None

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 x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 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. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated or, a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer o Accelerated filer o Non-accelerated filer x

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

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates as of April 30, 2006, the last business day of the registrant’s most recently completed second fiscal quarter: Not applicable because registrant’s ordinary shares did not begin trading on The Nasdaq Global Select Market until June 13, 2006.

As of December 15, 2006, there were 58,811,045 outstanding ordinary shares, no par value.

DOCUMENTS INCORPORATED BY REFERENCE

Document Description

10-K Part

Portions of the registrant’s Proxy Statement for its 2007 Annual General Meeting of Shareholders, which will be filed pursuant to Regulation 14A within 120 days after registrant’ s fiscal year ended October 31, 2006, are incorporated by reference into Part III, Items 10 – 14 of this Annual Report on Form 10-K. Except as expressly incorporated by reference, the registrant’s Proxy statement shall not be deemed to be a part of this Annual Report on Form 10-K.

TABLE OF CONTENTS

		Page
Forward-Looking Statements		3
	PART I
Item 1	Business	3
Item 1A	Risk Factors	19
Item 1B	Unresolved Staff Comments	36
Item 2	Properties	36
Item 3	Legal Proceedings	37
Item 4	Submission of Matters to a Vote of Security Holders	37
	PART II
Item 5	Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	38
Item 6	Selected Financial Data	39
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	61
Item 8	Financial Statements and Supplementary Data	62
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	107
Item 9A	Controls and Procedures	107
Item 9B	Other Information	108
	PART III
Item 10	Directors and Executive Officers of the Registrant	109
Item 11	Executive Compensation	109
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	109
Item 13	Certain Relationships and Related Transactions	109
Item 14	Principal Accountant Fees and Services	110
	PART IV
Item 15	Exhibits and Financial Statement Schedules	110

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Forward-Looking Statements

The following discussion should be read in conjunction with the combined and consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This report contains forward-looking statements including, without limitation, statements regarding trends, cyclicality, seasonality and growth in the markets we sell into, our strategic direction, expenditure in research and development, anticipated benefits from our operating model, our future effective tax rate, new product introductions, product pricing, changes to our manufacturing processes, our liquidity position, our ability to generate cash from continuing operations, our expected growth, the potential impact of adopting new accounting pronouncements, our potential future financial results, our purchase commitments, our obligation and assumptions about our retirement and post-retirement benefit plans, the impact of our variable cost structure, our lease payment obligations and expected savings from our restructuring programs that involve risks and uncertainties. Additional forward-looking statements can be identified by words such as “anticipated,” “expect,” “believes,” “plan,” “predicts,” and similar terms. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including those discussed in Item 1A and elsewhere in this Form 10-K.

PART I

Item 1.Business

Overview

Verigy became an independent company on June 1, 2006, when we separated from Agilent Technologies Inc. We design, develop, manufacture and sell advanced test systems and solutions for the semiconductor industry. We offer a single platform for each of the two general categories of devices being tested: our 93000 Series platform, designed to test System-on-a-Chip (SOC), System-in-a-Package (SIP) and high-speed memory devices, and our Versatest V5000 Series platform, designed to test memory devices, including flash memory and multi-chip packages. Our test solutions are both scalable and flexible. Our test platforms are scalable across different frequency ranges, different pin counts and different numbers of devices. Our test platforms’ flexibility allows for a single test system to test a wide range of applications for semiconductor devices. Our scalable platform architecture provides us with internal operating model efficiencies such as reduced research and development costs, engineering headcount, support requirements and inventory risk. The scalability and flexibility of our test solutions also provides economic benefits to our customers by allowing them to get their complex, feature-rich semiconductor devices to market quickly and to reduce their overall costs. We also provide test and application expertise, service and support through our worldwide service organization.

We have a broad installed customer base, having sold over 1,400 of our 93000 Series systems and over 2,300 Versatest Series systems. Our customers include integrated device manufacturers, or IDMs, test subcontractors, also referred to as subcontractors, which includes specialty assembly, package and test companies as well as wafer foundries, and fabless design companies. As of October 31, 2006, we had approximately 1,500 employees worldwide.

The Semiconductor Test Equipment Industry

Industry Background

Semiconductor devices, also referred to as integrated circuits, or ICs, are the fundamental building blocks used in all electronic systems. They have played an important role in enabling the proliferation of computing, communications and consumer electronic products. As technology continues to penetrate most aspects of daily life, semiconductor devices are playing an increasingly important role in a growing number and variety of products. Consequently, the global semiconductor industry, while experiencing significant

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cyclical fluctuations in its growth rate, has exhibited strong overall growth over the last 30 years. With the continued development of new growth segments within the semiconductor market, we believe the semiconductor market should continue to experience periods of strong growth.

The design and manufacture of semiconductor devices is a complex and capital-intensive multi-step process. This process involves different types of equipment used to manufacture, assemble and test semiconductor devices. Semiconductor test equipment and services are a critical part of this complex design and manufacturing process and are utilized in each of the key design and manufacturing stages.

Demand for new semiconductor test equipment is driven by two primary forces: growth in semiconductor unit volume that drives the need for additional testing capacity, and the adoption of new technologies in semiconductor design, manufacturing and packaging that require new types of semiconductor testing equipment.

Due to the different architectures and functionalities of semiconductors, semiconductor test equipment and services are generally categorized by the type of semiconductors tested. The two general categories are equipment used to test memory semiconductors, referred to as memory testing, and equipment used to test non-memory semiconductors, which includes testers for testing less complex, discrete semiconductors, and testers designed to test very complex, highly integrated semiconductors commonly referred to as System-on-a-Chip, or SOC, or System-in-a-Package, or SIP, testing.

SOCs and SIPs are semiconductors that integrate the functionality of multiple individual ICs onto a single IC or package of ICs, and often contain both digital and analog functionalities, including radio frequency (RF) capabilities, communication interfaces and embedded memory. By combining multiple technologies onto a single, more complex chip or package, these devices provide the benefits of lower cost, smaller size, higher performance and lower power consumption and facilitate faster time-to-market that is critical, particularly for products targeted to the consumer electronics market.

Memory devices, particularly flash memory devices, represent a significant and growing portion of the semiconductor industry. The flash memory market for NAND and NOR flash, as measured by megabits shipped, has doubled every year since 2000. This growth has been fueled largely by the extensive use of flash memory in consumer products such as MP3 players, cell phones, digital cameras and other handheld devices. There are two key types of flash memory: NAND flash, which is suited to the storage of large amounts of data in devices such as MP3 players and digital cameras, and NOR flash, which is typically used for the storage of basic operating instructions and programs that enable devices such as cell phones to start-up and function. Given the compact nature of consumer electronics products and the increasing need for more memory in these products, complex and more compact memory device packaging techniques, such as stacked and multi-chip packages, or MCPs, are being adopted.

Semiconductor test equipment plays an important role by enabling semiconductor designers and manufacturers to lower their overall costs and get products to market quickly in addition to improving the quality and reliability of their end products. By detecting and sometimes repairing manufacturing defects, test equipment enables semiconductor designers and manufacturers to improve manufacturing yield, meaning the proportion of semiconductor devices that perform to specifications. Improving manufacturing yields. In addition, we believe that scalable and flexible test equipment represents a key competitive advantage because it reduces test time, assists in achieving faster time to market and lowers capital investment requirements by allowing semiconductor designers and manufacturers to test different types of semiconductors with the same test equipment.

Bringing semiconductor products to market is a multi-step process, which includes stages referred to as production prototype, production ramp and high-volume production. Semiconductor test equipment plays an important role in each of these stages.

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Production Prototype.   Once an initial design of a semiconductor has been created, the first stage in bringing an actual IC to market is to produce a small quantity of prototype ICs to validate the design and ensure that it performs according to its specifications. What the semiconductor designer needs most from the test equipment and services provider at this stage is advanced test equipment and test strategy expertise. The engineering validation and device characterization that occurs at this stage requires high precision test equipment to ensure accuracy and high flexibility to modify test procedures and parameters, because the IC design may iterate multiple times. Test strategies and methodologies are developed early to ensure that the test solution implemented is capable of testing the ICs across the entire manufacturing process. Of all the stages of bringing a new semiconductor to market, it is at this stage that the most advanced test equipment is required.

Production Ramp.   Once a semiconductor passes the production prototype stage, the next stage in bringing it to market is the ramp to high volume production. In the production ramp stage the semiconductor designer and manufacturer is focused on transitioning as quickly as possible to the high-volume production stage. What the semiconductor designer and manufacturer needs from the test equipment and services provider at this stage is application expertise and an understanding of manufacturing processes. Test solutions at this stage are no longer focused on validating the product design, but are focused on fine-tuning the manufacturing process to optimize yield. Test optimization is critical in this step, with software analysis being used to determine which tests are unnecessary and can be streamlined or eliminated in order to save time in the manufacturing process while maintaining the appropriate thoroughness of the test process.

High Volume Production.   The final stage in bringing a semiconductor to market is high-volume production. The key focus for the semiconductor manufacturer at this stage is to reduce the overall cost of test by achieving high throughput of quality semiconductor devices. To achieve this goal, semiconductor manufacturers require high-reliability test equipment with maximum up-time, and tailored service and support, from their semiconductor test equipment and services provider. Integration of the test equipment into the production process is optimized to improve efficiency and minimize the time that test equipment is not utilized. In order to achieve high throughput, test equipment that is not only fast but can test multiple devices at the same time is critical, especially in the testing of memory devices.

Semiconductor Test Market Challenges

Because of the competitiveness of the broader consumer electronics market, semiconductor designers and manufacturers are increasingly focused on bringing high quality complex ICs to market faster and at lower costs. As a result, semiconductor test equipment and services suppliers are facing new challenges confronted by semiconductor designers and manufacturers due to:

Increased pressure to reduce overall cost of test

Continued cost pressures are driving semiconductor designers and manufacturers to demand higher utilization of test systems, as well as test systems that can be re-used across different types and generations of ICs. Test systems are required to demonstrate the scalability and flexibility necessary to permit desired levels of utilization and extend their useful life. Rapid technology change within the semiconductor industry can quickly render non-scalable test equipment obsolete for the testing of new generations of semiconductors.

Increased pressure to improve time-to-market

Today’s semiconductor market is characterized by shortening product life cycles as a result of increased exposure to and reliance on the consumer electronics market. Semiconductor designers and manufacturers that are first to market and that quickly adapt to changing technological advances gain a

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significant competitive advantage. The complex nature of manufacturing semiconductor devices requires that test solutions providers offer their customers more than just delivery of test equipment. Semiconductor designers and manufacturers require tailored test solutions and a breadth of application expertise in order to accelerate their time-to-market with new ICs and maximize their revenue opportunity. Equipment suppliers that are not able to complement their hardware systems with application expertise have limited ability to impact their customers’ time to market.

Increased complexity and performance requirements of test

The trend towards SOCs, SIPs and MCPs has created new challenges for semiconductor designers and manufacturers. These increasingly complex semiconductor designs, which enable improved performance, form and function, require sophisticated test solutions. In addition, advances in interface technology, the adoption of new design protocols and process technology innovations have only added to this complexity. Low cost test equipment that lacks a high level of sophistication and broad application can end up being more costly in the long run.

Meeting the needs of test subcontractors

Test subcontractors face specific test challenges. Subcontractors provide test services to a diverse group of semiconductor designers and manufacturers, which include both fabless design companies and integrated device manufacturers, referred to as IDMs. As a result, subcontractors are continually challenged to provide the capabilities to test a wide range of ICs. Optimizing the utilization of a subcontractor’s installed capital equipment is therefore important to its success. In order to optimize this utilization, subcontractors require flexible semiconductor test systems that are capable of testing a broad spectrum of ICs. Additionally, subcontractors require systems that can test ICs with varying pin counts while maintaining cost efficiencies and high throughput levels. For this reason, test solutions providers who fail to offer scalable and flexible architectures, as well as a breadth of application expertise, may fall short in meeting the needs of subcontractors.

Our Solution

We design, develop, manufacture and sell advanced test systems and solutions for the semiconductor industry. Unlike competitors who provide multiple platforms for SOC/SIP/high-speed memory and memory test, we provide a single platform for each of the two general categories of devices being tested. As part of our single scalable platform strategy, we develop and offer performance and capability enhancements to our platforms as part of our product development roadmap. Our 93000 Series platform is designed to test SOC, SIP and high-speed memory devices, and our Versatest V5000 Series platform is designed to test memory devices, including flash memory and MCPs. We also provide a range of services that assist our customers in quickly and cost effectively delivering the innovative, feature-rich products demanded by their end users.

More than a decade ago, we introduced the concept of a scalable platform architecture for semiconductor testing, and we are continuing to capitalize on the benefits of that strategy today. Our scalable platform architecture provides us with internal operating model efficiencies, such as reduced research and development costs, engineering headcount, support requirements and inventory risk. The scalability and flexibility of our solution also provides economic benefits to our customers by allowing them to get their complex, feature-rich semiconductor devices to market quickly and to reduce overall costs. We believe our advanced SOC/SIP/high-speed memory and memory test solutions provide optimal combinations of flexibility, cost and performance to a wide range of designers and manufacturers in the semiconductor industry at all stages of bringing a semiconductor product to market, from design to

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production prototype to high-volume manufacturing. The key elements of our solutions are:

Scalable platform across a broad range of performance levels

Reducing the overall cost of test is critical for our customers. Our test platforms are scalable in a number of ways, including frequency range of the applied test signals, the number of pins to accommodate ICs with different pin counts and the number of devices that can be tested in parallel. This scalability allows semiconductor manufacturers considerable flexibility in selecting the right test solution to meet their needs, at an optimal level of capital investment. In addition, our test systems can be quickly reconfigured or upgraded as requirements change. The combination of scalability, speed and ease of reconfiguration of our test systems enables our customers to reduce their long-term capital equipment requirements and minimize manufacturing downtime.

The scalability of our test platforms is enabled by a “tester-per-pin” architecture, in the case of our SOC/SIP/high-speed memory test platform, and a “tester-per-site” architecture, in the case of our memory test platform. Our “tester-per-pin” architecture utilizes a separate and independent test processor for each pin of each device being tested, enabling each pin to be tested independently and in parallel to the testing of other pins. Our “tester-per-site” architecture is tailored to make use of the parallel structure of memory devices to test a large number of devices in parallel because it utilizes a separate and independent test processor for each physical interface of the test system to a device under test. We refer to those interfaces as test sites. With our optional Programmable Interface Matrix, our Versatest V5500 System for the final test of packaged devices can further capitalize on the parallel structure of memory devices to test multiple devices per test site, thereby increasing its parallel testing capabilities. For our SOC/SIP/high-speed memory test systems, the process of frequency performance scaling is often done “instantly” through a software upload as the device test program is loaded into the system. For all of our test systems, the process of scaling up the number of devices a test system is capable of testing in parallel is often accomplished quickly, typically requiring only a few hours for basic scaling and only a few days for more extensive scaling. The per-pin architecture of our SOC/SIP/high-speed memory test systems also enables us to offer customers innovative licensing models. For example, we currently offer our customers the unique ability to purchase and share performance licenses across different devices on a per-pin basis. As a result, our customers are able to buy only the performance they need for each pin of the system.

Flexible platforms across a breadth of applications

Our test platforms are also highly flexible in that they allow a single test system to test a wide range of applications for semiconductor devices. The high level of software reconfigurability of our test platforms, and the support and enhancements we offer, enable our customers to implement a broad range of application tests tailored to their needs, including tests for high-speed digital, analog/mixed signal, flash memory, RF and high-speed memory devices. In addition to enabling our customers to test a broad range of products, our test systems also support through software reconfiguration a number of advanced test methodologies, such as built-in self test, or BIST, design-for-test, or DFT, reduced pin count test, or RPC, and concurrent test. These methodologies can simplify testing complex devices, thereby increasing our customers’ throughput as well as improving their time to market. We are continually developing additional enhancements to our test platforms to support additional application tests and test methodologies.

Competing test platforms often require an IC device manufacturer to have devices tested by multiple test systems in order to complete the tests required for different applications contained in the devices. This process is not only expensive, cumbersome and time-consuming, but it also takes up valuable floor space in the manufacturing facility. In comparison, our test platforms are able to run the tests for a significant number of different applications without having to move devices to different test systems. The flexible test capabilities of our 93000 Series and V5000 Series test platforms enable our customers to reduce their

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overall cost of equipment acquisition, employee training and test equipment maintenance while simultaneously increasing equipment utilization.

Advanced, innovative test technology

As a result of the competitive pressures our customers face, they continually need to develop and bring to market increasingly complex products. We develop advanced technology solutions in order to assist our customers in accomplishing this goal in a cost effective and timely manner. From our history as part of Agilent, which was part of Hewlett Packard until its spin-off in 1999, we have a legacy of introducing new and innovative designs to market. Some of these key innovations include the development of scalable platforms for both SOC/SIP/high-speed memory and memory test through our “tester-per-pin” and “tester-per-site” architectures, our test processors utilizing high performance application-specific integrated circuits, or ASICs, and our liquid cooling technology for our test system hardware.

Since 1991, we have used ASICs for our test processors in place of larger, less integrated and less sophisticated designs, allowing our test processors to be very small and providing our test systems with the high performance and accuracy expected from an ASIC-based design. The small size of our ASIC-based test processors enables our “tester-per-pin” and “tester-per-site” architectures. Along with the additional performance, scalability and flexibility benefits of those architectures, our ASIC-based architectures result in test systems that are able to test large numbers of devices in parallel in a small test platform footprint.

Our products use liquid cooling technology, which provides lower operating temperatures, greater system reliability, reduced operating costs, improved accuracy and speed and quieter and cooler operation than the traditional air cooled technology used in some competitive products. This allows our test platforms to achieve high performance, accuracy, reliability and parallelism while simultaneously achieving a small test platform footprint. We released our first liquid cooled tester in 1991 and have extensive experience in the application of liquid cooling technology to semiconductor test systems.

Global delivery of expert application knowledge

Getting semiconductors to market quickly is vital for our customers. Our worldwide professional staff of highly trained applications engineers provides our customers with a high level of technical expertise to assist our customers as they develop test applications for their semiconductor devices. Our extensive expertise spans a broad range of semiconductor devices, including chipsets and graphics, wireless and wired communication, flash memory, video and audio, high-speed memory and complex multi-chip memory packages. We also produce leading-edge innovative test technologies and deliver, on a global basis, superior expertise across a wide range of applications to assist our customers in quickly delivering new feature-rich products to the market.

Lowered overall cost of test for customers

We have designed our platforms to be versatile and reconfigurable. As a result, our customers are able to select a configuration to meet their current test requirements and, as those requirements change, to upgrade the capabilities of their test equipment to meet their future needs without having to purchase completely new systems. Our high quality and reliable test solutions provide high uptime as measured by the reliability of the test equipment. Additionally, our ability to provide innovative solutions and technical expertise across a wide variety of applications helps our customers optimize test equipment performance for the specific semiconductor device being tested, which reduces test times and increases both yield and cost efficiencies. Consequently, we believe our solutions lower our customers’ cost of test in high volume manufacturing.

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Shortened time-to-market

To achieve fast time to market, our customers require scalable and flexible test platforms and application expertise and support at each stage of the manufacturing process. We provide scalable and flexible test platforms based on our established architectures, which can be changed and reconfigured quickly to address new test technologies. Our highly trained applications engineers provide support for the development of test strategies, test applications analysis and optimization and test equipment utilization for our customers.

Our Strategy

Our objective is to be the leading semiconductor test equipment and services supplier, providing the highest return on our customers’ investment in test equipment. We will continue to maintain our focus on our customers’ evolving needs by offering innovative and versatile semiconductor test equipment and services solutions that address the challenges facing semiconductor designers and manufacturers, and we will remain committed to providing outstanding service and support to our customers. Additionally, we intend to continue to streamline our business and capitalize on our research and development resources in an effort to achieve profitable growth in excess of the broader semiconductor test industry. We are also in the process of executing on our more flexible cost structure to enable us to increase and decrease our capabilities and spending in response to cycles in the semiconductor industry, and thereby deliver continued customer responsiveness as well as improved overall profitability. Key elements of our strategy include:

Maintaining the rapid pace of product innovation on scalable platforms

We believe scalable platforms offer our customers the best return on their investment in test equipment. The scalable architecture of our solutions coupled with the proven stability of our platforms facilitates our focus on innovative enhancements, application improvements and technical solutions in step with our customers’ needs. The pace of innovation in the semiconductor industry is so rapid that performance doubles roughly every 18 months. Semiconductor companies thus require substantial technical expertise and constant innovation to successfully compete. We believe that with our scalable product architecture, wide-ranging technical capabilities and expertise and established global delivery platform, we are well positioned to be an innovator in the semiconductor test market and to assist our customers in competing successfully in the semiconductor market.

Continuing to focus on emerging opportunities for profitable growth

We will continue to look to increase our market penetration by focusing on market opportunities where we can capitalize on our technical expertise and add value to our customers who demand the most sophisticated and complex test solutions. We believe that these opportunities have attractive characteristics, such as the potential for increased customer adoption of our solutions and the potential for high returns on our investment. Recent examples of such emerging opportunities include game consoles that utilize high-speed memory and full-featured mobile handsets that utilize complex SOCs, SIPs and MCPs.

Capitalizing on our success with test subcontractors to increase our success with IDMs

The scalability and flexibility of our platform architecture has led to our success in attracting subcontractors to our test solutions. We believe that the same advantages of our solutions that subcontractors find compelling will continue to drive the increased adoption of our solutions by IDM customers. IDMs are facing increasingly intense competition, time-to-market pressures and shorter product lifecycles associated with consumer driven demand, which has led them to begin to outsource an

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increasing percentage of their semiconductor test business. We believe that our success with our subcontractor customers will drive IDMs to direct a greater percentage of their test business to us, as IDMs have an interest in maintaining consistency across their internal and external test platforms. These factors, combined with the cost and capital expenditures restrictions that many IDMs experience, are increasing the need for better asset utilization by IDMs. We have existing relationships or recent customer wins at the ten largest IDMs.

Continuing to deliver an outstanding total customer experience throughout the product life cycle

Application support through all phases of the product life cycle is critical to our customers’ ability to achieve fast time-to-market for their products while achieving a high return on their test equipment investments. We will strive to continue to provide our customers with thorough application expertise, to maintain the global delivery capabilities of our customer-facing teams, and to efficiently service our customers with an emphasis on responsiveness. We are also increasing our presence in Asia in the areas of application engineering, research and development and order fulfillment in order to gain proximity to and further strengthen our relationships with customers in Asia. Additionally, we will continue to accentuate and reward the values of professionalism, technical expertise and uncompromising integrity in all our employees in an effort to continually enhance our customers’ experience.

Optimizing our operating model to generate sustainable profitability

The semiconductor industry has historically been cyclical. This cyclicality requires semiconductor test suppliers to have flexible cost structures in order to sustain profitability through the peaks and valleys of the industry’s cycles. We continue to focus on increasing our profit margins and lowering our break-even point. To accomplish this, we have negotiated flexible supply agreements, introduced flexible pay structures for all employees and optimized our information technology infrastructure for our business. Additionally, we have transitioned our manufacturing to a  new contract manufacturer with a strong presence in Germany and in Asia. We believe our enhanced presence in Asia will help us to achieve lower manufacturing costs. We expect to continue to streamline our cost structure and our global supply chain in an effort improve our profitability in the highly cyclical semiconductor industry.

Our Products and Services

We offer a single platform for each of the two general categories of devices being tested: our 93000 Series platform, designed to test SOCs, SIPs and high-speed memory devices, and our Versatest V5000 Series platform, designed to test memory devices, including flash memory and multi-chip packages. Each of these platforms is highly scalable and flexible and contains advanced, innovative test technology. We also provide high levels of test application expertise, services and support for our customers who use these platforms.

93000 Series Platform—SOC, SIP and High-Speed Memory Test

Our 93000 Series platform, introduced in 1999, tests SOCs, SIPs and high-speed memory devices, which are used in a very wide range of electronic products including MP3 players, digital televisions, television set-top boxes, PCs, gaming consoles and cell phones and other wireless communication devices. The scalability and flexibility of the 93000 Series platform, enabled by its advanced, innovative test technology, allows it to cover the testing requirements for a wide range of devices and applications in all stages of bringing a semiconductor product to market, from production prototype to high-volume manufacturing, assisting device manufacturers in speeding time to market and lowering the overall cost of test.

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Scalability.   Our 93000 Series platform, with its “tester-per-pin” architecture, is highly scalable in a number of ways, including with respect to the frequency range of the applied test signals, the number of pins to accommodate ICs with different pin counts and the number of devices that can be tested in parallel. The 93000 Series platform with our latest generation Pin Scale digital cards is scalable in frequency performance from 800 Mbits/second to 12 Gbits/second, addressing the test needs for a wide range of today’s high-speed interfaces, including PCI Express, HyperTransport, Serial ATA and ultra-high-speed I/O buses required for wired communications. With up to 32 channels per digital card and the ability to use from 4 to 64 cards per system, the 93000 Series platform can scale in the number of pins that it tests simultaneously, from 128 to 2,048 pins, enabling it to test large numbers of devices in parallel. Our 93000 Series platform’s scalability allows a customer to initially buy a 93000 Series platform with just a few test pins and moderate frequency performance capabilities today and then upgrade to more pins and greater frequency performance capabilities as test requirements change.

Our 93000 Series platform’s scalability is enabled by its “tester-per-pin” architecture. SOCs, SIPs and high-speed memory devices are complex and sophisticated, and each device pin may need to be tested independently for a thorough and complete test. Different SOCs, SIPs and high-speed memory devices have different numbers of pins. By being able to select the number of digital cards and pins in the system, the exact test system can be specified. A single 93000 Series system can test both different types and different numbers of devices by loading different test programs onto the test processor. This ability to quickly change the type and number of devices being tested makes our test systems particularly well suited for subcontractors who test a wide range of products.

With its scalable “tester-per-pin” architecture, the 93000 Series platform is the only SOC/SIP/high-speed memory test platform to offer a floating, per-pin licensing program. Our InstaPin performance library gives customers instant access to the different speed and memory settings in the test processors, pin-by-pin. Because these licenses are able to be assigned from pin to pin within a tester, resources are utilized only when needed, where needed and without having to reconfigure system hardware. We believe that competing test platforms require manufacturers to manually reconfigure hardware or swap out entire test systems, lengthening test time and increasing cost of test. With the 93000 Series platform’s InstaPin performance library, our customers buy only the capability they need, pin-by-pin, and can easily use software to configure their test systems to meet the next device’s test requirements.

Flexibility.   Our 93000 Series platform can test a wide range of applications with only one test system. Some competitors require a device manufacturer to switch between different test systems in order to run the tests required for different applications. This is a cumbersome and time-consuming process. Not only can this process take hours to perform, which raises the overall cost of test, but the extra test system required to run the different application tests takes up valuable floor space within the manufacturing facility. In contrast, a single 93000 Series system is able to test the high-speed digital, analog/mixed signal, RF, embedded memory, high-speed memory and high speed interface I/O buses found in a wide range of applications without having to move devices between different test systems. Our 93000 Series platform also supports a number of advanced test methodologies such as BIST, DFT and concurrent test. As a result, our customers can test their portfolio of devices on a single platform, enabling them to cost-effectively address the changing test needs common in the semiconductor industry. This flexibility is particularly well suited to subcontractors, who test a wide variety of products.

In addition to our 93000 Series platform’s ability to adapt to a constantly changing test environment, the platform was built to be ready for future requirements. This means as devices get faster, interfaces and specifications of devices change or more capabilities are integrated into devices, the 93000 Series platform can be quickly updated or upgraded to accommodate the new technology as it becomes available. This is critically important to large, cutting-edge device manufacturers who constantly seek to remain at the head of the technology curve. When companies have to invest in new test systems, rather than simply upgrade

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their existing systems, their cost of test inevitably increases. The flexibility of the 93000 Series platform means that our customers’ investments in our test platforms are protected as they can continue to use the 93000 Series platform over several generations of products.

Enabled by advanced, innovative test technology.   Our 93000 Series platform’s “tester-per-pin” architecture enabled by its ASIC-based and liquid cooled design is what makes the platform scalable, flexible and able to achieve high performance and accuracy in a small test platform footprint. Its “tester-per-pin” architecture provides for an ASIC-based test processor which tests each pin of each device, with all test processing done locally in the test processors and each test processor operating independently and in parallel to the other test processors testing the other pins of the devices. The use of high performance ASICs in the test processors is what allows the test processors to achieve high performance and test a large number of devices in parallel while being capable of fitting into a test system that occupies a relatively small footprint on the floor of the manufacturing facility.

Our use of liquid cooling technology is another key element of the 93000 Series platform’s design. The combination of the 93000 Series’ “tester-per-pin” architecture and small test platform footprint means that there is a very large number of high performance ASICs concentrated into a small amount of space. Maintaining the test system’s high performance, accuracy and reliability for sustained periods of time in real world operational conditions requires an efficient means of dissipating the considerable amount of heat generated by the high performance ASICs. To address this issue, we introduced our first liquid cooled tester in 1991 and have continued to utilize liquid cooling in the 93000 Series platform because it provides lower operating temperatures, greater system reliability, reduced operating costs, improved accuracy and speed and quieter and cooler operation than the traditional air cooling used in many of our competitors’ products. As a result, our 93000 Series systems provide our customers with a high-performance and reliable test solution which, when compared to some of our competitors’ air cooled products, utilizes a relatively small amount of space on the semiconductor test floor and is quiet and cool in its operation.

Versatest V5000 Series Platform—Flash, SRAM, DRAM and Mixed Memory Test

Our Versatest V5000 Series platform, introduced in 2004, tests flash memory, SRAM, DRAM and mixed memory devices contained in a very wide range of electronic products. It can also test multi-chip packages containing single or multiple types of memory, addressing the emerging use of MCPs to satisfy the increasing memory requirements of consumer electronics devices. Different systems are available that can be optimized for wafer test, final test or engineering development. The flexibility of this platform ensures that customers can test a number of different memory types at different stages of manufacturing, allowing them to change their mix of products without having to change test platforms.

Scalability.   Our Versatest V5000 Series platform, with its “tester-per-site” architecture, is a highly scalable test solution designed specifically for the testing of memory devices to enable highly parallel and efficient testing to lower customers’ overall cost of test and shorten customers’ time to market. Low cost of test is achieved through testing efficiency and parallelism. Testing more devices in parallel can significantly reduce cost of test, especially in high volume manufacturing, but only if the tester architecture does not result in increased test times. The Versatest Series platform’s “tester-per-site” architecture enables increased parallelism without any effect on test time, thus supporting highly parallel tests with high throughput. As a result of the scalability of our Versatest Series platforms, customers can buy test systems to meet their current exact requirements at the lowest capital cost, and then upgrade as their test requirements change.

We have three Versatest V5000 Series systems, each with a distinct purpose in semiconductor testing and with different levels of scalability depending on that purpose:

·Our Versatest V5500 Series system is a highly scalable high-volume production test system configured for final test of packaged devices, and optimized for final test of MCPs. When equipped

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with our optional Programmable Interface Matrix, it can be scaled to test up to 512 devices and up to 24,576 pins in parallel. Like our other Versatest V5000 Series platforms, the Versatest V5500 Series system performance can test up to 200 Megahertz data rates.

·Our Versatest V5400 Series system is a highly scalable high-volume production test system configured and optimized for wafer test. It can be scaled to test up to 288 devices and up to 4608 pins in parallel while the devices being tested are still in silicon wafer form. A V5400 system can be upgraded to a V5500 system at a customer’s site, thereby maintaining scalability across the product family.

·Our Versatest V5000 Series system is a full function but less expensive and lower volume Versatest test system designed for use in the research and development environment. It provides engineers a relatively inexpensive test tool for testing small numbers of devices in prototype development that provides all of the functionality of an expensive production test system and can be used to avoid the expense and inefficiency of taking a more expensive, high-volume test system out of production. Programs developed for the Versatest V5000 Series system can be quickly transferred to our Versatest V5400 and V5500 Series systems for high volume production, helping shorten customers’ time to market.

The scalability of our Versatest V5000 Series systems is enabled by a patented “tester-per-site” architecture. Designed specifically for memory testing, this architecture enables highly parallel and efficient testing of memory devices as well as a high level of scalability by utilizing a separate and independent test processor for each test site of the system. This test processor contains a dedicated set of resources, including power supplies, test pattern generators, test sequence controllers and error detection circuitry, that can be independently applied to each device under test. This independent control of each device under test ensures the flexibility of testing a wide variety of different memory types without a change in tester hardware. In addition, we believe our tester-per-site architecture is more efficient than some competitive systems that share resources across several devices under test. Competing systems that do not apply a tester-per-site architecture must test these devices sequentially, causing test times to increase compared to our parallel approach.

Flexibility.   There are fewer pure NOR and NAND flash manufacturers, and the test mix for most manufacturers now includes several different types of memory such as Flash, DRAM and SRAM. In addition, device densities are increasing and use of new test methodologies, such as RPC, DFT and BIST, is increasing. The V5000 Series platform has the ability to test Flash, DRAM, SRAM and stacked memory devices on a single platform, and can provide a wide variety of test methodologies, including RPC, DFT and BIST. This flexibility enables our customers to cost-effectively test a wide range of parts without having to change test platforms.

Enabled by advanced, innovative test technology.   Our Versatest V5000 Series system’s “tester-per-site” architecture enabled by its ASIC-based design is what makes the platform scalable, flexible and able to achieve high performance and accuracy in a small test platform footprint. The “tester-per-site” architecture of the Versatest V5000 Series system provides for an ASIC-based test processor for the testing of devices at each test site of the system. All test processing is done locally in the test processors at each test site, with each test processor operating independently and in parallel to the other test processors testing devices at the other test sites. As in the 93000 Series platform, the test processors use high performance ASICs to achieve high performance and test a large number of devices in parallel while being capable of fitting into a test system that occupies a relatively small footprint on the floor of the manufacturing facility. Through the addition of additional test sites and test processors, the Versatest V5000 Series system can be easily scaled to test more devices in parallel as customers’ requirements change, and the use of a separate and independent test processor at each site of the system means that the speed of the test will stay the same as sites are added for additional parallel testing.

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Our optional Programmable Interface Matrix, another of our advanced innovative technologies, helps to further boost the parallelism of our Versatest V5500 Series system for high volume production testing of packaged devices. Much like a telephone switching system routes callers to their destinations, the Programmable Interface Matrix routes testing resources to the individual memory or MCP that requires testing. The switching is purely electronic, resulting in a faster and more reliable resource switching than mechanical relays, with less downtime. It enables testing of up to 512 devices in parallel for complex and high-pin-count MCPs and the flash memory prevalent in mobile devices. The Programmable Interface Matrix’s 24,576 pins ensure that even highly complex memory devices can be tested with high parallelism and thus at lower cost.

Like our 93000 Series systems, our Versatest V5000 Series systems utilize liquid cooling technology that provides them with lower operating temperatures, greater system reliability, reduced operating costs, improved accuracy and speed and quieter and cooler operation than the traditional air cooling used in many of our competitors’ products. In addition to enabling our Versatest V5000 Series systems to utilize a relatively small amount of space on the semiconductor test floor and be quiet and cool in the operation compared to some of our competitors’ air cooled products, our liquid cooling technology enables the very high tester density, and hence the high parallelism of test, of our Versatest V5000 Series systems and our optional Programmable Interface Matrix.

Addressing unique challenges of multi-chip packages.   The rapid emergence of multi-chip packages, or MCPs, creates special testing challenges for memory device manufacturers in the final test of packaged devices. State-of-the-art consumer devices, especially mobile devices, continue to pack more functionality into smaller spaces. We are able to test concurrently the flash memory, SRAM and DRAM devices that are often stacked into a single multi-chip package. All of the memory types in an MCP must be tested, but each memory type requires very different test capabilities. We believe that competing test solutions providers cannot effectively or efficiently test all memory types in MCPs without multiple insertions of the devices, usually on different test systems. In these situations, the increased test time and test floor complexity can significantly increase the cost of test. The scalable “tester-per-site” architecture of our Versatest V5000 Series platform has allowed us to develop product enhancements and upgrades to enable our Versatest V5000 Series systems to test each MCPs with flash memory, SRAM and DRAM, the most common memory devices contained in MCPs, without repeated insertions, providing our customers with high tester utilization and lower cost of test. The Versatest V5000 Series platform’s scalable architecture and software tools shared across different test systems have further benefited MCP testing as programs previously created for testing single memories can be reused for testing the same type of memory on MCPs, reducing engineering time and thereby lowering overall cost of test.

Test and Application Expertise, Services and Support

Our worldwide service organization performs a wide variety of services for our customers including professional test expertise services and total system support and professional services. Professional services include value-added, proactive services such as yield optimization and test program development assistance. We deliver, on a global basis, expertise across a wide range of applications to assist our customers in quickly delivering new feature-rich products to the market. Systems support includes ongoing and reactive services such as repair, calibration and relocation as well as education and training.

We strive to provide high levels of support and service through the life-cycle of our products. To this end, generally we provide a standard one-year warranty which can be extended by our customers on an annual basis.

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Introduction of New Platform Families

We believe that our test platforms are among the most highly scalable platforms in the semiconductor test industry. At the same time, in an effort to keep our test platforms as technologically advanced as possible, we have in the past introduced and expect to introduce in the future new test platforms, such as our introduction in 1999 of the 93000 Series platform which succeeded our 83000 Series platform. We also expect that from time to time we may make upgrades to our test platforms that are so significant that upgrading older platform versions through simply replacing the test processors will not be cost effective. While these new introductions and significant upgrades give our platforms a finite lifespan as the technology in devices being tested continues to advance, we generally provide continued support for our test platforms for a number of years after we have introduced a new or upgraded test platform and believe that we offer among the most scalable test platforms in the semiconductor test industry, enabling manufacturers to purchase only the amount and performance level of hardware that they are able to use while retaining the ability to upgrade that hardware as the need arises later.

Research and Development

Our scalable platform architectures provide for operating model efficiencies such as streamlined research and development and reduced total engineering headcount. Our research and development strategy focuses on designing test solutions that lower the overall cost of test for semiconductor designers and manufacturers. We strive to design high performance, low overall cost per test semiconductor test equipment that has high throughput, scalability and flexibility and is efficient to manufacture, easy to use and simple to support.

From our history as part of Agilent, which was part of HP until its spin-off in 1999, we have a legacy of introducing new and innovative designs to market. We have a highly structured approach to maximize research and development efficiency. A group of internal advisors formulates a long-term technology plan with clear objectives. Through our direct engagement with customers, high-priority projects are identified and appropriate resources are allocated. Engineering resources are organized by area of competence to effectively develop expertise and to share technologies across product lines.

Our primary development center for SOC/SIP/high-speed memory test solutions is in Boeblingen, Germany, and our primary development center for memory test solutions is in Cupertino, California. Our test processor and ASIC development is done in Colorado for both SOC/SIP/high-speed memory and memory test solutions, where we have a center of core competency in VLSI SOC design. The R&D team has years of experience in the semiconductor test industry, with many key personnel having over 20 years of experience in semiconductor test systems design.

Our expenditures for research and development for fiscal years 2006, 2005 and 2004 were $99 million, $101 million and $105 million, representing 12.7%, 22.1% and 17.3% of net revenue in each year, respectively. As part of our separation from Agilent, we have consolidated our R&D teams in Boebligen, Germany, for our principal SOC development activities and in Cupertino, California, for our memory test development activities. We believe this will help us concentrate on our technology innovation and decrease our time to market for new products.

Sales and Support

We employ a direct worldwide sales and support model that enables us to meet strategic support commitments. Our experienced sales personnel have the knowledge to address the technical benefits as well as the economic advantages of our systems. Our sales organization is tightly integrated with our services and support organization, which allows us to better understand our customers’ needs and to tailor solutions to meet those needs. We believe an ongoing service and support business is critical to providing sustained value to customers and maintaining customer loyalty.

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We sell our products and services directly to our customers. We have established specialized sales and services teams to meet the needs of our different types of customers, including IDMs, subcontractors and fabless design companies. Our sales organization is structured to foster collaboration between us and our customers. This collaboration allows us to better address our customers’ semiconductor test needs and positions us to help IDMs find solutions to their outsourced provider requirements and to help introduce subcontractors to IDMs who may need their services. As of October 31, 2006, we had approximately 107 people in our sales organization with offices located in all of the major semiconductor manufacturing markets.

Applications engineers work as part of the sales team before a sale is made and assist customers in the use of the product after a sale is made. In the pre-sale role they provide in-depth technical communication with customers, writing complex test programs and performing demonstrations to show how our products solve specific test problems. Post-sale, our sales team assists in the creation of final test programs, and in the integration of the test cell into the customer’s environment. We believe that the quality of our applications sales force is a key differentiator in our ability to generate sales and provide customer satisfaction.

Our worldwide service organization represents approximately 33% of our total employee base. Our services organization is supported by a dedicated staff at our product development centers to address escalations when needed.

For our largest customers, we have dedicated global account managers with dedicated account teams. Account managers are responsible for both sales performance and customer satisfaction. We recognize that we must have strong, long-term customer relationships to grow our business over the semiconductor cycle. For that reason, each account manager is specifically responsible for the general relationship with the customer, including the coordination and preparation of technology roadmap exchanges. The account manager is also responsible for the support services for that account and achieving a high level of customer satisfaction.

Customers

Our customers are broadly distributed across geographic and product markets. In fiscal year 2006, one customer, ChipMos Technologies (Bermuda) Ltd., accounted for more than 10% of our net revenue. In fiscal year 2005, no single customer accounted for more than 10% of our net revenue. In fiscal year 2004, one customer, Spansion Inc., accounted for more than 10% of our net revenue.

We derive a significant percent of our net revenue from outside the North America. The following table illustrates the breakdown of our revenue by geography.

	2006			2005			2004
	($ in millions)
North America	$	246		$	124		$	170
As a percent of total net revenue	31.6		%	27.2		%	28.0		%
Europe	$	48		$	43		$	65
As a percent of total net revenue	6.2		%	9.4		%	10.7		%
Asia-Pacific, excluding Japan	$	405		$	195		$	276
As a percent of total net revenue	52.0		%	42.8		%	45.5		%
Japan	$	79		$	94		$	96
As a percent of total net revenue	10.2		%	20.6		%	15.8		%
Total net revenue	$	778		$	456		$	607

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Although we experienced strong revenues in North America in fiscal year 2006, we expect the trend of an increasing portion of our revenue coming from customers located in the Asia-Pacific region to continue as semiconductor manufacturing activities continue to concentrate in the Asia-Pacific region.

Manufacturing

Through June 2006, we relied upon two manufacturing models: a hybrid internal and contract manufacturing model for our 93000 Series products and a completely outsourced contract manufacturing model for our Versatest series products. In connection with our separation from Agilent in June 2006, we transitioned the manufacturing processes for the 93000 Series platform products that we previously conducted internally to Flextronics Telecom Services Ltd. (“Flextronics”). As a result of this transition, we now rely entirely on contract manufacturers. As of October 31, 2006, Flextronics is manufacturing our Versatest V5000 Series platform in China and our 93000 Series platform in Germany. The complete transfer of volume manufacturing of the 93000 Series platform to China is expected to occur in the first half of calendar 2007. Flextronics will continue to do limited early production runs of the 93000 Series platform in Germany. We expect this model to improve our ability to manage costs in a cyclical market, drive down inventory costs and exposure, improve our responsiveness to customer demand and place us closer to emerging markets.

We will continue to maintain direct relationships with our key component suppliers and to control procurement of critical system components. This will allow us to respond quickly to changes in market demand and assure availability of parts. Effective component procurement is also critical to product quality, manufacturing cycle time and cost. We believe that the timely availability of low-cost, quality components provided by our planning and procurements teams, coupled with the large and variable capacity of our contract manufacturers, is an effective manufacturing strategy for our cyclical market.

Our scalable platform architecture means we can reuse many component and subsystems in many different test system configurations. Component reuse helps us keep lower inventory levels, while helping us get better prices for the higher volumes of parts we buy. This is true both for the 93000 Series and the Versatest V5000 Series platforms.

Our quality assurance program focuses on continuous improvement in product quality. Engineering teams assess quality at critical manufacturing stages to identify potential problems. Manufacturing engineers work with our contract manufacturers to fine-tune the production process, improve quality and efficiency and solve problems as they arise. Customer service personnel extend the quality process into the field by monitoring the quality and reliability of systems at customer sites.

Competition

The market for semiconductor test systems is highly competitive, rapidly evolving and subject to changing technology, customer needs and new product introductions. We face substantial competition throughout the world in each of our product areas. Our primary competitors include Advantest Corporation, Credence Systems Corporation, LTX Corporation, Nextest System Corporation, Teradyne, Inc. and Yokogawa Electric Corporation. We also compete with products developed internally by our customers.

The competitive factors affecting the market for our products include:

·product performance, features and functionality;

·price;

·scalability;

·flexibility;

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·reliability, technical service and support;

·quality and availability of supporting software;

·size of installed base; and

·the level of training and customer support provided.

We believe that we compete effectively with our competitors on the basis of these factors. Our ability to remain competitive will depend to a great extent upon our ongoing performance in the areas of product development and customer support. To be successful in the future, we believe that we must respond promptly and effectively to the challenges of technical change and our competitors’ innovations by continually enhancing our product offerings.

Employees

As of October 31, 2006, we had approximately 1,500 employees, of which approximately 450 were located in Europe, approximately 510 were located in Asia and approximately 540 were located in North America. Of our total employees, approximately 315 were principally dedicated to research and development, 340 were dedicated to sales, general and administrative, 680 were dedicated to customer service, marketing, applications and services and support and 165 were dedicated to manufacturing. Effective June 1, 2006, we transferred to Flextronics approximately 85 employees who were fully dedicated to manufacturing activities in Europe. As part of Agilent’s 2005 restructuring plan, we have terminated approximately 250 employees who were located primarily in the United States, which has impacted our headcount in each of the functional areas. We consider our relationship with our employees to be good. None of our domestic employees is represented by a labor union or covered by a collective bargaining agreement, although works councils exist in various foreign jurisdictions where we have employees.

Backlog

At October 31, 2006, and 2005, Verigy’s backlog of unfilled orders for products and services were as follows:

	Year Ended October 31,
	2006		2005
	(in millions)
Products backlog	$	152	$	100
Services backlog	97		75
Total backlog	$	249	$	175

We define products backlog as systems for which we have received purchase orders which we have not yet delivered but we expect to deliver within six months of our fiscal period end. Services backlog is defined as total outstanding orders for product support and services not yet rendered. We expect 80% of our services backlog as of October 31, 2006 to be fulfilled within twelve months of our fiscal year end.

While backlog is calculated on the basis of open orders, such orders may be subject to cancellation or delay by the customer with limited or no penalty. Our backlog at any particular date, therefore, is not necessarily indicative of actual sales which may be generated for any succeeding period. Historically, our backlog levels have fluctuated based upon the ordering pattern of our customers and limitations in our manufacturing capacity.

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Intellectual Property

We do not depend on any individual patent but, instead, rely on a combination of patents, copyrights, trademarks, trade secrets, know how, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. We may be required to spend significant resources to monitor and protect our intellectual property rights. We may not be able to detect infringement and may lose our competitive decision in the market before we do so. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture market share. We often rely on licenses of intellectual property useful for our business. We cannot be sure that these licenses will be available in the future on favorable terms or at all.

Financial Information About Geographic Areas

For information on the geographic concentration of our net revenues and long-lived assets, please see note 23 “Segment and Geographic Information” of our combined and consolidated financial statements.

Investor Information

We are subject to the informational requirements of the Securities Exchange Act of 1934 (the “Exchange Act”). Therefore, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street N.E., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http: //www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

You can access our financial and certain other information at our Investor Relations website. The address is www.investor.verigy.com.

The charters of our Audit Committee, our Compensation Committee, our Nominating and Governance Committee, as well as our Standards of Business Conduct (including code of ethics provisions that apply to our principal executive officer, principal financial officer, controller and senior financial officers) are available on our website at www.investor.verigy.com under “Documents and Charters”. This information is also available to shareholders by writing to the Company at the address on the cover of this Annual Report on Form 10-K.

Item 1A.Risk Factors

A description of the risk factors associated with our business is set forth below. You should carefully consider the risks described below and the other information in this report before investing in our ordinary shares. Our business could be seriously harmed by any of these risks. The trading price of our ordinary shares could decline due to any of these risks, and you may lose all or part of your investment.

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Risks Relating to Our Business

We have undertaken a significant restructuring of our operations and continue to incur significant expenses to increase operational efficiencies.

If we are unable to successfully execute our wide-ranging cost saving initiative or if it fails to generate significant cost savings, our business, financial condition and results of operation could be materially adversely affected. We continue to incur significant expenses associate with our cost saving initiative, which affects our operations both domestically and internationally. This initiative involves a number of significant ongoing changes, including:

·changes to our employee compensation structure, as we recently introduced flexible pay structures which include a significant variable pay component based on overall company performance;

·consolidation of our operations to a fewer number of facilities;

·migration of portions of certain activities to Asia;

·migration to a completely outsourced manufacturing model; and

·establishing and stabilizing a new, free-standing IT environment in conjunction with our recent separation from Agilent.

This initiative is multi-faceted and complex. Our management will continue to have to respond to a variety of risks related to the execution of this initiative, including the loss of key employees who desire more certain compensation structures or are unwilling or unable to relocate to different locations, the operational and administrative complexity associated with transitioning to new supply chain and manufacturing processes and the inherent intricacy of installing a new IT environment. If we fail to successfully implement these initiatives in full in a timely manner, or if they fail to generate significant cost savings, our business, financial condition, results of operations and cash flows would be materially adversely affected.

Our dependence on contract manufacturers and sole source suppliers and contract manufacturers and our transition to a completely outsourced manufacturing model may prevent us from delivering our products on a timely basis.

Through June 2006, we relied upon two manufacturing models: a hybrid internal and contract manufacturing model for our 93000 Series products and a completely outsourced contract manufacturing model for our Versatest series products. In connection with our separation from Agilent in June 2006, we transitioned the manufacturing processes for the 93000 Series products that we previously conducted internally to Flextronics. As a result of this transition, we now rely entirely on contract manufacturers.

Our current reliance on third-party manufacturers gives us less control over the manufacturing process and exposes us to significant risks, especially inadequate capacity, late delivery, substandard quality and high costs. Moreover, because our products are very complex to manufacture, transitioning manufacturing activities from one location to another, or from one manufacturing partner to another, is complicated. Flextronics commenced production of our Versatest series products in China in July 2006 and assumed our manufacturing activities for the 93000 Series products in Germany in June 2006. The activities currently conducted by Flextronics in Germany are expected to be completely transitioned to China during the first half of calendar 2007. We cannot be certain that existing or future contract manufacturers will be able to manufacture our products on a timely and cost-effective basis, or to our quality and performance specifications. Should our contract manufacturers be unable to meet our manufacturing requirements in a timely manner, whether as a result of transitional issues or otherwise, our ability to ship products and to realize the related revenues when anticipated could be materially impacted.

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We rely on sole source suppliers, some of whom are relatively small in size, for many of the components we use in our products, including custom integrated circuits, relays and other electronic components. One sole source supplier recently relocated its manufacturing activities to a new facility and, in connection with this transition, has experienced significant difficulties in meeting our requirements for components. Another sole source supplier has recently substantially extended the order lead times for the components we rely upon, and such components have become difficult to source in the market. While neither of these situations had a material impact on our results for fiscal year 2006, the failure of these or other sole source suppliers to meet our requirements in a timely manner could impair our ability to ship products and to realize the related revenues when anticipated which could adversely affect our business and operating results.

Our quarterly operating results may fluctuate significantly from period to period and this may cause our share price to decline.

In the past, we have experienced, and in the future we expect to continue to experience, fluctuations in revenue and operating results from quarter to quarter for a variety of reasons, including the risk factors described in this report. As a result of these and other risks, as well as our having been previously a wholly owned subsidiary of Agilent, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance. In addition, sales of a relatively limited number of our test systems account for a substantial portion of our net revenue in any particular quarter. In contrast, our costs are relatively fixed in the short-term. Thus, changes in the timing or terms of a small number of transactions could disproportionately affect our operating results in any particular quarter. Moreover, our operating results in one or more future quarters may fail to meet the expectations of securities analysts or investors. If this occurs, we would expect to experience an immediate and significant decline in the trading price of our shares.

Our business and operating results could be harmed by the highly cyclical nature of the semiconductor industry.

Our business and operating results depend in significant part upon capital expenditures of semiconductor designers and manufacturers, which in turn depend upon the current and anticipated market demand for products incorporating semiconductors from these designers and manufacturers. Historically, the semiconductor industry has been highly cyclical with recurring periods of diminished product demand. During these periods, semiconductor designers and manufacturers, facing reduced demand for their products, have significantly reduced their capital and other expenditures, including expenditures for semiconductor test equipment and services such as those we offer. These periods of reduced product and services demand have been characterized by excessive inventory levels, cancellation of customer orders and erosion of selling prices, as well as excessive semiconductor test capacity. As a consequence, during these periods, we have experienced significant reductions in customer orders for new test equipment, fewer upgrades to existing test equipment and less demand for our test services. We have also experienced order cancellations, delays in commitments and delays in collecting accounts receivable. Furthermore, because we have a high proportion of customers that are subcontractors, which during market downturns tend to reduce or cancel orders for new test systems and test services more quickly and dramatically than other customers, any downturn may cause a quicker and more significant adverse impact on our business than on the broader semiconductor industry. In addition, although a decline in orders for semiconductor capital equipment, including test equipment, may accompany or precede the timing of a decline in the semiconductor market as a whole, any recovery in spending for semiconductor capital equipment, including test equipment, may lag any recovery by the semiconductor industry.

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We have a limited ability to quickly or significantly reduce our costs, which makes us particularly vulnerable to the highly cyclical nature of the semiconductor industry.

Historically, downturns in the semiconductor industry have affected the test equipment and services market more significantly than the overall semiconductor industry. A significant portion of our overall costs are fixed. In addition, our products require long manufacturing lead times, which require us to make material purchasing commitments from our suppliers well in advance of product sales. Because a high proportion of our costs are fixed, we have a limited ability to reduce expenses and manufacturing inventory purchases quickly in response to decreases in orders and revenues. Moreover, to remain competitive, even during downturns in the semiconductor industry or generally, we are required to maintain significant fixed costs for research and development. As a consequence, in a downturn, we may not be able to reduce our costs quickly, or by a sufficient amount, and our financial performance may suffer.

The market for semiconductor test equipment and services is highly concentrated, and we have limited opportunities to sell our test equipment and services.

The semiconductor industry is highly concentrated in that a small number of semiconductor designers and manufacturers and subcontractors account for a substantial portion of the purchases of semiconductor test equipment and services generally, including our test equipment and services. Consolidation in the semiconductor industry may increase this concentration. Accordingly, we expect that sales of our products will be concentrated with a limited number of large customers for the foreseeable future. We believe that our financial results will depend in significant part on our success in establishing and maintaining relationships with, and effecting substantial sales to, these potential customers. Even if we establish these relationships, our financial results will depend in large part on these customers’ sales and business results.

The loss of, or a significant reduction in the number of sales to, our significant customers could materially harm our business.

For fiscal year 2006, revenue from our top ten customers accounted for approximately 51.6% of our total net revenue, with one customer accounting for 10.1% of our total net revenue. In comparison, for fiscal year 2005, revenue from our top ten customers accounted for approximately 54% of our total net revenue, with no customer accounting for more than 10% of our total net revenue.

Our relationships with our significant customers, who frequently evaluate competitive products prior to placing new orders, could be adversely affected by a number of factors, including:

·a decision by our customers to purchase test equipment and services from our competitors;

·a decision by our customers to pursue the development and implementation of self-testing integrated circuits or other strategies that reduce their need for our new or enhanced test equipment;

·the loss of market share by our customers in the markets in which they operate;

·the shift by our IDM customers to fabless semiconductor models;

·our ability to keep pace with changes in semiconductor technology;

·our ability to maintain quality levels of our equipment and services that meet customer expectations;

·our ability to produce and deliver sufficient quantities of our test equipment in a timely manner; and

·our ability to provide quality customer service and support.

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Generally, our customers may cancel orders with little or no penalty. Our business and operating results could be materially adversely affected by the loss of, or any reduction in orders by, any of our significant customers, particularly if we are unable to replace that lost revenue with additional orders from new or existing customers.

If we do not maintain and expand existing customer relationships and establish new customer relationships, our ability to generate revenue growth will be adversely affected.

Our ability to increase our sales will depend in large part upon our ability to obtain orders for new test systems, enhancements for existing test systems and services from our existing and new customers. Maintaining and expanding our existing relationships and establishing new ones can require substantial investment without any assurance from customers that they will place significant orders. Moreover, if we are unable to provide new test systems, enhancements for existing test systems and services to our customers in a timely fashion or in sufficient quantities, our business will be harmed. In the past we have experienced, and in our industry it is not unusual to experience, difficulty in delivering new test equipment, as well as product enhancements and upgrades. When we encountered difficulties in the past, our customer relationships and our ability to generate additional revenue from customers were harmed. Our inability to meet the demands of customers would severely damage our reputation, which would make it more difficult for us to sell test equipment, enhancements and services to existing, as well as new, customers and would adversely affect our ability to generate revenue.

In addition, we face significant obstacles in establishing new customer relationships. It is difficult for us to establish relationships with new customers, because such companies may have existing relationships with our competitors, may be unfamiliar with our product and service offerings, may have an installed base of test equipment sufficient for their current needs or may not have the resources necessary to transition to, and train their employees on, our test equipment. Even if we do succeed in establishing new relationships, these new customers may nonetheless continue to favor our competitors, as our competitors may have had longer relationships with these customers or may maintain a larger installed base of their competing test equipment in the facilities of new customers and only purchase limited quantities from us. In addition, we could face difficulties in our efforts to develop new customer relationships abroad as a result of buying practices that may favor local competitors or non-local competitors with a larger presence in local economies than we have. As a result, we may be forced to partner with local companies in order to compete for business and such arrangements, if available, may not be achieved on economically favorable terms, which could negatively affect our financial performance.

Failure to accurately estimate our customers’ demand and plan the production of our new and existing products could adversely affect our inventory levels and our income.

Given the cyclical nature of the semiconductor industry, we cannot reliably forecast the timing and size of our customers’ orders. In order to meet anticipated demand, we must order components and build some inventory before we actually receive purchase orders. Our results could be harmed if we do not accurately estimate our customers’ product demands and are unable to adjust our purchases with market fluctuations, including those caused by the cyclical nature of the semiconductor industry. During a market upturn, our results could be materially and adversely affected if we cannot increase our purchases of components, parts and services quickly enough to meet increasing demand for our products, and during a market downturn, we could have excess inventory that we would not be able to sell, likely resulting in inventory write-offs. Either of these results could have a material adverse effect on our business, financial condition and results of operations.

Further, if we do not successfully manage the introduction of our new products and estimate customer demand for such products, our ability to sell existing inventory may be adversely affected. If demand for our new products exceeds our projections, we might have insufficient quantities of products for sale to our

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customers, which could cause us to miss opportunities to increase revenues during market upturns. If our projections exceed demand for our new products or if some of our customers cancel their current orders for our old products in anticipation of our new products, we may have excess inventories of our new products and excess obsolete inventories, which could result in inventory write-offs that would adversely affect our financial performance.

Failure to accurately predict our customers’ varying ordering patterns could adversely affect our inventory levels and our income.

Our customers tend to make large purchases of our products on an inconsistent basis, rather than smaller purchases on a consistent basis, which makes it difficult to predict the timing of customer orders. Failure to accurately predict our customers’ varying ordering patterns may cause us to experience insufficient or excess product inventories. If our competitors are more successful than us at timing new product introductions and inventory levels to customers’ ordering patterns, we may lose important sales opportunities and our business and results of operations may be harmed.

Existing customers may be unwilling to bear expenses associated with transitioning to new and enhanced products.

In order to grow our business, we need to sell enhancements and upgrades for our existing test equipment, in addition to selling new test equipment. Certain customers may be unwilling, or unable, to bear the costs of implementing enhancements and upgrades to our test equipment platforms, particularly during semiconductor industry downturns. As a result, it may be difficult to market and sell enhancements and upgrades to customers. In addition, as we introduce new enhancements and upgrades, we cannot predict with certainty if and when our customers will transition to those enhancements or upgrades. Any delay in or failure of our customers to transition to new enhancements or upgrades could result in excess inventories or our new or enhanced products, which could result in inventory write-offs that would adversely affect our financial performance.

If we do not introduce new test equipment platforms and upgrade existing test equipment platforms in a timely manner, and if we do not offer comprehensive and competitive services for our test equipment platforms, our test equipment and services will become obsolete, we will lose existing customers and our operating results will suffer.

The semiconductor design and manufacturing industry into which we sell our test equipment is characterized by rapid technological changes, frequent new product introductions, including upgrades to existing test equipment, and evolving industry standards. The success of our new or upgraded test equipment offerings will depend on several factors, including our ability to:

·properly identify customer needs and anticipate technological advances and industry trends, such as the disaggregation of the traditional IDM semiconductor supply chain into fabless design companies, foundries and packaging, assembly and test providers;

·develop and commercialize new and enhanced technologies and applications that meet our customers’ evolving performance requirements in a timely manner;

·develop and deliver enhancements and related services for our current test equipment that are capable of satisfying our customers’ specific test requirements; and

·introduce and promote market acceptance of new test equipment platforms, such as our Versatest V5500 Series system for memory testing.

In many cases, our test equipment and services are used by our customers to develop, test and manufacture their new products. We therefore must anticipate industry trends and develop new test

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equipment platforms or upgrade existing test equipment platforms in advance of the commercialization of our customers’ products. In addition, new methods of testing integrated circuits, such as self-testing integrated circuits, may be developed which would render our test equipment uncompetitive or obsolete if we failed to adopt and incorporate these new methods into our new or existing test equipment platforms. Developing new test equipment platforms and upgrading existing test equipment platforms requires a substantial investment before we can determine the commercial viability of the new or upgraded platform.

As our customers’ product requirements are diverse and subject to frequent change, we will also need to ensure that we have an adequate mix of products that meet our customers’ varying requirements. If we fail to adequately predict our customers’ needs and technological advances, we may invest heavily in research and development of test equipment that does not lead to significant revenue, or we may fail to invest in technology necessary to meet changing customer demands. Without the timely introduction of new or upgraded test equipment that reflects technological advances, our test equipment and services will likely become obsolete, we may have difficulty retaining customers and our revenue and operating results would suffer.

Our long and variable sales cycle depends upon factors outside of our control, could cause us to expend significant time and resources prior to our ever earning associated revenues and may therefore cause fluctuations in our operating results.

Sales of our semiconductor test equipment and services depend in significant part upon semiconductor designers and manufacturers upgrading existing manufacturing equipment to accommodate the requirements of new semiconductor devices and expanding existing, and adding new, manufacturing facilities. As a result, our sales are subject to a variety of factors we cannot control, including:

·the complexity of our customers’ fabrication processes, which impacts the number of our test systems and amount of our product enhancements and upgrades our customers require;

·the willingness of our customers to adopt new or upgraded test equipment platforms;

·the internal technical capabilities and sophistication of our customers, which impacts their need for our test services; and

·the capital expenditures of our customers.

The decision to purchase our equipment and services generally involves a significant commitment of capital. As a result, our test equipment has lengthy and variable sales cycles during which we may expend substantial funds and management effort to secure a sale prior to receiving any commitment from a customer to purchase our test equipment or services. Prior to completing sales to our customers, we are often subject to a number of significant risks, including the risk that our competitors may compete for the sale or that the customer may change its technological requirements. Our business, financial condition and results of operations may be materially adversely affected by our long and variable sales cycle and the uncertainty associated with expending substantial funds and effort with no guarantee that sales will be made.

Test systems that contain defects that harm our customers could damage our reputation and cause us to lose customers and revenue.

Our test equipment is highly complex and employs advanced technologies. The use of complex technology in our test equipment increases the likelihood that we could experience design, performance or manufacturing problems. If any of our products have defects or reliability or quality problems, we may, in some circumstances, be exposed to liability, our reputation could be damaged significantly and customers might be reluctant to buy our products, which could result in a decline in revenues, an increase in product returns and the loss of existing customers and the failure to attract new customers.

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We face substantial competition which, among other things, may lead to price pressure and adversely affect our sales and revenue.

We face substantial competition throughout the world in each of our product areas. Our most significant competitors historically have included Advantest Corporation, Credence Systems Corporation, LTX Corporation, Nextest Systems Corporation, Teradyne, Inc. and Yokogawa Electric Corporation. Many of our competitors have substantially greater financial resources, broader product offerings, more extensive engineering, manufacturing, marketing and customer support capabilities or a greater presence in certain countries than we do. We may have less leverage with component vendors than some of our competitors have. Also, some of our competitors have greater resources and may be more willing or able than we are to put capital at risk to win business. Price reductions by our competitors may force us to lower our prices. We also expect our current competitors to continue to improve the performance of their current products and to introduce new products, technologies or services that could adversely affect sales of our current and future test equipment and services. Additionally, current and future competitors may introduce testing technologies, equipment and services, which may in turn reduce the value of our own test equipment and services. Any of these circumstances may limit our opportunities for growth and negatively impact our financial performance.

We may face competition from Agilent in the future.

Pursuant to the intellectual property matters agreement between us and Agilent, except as described below, for a period of three years after the date in which Agilent distributes to its stockholders all of our ordinary shares that it holds, Agilent agreed not to develop, manufacture, distribute, support or service automated semiconductor test systems for providing high-volume functional test of ICs (including memory and high speed memory devices and SOCs) or SIPs, or components for such products. However, during this three-year period, Agilent may compete with us with respect to:

·products (other than automated semiconductor test systems for high-volume functional test) for providing functional test of ICs or SIPs, whether or not including parametric test (the testing of selected parameters of a device or group of devices to identify errors or flaws), design verification or engineering characterization capabilities;

·automated semiconductor test development systems (including hardware and software) that are intended to enable development of test programs and protocols for use in high-volume functional test of ICs or SIPs, whether or not such development test systems themselves are capable of providing such high-volume functional test; and

·products (other than automated semiconductor test systems for high-volume functional test) for providing parametric test, design verification, engineering characterization or functional test of: (i) wireless communications devices, such as cellular telephones or wireless networking products, whether in packaged device or module form, and whether or not implemented as an IC or SIP; (ii) modules (such as RF front-end modules) containing one or more ICs connected with other active or passive devices; and (iii) RF and higher frequency (e.g., microwave and optical) devices and components such as oscillators, mixers, amplifiers and 3-port devices, to the extent that such devices or components are in the form of an IC or SIP.

While none of these areas has provided material revenue to us in the past, nor are they expected to become areas of our focus for the near future, we can provide no assurance that the limitations contained in the intellectual property matters agreement, which was entered into in the context of a parent-subsidiary relationship and may be less favorable to us than if it had been negotiated between unaffiliated third parties, will be effective at protecting us from competition from Agilent.

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In addition, the intellectual property matters agreement permits Agilent to fulfill its obligations under contracts in existence as of March 1, 2006, even though fulfilling such obligations would otherwise have been precluded during the non-competition period and even if fulfilling such obligations would result in Agilent competing with us. This exception will allow Agilent to fulfill its obligations to a semiconductor manufacturer pursuant to which Agilent will develop and sell components to the manufacturer for use in the manufacturer’s semiconductor test systems purchased from a competitor of Verigy. While we do not believe that Agilent fulfilling these obligations will have a material effect on our business or prospects, we may in the future be less successful at selling test systems to this semiconductor manufacturer than would have been the case were the manufacturer not able to combine products from Agilent with the test systems of our competitor.

Although under the intellectual property matters agreement Agilent transferred all of the intellectual property rights Agilent held that relate exclusively to our products to us, Agilent retained and only licensed to us the intellectual property rights to underlying technologies used in both our products and the products of Agilent. Under the agreement, Agilent remains free to use the retained underlying technologies without restriction (other than as described above with respect to the three-year non-compete period).

After the three-year non-compete period, Agilent will be free to compete with any portion or all of our business without restriction, and in doing so will be free to use the retained underlying technologies. Agilent will not be permitted to use the intellectual property rights transferred to us, and licensed from us back to Agilent, to compete with us with respect to our core business of developing, manufacturing, selling and supporting automated semiconductor test systems for high-volume functional test of ICs or SIPs. Agilent will, however, be able to use such intellectual property rights to develop and sell components for such systems, including systems developed and sold by us as well as those developed and sold by our competitors. While selling components has not represented a material portion of our business in the past and is not expected to be an area of focus for the near future, our business could be adversely affected if systems offered by our competitors become more competitive as a result of Agilent supplying components for our competitors’ systems or if, by buying components from Agilent, our customers are able to delay or bypass altogether purchasing newer systems from us.

Competition from Agilent during or after the three-year non-compete period described above or other actions taken by Agilent that create real or perceived competition with us, could harm our business and operating results.

Third parties may compete with us by using intellectual property that Agilent licensed to us under the intellectual property matters agreement.

Under the intellectual property matters agreement, Agilent retained and only licensed to us the intellectual property rights to underlying technologies used in both our products and the products of Agilent. Under the agreement, Agilent remains free to license the intellectual property rights to the underlying technologies to any party, including our competitors. Any unaffiliated third party that is licensed to use such retained intellectual property would not be subject to the non-competition provisions of the intellectual property matters agreement and could compete with us at any time using the underlying technologies. The intellectual property that Agilent retained and that can be licensed in this manner does not relate solely or primarily to one or more of our products, or groups of products; rather, the intellectual property that Agilent licensed to us is generally used broadly across our entire product portfolio. Competition by third parties using the underlying technologies retained by Agilent could harm our business and operating results.

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Third parties may claim we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling our products or services.

Our industry has been and continues to be characterized by uncertain and conflicting intellectual property claims and vigorous protection and pursuit of these rights. As a result, third parties may claim that we are infringing their intellectual property rights, and we may be unaware of intellectual property rights of others that may cover some of our technology, products and services. Any litigation regarding patents or other intellectual property could be costly and time-consuming, and divert our management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements. However, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products and services.

In addition, there may be third parties who have refrained from asserting intellectual property infringement claims against our products while we were a wholly owned subsidiary of Agilent that elect to pursue such claims against us now that our separation from Agilent is complete because we no longer have the benefit of being able to counterclaim based on Agilent’s patent portfolio, and we are no longer able to provide licenses of Agilent’s patent portfolio in order to resolve such claims.

Third parties may infringe our intellectual property, and we may expend significant resources enforcing our rights or suffer competitive injury.

Our success depends in large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. If we fail to protect our intellectual property rights, our competitive position could suffer, which could harm our operating results. Our pending patent and trademark registration applications may not be allowed or competitors may challenge the validity or scope of these patent applications or trademark registrations. In addition, our patents may not provide us with a significant competitive advantage.

We may be required to spend significant resources to monitor and protect our intellectual property rights. We may not be able to detect infringement and may lose competitive position in the market before we do so. In addition, competitors may design around our technology or develop competing technologies. Furthermore, the laws of some foreign countries do not offer the same level of protection of our proprietary rights as the laws of the United States, and we may be subject to unauthorized use of our products or technologies in those countries, particularly in Asia, where we expect our business to expand significantly in the foreseeable future.

In addition, our agreements with Agilent, and in particular the intellectual property matters agreement, set forth the terms and provisions under which we received the intellectual property rights necessary to operate our business. Under our agreements with Agilent, we do not have the right to enforce against third parties intellectual property rights we license from Agilent, and Agilent is under no obligation to enforce such rights on our behalf.

Intellectual property rights are difficult to enforce in the certain countries, which may inhibit our ability to protect our intellectual property rights or those of our suppliers and customers in those countries.

Commercial law in certain countries is relatively undeveloped compared to the commercial law in the U.S. Limited protection of intellectual property is available under local law. Consequently, operating in certain countries may subject us to an increased risk that unauthorized parties may attempt to copy or otherwise obtain or use our intellectual property or the intellectual property of our suppliers, customers or

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business partners. We cannot assure you that we will be able to protect our intellectual property rights or those of our suppliers and customers or have adequate legal recourse in the event that we encounter difficulties with infringements of intellectual property under local law.

Our brand identity is still relatively new in the marketplace, which could cause our product sales to suffer, and continuing to build our brand identity will require significant amounts of time and resources.

Prior to our separation from Agilent in June 2006, we conducted our business under Agilent’s brand name. Since our separation, we have conducted our business under the “Verigy” brand name. We believe that, historically, sales of our products have benefited from the use of the “Agilent” brand name. Our customers and suppliers, as well as potential employees we are trying to recruit, may not recognize the “Verigy” brand name, which could negatively influence their business decisions concerning us. We need to continue to expend significant time, effort and resources to establish the “Verigy” brand name in the marketplace. We cannot guarantee that this effort will ultimately be successful. If our effort to establish a new brand identity is unsuccessful, our business, financial condition and results of operations may suffer.

Our executive officers and certain key personnel are critical to our business.

Our future operating results will depend substantially upon the performance of our executive officers and key personnel, some of whom are relatively new to our business. Our future operating results also depend in significant part upon our ability to attract and retain qualified management, manufacturing, technical, application engineering, marketing, sales and support personnel. Competition for qualified personnel is intense, and we cannot ensure success in attracting or retaining qualified personnel. Our business is particularly dependent on expertise which only a very limited number of engineers possess and it may be increasingly difficult for us to hire personnel over time. We operate in several geographic locations, including parts of Asia and Silicon Valley, where the labor markets, especially for application engineers, are particularly competitive. Our business, financial condition and results of operations could be materially adversely affected by the loss of any of our key employees, by the failure of any key employee to perform in his or her current position, or by our inability to attract and retain skilled employees, particularly engineers.

We may need additional financing, which could be difficult to obtain on favorable terms or at all.

In the event we need to raise additional funds, we cannot be certain that we will be able to obtain such additional financing on favorable terms, if at all. Our future capital requirements will depend on many factors, including the timing and extent of spending to support product 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, market acceptance of our products and the cyclical and seasonal demand for our products. If we issue additional equity securities, shareholders may experience additional dilution and the new equity securities may have rights, preferences or privileges senior to those of existing holders of our ordinary shares. If we incur debt, we may become subject to restrictions on how we operate our business. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products and services, take advantage of future opportunities, grow our business or respond to competitive pressures, which could materially adversely affect our business, financial condition and results of operations. In addition, our agreements with Agilent, and in particular the tax sharing agreement, may limit our ability to incur debt or sell equity securities or to obtain additional financing.

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We are in the process of implementing the governance and accounting practices and policies required of a company publicly-traded in the United States and incorporated in Singapore. Any delay in implementing such governance and accounting practices and policies could harm our business.

Prior to becoming a stand alone company, we relied on the financial resources and the administrative and operational support systems of Agilent to operate our business. In conjunction with our separation from Agilent, we have separated our assets from those of Agilent and created our own financial, administrative, operational and other support systems or contract with third parties to replace Agilent’s systems. Many of the new systems, including our enterprise resource planning (“ERP”) system, have been in effect only since the separation date. We have experienced, and expect to continue to experience periodic interruptions in our ERP system, and it may take additional time to fully implement and stabilize the ERP system as well as other support systems.

As a publicly-traded company in the United States, we are subject to many rules and regulations, including the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. We are also required to comply with the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations implemented thereunder. We are required to comply with Section 404 of the Sarbanes-Oxley Act, beginning with our fiscal year ending October 31, 2007. While we are diligently developing the systems, procedures and processes to enable us to fully meet the requirements associated with being publicly traded in the United States, we may encounter problems or delays in completing these activities. Any failure on our part to meet the requirements of operating as a publicly-traded company could jeopardize our ability to produce reliable financial statements, subject us to disciplinary proceedings by the SEC or the Nasdaq Global Select Market, cause investors to lose confidence in the accuracy and reliability of our financial reporting, or otherwise harm our business or results of operations.

Our results could be adversely affected if we do not comply with certain operating conditions agreed to with the Singapore authorities. In addition, our new legal structure could cause our effective tax rate to vary significantly from period to period, and we could owe significant taxes even during periods when we experience low operating profit or operating losses.

We have negotiated tax incentives with the Singapore Economic Development Board, an agency of the Government of Singapore, which have been approved by Singapore’s Ministry of Finance and Ministry of Trade and Industry. Under the incentives, a portion of the income we earn in Singapore during 10- to 15-year incentive periods is subject to reduced rates of Singapore income tax. The Singapore corporate income tax rate that would apply, absent the incentives, is 20%. In order to receive the benefit of the incentives, we must develop and maintain in Singapore certain functions such as procurement, financial services, order management, credit and collections, spare parts depot and distribution center, a refurbishment center and regional activities like an application development center. In addition to these qualifying activities, we must hire specified numbers of employees and maintain minimum levels of investment in Singapore. We have from 2- to 9-years to phase-in the qualifying activities and to hire the specified numbers of employees. If we do not fulfill these conditions for any reason, our incentive could lapse, our income in Singapore would be subject to taxation at higher rates, and our overall effective tax rate could be between five and ten percentage points higher than would have been the case had we maintained the benefit of the incentives.

In addition, our effective tax rate may vary significantly from period to period because, for example, we may owe significant taxes in jurisdictions other than Singapore during periods when we are profitable in those jurisdictions even though we may be experiencing low operating profit or operating losses on a consolidated basis. Our effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and the related tax rates in the jurisdictions where we operate, as well as discrete events, such as settlements of future audits. Certain combinations of these factors could cause us to owe significant taxes even during periods when we experience low income before taxes or loss before taxes.

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We sell our products and services worldwide, and our business is subject to risks inherent in conducting business activities in geographies outside of the United States.

Since we sell our products and services worldwide, our business is subject to risks associated with doing business internationally. Revenue from customers in Japan accounted for approximately 10.2%, 20.6% and 15.8% of total net revenue for fiscal years 2006, 2005 and 2004, respectively. Revenue from customers in Singapore accounted for approximately 48.3%, 39.5% and 42.7% for fiscal years 2006, 2005 and 2004, respectively, and revenue from customers in other countries in Asia accounted for approximately 3.7%, 3.3% and 2.8% of total net revenue for fiscal years 2006, 2005 and 2004, respectively. The economies of Asia have been highly volatile and recessionary in the past, resulting in significant fluctuations in local currencies. Our exposure to the business risks presented by the economies of Asia will increase to the extent that we continue to expand our operations in that region, including establishing our headquarters in Singapore and transitioning our contract manufacturing processes to Flextronics in China.

Our international activities subjects us to a number of risks associated with conducting operations internationally, including:

·difficulties in managing geographically disparate operations;

·potential greater difficulty and longer time in collecting accounts receivable from customers located abroad;

·difficulties in enforcing agreements through non-U.S. legal systems;

·unexpected changes in regulatory requirements that may limit our ability to export our software or sell into particular jurisdictions or impose multiple conflicting tax laws and regulations;

·political and economic instability, civil unrest or war;

·terrorist activities and health risks such as ‘bird flu’ and SARS that impact international commerce and travel;

·difficulties in protecting our intellectual property rights, particularly in countries where the laws and practices do not protect proprietary rights to as great an extent as do the laws and practices of the United States;

·changing laws and policies affecting economic liberalization, foreign investment, currency convertibility or exchange rates, taxation or employment; and

·nationalization of foreign owned assets, including intellectual property.

In addition, we are exposed to foreign currency exchange movements versus the U.S. dollar, particularly in the Japanese Yen. With respect to revenue, our primary exposure exists during the period between execution of a purchase order denominated in a foreign currency and collection of the related receivable. During this period, changes in the exchange rates of the foreign currency to the U.S. Dollar will affect our revenue, cost of sales and operating margins and could result in exchange gains or losses. While a significant portion of our purchase orders to date have been denominated in U.S. Dollars, competitive conditions may require us to enter into an increasing number of purchase orders denominated in foreign currencies. We incur a variety of costs in foreign currencies, including some of our manufacturing costs, component costs and sales costs. Therefore, as we expand our operations in Asia, we may become more exposed to a strengthening of currencies in the region against the U.S. dollar. We cannot assure you that any hedging transactions we may enter into will be effective or will not result in foreign exchange hedging gains or losses. As a result, we are exposed to greater risks in currency fluctuations.

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We may incur a variety of costs to engage in future acquisitions of companies, products or technologies, and the anticipated benefits of any acquisitions we may make may never be realized.

We may acquire, or make significant or minority investments in, complementary businesses, products or technologies. Any future acquisitions or investments could be accompanied by risks such as:

·difficulties in assimilating the operations and personnel of acquired companies;

·diversion of our management’s attention from ongoing business concerns;

·our potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology and rights into our products and services;

·additional expense associated with amortization of acquired assets;

·difficulty in maintaining uniform standards, controls, procedures and policies;

·impairment of existing relationships with employees, suppliers and customers as a result of the integration of new management personnel;

·dilution to our shareholders in the event we issue shares as consideration to finance an acquisition;

·difficulty integrating and implementing the accounting controls necessary to comply with regulatory requirements such as Section 404 of the Sarbanes-Oxley Act; and

·increased leverage, if we incur debt to finance an acquisition.

We cannot guarantee that we will realize any benefit from the integration of any business, products or technologies that we might acquire in the future, and our failure to do so could harm our business.

If our facilities or the facilities of our contract manufacturers were to experience catastrophic loss due to natural disasters, our operations would be seriously harmed.

Our facilities and the facilities of our contract manufacturers could be subject to a catastrophic loss caused by natural disasters, including fires and earthquakes. We and our contract manufacturers have significant facilities in areas with above average seismic activity, such as California, Japan and Taiwan. If any of these facilities were to experience a catastrophic loss, it could disrupt our operations, delay production and shipments, reduce revenue and result in large expenses to repair or replace the facility. We do not carry catastrophic insurance policies that cover potential losses caused by earthquakes.

Risks Related to Our Separation from Agilent

Our historical financial information as a business segment of Agilent may not be representative of our results as an independent public company.

The historical financial statements prior to June 1, 2006, have been derived from the combined and consolidated financial statements of Agilent and do not necessarily reflect what our financial position, results of operations or cash flows would have been had we been an independent entity during the historical periods presented. The historical costs and expenses reflected in our combined and consolidated financial statements include an allocation for certain corporate functions historically provided by Agilent, including centralized legal, accounting, tax, treasury, information technology and other corporate services and infrastructure costs, which we believe are reasonable reflections of the historical utilization levels of these services in support of our business. The historical financial information is not necessarily indicative of our future results of operations, financial position, cash flows or costs and expenses. We did not make adjustments to periods prior to our separation from Agilent to reflect many significant changes that will occur in our cost structure, funding and operations as a result of our separation from Agilent, including changes in our employee base, changes in our legal structure, potential increased costs associated with reduced economies of scale, increased marketing expenses related to establishing a new brand identity and increased costs associated with being an independent publicly traded company.

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Our tax sharing agreement with Agilent may require us to indemnify Agilent for certain tax liabilities, including liabilities that may arise in connection with a distribution of our ordinary shares by Agilent, and may limit our ability to obtain additional financing or participate in future acquisitions.

Under our tax sharing agreement with Agilent, we and Agilent agreed to indemnify one another for certain taxes and similar obligations that the other party could incur under certain circumstances. In general, under the tax sharing agreement we are responsible for taxes relating to our business that arise after our separation from Agilent.

Agilent’s distribution of our ordinary shares to its stockholders was intended by Agilent to qualify as a distribution subject to Section 355 of the Internal Revenue Code of 1986, as amended. Under our tax sharing agreement with Agilent, we are obligated to indemnify Agilent for any taxes imposed on Agilent under Section 355(e) of the Code arising as a result of our actions. If we are required to indemnify Agilent for additional taxes imposed on Agilent with respect to the distribution of our ordinary shares to its stockholders, our results of operations may be materially impaired.

We are subject to certain covenants that restrict our ability to obtain additional financing or to engage in acquisition or disposition transactions for a period of two years after the distribution.

Our ability to obtain additional financing or to engage in transactions that would result in a change in control of Verigy is limited by the intellectual property matters agreement and the tax sharing agreement that we entered into with Agilent as part of our separation. Specifically, under the intellectual property matters agreement, Agilent’s consent is required for us to transfer intellectual property rights we have licensed from Agilent, which may act as a deterrent to an acquisition of us by a third party. Under our tax sharing agreement with Agilent, for two years following the distribution, we are subject to certain covenants that are intended to ensure that the distribution of our ordinary shares by Agilent is not fully taxable to Agilent. Those covenants require us to obtain the consent of Agilent (which cannot be unreasonably withheld) before we can:

·sell assets outside the ordinary course of business for consideration in excess of $50 million (including assumption of liabilities related to such assets);

·merge or liquidate our parent company or its subsidiaries that operate our business into another company; or

·enter into any other corporate transaction that would cause us to undergo a greater than 35% change in our share ownership.

The restrictive covenants in our tax sharing agreement with Agilent restrict our ability to obtain additional financing or to engage in acquisition or disposition transactions for a period of two years after the distribution, even if the financing or transaction might be in the best interest of our shareholders. If we breach those covenants, we may incur substantial additional liabilities and may be exposed to costly and time-consuming litigation.

Any disputes that arise between us and Agilent with respect to our past and ongoing relationships could harm our business operations.

Disputes may arise between Agilent and us in a number of areas relating to our past and ongoing relationships, including:

·intellectual property and technology matters, including related non-compete provisions applicable to Agilent and us;

·labor, tax, employee benefit, indemnification and other matters arising from our separation from Agilent;

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·employee retention and recruiting;

·business combinations involving us;

·sales or distributions by Agilent of all or any portion of its ownership interest in us;

·the nature, quality and pricing of transitional services Agilent has agreed to provide us; and

·business opportunities that may be attractive to both Agilent and us.

We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.

Some of our directors and executive officers may have conflicts of interest because of their ownership of Agilent common stock, options to acquire Agilent common stock and positions with Agilent.

Some of our executive officers own Agilent common stock and options to purchase Agilent common stock. In addition, one of our directors is an executive officer of Agilent and owns Agilent common stock and options to purchase Agilent common stock. Ownership of Agilent common stock and some of our officers, ownership of Agilent common stock and options to purchase Agilent common stock by one of our directors and the presence of an executive officer of Agilent on our board of directors could create, or appear to create, potential conflicts of interest and other issues with respect to their fiduciary duties to us when our directors and officers are faced with decisions that could have different implications for Agilent than for us.

Risks Related to the Securities Markets and Ownership of Our Ordinary Shares

Our securities have a limited trading history, and the price of our ordinary shares may fluctuate significantly.

There has been a public market for our ordinary shares for a short period of time. An active public market for our ordinary shares may not develop or be sustained, which would adversely impact the liquidity and market price of our ordinary shares. The market price of our ordinary shares may fluctuate significantly. Among the factors that could affect the market price of our ordinary shares are the risk factors described in this section and other factors including:

·changes in expectations as to our future financial performance, including financial estimates or publication of research reports by securities analysts;

·strategic moves by us or our competitors, such as acquisitions or restructurings;

·announcements of new products or technical innovations by us or our competitors;

·actions by institutional shareholders; and

·speculation in the press or investment community.

We may become involved in securities litigation that could divert management’s attention and harm our business.

The stock market in general, and The Nasdaq Global Select Market and the securities of semiconductor capital equipment companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the affected companies. Further, the market prices of securities of semiconductor test system companies have been particularly volatile. These market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought

34

against that company. We may become involved in this type of litigation in the future. Such litigation, whether or not meritorious, could result in the expenditure of substantial funds, divert management’s attention and resources, and harm our reputation in the industry and the securities markets, which would reduce our profitability and harm our business.

It may be difficult for investors to affect service of process within the United States on us or to enforce civil liabilities under the federal securities laws of the United States against us.

We are incorporated in Singapore under the Companies Act, Chapter 50 of Singapore, or Singapore Companies Act. Some of our officers and directors reside outside the United States. A substantial portion of our assets is located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon us. Similarly, investors may be unable to enforce judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States against us in U.S. courts. Judgments of U.S. courts based upon the civil liability provisions of the federal securities laws of the United States are not directly enforceable in Singapore courts and are not given the same effect in Singapore as judgments of a Singapore court. Accordingly, there can be no assurance as to whether Singapore courts will enter judgments in actions brought in Singapore courts based upon the civil liability provisions of the federal securities laws of the United States.

In addition to our tax sharing and intellectual property matters agreements with Agilent, Singapore corporate law may impede a takeover of our company by a third party, which could adversely affect the value of our ordinary shares.

Under the Singapore Code on Take-overs and Mergers, generally when a person (or a group of persons acting together) acquires shares having 30% or more of the voting rights of a company or holds at least 30% but not more than 50% of the voting rights of a company and thereafter acquires in any period of six months additional shares carrying more than 1% of the voting rights, then such person is required by law to make an offer to acquire the remaining voting shares of the company.

For a limited period of time, our board of directors has general authority to issue new shares on terms and conditions and with any preferences, rights or restrictions as may be determined by our board of directors in its sole discretion.

Under Singapore law, new shares may be issued only with the prior approval of our shareholders in a general meeting. As our sole shareholder prior to our initial public offering, Agilent provided general authority to issue new shares until the earlier to occur of the conclusion of our 2007 annual general meeting or the expiration of the period within which the next annual general meeting is required to be held. Subject to the shareholder approval, the provisions of the Singapore Companies Act and our amended and restated memorandum and articles of association, our board of directors may allot and issue new shares on terms and conditions and with the rights and restrictions as they may think fit to impose. Any additional issuances of new shares by our board of directors may adversely impact the market price of our ordinary shares.

Our public shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation.

Our corporate affairs are governed by our amended and restated memorandum and articles of association and by the laws governing corporations incorporated in Singapore. The rights of our shareholders and the responsibilities of the members of our board of directors under Singapore law are different from those applicable to a corporation incorporated in the United States. Therefore, our public shareholders may have more difficulty in protecting their interests in connection with actions taken by our management, members of our board of directors or our controlling shareholder than they would as

35

shareholders of a corporation incorporated in the United States. For example, controlling shareholders in U.S. corporations are subject to fiduciary duties while controlling shareholders in Singapore corporations are not subject to such duties.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

We have entered into long term lease arrangements for our corporate headquarters in Singapore, our U.S. headquarters in Cupertino, California, and our Boeblingen, Germany facility. We have also entered into long term lease arrangements for our ASIC development office in Colorado as well as other sales and support facilities around the world.

Our corporate headquarters are located at No. 1 Yishun Avenue 7, Singapore. Our U.S. headquarters offices are located at 10100 N. Tantau Avenue, Cupertino, CA.

The following table provides certain information as to Verigy’s general offices and manufacturing facilities:

Region	Description	Principal Location	Major Activity+		Total Leased Square Footage
		·    Austin, TX		(3)(4)		18,487
		·    Burlington, MA		(3)		3,182
		·    Cupertino, CA		(1)(2)(3)(4)		100,491
Americas	6 Leased Facilities	·    Englewood, CO		(4)		3,253
		·    Ft. Collins, CO		(2)		10,900
		·    San Diego, CA		(3)		4,387
		·    Chungli, Taiwan		(2)(3)(4)		19,711
		·    Hachioji, Japan		(2)(3)		21,686
		·    Hsinchu, Taiwan		(2)		3,309
		·    Kaohsiung, Taiwan		(3)		4,985
Asia	8 Leased Facilities	·    Osaka, Japan		(3)		2,368
		·    Seoul, Korea		(3)		14,161
		·    Shanghai, China		(2)(3)		48,212
		·    Yishun, Singapore		(1)(2)(3)(4)		32,744
		·    Boeblingen, Germany		(2)(3)		162,590
		·    Grenoble, France		(3)		2,465
Europe	4 Leased Facilities	·    Milan, Italy		(3)		2,048
		·    Paris, France		(3)		1,755

+Major activities are categories as follows:

(1)Corporate Administration

(2)Research and Development

(3)Sales, Support, and Marketing

(4)Business / Call Center

We believe that all of our facilities are in good condition, are well maintained and are able to operate at present levels.

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Item 3.Legal Proceedings

We are subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our combined and consolidated financial position, results of operations, or cash flows.

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

During the fourth quarter of fiscal year 2006, there were no matters submitted to a vote of securities holders, through the solicitation of proxies or otherwise.

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PART II

Item 5.Market for the Registrant’s Common Equity, Related Shareholders Matters and Issuer Purchases of Equity Securities

Our ordinary shares are listed on The Nasdaq Global Select Market with the ticker symbol “VRGY”. For the 2006 fiscal year, The Nasdaq Global Select Market reported the high and low prices per quarter as follows:

Fiscal Year 2006	High		Low
First Quarter (ended January 31, 2006)	Not Applicable		Not Applicable
Second Quarter (ended April 30, 2006)	Not Applicable		Not Applicable
Third Quarter (ended July 31, 2006)	$	16.50	$	13.55
Fourth Quarter (ended October 31, 2006)	$	19.52	$	14.37

As of October 31, 2006, there were 37,811 shareholders of record of our ordinary shares. The closing share price for our ordinary shares on October 31, 2006, as reported by The Nasdaq Global Select Market, was $16.80 per share.

We have not paid any dividends to date, and we currently intend to retain any future income to fund the development and growth of our business. We do not anticipate paying any cash dividends in the foreseeable future.

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Item 6.Selected Financial Data

SELECTED FINANCIAL DATA

The selected financial data set forth below is derived in part from and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined and consolidated financial statements and related notes thereto included elsewhere in this report on Form 10-K. We have derived our combined and consolidated statement of operations data for the fiscal years ended October 31, 2006, 2005, and 2004, and combined and consolidated balance sheet data as of October 31, 2006 and 2005 from the audited combined and consolidated financial statements included elsewhere in this Form 10K. The combined statement of operations data for the fiscal year ended October 31, 2003 and 2002 and combined balance sheet data as of October 31, 2004, 2003, and 2002 were derived from our unaudited financial statements that are not included in this report on Form 10K. Historical results are not necessarily indicative of results to be expected for future periods and may not reflect what our financial position and results of operations would have been had we been a separate, stand-alone entity during the historical periods presented.

	Fiscal Year Ended October 31, 2006
	2006		2005			2004			2003			2002
	(in millions, except per share amounts)
Combined and Consolidated Statement of Operations Data:
Net revenue:
Products	$	646	$	355		$	501		$	452		$	407
Services	132		101			106			88			91
Total net revenue	778		456			607			540			498
Cost of sales:
Cost of products	331		228			263			233			197
Cost of services	97		88			91			76			70
Total cost of sales	428		316			354			309			267
Gross profit	350		140			253			231			231
Operating expenses:
Research and development	99		101			105			97			96
Selling, general and administrative	149		134			139			148			154
Restructuring charges	17		7			4			11			11
Separation costs	69		3			—			—			—
Total operating expenses	334		245			248			256			261
Income (loss) from operations	16		(105		)	5			(25		)	(30		)
Other income (expense), net	5		(1		)	1			2			—
Income (loss) before taxes	21		(106		)	6			(23		)	(30		)
Provision for taxes	21		13			14			5			61
Net loss	$	—	$	(119	)	$	(8	)	$	(28	)	$	(91	)
Basic and diluted net loss per share	$	—	$	(2.38	)	$	(0.16	)	$	(0.56	)	$	(1.82	)
Weighted average shares (in thousands) used in computing basic and diluted net loss per share	53,356		50,000			50,000			50,000			50,000

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	October 31,
	2006		2005		2004		2003		2002
	(in millions)
Consolidated Balance Sheet Data :
Cash and cash equivalents and short-term investments	$	300	$	—	$	—	$	—	$	—
Working capital	$	300	$	41	$	69	$	123	$	118
Total assets	$	674	$	260	$	265	$	309	$	290
Shareholders’ equity	$	389	$	87	$	119	$	169	$	158

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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Basis of Presentation and Separation from Agilent

The accompanying financial data for fiscal years 2006, 2005, and 2004 has been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. For a full understanding of our financial position and results of operations, this discussion should be read in conjunction with the combined and consolidated financial statements and related notes presented in this report on Form 10-K.

Our fiscal year end is October 31, and our fiscal quarters end on January 31, April 30 and July 31. Unless otherwise stated, all dates refer to our fiscal year and fiscal periods.

On June 16, 2006, we completed our initial public offering and became a separate stand-alone publicly-traded company and became incorporated in Singapore. Amounts included in the accompanying combined and consolidated financial statements are expressed in U.S. dollars.

Prior to June 1, 2006, we operated as part of Agilent, and not as a stand-alone company. Therefore, since Verigy had no separate existence prior to June 1, 2006, there were no financial statements prepared prior to June 1, 2006. The accompanying combined and consolidated financial statements have been derived in accordance with accounting principles generally accepted in the United State (“U.S.”). Financial statements prior to June 1, 2006, were derived from the accounting records of Agilent, using the historical basis of assets and liabilities of Verigy and differ from Agilent’s “STS” segment disclosures under SFAS 131, “Disclosure About Segments of an Enterprise and Related Information.”

Verigy and Agilent entered into a master separation and distribution agreement prior to the completion of our initial public offering that contains the key provisions relating to the separation and, Agilent’s distribution of its Verigy ordinary shares to its stockholders, which occurred on October 31, 2006. The master separation and distribution agreement describes generally the agreements and other documents that were delivered on the separation date, including the ancillary agreements. These ancillary agreements include the general assignment and assumption agreement, the tax sharing agreement, the employee matters agreement, the intellectual property matters agreement, the manufacturing trademark license agreement and the transition services agreement.

Our business generated cash from operations of $164 million during fiscal year 2006, while our business required a net investment of $74 million from Agilent for the 2005 fiscal year because our cash from operations was not sufficient to cover our operating expenses. Prior to our separation, Agilent historically used a centralized approach to cash management and financing of its operations. As such, none of the cash, cash equivalents or debt at the Agilent corporate level is reflected in our combined and consolidated financial statements prior to June 1, 2006.

Effective June 2, 2006, we entered into a $25 million short-term revolving credit facility with Agilent to allow us to fund our operations prior to the closing of our initial public offering. We have since repaid Agilent the amounts owed under this facility out of the net proceeds from our initial public offering, and the credit facility has been terminated.

Historically, we have received substantial management and shared administrative services from Agilent and have engaged in certain intercompany transactions with Agilent. Prior to our separation from Agilent, we relied on Agilent for substantially all of our operational and administrative support. The combined and consolidated financial statements include allocations of certain Agilent corporate expenses, including information technology resources and support; finance, accounting, and auditing services; real estate and facility management services; human resources activities; certain procurement activities; and treasury services, customer contract administration, legal advisory services, and central research services.

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We also historically benefited from license agreements that Agilent entered into with third parties related to intellectual property.

Management believes the assumptions and allocations underlying the combined and consolidated financial statements are reasonable and appropriate under the circumstances. The expenses and cost allocations have been determined on a basis we consider to be a reasonable reflection of the utilization of services provided or the benefit received by us during the periods presented.

The amounts recorded for these transactions and allocations are not, however, necessarily representative of the amounts that would have been incurred had we been a separate, stand-alone entity that operated independently of Agilent. Our results of operations after our separation from Agilent include costs and expenses for us to operate as a stand-alone company. In addition, costs incurred subsequent to our separation include costs for transition services provided to us by Agilent under service level agreements, and consequently, we expect future costs and expenses to be different than our historical results of operations. We expect that we will continue to incur significantly higher expenses such as audit fees, costs to maintain our corporate functions such as tax, treasury, and investor relations, and costs to comply with regulatory requirements. The results of operations do not include a full year’s impact of these costs or other costs such as those related to costs to maintaining a board of directors, internal audit department, or SEC reporting department and other costs to comply with the Sarbanes-Oxley Act and other internal control requirements. Accordingly, the combined and consolidated financial statements for these periods may not be indicative of our future results of operations, financial position or cash flows.

Business Summary

We design, develop, manufacture and sell advanced test systems and solutions for the semiconductor industry. As part of our single scalable platform strategy, we develop and offer performance and capability enhancements to our platforms as part of our product development roadmap. We offer a single platform for each of the two general categories of devices being tested: our 93000 Series platform, designed to test SOCs, SIPs and high-speed memory devices, and our Versatest V5000 Series platform, designed to test memory devices, including flash memory and multi-chip packages. We also provide a range of services that assist our customers in quickly and cost effectively delivering the innovative, feature-rich products demanded by their end users.

More than a decade ago, we introduced the concept of scalable platform architecture for semiconductor testing, and we are continuing to capitalize on the benefits of that strategy today. Our scalable platform architecture provides us with internal operating model efficiencies such as reduced research and development costs, engineering headcount, support requirements and inventory risk.

We sell our products and services directly to a wide range of customers, including integrated device manufacturers, or IDMs, test subcontractors, which includes specialty assembly, package and test companies as well as wafer foundries, and fabless design companies. We have a broad installed customer base, having sold over 1,400 of our 93000 Series systems and over 2,300 of our Versatest Series systems.

Overview of Results

In fiscal year 2006, one customer, ChipMos Technologies (Bermuda) Ltd., accounted for more than 10% of our net revenue. In fiscal year 2005, no single customer accounted for more than 10% of our net revenue. In fiscal year 2004, one customer, Spansion Inc., accounted for more than 10% of our net revenue.

We derive a significant percentage of our net revenue from outside North America. Net revenue from customers located outside of North America represented 68.4%, 72.8%, and 72.0% of total net revenue in fiscal years 2006, 2005, and 2004, respectively. Net revenue from customers located in the Asia-Pacific

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region (excluding Japan) represented 52.0%, 42.8%, and 45.5% of total net revenue in fiscal years 2006, 2005, and 2004, respectively. Net revenue from customers located in Japan represented 10.2%, 20.6%, and 15.8% of total net revenue in fiscal years 2006, 2005, and 2004, respectively. Net revenue from customers located in Singapore represented 48.3%, 39.5%, and 42.7% of total net revenue in fiscal years 2006, 2005, and 2004, respectively. Although our revenues in North America were strong in fiscal year 2006, we expect the trend of an increasing portion of our revenue coming from customers located in the Asia-Pacific region to continue as semiconductor manufacturing activities continue to concentrate in the Asia-Pacific region.

The sales of our products and services are dependent, to a large degree, on customers who are subject to cyclical trends in the demand for their products. These cyclical periods have had and will have significant impacts on our business since our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor industry. Historically, these demand fluctuations have resulted in significant variations in our results of operations. Upturns and downturns in the semiconductor industry in recent years have generally affected the semiconductor test equipment and services industry more significantly than the overall capital equipment sector. Furthermore, we sell to a variety of customers, including subcontractors. Because we sell to subcontractors, which during market downturns tend to reduce or cancel orders for new test systems and test services more quickly and dramatically than other customers, any downturn may cause a quicker and more significant adverse impact on our business than on the broader semiconductor industry. In addition, although a decline in orders for semiconductor capital equipment may accompany or precede the timing of a decline in the semiconductor market as a whole, recovery in semiconductor capital equipment spending may lag the recovery by the semiconductor industry.

In order to enhance our ability to maintain financial strength in a cyclical business environment and as part of our separation from Agilent, we initiated a restructuring plan in 2005, as part of Agilent’s 2005 restructuring plan, which involves reducing our workforce and consolidating facilities. Under the 2005 restructuring plan, we recorded a $24 million charge in the fiscal year 2006, compared to a $8 million charge in fiscal year 2005. As part of our agreements with Agilent, Agilent will pay for these restructuring costs and expenses related to the 2005 restructuring plan. We expect to record restructuring-related charges in the range of $2 to $3 million during the first half of fiscal year 2007. The anticipated reduction in our operating costs associated with headcount reductions, of approximately 300 people, and facility consolidations will be offset in part by the addition of approximately 100 people in lower cost locations where we will be continuing operations. Consequently, we expect the cumulative effect of these actions to significantly lower our cost of ongoing operations when compared to historical levels.

In addition, in connection with our separation from Agilent, we incurred separation costs such as information technology set-up costs, consulting, legal and other professional fees and other separation related costs. For fiscal year 2006, we incurred $83 million in separation costs, of which approximately $8 million were recorded in costs of sales, compared to $3 million of total separation costs in fiscal year 2005, with no expenses recorded in cost of sales. In fiscal year 2006, these separation costs were partially offset by a net curtailment and settlement gain (pertaining to Agilent’s U.S. Retirement and Post Retirement Benefit Plans) of approximately $10 million, of which $4 million was recorded in cost of sales. Also, during fiscal year 2006, we invested in a new enterprise resource planning (“ERP”) system and capitalized approximately $20 million, as well as new site set up and leasehold improvements costs for our new U.S. headquarter facilities, where we capitalized approximately $8 million. All separation-related costs which were incurred as of the separation date remained as Agilent liabilities, while separation costs incurred after the separation date are Verigy’s liabilities. We anticipate separation-related costs in the range of $2 to $3 million during the first half of fiscal year 2007.

Through June 2006, we relied upon two manufacturing models: a hybrid internal and contract manufacturing model for our 93000 Series products and a completely outsourced contract manufacturing model for our Versatest series products. In connection with our separation from Agilent in June 2006, we

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transitioned the manufacturing processes for the 93000 Series products that we previously conducted internally to Flextronics Telecom Services Ltd. (“Flextronics”). As a result of this transition, we now rely entirely on contract manufacturers. Flextronics commenced production of our Versatest series products in China in July 2006 and assumed our manufacturing activities for the 93000 Series products in Germany in June 2006. The activities currently conducted by Flextronics in Germany are expected to be transitioned to China during the first half of calendar 2007. Flextronics will continue to do limited early production runs of the 93000 Series platform in Germany. We expect this manufacturing model to improve our ability to manage costs in a cyclical market, drive down inventory costs and exposure, improve our responsiveness to customer demand and place us closer to emerging markets.

We believe that relying upon independent contract manufacturers will decrease our fixed costs and better position us to respond to changes in the demand for our products. With our selection of Flextronics as our primary independent manufacturing supplier, we are leveraging their worldwide processes, tools and infrastructure and are expanding our manufacturing in Asia, where Flextronics already has a significant capability for manufacturing complex technologies. As a result of this outsourcing arrangement, we expect to lower our fixed costs by reducing our capital investments and manufacturing equipment and by reducing the size of our manufacturing work force located in high-cost geographies. In addition, we expect to reduce our material costs by leveraging Flextronics’ supply chain expertise and securing local suppliers. As a result of these actions, we expect to have improved gross margins and a reduced level of inventory and equipment when compared to historical levels.

In connection with engaging with Flextronics as our primary contract manufacturer, Agilent, acting on our behalf, signed several asset purchase agreements with Flextronics in connection with the transfer of our manufacturing activities as well as a global manufacturing services agreement. Upon the separation, Verigy assumed all of Agilent’s rights and obligations under the agreements with Flextronics. Effective June 1, 2006, we sold to Flextronics approximately $19 million of raw material inventory and approximately $2 million of machinery and equipment for approximately net book value. In addition, we paid Flextronics $1.5 million for transition-related services, which we are recognizing as an expense ratably over the manufacturing contract period of approximately 4 years. Also, in connection with these agreements, Flextronics paid us $1.5 million on October 19, 2006, and will pay us an additional $1.5 million in the first quarter of fiscal year 2007, that we will defer and recognize ratably over the manufacturing contract period.

In connection with the transfer of our manufacturing activities to Flextronics, we transferred approximately 85 employees to Flextronics and Flextronics assumed certain pension and other employee liabilities associated with these employees. On July 14, 2006, we reimbursed Agilent approximately $7 million for payments that Agilent had made to Flextronics, on our behalf, related to future severance, pension and flexible time off liabilities associated with employees transferred to Flextronics under the various Flextronics asset purchase agreements described elsewhere in this report on Form 10-K. On September 19, 2006, we also paid Flextronics approximately $1 million for pension and flexible time off liabilities in accordance with the Flextronics agreements. Also, we have potential future obligations of approximately $2 million associated with these transferred employees. We have deferred approximately $5 million of severance costs and are recognizing them ratably over the employees’ period of service until the respective dates of the employees’ termination from Flextronics. During fiscal year 2006, we recorded $1.8 million of these charges in our cost of products.

Our third and fourth fiscal quarters tend to be our strongest quarters for new orders, while our first fiscal quarter tends to be our weakest quarter for orders. We believe that the most significant factor driving these seasonal patterns is the holiday buying season for consumer electronics products. The seasonality of our business is often masked to a significant extent, however, by the high degree of cyclicality of the semiconductor industry.

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Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our combined financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and of actions that may impact the company in the future, actual results may be different from the estimates. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies include revenue recognition, restructuring and asset impairment charges, inventory valuation, warranty, share-based compensation, retirement and post-retirement plan assumptions, valuation of goodwill and intangible assets and accounting for income taxes.

Revenue recognition.   Consistent with the SEC’s Staff Accounting Bulletin No. 104, or “SAB 104,” we recognize revenue on the sale of semiconductor test equipment when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is fixed or determinable and collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer, for products, or when service has been performed. We consider the price to be fixed or determinable when the price is not subject to refund or adjustments. We consider arrangements with extended payment terms beyond 90 days not to be fixed or determinable, unless they are secured under a letter of credit arrangement guaranteed by a reputable financial institution, and accordingly we defer such revenue until amounts become due. At the time we take an order, we evaluate the creditworthiness of our customers to determine the appropriate timing of revenue recognition. For sales or arrangements that include customer-specified acceptance criteria, including those where acceptance is required upon achievement of performance milestones or fulfillment of other future obligations, revenue is recognized after the acceptance criteria have been met. If the criteria are not met, then revenue is deferred until such criteria are met or until the period(s) over which the last undelivered element is delivered. To the extent that a contingent payment exceeds the fair value of the undelivered element, we defer the contingent payment.

Our product revenue is generated predominantly from the sales of various types of test equipment. Software is embedded in many of our test equipment products, but the software component is considered to be incidental. For revenue arrangements that include multiple elements, we recognize revenue in accordance with EITF 00-21. For products that include installation, if we have previously successfully installed similar equipment at the same customer location, product revenue is recognized upon delivery, and recognition of installation revenue is delayed until the installation is complete. Otherwise, neither the product nor the installation revenue is recognized until the installation is complete. Revenue from services includes extended warranty, customer support, consulting, training, and education services. Service revenue is deferred and recognized over the contractual period or as services are rendered to the customer. For example, customer support contracts are recognized ratably over the contractual period, while training revenue is recognized as the training is provided to the customer. In addition, all of the revenue recognition criteria described above must be met before service revenue is recognized. We use objective evidence of fair value to allocate revenue to elements in multiple element arrangements and recognize revenue when the criteria for revenue recognition have been met for each element. In the absence of objective evidence of fair value of a delivered element, we allocate revenue to the fair value of the undelivered elements and the residual revenue to the delivered elements. The price charged when an element is sold separately generally determines fair value.

Restructuring and asset impairment charges.   We recognize a liability for restructuring costs at fair value only when the liability is incurred. The three main components of our restructuring charges are workforce reductions, consolidating facilities and asset impairments. Workforce-related charges are

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accrued when it is determined that a liability has been incurred, which is generally after individuals have been notified of their termination dates and expected severance payments. Plans to eliminate excess facilities result in charges for lease termination fees and future commitments to pay lease charges, net of estimated future sublease income. We recognize charges for elimination of excess facilities when we have vacated the premises. Asset impairments primarily consist of property, plant and equipment associated with excess facilities being eliminated, and are based on an estimate of the amounts and timing of future cash flows related to the expected future remaining use and ultimate sale or disposal of the property, plant and equipment. The charges associated with consolidating facilities and asset impairment charges incurred by Agilent were allocated to Verigy to the extent the underlying benefits related to our business. These estimates were derived using the guidance of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), Staff Accounting Bulletin 100, “Restructuring and Impairment Charges” (“SAB 100”), Emerging Issues Task Force 94-3, “Liability Recognition for Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”) and lastly, SFAS No. 146 “Accounting for Exit or Disposal Activities” (“SFAS No. 146”) which was effective for exit and disposal activities initiated after December 31, 2002. If the amounts and timing of cash flows from restructuring activities are significantly different from what we have estimated, the actual amount of restructuring and asset impairment charges could be materially different, either higher or lower, than those we have recorded.

Inventory valuation.   We assess the valuation of our inventory, including demonstration inventory, on a quarterly basis based upon estimates about future demand and actual usage. To the extent that we determine that we are holding excess or obsolete inventory, we write down the value of our inventory to its net realizable value. Such write-downs are reflected in cost of products and can be material in amount. For example, we recorded a net charge of $18 million in fiscal year 2005 for excess and obsolete inventory. Our inventory assessment involves difficult estimates of future events and, as a result, additional write-downs may be required. If actual market conditions are more favorable than anticipated, inventory previously written down may be sold to customers, resulting in lower cost of products and higher income from operations than expected in that period. Excess and obsolete inventory resulting from shifts in demand or changes in market conditions for raw materials and components can result in significant volatility in our costs of products.

In our inventory valuation analysis, we also include inventory that we could be obligated to purchase from our suppliers based on our production forecasts. To the extent that our committed inventory purchases exceed our forecasted productions needs, we write down the value of those inventories by taking a charge to our cost of products and increasing our supplier liability.

Warranty.   We generally provide a one-year warranty on products commencing upon installation or delivery. We accrue for warranty costs in accordance with Statement of Financial Standards No. 5, “Accounting for Contingencies” (“SFAS No. 5”), based on historical trends in warranty charges as a percent of gross product shipments. Estimated warranty charges are recorded within cost of products at the time revenue is recognized and the liability is reported in other current liabilities on the combined balance sheet. The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost estimates. For some products we also offer extended warranties beyond one year. Costs associated with our extended warranty contracts beyond one year are expensed as incurred.

Separation costs.   Separation costs are one-time internal and external spin-off related costs, such as information technology set-up costs and consulting and legal and other professional fees.

Share-based compensation.   In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (Revised 2004) “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) addresses all forms of share-based payment (“SBP”) awards, including shares issued under employee stock purchase plans, stock options, restricted shares and stock appreciation rights. SFAS No. 123(R), which became effective for us beginning in the first quarter of fiscal

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year 2006, superseded our prior accounting for SBP awards under APB No. 25 and requires us to recognize compensation expense for all SBP awards based on fair value. In March 2005, the SEC released Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB No. 107”) relating to the adoption of SFAS No. 123(R). With respect to valuing SBP awards outstanding at the time of adoption of SFAS No. 123(R), we used the modified prospective transition method using the Black-Scholes option pricing model. Our estimate of compensation expense requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options), future forfeitures and related tax effects. We will recognize SBP compensation expense for awards issued after November 1, 2005 on a straight-line basis over the vesting period of the award. For awards issued prior to November 1, 2005 by Agilent, we will recognize SBP compensation expense based on FASB Interpretation 28 “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans an interpretation of APB Opinions No. 15 and 25,” which provides for accelerated expensing. Effective the distribution date, unvested Agilent stock options held by Verigy employees from the distribution date were terminated. All vested Agilent options held by Verigy employees at the distribution date remained as Agilent options and were not replaced with Verigy equity awards. Exercise of Agilent stock options by Verigy employees has no impact on our financial statements nor on our outstanding ordinary shares. To the extent that the Agilent options were not vested as of the distribution date, Verigy has replaced the Agilent options with new Verigy options based on the following ratio: average price of Agilent common stock on October 30, 2006 (the date prior to the distribution date), divided by the average price of Verigy ordinary shares on October 31, 2006 (the day of the distribution). Approximately 2.2 million replacement Verigy options were issued on October 31, 2006. The replacement of the Agilent options with Verigy options was accounted for as a stock option modification in accordance with FAS 123(R).

Retirement and post-retirement plan assumptions.   Retirement and post-retirement benefit plan costs are a significant cost of doing business. They represent obligations that will ultimately be settled sometime in the future and therefore are subject to estimation. Pension accounting is intended to reflect the recognition of future benefit costs over the employees’ average expected future service based on the terms of the plans and the investment and funding decisions made by us. To estimate the impact of these future payments and our decisions concerning funding of these obligations, we are required to make assumptions using actuarial concepts within the framework of U.S. GAAP. Two critical assumptions are the discount rate and the expected long-term return on plan assets. Other important assumptions include the health care cost trend rate, expected future salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover and retiree mortality rates. We evaluate these assumptions at least annually.

The discount rate is used to determine the present value of future benefit payments at each measurement date (October 31 for U.S. plans and September 30 for non-U.S. plans). The discount rate for U.S. plans was determined based on published rates for high quality corporate bonds. The discount rate for non-U.S. plans was generally determined in a similar manner. Differences between the expected future cash flows of our plans and the maturities of the high quality corporate bonds are not expected to have a material impact on the selection of discount rates. In recent years, decreasing interest rates, particularly outside the U.S., have increased our net plan costs. The increase in net plan costs has been in large part offset by a declining number of plan participants as a result of our various restructuring programs. The entire impact of declining discount rates is not recognized immediately under current accounting standards. As of October 31, 2006, delayed recognition of the impact of declining discount rates was the primary factor in approximately $16 million in unrecognized net actuarial losses for non-U.S. plans that were transferred from Agilent. These losses are being recognized over the expected average future service lives of plan participants.

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The expected long-term return on plan assets is estimated using current and expected asset allocations, as well as historical and expected returns. Declining rate of return assumptions generally result in increased pension expense while increasing rate of return assumptions generally result in lower pension expense. A one percent change in the estimated long-term return on plan assets would result in a $0.3 million impact on pension expense for our fiscal year 2006.

In connection with our separation from Agilent, Agilent transferred to us the liabilities associated with the defined benefit plans for our employees located in Germany, France, Korea, Italy and Taiwan. With the exception of Italy and France, Agilent funded these plans on June 1, 2006, based on 80% of the estimated accumulated benefit obligations as of the separation date. Verigy made no additional contributions to the retirement plans during fiscal year 2006. Effective our separation date, we put in place a new defined benefit plan for our employees in Japan as well as a new retiree medical account program for our employees in the U.S. who meet certain age and service criteria.

Effective November 28, 2006, Agilent substantially completed its obligation to fund our Germany defined benefit plans at the accumulated obligation level as of the separation date. With the exception of Italy, which is insignificant, Agilent will fund the remaining plans based on 100% of the accumulated benefit obligation level as of June 1, 2006, as soon as the actuarial valuations are completed by the end of our first quarter of fiscal 2007.

In fiscal years 2006, 2005 and 2004 we incurred expenses of $2 million, $5 million and $6 million, respectively, for our defined benefit retirement and post-retirement plans in the U.S. and $5 million, $6 million, and $6 million for the same respective periods for our non-U.S plans. We expect to incur expenses of approximately $5.6 million in fiscal year 2007 for our defined benefit retirement plans that we have in place as of October 31, 2006.

Workforce-related events such as restructurings or divestitures can result in curtailment and settlement gains or losses to the extent they have an impact on the average future working lifetime or total number of participants in our retirement and postretirement plans.

Valuation of goodwill and intangible assets.   We performed our annual goodwill impairment analysis in the fourth quarter of 2006. Based on our estimates of forecasted discounted cash flows, we concluded that we did not have any impairment at that time.

Our accounting for goodwill and purchased intangible assets complies with SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”). We test goodwill for possible impairment on an annual basis and at any other time that impairment indicators arise. Circumstances that could trigger an impairment test include but are not limited to: significant decrease in market price of an asset, significant adverse changes in the extent or use or physical condition of an asset, significant adverse change in legal or regulatory factors affecting an asset, unanticipated competition, loss of key personnel, accumulation of costs significantly in excess of expected costs to acquire or construct an asset, operating or cash flow losses (or projections of losses) that demonstrates continuing losses associated with the use of an asset, or a current expectation that more likely than not, an asset will be sold or disposed of significantly before the end of its previously estimated useful life. Purchased intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over the economic lives of the respective assets, generally three to five years.

The process of evaluating the potential impairment of goodwill and other intangibles is highly subjective and requires significant judgment. We estimate expected future cash flows then compare the carrying value including goodwill and other intangibles to the discounted future cash flows. If the total of future cash flows is less than the carrying amount of the assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Estimates of the future cash flows associated with the assets are critical to these assessments. Changes in these estimates based on changed economic conditions or business strategies could result in material impairment charges in future periods.

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Accounting for income taxes.   Although our operating results prior to our separation have been included in Agilent’s consolidated tax returns our provision for income taxes in our combined and consolidated financial statements have been determined on a separate return basis. We are required to assess the realization of our net deferred tax assets and the need for a valuation allowance on a separate return basis, and exclude from that assessment any utilization of those losses by Agilent. This assessment requires that our management make judgments about benefits that could be realized from future taxable income, as well as other positive and negative factors influencing the realization of deferred tax assets. Due to the losses we incurred in the U.S. and Japan, prior to fiscal year 2003, we recorded a valuation allowance against any net deferred tax assets in these jurisdictions. Until our separation, we maintained a full valuation allowance in these jurisdictions until sufficient positive evidence exists to support reversal of the valuation allowance.

We did not retain any deferred tax assets and liabilities related to temporary differences, net operating losses and credit carryforwards from Agilent. We did, however, retain approximately $4 million of prepaid tax assets upon our separation. As a result, for periods after June 1, 2006, our deferred tax assets and liabilities are based on temporary differences between the book and tax basis of the net assets that were transferred in connection with our separation from Agilent and our operating activities beginning as of June 1, 2006.

Our effective tax rate varies based on a variety of factors, including overall profitability, the geographical mix of income before taxes and the related tax rates in the jurisdictions where we operate, as well as discrete events, such as audit settlements. Certain combinations of these factors could cause us to owe significant taxes (and to have high effective tax rates) during periods when we experience low operating profit or operating losses. Conversely, we expect to realize more favorable effective tax rates as our profitability increases. We will also be subject to audits and examinations of our tax returns by tax authorities in various jurisdictions, including the Internal Revenue Service. We will regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Foreign Currency

Our revenue, costs and expenses, and monetary assets and liabilities are exposed to changes in foreign currency exchange rates as a result of our global operating and financing activities. In the past, we experienced some fluctuation within individual lines of the combined and consolidated statement of operations and balance sheet as Agilent’s hedging strategy was not designed to offset the currency movements in each category of revenue, expenses, monetary assets and liabilities.

Prior to our separation from Agilent, gains or losses associated with Agilent’s derivative instrument contracts had been allocated to us. As such, the historical results of our business prior to June 1, 2006, reflected the hedging program in place at Agilent. Since our separation, we have implemented a hedging strategy that mitigates currency exposures on certain balance sheet positions. We have not yet implemented a hedging program that mitigates our currency exposures on our income statement and are currently evaluating the magnitude and value-at-risk of our net currency exposures. We do not use derivative financial instruments for speculative or trading purposes.

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Results of Operations

The following table sets forth certain operating data as a percent of net revenue for the periods presented.

	Year Ended October 31,
	2006		2005		2004
Net revenue:
Products	83.0	%	77.9	%	82.5	%
Services	17.0		22.1		17.5
Total net revenue	100.0		100.0		100.0
Cost of sales:
Cost of products	42.5		50.0		43.3
Cost of services	12.5		19.3		15.0
Total cost of sales	55.0		69.3		58.3
Gross margin	45.0		30.7		41.7
Operating expenses:
Research and development	12.7		22.1		17.3
Selling, general and administrative	19.2		29.4		22.9
Restructuring charges	2.1		1.5		0.7
Separation costs	8.9		0.7		0.0
Total operating expenses	42.9		53.7		40.9
Income (loss) from operations	2.1		(23.0	)	0.8
Other income (expense), net	0.6		(0.2	)	0.2
Income (loss) before income taxes	2.7		(23.2	)	1.0
Provision for income taxes	2.7		2.9		2.3
Net loss	0.0	%	(26.1	)%	(1.3	)%

Net Revenue

	Year Ended October 31,						2006 over 2005			2005 over 2004
	2006		2005		2004		Change			Change
	(in millions)
Net revenue from products	$	646	$	355	$	501		82.0	%		(29.1	)%
Net revenue from services	132		101		106			30.7	%		(4.7	)%
Total net revenue	$	778	$	456	$	607		70.6	%		(24.9	)%

Our revenues by geographic region for fiscal years 2006, 2005 and 2004 are as follows:

	Year Ended October 31,									2006 over 2005			2005 over 2004
	2006			2005			2004			Change			Change
	($ in millions)
North America	$	246		$	124		$	170			98.4	%		(27.1	)%
As a percent of total net revenue	31.6		%	27.2		%	28.0		%
Europe	$	48		$	43		$	65			11.6	%		(33.8	)%
As a percent of total net revenue	6.2		%	9.4		%	10.7		%
Asia-Pacific, excluding Japan	$	405		$	195		$	276			107.7	%		(29.3	)%
As a percent of total net revenue	52.0		%	42.8		%	45.5		%
Japan	$	79		$	94		$	96			(16.0	)%		(2.1	)%
As a percent of total net revenue	10.2		%	20.6		%	15.8		%
Total net revenue	$	778		$	456		$	607			70.6	%		(24.9	)%

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Net Revenue.   Net revenue is derived from the sale of products and services and is adjusted for returns and allowances, which historically have been insignificant. Our product revenue is generated predominantly from the sales of our test equipment products. Revenue from services includes extended warranty, customer support, consulting, training and education activities. Service revenue is recognized over the contractual period or as services are rendered to the customer.

Net revenue for fiscal year 2006, was $778 million, an increase of $322 million, or 70.6%, from the $456 million achieved in fiscal year 2005. Net product revenue for fiscal year 2006, was $646 million, an increase of $291million, or 82%, from fiscal year 2005. The increase in net product revenue was primarily a result of a higher volume of sales enabled by increased overall demand for our products. Net product revenue from our SOC/SIP/high-speed memory test systems increased by $175 million, or 65.5%, with most of the sales being of the enhanced version of our 93000 Series platform. Continued customer demand for our 93000 Series platform increased our penetration in a breadth of applications, from next generation graphics and wireless gaming, to high-end SOC applications and digital consumer applications as well as SOC solutions with RF capabilities. During the fourth quarter of fiscal 2006, we experienced some weakness in demand for our SOC/SIP/high-speed memory test systems, particularly from sub-contractors. As a result, a higher portion of our net revenue during the latter part of fiscal 2006 has come from our IDM customers. Sales of our memory test systems also contributed to the net product revenue increase, with net product revenue from our memory test systems increasing by $116 million, or 131.8%. Substantially all of these sales were of the enhanced version of our Versatest V5000 Series platform, which was introduced in late fiscal year 2004. This demand was primarily a result of strong sales of flash memory devices as a result of greater demand for hand-held consumer products, as well as expansion of our addressable markets into NAND flash and flash final test. Service revenue for fiscal year 2006, accounted for $132 million, or 17.0% of net revenue, compared to $101 million, or 22.1% of net revenue for fiscal year 2005. The increase in service revenue is attributed to our growing installed base and increased services associated with a strong demand for products at the end of fiscal year 2006.

Net revenue in fiscal year 2005 was $456 million, a decrease of $151 million, or 24.9%, from the $607 million achieved in fiscal year 2004. Net product revenue in fiscal year 2005 was $355 million, a decrease of $146 million, or 29.1%, from the $501 million achieved in fiscal year 2004. The decrease in overall and product revenue in fiscal year 2005 was due in large part to weakness in the semiconductor industry which resulted in under-utilization of the installed test equipment and a decline in spending on new test equipment, particularly as the weakness in the semiconductor industry that began towards the end of fiscal year 2004 continued into the first half of fiscal year 2005. Product revenue was also adversely affected by delayed customer purchases in anticipation of our enhanced product platforms. This decrease was partially offset by the expansion of our addressable market into new markets, including NAND flash. Services revenue for fiscal year 2005 accounted for $101 million, or 22.1% of net revenue, compared to $106 million, or 17.5% of net revenue, for fiscal year 2004. Services revenue tends to rise and fall in direct relation to product revenue although services revenue tends to show lower volatility than product revenue due to services being provided over time.

We derive a significant percent of our net revenue from outside of North America. Net revenue from customers located outside of North America represented 68.4%, 72.8%, and 72.0% of total net revenue in fiscal years 2006, 2005, and 2004, respectively. Net revenue in North America was higher in fiscal year 2006, compared to fiscal year 2005, primarily due to increased sales to key IDM customers for both our SOC/SIP/high-speed memory and memory test systems in the U.S. The prior trend away from the North American market was largely due to general weakness in the North American market which began in 2004. Despite the recent rebound in sales to the North American market, we expect the general trend of increasing sales in the Asia Pacific region to continue as semiconductor manufacturing activities continue to concentrate in that region.

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Net revenue from customers located in the Asia-Pacific region (excluding Japan) represented 52.0%, 42.8%, and 45.5% of total net revenue in fiscal years 2006, 2005, and 2004 respectively. Net revenue from customers located in Japan represented 10.2%, 20.6%, and 15.8% of total net revenue in fiscal years 2006, 2005, and 2004, respectively. The year-over-year percentage decreases in net revenue from Japan and increases in net revenue from the Asia-Pacific region (excluding Japan) is due to continued outsourcing to contract manufacturers who are located in the Asia-Pacific region (excluding Japan).

Cost of Sales

Cost of Products

	Year Ended October 31,									2006 over 2005			2005 over 2004
	2006			2005			2004			Change			Change
	($ in millions)
Cost of products	$	331		$	228		$	263			45.2	%		(13.3	)%
As a percent of product revenue	51.2		%	64.2		%	52.5		%

Cost of Products.   Cost of products consists primarily of manufacturing materials, outsourced manufacturing costs, direct labor, manufacturing and administrative overhead, warranty costs and provisions for excess and obsolete inventory, partially offset, when applicable, by benefits from sales of previously written-down inventory.

The increase in cost of products in fiscal year 2006, compared to fiscal year 2005, was directly related to the increase in products shipped in 2006. The decrease in cost of products as a percent of net product revenue, compared to fiscal year 2005, was a result of higher revenue, higher margins from both our product lines, less inventory write-offs for discontinued products as well as our continued progress in moving to our new manufacturing model. This decrease was partially offset by higher performance-based variable pay costs in fiscal year 2006. Excess and obsolete inventory-related charges in fiscal year 2006 were $18 million compared to inventory-related charges of $25 million in fiscal year 2005. In addition, we sold previously written down inventory of $11 million and $7 million in fiscal years 2006 and 2005, respectively. The sales of previously written down inventory reduced cost of products as a percentage of product revenue by approximately 0.9 and 1.3 percentage points for fiscal years 2006 and 2005, respectively.

Our cost of products also included approximately $7 million of restructuring charges in fiscal year 2006, compared to approximately $1 million in fiscal year 2005. Separation costs, net of curtailment and settlement gains, were $4 million in fiscal year 2006 and insignificant for fiscal year 2005. Our cost of products also included approximately $1.7 million of SFAS 123R share-based compensation expense in fiscal year 2006, compared to no such charges for fiscal year 2005. As of October 31, 2006, we held inventory that was previously written down by $29 million and is primarily composed of component raw material. We continue to dispose of the remaining inventory on a recurring basis.

The decrease in cost of products in fiscal year 2005, compared to fiscal year 2004, was directly related to the decrease in products shipped in 2005. The increase in cost of products as a percent of net product revenue in fiscal year 2005, compared to fiscal year 2004, was a result of aggressive price discounting for our legacy products as well as higher inventory write-offs for discontinued products. Excess and obsolete inventory-related net charges in 2005 were $18 million, comprised of a $25 million charge partially offset by $7 million in sales of previously reserved inventory, compared to inventory-related net charges of $2 million in fiscal year 2004, comprised of a $3 million charge partially offset by $1 million in sales of previously reserved inventory. Our cost of products also included $1 million of restructuring charges in 2005 compared to $1 million in 2004.

Our cost of products in absolute amount are expected to increase or decrease with revenue. As a percent of net product revenue, these costs will vary depending on a variety of factors, including the mix of

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system configurations in a particular period, competitive and other pressures on pricing and our ability to manage inventory levels to avoid excess and obsolete inventory charges. In order to mitigate the risk and to manage our costs through the peaks and valleys of the semiconductor industry, we are further streamlining our cost structure by reducing our fixed costs and adding more flexibility to our manufacturing model through the outsourcing of the majority of our manufacturing. We believe our efforts will provide us with the flexibility to respond more rapidly to changes in industry conditions and to better capitalize on market opportunities during market upturns, and will provide us with more consistent cost of products.

Cost of Services

	Year Ended October 31,									2006 over 2005			2005 over 2004
	2006			2005			2004			Change			Change
	($ in millions)
Cost of services	$	97		$	88		$	91			10.2	%		(3.3	)%
As a percent of services revenue	73.5		%	87.1		%	85.8		%

Cost of Services.   Cost of services includes cost of field service and support personnel, spare parts consumed in service activities and administrative overhead allocations.

The increase in cost of services in dollars in fiscal year 2006, compared to fiscal year 2005, was primarily due to higher service revenue being generated from product shipments. Cost of services as a percent of service revenue was 73.5% in fiscal year 2006, compared to 87.1% in fiscal year 2005. The improvement in the cost of services margin reflects better utilization of service personnel as our installed base increased as well as the benefit of the improved reliability and quality of our current product offering. Our cost of services also included approximately $0.4 million of restructuring charges in fiscal year 2006, compared to no such charges in fiscal year 2005 and approximately $0.2 million of SFAS 123R share-based compensation expense in fiscal year 2006, compared to no such charges for fiscal year 2005.

The decrease in cost of services in dollars in fiscal year 2005 compared to fiscal year 2004 was primarily due to less service revenue being generated from product shipments. Also, lower costs of service driven by improvements in product quality were more than offset by expenditures we made in application development resources through the downturn in order to capitalize on future upturns.

As a percent of service revenue, cost of services will vary depending on a variety of factors, including the effect of price erosion, the reliability and quality of our products and our need to maintain customer service and support centers worldwide.

Operating Expenses

Research and Development Expenses

	Year Ended October 31,									2006 over 2005			2005 over 2004
	2006			2005			2004			Change			Change
	($ in millions)
Research and development	$	99		$	101		$	105			(2.0	)%		(3.8	)%
As a percent of net revenue	12.7		%	22.1		%	17.3		%

Research and Development.   Research and development (“R&D”) expense includes costs related to:

·salaries and related compensation expenses for research and development and engineering personnel;

·materials used in R&D activities;

·outside contractor expenses;

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·depreciation of equipment used in R&D activities;

·facilities and other overhead and support costs for the above; and

·effective fiscal year 2006, share-based compensation.

R&D costs have generally been expensed as incurred.

Research and development expense declined slightly in absolute dollars in fiscal year 2006, compared to fiscal year 2005, primarily due to lower allocated cost from Agilent prior to our separation as well as our continued progress in lowering our post-separation cost structure partially offset by higher performance-based variable pay expenses. R&D expenses decreased significantly as a percent of net revenue in fiscal year 2006, compared to fiscal year 2005, primarily due to the increase in revenue despite higher performance-based variable pay expenses and $1.3 million of share-based compensation expense. We believe that we need to maintain a significant level of research and development spending in order to remain competitive and, as a result, our research and development expenses have varied only modestly in dollars but vary more significantly as a percent of revenue. As part of our separation from Agilent, we have consolidated our R&D teams in Boebligen, Germany, for our principal SOC developments and in Cupertino, California, for our memory test products. We believe this will help us concentrate on our technology innovation and decrease our time to market with new products.

R&D expense declined slightly in dollars in fiscal year 2005 compared to fiscal year 2004 reflecting a slight decrease in R&D activity in fiscal year 2005 following the successful release of updated versions of our products in late fiscal year 2004 and the beginning of fiscal year 2005. R&D expense increased as a percent of net revenue in fiscal year 2005 due to our declining revenue level.

Selling, General and Administrative Expenses

	Year Ended October 31,
	2006			2005			2004			2006 over 2005 Change			2005 over 2004 Change
	($ in millions)
Selling, general and administrative	$	149		$	134		$	139			11.2	%		(3.6	)%
As a percent of net revenue	19.2		%	29.4		%	22.9		%

Selling, General and Administrative.   Selling, general and administrative (“SG&A”) expense includes costs related to:

·salaries and related expenses for sales, marketing and applications engineering personnel;

·sales commissions paid to sales representatives and distributors;

·outside contractor expenses;

·other sales and marketing program expenses;

·travel and professional service expenses;

·salaries and related expenses for administrative, finance, human resources, legal and executive personnel; and

·facility and other overhead and support costs for the above.

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Selling, general and administrative expenses increased 11.2% to $149 million in fiscal year 2006, compared to fiscal year 2005. This increase was a result of share-based compensation expenses that are now being recorded in accordance with SFAS 123R, higher performance-based variable pay expenses, higher commission costs on increased sales and salary increases. These increases were partially offset by cost savings from lower IT and infrastructure costs. SG&A expenses included approximately $7.2 million of share-based compensation expenses in fiscal year 2006, compared to no such expenses for fiscal year 2005.

The decrease in SG&A expense in dollars in fiscal year 2005 compared to fiscal year 2004 was primarily due to reduced facilities and IT costs, as well as cost control efforts implemented in light of our declining revenue. During the market downturn, we maintained our spending in our sales and support team to be positioned to accelerate the roll-out of enhanced versions of our products.

In general, we believe our SG&A expenses will decrease in absolute amount compared to prior periods due to our efforts to streamline our infrastructure and consolidate excess facilities. The expected savings realized from our cost reduction efforts will be partially offset by incremental costs associated with operating as a stand-alone public company, including professional fees such as legal, regulatory and accounting compliance costs that we will incur and share-based compensation expenses that are now being recorded in accordance with SFAS 123R. SG&A expenses can fluctuate due to changes in commission expenses which are tied to changes in sales volume and customer mix.

Restructuring Charges

In fiscal year 2005, Agilent launched a new restructuring program and as part of Agilent’s 2005 restructuring plan, we initiated a plan, to further reduce operational costs, primarily through closing, consolidating and relocating some sites and reducing and realigning our workforce. Under this plan, we took a $24 million charge in fiscal year 2006 and an $8 million charge in fiscal year 2005. Overall, we reduced our workforce by approximately 250 people since October 31, 2005, and added approximately 100 people in certain geographies, ending with approximately 1,500 employees as of October 31, 2006.

In fiscal year 2004, we recorded $5 million in restructuring charges associated with restructuring programs that were initiated by Agilent prior to the 2005 restructuring plan. Those programs were designed to reduce costs and expenses for support services, such as finance information technology, and workplace services.

A summary of the statement of operations impact of the charges resulting from all restructuring plans for fiscal years ended October 31, 2006, 2005 and 2004 is shown below:

	Year Ended October 31,
	2006			2005			2004
	(in millions)
Restructuring charges (included in cost of sales)		$	7		$	1		$	1
Restructuring charges (included in operating expenses)		17			7			4
Total restructuring charges		$	24		$	8		$	5

Summary of Flextronics-related restructuring charges

In connection with the transfer of our manufacturing activities to Flextronics, we transferred approximately 85 employees to Flextronics, and Flextronics assumed certain pension and other employee liabilities associated with these employees. On July 14, 2006, we reimbursed Agilent approximately $7 million for payments that Agilent had made to Flextronics, on our behalf, related to future severance, pension and flexible time off liabilities associated with employees transferred to Flextronics under the various Flextronics asset purchase agreements described elsewhere in this report on Form 10-K. On September 19, 2006, we also paid Flextronics approximately $1 million for pension and flexible time off

55

liabilities in accordance with the Flextronics agreements. Also, we have potential future obligations of approximately $2 million associated with these transferred employees. We have deferred approximately $5 million of severance costs and are recognizing them ratably over the employees’ period of service until the respective dates of the employees’ termination from Flextronics. During fiscal year 2006, we recorded $1.8 million of these charges in our cost of products.

See Note 15 “Restructuring and Asset Impairment” of the combined and consolidated financial statements for a description of the restructuring and asset impairment activity.

Separation Costs

The following table presents the components of separation costs for fiscal years 2006, 2005 and 2004, respectively.

	Year Ended October 31,
	2006				2005			2004
	(in millions)
Separation costs (included in cost of sales)		$	8			$	—		$	—
Separation costs (included in operating expense)		75				3			—
Total of separation costs		83				3			—
Net curtailment and settlement gains (included in costs of sales)		(4		)		—			—
Net curtailment and settlement gains (included in operating expenses)		(6		)		—			—
Net separation costs		$	73			$	3		$	—

In connection with our separation from Agilent, we incurred one-time internal and external separation costs, such as information technology set-up costs and consulting and legal and other professional fees.

For fiscal year 2006, we incurred $83 million in separation costs, of which approximately $8 million was recorded in costs of sales. These expenses were partially offset by a net curtailment and settlement gain of approximately $10 million which pertained to Agilent’s U.S. Retirement Plans and Agilent’s Post Retirement Benefit Plan. These net curtailment and settlement gains which resulted from the separation of our business from Agilent and the significant workforce reductions we incurred during fiscal year 2006 were recorded by Agilent in accordance with SFAS No. 88 and were pushed down to our business. For fiscal year 2005, we incurred $3 million in separation costs and no expenses were recorded in costs of sales.

All separation-related costs which were incurred up to the separation date, approximately $22 million, was Agilent’s responsibility, and all separation-related costs incurred after the separation date is our responsibility. We anticipate separation-related costs in the range of $2 to $3 million during the first half of fiscal year 2007.

Provision for Income Taxes

	Year Ended October 31,
	2006			2005			2004
	(in millions)
Provision for income taxes		$	21		$	13		$	14

We recorded income tax provisions of $21 million, $13 million and $14 million for fiscal years ended 2006, 2005 and 2004, respectively. Through June 1, 2006, Verigy’s income tax expense reflected amounts based on Agilent’s consolidated tax profile, thus our income tax expense for the first seven months consisted of allocated expense from Agilent. Since our separation from Agilent on June 1, 2006, our tax expense is based on our new business model and tax status in the countries where we do business.

56

As of October 31, 2006, we had $56 million of deferred tax assets due to temporary differences between the book and tax basis of the net assets which were acquired upon our separation from Agilent. As of October 31, 2005, we had net deferred tax assets of $10 million since we had recorded full valuation allowances in the United States and Japan against all deferred tax assets due to accumulated losses in successive years in those jurisdictions. Upon our separation from Agilent, we did not retain any pre-separation deferred tax assets or liabilities which had resulted from historical temporary differences, net operating losses and credit carryforwards. We did, however, retain approximately $4 million of prepaid tax assets upon our separation.

Going forward, our effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and the related tax rates in the jurisdictions where we operate, completion of separation, restructuring and other one-time charges, as well as discrete events, such as settlements of future audits. We will be subject to audits and examinations of our tax returns by tax authorities in various jurisdictions, including the Internal Revenue Service. We will regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

We will be subject to audits and examinations of our tax returns by tax authorities in various jurisdictions, including the Internal Revenue Service. We will regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Financial Condition

Liquidity and Capital Resources

As of October 31, 2006, we had $300 million in cash and cash equivalents. This cash balance was a result of our net proceeds from our initial public offering in June 2006 of approximately $121 million, a one-time payment Agilent made to us of $19 million, the amount by which the aggregate net proceeds of our initial public offering were less than $140 million and net cash generated from our operating activities. We also received additional cash of approximately $21 million in fiscal year 2006 from the sale of raw material inventory and property, plant and equipment associated with the transition of our manufacturing activities to Flextronics.

Prior to June 1, 2006, Agilent used a centralized approach to cash management and financing of its operations. As such, transactions relating to our business prior to June 1, 2006, were accounted for through the Agilent net invested equity account for our business. Accordingly, none of the cash, cash equivalents or debt at the Agilent corporate level had been assigned to our business in the historical combined and consolidated financial statements prior to June 1, 2006.

Net Cash Provided By (Used in) Operating Activities

Net cash provided by operating activities was $164 million in fiscal year 2006 compared to $74 million cash used for operating activities in fiscal year 2005. The significant net cash generation in fiscal year 2006, compared to fiscal year 2005, was primarily due to our breakeven position in fiscal year 2006 versus a net loss of $119 million in fiscal year 2005. In addition, an increase in our accounts payable and payables to Agilent of $85 million and net liabilities retained by Agilent of $82 million, and a $16 million increase in deferred revenue contributed to the higher cash generation on fiscal year 2006. Also, in fiscal year 2006, we had non-cash charges of $18 million from inventory write-offs, $10 million of non-cash compensation costs (FAS 123R), and $9 million in depreciation expense. These impacts were partially offset by a $41 million increase in our accounts receivable, $9 million decrease in income taxes payable, and $42 million decrease in the net change of current assets and accrued liabilities. Also, in fiscal year 2006, we had a non-cash net $10 million curtailment and settlement gain.

57

Cash used for operating activities was $74 million in fiscal year 2005, compared to cash generated from operating activities of $48 million in fiscal year 2004. Operating activities during fiscal year 2005 resulted in cash usage of $74 million due to our net loss of $119 million, working capital used for increased accounts receivable of $18 million and inventory of $10 million, offset by depreciation expense of $6 million that did not require cash, and an increase in other assets and liabilities of $23 million and an increase in deferred revenue of $10 million. Restructuring payments included net cash payments of $4 million and $1 million, during fiscal years 2005, and 2004, respectively.

Net Cash Used in Investing Activities

Net cash used in investing activities for the fiscal year 2006 was $36 million, $22 million higher than the $14 million investment for the fiscal year 2005. The $36 million investment in the fiscal year 2006 is comprised of approximately $20 million for the new ERP and IT infrastructure set-up costs, $10 million relating primarily to capital expenditures for test and computer equipment, office furniture as well as new research and development equipment for use in product and application development and approximately $5 million for new site set-ups as well as leasehold improvements.

Net cash used in investing activities for fiscal year 2005 was $14 million, compared to $5 million in fiscal year 2004. The $9 million increase in 2005 is primarily due to increased expenditures for test and computer equipment, office furniture as well as new research and development equipment for use in product and applications development.

Net Cash Provided by (Used in) Financing Activities

In June 2006, we completed our initial public offering of 8.5 million ordinary shares at a price of $15 per share which, less underwriting discount and commission, resulted in aggregate net proceeds of approximately $119 million. On July 6, 2006, the underwriters of the initial public offering exercised a portion of their over-allotment option, which resulted in the issuance of additional 151,559 shares and generated approximately $2 million in net proceeds. In addition, Agilent made a payment to us of $19 million pursuant to the master separation agreement, the amount by which the aggregate net proceeds from our initial public offering were less than $140 million.

Net cash provided by financing activities for the fiscal year 2006 was $173 million compared to cash provided by Agilent to us of $88 million for fiscal year 2005. In fiscal year 2006, the $173 million is primarily comprised of $121 million of initial public offering proceeds, $19 million of capital contributions from Agilent plus additional cash infusion from Agilent of $41 million that our business required prior to our separation.

On June 16, 2006, we used a part of our initial public offering proceeds to repay Agilent $25 million plus accrued interest that we had borrowed from Agilent under a short-term revolving credit facility that we entered into with Agilent on June 2, 2006. This credit facility has been terminated as of October 31, 2006.

On October 1, 2006, we completed the organizational structure of our China legal entity as well as the purchase of the net assets of our China operations from Agilent, which were valued at approximately $14 million.

Net cash provided by Agilent for fiscal year 2005 was $88 million compared to $43 million cash returned to Agilent in fiscal year 2004. In fiscal year 2005 our business required cash infusion from Agilent because our cash from operations was not sufficient to cover our operating expenses. In fiscal year 2004, a positive cash flow from our operating activities, coupled with an improved working capital position, enabled us to return $43 million cash to Agilent.

58

Other

For up to two years following our separation from Agilent, Agilent will continue to provide services and access to resources necessary for our operations. In general, these services and resources include facilities management, site information technology infrastructure, use of various applications and support systems, as well as employee related services for transitional employees remaining with Agilent. Under the transition services agreement, Verigy has the ability to negotiate with Agilent for the provision of additional transition services not set forth in the agreement, which additional services will generally be subject to the provisions of the agreement. The agreement will terminate, and Agilent will have no obligation to provide any further transition services to Verigy, two years after the separation date. Since our separation, our total transition services costs from Agilent were approximately $38 million, of which approximately $8 million was capitalized. We expect that the majority of transition services provided by Agilent will end in fiscal year 2007, for an additional cost to us of approximately $4 million to $6 million. In all cases, the charges for these interim services are generally intended to allow Agilent to recover the cost of providing such services plus an appropriate return on such services, which, consistent with Agilent’s intercompany pricing practices, will generally be 10%. Agilent is obligated to provide transition services to us only for a period of two years after the separation date.

As of October 31, 2006, we have released Agilent from all guarantees or other security obligations that they had entered into on our behalf. These guarantees and security arrangements related to real property lease deposits and guarantees, security for company credit card programs and other credit arrangements and required deposits with governmental trade and tax agencies. As of October 31, 2006, Verigy has replaced all the cash deposits that Agilent had made for us on our behalf and also released Agilent from all guarantees and security obligations that they had made for us on our behalf.

We have contractual commitments for non-cancelable operating leases and vendor financing arrangements. We have in the past provided lease residual value guarantees on these financing arrangements and we have no other material guarantees or commitments.

Our liquidity is affected by many factors, some of which are based on normal ongoing operations of our business and some of which arise from fluctuations related to global economics and markets. Our cash balances are generated and held in many locations throughout the world. Local government regulations may restrict our ability to move cash balances to meet cash needs under certain circumstances. We do not currently expect such regulations and restrictions to impact our ability to pay vendors and conduct operations throughout our global organization.

We believe that the net proceeds from our initial public offering in June 2000, together with cash generated from operations, will be sufficient to satisfy our working capital, capital expenditure and other liquidity needs at least through the next twelve months. We may require or choose to obtain debt or equity financing in the future. We cannot assure you that additional financing, if needed, will be available on favorable terms or at all.

Contractual Obligations and Commitments

Contractual Obligations

Our cash flows from operations are dependent on a number of factors, including fluctuations in our operating results, accounts receivable collections, inventory management and the timing of tax and other payments. As a result, the impact of contractual obligations on our liquidity and capital resources in future periods should be analyzed in conjunction with such factors.

59

The following table summarizes our contractual obligations at October 31, 2006 (in millions):

	Total		Less than one year			One to three years			Three to five years			More than five years
Operating leases	$	80		$	13		$	19		$	18		$	30
Commitments to contract manufacturers and suppliers	121			121			—			—			—
Other purchase commitments	59			57			2			—			—
Long term liabilities	34			—			34			—			—
Total	$	294		$	191		$	55		$	18		$	30

Operating leases.   Commitments under operating leases relate primarily to leasehold property. Following our separation, we have entered into long term lease arrangements for our corporate headquarters in Singapore, our U.S. headquarters in Cupertino, California, and our Boeblingen, Germany facility, the site of our 93000 Series platform development. We have also entered into long term lease arrangements for our ASIC development office in Colorado as well as other sales and support facilities around the world.

Commitments to contract manufacturers and suppliers.   We purchase components from a variety of suppliers and historically we have used several contract manufacturers to provide manufacturing services for our products. During the normal course of business, we issue purchase orders with estimates of our requirements several months ahead of the delivery dates. However, our agreements with these suppliers usually allow us the option to cancel, reschedule, or adjust our requirements based on our business needs prior to firm orders being placed. Typically purchase orders outstanding with delivery dates within 30 days are non-cancelable. Therefore, only approximately 41% of our purchase commitments arising from these agreements are firm, non-cancelable, and unconditional commitments. We expect to fulfill the purchase commitments for inventory within one year.

In addition, we record a liability for firm, non-cancelable, and unconditional purchase commitments for quantities in excess of our future demand forecasts. Such liabilities were $6 million as of October 31, 2006, and $13 million as of October 31, 2005. These amounts are included in other accrued liabilities in our combined balance sheets at October 31, 2006 and October 31, 2005.

Other purchase commitments.   These commitments relate primarily to contracts with professional services suppliers, which include third-party consultants for legal, finance, engineering and other administrative services. With the exception of our IT service providers, our purchase commitments from professional service providers are typically cancelable with a notice of 90-days or less without significant penalties. Our agreement with our primary IT service provider requires a notification period of 120 days and includes a termination charge of up to approximately $3.2 million in order to cancel our long term contract.

Retirement plans.   In connection with our separation from Agilent, Agilent transferred to us the liabilities associated with the defined benefit plans for our employees located in Germany, France, Korea, Italy and Taiwan. With the exception of Italy and France, Agilent funded these plans on June 1, 2006, based on 80% of the estimated accumulated benefit obligations as of the separation date. Effective November 28, 2006, Agilent substantially completed its obligation to fund our Germany defined benefit plans at the accumulated benefit obligation level as of the separation date. With the exception of Italy, which is insignificant, Agilent will fund the remaining plans based on 100% of the accumulated benefit obligation level as of June 1, 2006, as soon as the actuarial valuations are completed by the end of our first quarter of fiscal 2007. Verigy made no significant contributions to the retirement plans during fiscal year 2006. We expect expenses of approximately $5.6 million in 2007 for the retirement plans that have been transferred to us.

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Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of October 31, 2006 or October 31, 2005.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

With the exception of Japan, where products are sold primarily in Yen, our products are generally sold in U.S. Dollars. Services and support sales are sold primarily in local currency when sold after the initial product sale. As such, our revenue, costs and expenses, and monetary assets and liabilities are somewhat exposed to changes in foreign currency exchange rates as a result of our global operating and financing activities. We experience some fluctuations within individual lines of the combined and consolidated statement of operations and balance sheet as our hedging strategy is not designed to offset the currency movements in each category of revenue, expenses, monetary assets and liabilities.

We have not yet implemented a hedging program that mitigates our currency exposures on our income statement and are currently evaluating the magnitude and value-at-risk of our net currency exposures. Prior to our separation from Agilent, Agilent hedged net cash flow and balance sheet exposures that were not denominated in the functional currencies of its subsidiaries on a short term and anticipated basis and gains or losses associated with Agilent’s derivative instrument contracts had been allocated to us. As such, the historical results of our business prior to June 1, 2006 reflected the hedging program in place at Agilent. Since our separation, we have implemented a hedging strategy that mitigates currency exposures on certain balance sheet positions. Verigy and Agilent do not use derivative financial instruments for speculative or trading purposes.

We performed a sensitivity analysis assuming a hypothetical 10 percent adverse movement in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of October 31, 2006 and October 31, 2005, the analysis indicated that these hypothetical market movements would not have a material effect on our consolidated financial position, results of operations or cash flows.

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Item 8.Financial Statements and Supplementary Data

	Page
Index to Combined and Consolidated Financial Statements
Combined and Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	63
Combined and Consolidated Statement of Operations for each of the three years in the period ended October 31, 2006	64
Combined and Consolidated Balance Sheet at October 31, 2006 and 2005	65
Combined and Consolidated Statement of Cash Flows for each of the three years in the period ended October 31, 2006	66
Combined and Consolidated Statement of Stockholders’ Equity for each of the three years in the period ended October 31, 2006	67
Notes to Combined and Consolidated Financial Statements	68
Quarterly Summary (unaudited)	105

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Verigy Ltd.:

In our opinion, the combined and consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Verigy Ltd. (“Company”) and its subsidiaries at October 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying indexpresents fairly, in all material respects, the information set forth therein when read in conjunction with the related combined and consolidatedfinancial statements.These financial statements and financial schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial schedule 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.

As disclosed in Note 5 to the combined and consolidated financial statements, the Company and its parent prior to distribution, Agilent Technologies, Inc., engaged in extensive intercompany transactions, and the combined and consolidated statements of operations include allocated costs on a basis that the management believes is appropriate in the circumstances. The amounts recorded for these transactions and allocations are not necessarily representative of the amounts that would have been reflected in the financial statements had the company been an entity operated independently of the parent.

As disclosed in Note 2 to the combined and consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in fiscal 2006.

/s/ PricewaterhouseCoopers LLP

San Jose, California
December 20, 2006

63

VERIGY LTD.
COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended October 31,
	2006			2005				2004
	(in millions, except per share amounts)
Net revenue:
Products		$	646		$	355			$	501
Services		132			101				106
Total net revenue		778			456				607
Cost of sales (Note 5):
Cost of products		331			228				263
Costs of services		97			88				91
Total cost of sales		428			316				354
Operating expenses (Note 5):
Research and development		99			101				105
Selling, general and administrative		149			134				139
Restructuring charges		17			7				4
Separation costs		69			3				—
Total operating expenses		334			245				248
Income (loss) from operations		16			(105		)		5
Other income (expense), net		5			(1		)		1
Income (loss) before taxes		21			(106		)		6
Provision for taxes		21			13				14
Net loss		$	—		$	(119	)		$	(8	)
Basic and diluted net loss per shares		$	—		$	(2.38	)		$	(0.16	)
Weighted average shares (in thousands) used in computing basic and diluted net loss per share		53,356			50,000				50,000

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

64

VERIGY LTD.
COMBINED AND CONSOLIDATED BALANCE SHEETS

	October 31, 2006				October 31, 2005
	(in millions, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents		$	300			$	—
Trade accounts receivable, net		108				75
Receivables from Agilent		8				—
Inventory		87				110
Other current assets		48				14
Total current assets		551				199
Property, plant and equipment, net		44				18
Goodwill		18				17
Other long term assets		61				26
Total assets		$	674			$	260
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	75			$	21
Payables to Agilent		37				—
Employee compensation and benefits		43				40
Deferred revenue, current		58				42
Income taxes and other taxes payable		23				32
Other accrued liabilities		15				23
Total current liabilities		251				158
Long-term liabilities		34				15
Total liabilities		285				173
Commitments and contingencies (Note 20 and 21)
Shareholders’ equity
Owner’s net investment		—				86
Ordinary shares, no par value; 58,651,559 issued and outstanding at October 31, 2006
Additional paid in capital		358				—
Retained earnings		34				—
Accumulated other comprehensive income (loss)		(3		)		1
Total shareholders’ equity		389				87
Total liabilities and shareholders’ equity		$	674			$	260

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

65

VERIGY LTD.
COMBINED AND CONSOLIDATED STATEMENTS OF CASHFLOWS

	Year Ended October 31,
	2006			2005			2004
	(in millions)
Cash flows from operating activities:
Net loss	$	—		$	(119	)	$	(8	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	9			6			6
Excess and obsolete inventory-related charges	18			25			3
Loss on disposal of property, plant and equipment	3			—			—
Share-based compensation	10			—			—
Asset impairment and other exit costs	3			—			—
Pension curtailment and settlement net gains	(10		)	—			—
Restructuring charges pushed down by Agilent	4			—			—
Assets and liabilities retained by Agilent due to separation	82			—			—
Changes in assets and liabilities:
Trade accounts receivable, net	(33		)	(18		)	82
Receivables from Agilent	(8		)	—			—
Inventory (Note 19)	5			(10		)	(23		)
Accounts payable	54			2			(2		)
Employee compensation and benefits	3			2			6
Payables to Agilent	31			—			—
Deferred revenue	16			10			3
Income taxes and other taxes payable	(9		)	7			(1		)
Other current assets and accrued liabilities	(42		)	9			(14		)
Other long term assets and long term liabilities	28			12			(4		)
Net cash provided by (used in) operating activities	164			(74		)	48
Cash flows from investing activities:
Purchases of investments	(1		)	(3		)	—
Investments in property, plant and equipment, net (Note 19)	(36		)	(11		)	(5		)
Net cash used in investing activities	(37		)	(14		)	(5		)
Cash flows from financing activities:
Net proceeds from sale of ordinary shares (IPO Proceeds)	121			—			—
Capital contributions by Agilent	19			—			—
Borrowings from Agilent	25			—			—
Repayment of debt to Agilent	(25		)	—			—
Distribution of share-based compensation (Note 8)	(8		)	—			—
Cash receipts from Agilent related to sale of net assets	535			—			—
Cash payments to Agilent related to sale of net assets	(531		)	—			—
Net Agilent invested equity	37			88			(43		)
Net cash provided by (used in) financing activities	173			88			(43		)
Net increase in cash and cash equivalents	300			—			—
Cash and cash equivalents at beginning of period	—			—			—
Cash and cash equivalents at end of period	$	300		$	—		$	—
Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	6		$	—		$	—
Other non-cash activities:
Deferred tax assets acquired upon separation	$	43		$	—		$	—
Fixed assets (included in payables to Agilent) purchased from Agilent	$	6		$	—		$	—

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

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VERIGY LTD.
COMBINED AND CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Ordinary Shares														Accumulated
			Additional				Owner’s								Other
	Number		Paid-In				Net				Retained				Comprehensive
	of Shares		Capital				Investment				Earnings				Income (loss)				Total
	(in millions, except number of  shares  in thousands)
Balance at October 31, 2003		—		$	—			$	168			$	—			$	1		$	169
Components of comprehensive loss:
Net loss		—		—				(8		)		—				—			(8		)
Foreign currency translation		—		—								—				1			1
Net return of investment to Agilent		—		—				(43		)		—				—			(43		)
Balance at October 31, 2004		—		—				117				—				2			119
Components of comprehensive loss:
Net loss		—		—				(119		)		—				—			(119		)
Foreign currency translation		—		—								—				(1		)	(1		)
Net investment by Agilent		—		—				88				—				—			88
Balance as of October 31, 2005		—		—				86				—				1			87
Components of comprehensive income:
Net loss (pre-separation)		—		—				(36		)						—			(36		)
Net income (post separation)												36							36
Capital contribution from Agilent (Pre-separation)		50,000		186				(50		)		—				(1		)	135
Capital contribution from Agilent (post separation)		—		19				—				—				—			19
Net repayments to Agilent (post separation)		—		(13		)		—				—				—			(13		)
Issuance of ordinary shares, net (IPO)		8,652		121				—				—				—			121
Loss on initialization of pension liability position		—		—				—				(2		)		—			(2		)
Deferred tax assets acquired upon separation		—		43				—				—				—			43
Share-based compensation (Verigy options)		—		2				—				—				—			2
Change in minimum pension liability		—		—				—				—				(3		)	(3		)
Deferred taxes, related to other comprehensive income (loss)		—		—				—				—				1			1
Change in foreign currency translation		—		—				—				—				(1		)	(1		)
Balance as of October 31, 2006		58,652		$	358			$	—			$	34			$	(3	)	$	389

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

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1.OVERVIEW AND BASIS OF PRESENTATION

Overview

Verigy (“we,” “us” or the “Company”) designs, develops and manufactures semiconductor test equipment and provides test system solutions that are used in the manufacture of System-on-a-Chip (SOC), System-in-a-Package (SIP), high-speed memory and memory devices. In addition to test equipment, our solutions include consulting, service and support offerings such as start-up assistance, application services and system calibration and repair.

Prior to our initial public offering, we were a wholly owned subsidiary of Agilent. On June 16, 2006, we completed our initial public offering and became a separate stand-alone publicly-traded company incorporated in Singapore focused on technology and innovation in semiconductor testing. Effective October 31, 2006 (“the distribution date”), Agilent distributed the 50 million Verigy ordinary shares it owned to its shareholders. See Note 4, “IPO, Separation from Agilent and Distribution” for further information regarding our initial public offering, our separation from Agilent and Agilent’s distribution of our ordinary shares to its shareholders.

Our fiscal year end is October 31, and our fiscal quarters end on January 31, April 30, and July 31.

Amounts included in the accompanying combined and consolidated financial statements are expressed in U.S. dollars.

Basis of Presentation

Prior to June 1, 2006, we had operated as part of Agilent, and not as a stand-alone company. Therefore, since Verigy had no separate existence prior to June 1, 2006, there were no financial statements prepared prior to June 1, 2006. The accompanying combined and consolidated financial statements have been derived in accordance with accounting principles generally accepted in the United States (“U.S.”). Financial statements prior to June 1, 2006 were derived from the accounting records of Agilent using the historical basis of assets and liabilities of Verigy.

We historically have received substantial management and shared administrative services from Agilent, and we and Agilent engage in certain transactions. Prior to our separation from Agilent, we had relied on Agilent for substantially all of our operational and administrative support. The combined financial statements prior to June 1, 2006 include allocations of certain Agilent corporate expenses, including information technology resources and support; finance, accounting, and auditing services; real estate and facility management services; human resources activities; certain procurement activities; treasury services, customer contract administration, legal advisory services, and Agilent Labs services. We had benefited from Agilent agreements with third parties related to cost sharing arrangements covering branding and marketing expenses, intellectual property licenses and agreements related to the use of real property.

Management believes the assumptions and allocations underlying the combined and consolidated financial statements are reasonable and appropriate under the circumstances. The expenses and cost allocations have been determined on a basis we consider to be a reasonable reflection of the utilization of services provided or the benefit received by us during the periods presented. However, the amounts recorded for these transactions and allocations are not necessarily representative of the amounts that would have been reflected in the financial statements had we been an entity that operated independently of Agilent. Our future results of operations which will reflect our separation from Agilent will include costs and expenses for us to operate as an independent company, and consequently, these costs and expenses may be materially different than our historical results of operations, financial position, and cash flows. Accordingly, the financial statements for these periods are not necessarily indicative of our future results of operations, financial position, and cash flows.

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Agilent historically used a centralized approach to cash management and financing of its operations. Transactions relating to Verigy prior to June 1, 2006 were accounted for through the Agilent invested equity account for Verigy. Accordingly, none of the cash, cash equivalents or debt at the Agilent corporate level has been assigned to Verigy in the combined and consolidated financial statements prior to June 1, 2006.

Historically, Agilent provided funds to finance our working capital and other cash requirements, but we do not expect Agilent to provide any further funding to us. In the event we need to raise additional funds, we cannot be certain that we will be able to obtain additional financing on favorable terms, or at all. Our future capital requirements will depend on many factors, including the timing and extent of spending to support product 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, market acceptance of our products and the cyclical and seasonal demand for our products. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products and services, take advantage of future opportunities, grow our business or respond to competitive pressures, which could materially adversely affect our business, financial condition, cash flows and results of operations.

See Note 5, “Transactions with Agilent” for further information regarding the relationships we have with Agilent.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation.   The accompanying financial data has been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

Reclassifications.Certain amounts in the combined and consolidated financial statements as of and for the years ended October 31, 2004 and October 31, 2005 were reclassified to conform to the presentation used in 2006.

Principles of combination.   Our combined and consolidated financial statements include the global historical assets, liabilities and operations of Verigy. All significant intra-company transactions within Verigy have been eliminated. All significant transactions between us and other Agilent businesses are included in these combined and consolidated financial statements. All transactions with Agilent, prior to our separation from Agilent, were considered to be effectively settled for cash in the combined and consolidated statements of cash flows at the time the transaction is recorded.

Principles of consolidation.   The combined and consolidated financial statements include the accounts of the company and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of estimates.   The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in our combined financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may be different from the estimates. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies are revenue recognition, restructuring and asset impairment charges, inventory valuation, warranty, share-based compensation, retirement and post-retirement plan assumptions, valuation of goodwill and intangible assets and accounting for income taxes.

Revenue recognition.   Consistent with the SEC’s Staff Accounting Bulletin No. 104, or “SAB 104,” we recognize revenue on the sale of semiconductor test equipment when there is persuasive evidence of an

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arrangement, delivery has occurred or services have been rendered, the sales price is fixed or determinable and collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer, for products, or when service has been performed. We consider the price to be fixed or determinable when the price is not subject to refund or adjustments. We consider arrangements with extended payment terms beyond 90 days not to be fixed or determinable unless they are secured under a letter of credit arrangement guaranteed by a reputable financial institution, and accordingly we defer such revenue until amounts become due. At the time we take an order, we evaluate the creditworthiness of our customers to determine the appropriate timing of revenue recognition. For sales or arrangements that include customer-specified acceptance criteria, including those where acceptance is required upon achievement of performance milestones or fulfillment of other future obligations, revenue is recognized after the acceptance criteria have been met. If the criteria are not met, then revenue is deferred until such criteria are met or until the period(s) over which the last undelivered element is delivered. To the extent that a contingent payment exceeds the fair value of the undelivered element, we defer the contingent payment.

Product revenue.   Our product revenue is generated predominantly from the sales of various types of test equipment. Software is embedded in many of our test equipment products, but the software component is considered to be incidental. For sales or arrangements that include customer-specified acceptance criteria, including those where acceptance is required upon achievement of performance milestones or fulfillment of other future obligations, revenue is recognized after the acceptance criteria have been met. For products that include installation, if we have previously successfully installed similar equipment at the same customer location, product revenue is recognized upon delivery, and recognition of installation revenue is delayed until the installation is complete. Otherwise, neither the product nor the installation revenue is recognized until the installation is complete.

Service revenue.   Revenue from services includes extended warranty, customer support, consulting, training and education. Service revenue is deferred and recognized over the contractual period or as services are rendered to the customer. For example, customer support contracts are recognized ratably over the contractual period, while training revenue is recognized as the training is provided to the customer. In addition the four revenue recognition criteria described above must be met before service revenue is recognized.

Multiple element arrangements.   We use objective evidence of fair value to allocate revenue to elements in multiple element arrangements and recognize revenue when the criteria for revenue recognition have been met for each element. If the criteria are not met, then revenue is deferred until such criteria are met or until the period(s) over which the last undelivered element is delivered. In the absence of objective evidence of fair value of a delivered element, we allocate revenue to the fair value of the undelivered elements and the residual revenue to the delivered elements. The price charged when an element is sold separately determines fair value. To the extent that a contingent payment exceeds the fair value of the undelivered element, we defer the contingent payment.

Warranty revenue and cost.   We generally provide a one-year warranty on products commencing upon installation or delivery. We accrue for warranty costs in accordance with Statement of Financial Standards No. 5, “Accounting for Contingencies” (“SFAS No. 5”), based on historical trends in warranty charges as a percentage of gross product shipments. Estimated warranty charges are recorded within cost of products at the time revenue is recognized and the liability is reported in other current liabilities on the combined and consolidated balance sheet. The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost estimates. For some products we also sell extended warranties beyond one year. Revenue related to our extended warranty contracts beyond one year is recorded as deferred revenue in the combined and consolidated balance sheet and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred.

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Deferred revenue.   Deferred revenue is primarily comprised of extended warranty, revenue deferred for installations yet to be completed, and advanced billing and customer deposits for service, support and maintenance agreements.

Trade accounts receivable, net.   Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Our accounts receivable have been reduced by an allowance for doubtful accounts, which is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on customer specific experience and the aging of our receivables, among other factors. We do not have any off-balance-sheet credit exposure related to our customers. Our allowance for doubtful accounts was $0.1 million, $0.2 million and $0.3 million as of October 31, 2006, 2005, and 2004, respectively.

Restructuring and asset impairment charges.   We recognize a liability for restructuring costs at fair value only when the liability is incurred. The three main components of our restructuring charges are workforce reductions, consolidating facilities and asset impairments. Workforce-related charges are accrued when it is determined that a liability has been incurred, which is generally after individuals have been notified of their termination dates and expected severance payments. Plans to eliminate excess facilities result in charges for lease termination fees and future commitments to pay lease charges, net of estimated future sublease income. We recognize charges for elimination of excess facilities when we have vacated the premises. Asset impairments primarily consist of property, plant and equipment associated with excess facilities being eliminated, and are based on an estimate of the amounts and timing of future cash flows related to the expected future remaining use and ultimate sale or disposal of the property, plant and equipment. The charges associated with consolidating facilities and asset impairment charges incurred by Agilent were allocated to Verigy to the extent the underlying benefits related to our business. These estimates were derived using the guidance of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), Staff Accounting Bulletin 100, “Restructuring and Impairment Charges” (“SAB 100”), Emerging Issues Task Force 94-3, “Liability Recognition for Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”) and lastly, SFAS No. 146 “Accounting for Exit or Disposal Activities” (“SFAS No. 146”). If the amounts and timing of cash flows from restructuring activities are significantly different from what we have estimated, the actual amount of restructuring and asset impairment charges could be materially different, either higher or lower, than those we have recorded.

Share-based compensation.   Until November 1, 2005, we accounted for share-based awards, based on Agilent’s stock, using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. Under the intrinsic value method, we recorded compensation expense related to stock options in our combined statements of operations when the exercise price of our employee stock-based award was less than the market price of the underlying Agilent stock on the date of the grant. We had no stock option expenses where the exercise price was less than the market price on the date of the grant in all years presented.

Impact of the Adoption of SFAS 123R.   In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (Revised 2004) “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) addresses all forms of share-based payment (“SBP”) awards, including shares issued under employee stock purchase plans, stock options, and restricted share and stock appreciation rights. SFAS No. 123(R), which became effective for us beginning in the first quarter of fiscal year 2006, superseded our prior accounting for SBP awards under APB No. 25 and requires us to recognize compensation expense for all SBP awards based on fair value. In March 2005, the SEC released Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB No. 107”) relating to the adoption of SFAS No. 123(R). With respect to valuing SBP awards outstanding at the time of adoption of SFAS No. 123(R), we used the modified prospective transition method using the Black-Scholes option

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pricing model. Our estimate of compensation expense requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options), future forfeitures and related tax effects. We recognize SBP compensation expense for awards issued after November 1, 2005 on a straight-line basis over the vesting period of the award. For awards issued prior to November 1, 2005, we recognize SBP compensation expense based on FASB Interpretation 28 “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans an interpretation of APB Opinions No. 15 and 25,” which provides for accelerated expensing. Effective the distribution date, unvested Agilent stock options held by Verigy employees were terminated. All vested Agilent options held by Veirgy employees at the distribution date remained as Agilent options and were not replaced with Verigy equity awards. Exercise of Agilent options by Verigy employees will have no impact on our financial statements nor on our outstanding ordinary shares. To the extent that the Agilent options were not vested as of the distribution date, Verigy has replaced the Agilent options with new Verigy options based on the following ratio: average price of Agilent common stock on October 30, 2006 (the date prior to the distribution date), divided by the average price of Verigy ordinary share on October 31, 2006 (the day of the distribution). Approximately 2.2 million replacement Verigy options were issued on October 31, 2006. The replacement of the Agilent options with Verigy options was accounted for as a stock option modification in accordance with FAS 123(R).

Retirement and post-retirement plan assumptions.   Retirement and post-retirement benefit plan costs are a significant cost of doing business. They represent obligations that will ultimately be settled sometime in the future and therefore are subject to estimation. Retirement and post-retirement accounting is intended to reflect the recognition of future benefit costs over the employees’ average expected future service based on the terms of the plans and the investment and funding decisions made by us. To estimate the impact of these future payments and our decisions concerning funding of these obligations, we are required to make assumptions using actuarial concepts within the framework of U.S. GAAP. Two critical assumptions are the discount rate and the expected long-term return on plan assets. Other important assumptions include the health care cost trend rate, expected future salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover and retiree mortality rates. We evaluate these assumptions at least annually.

The discount rate is used to determine the present value of future benefit payments at each measurement date (October 31 for U.S. plans and September 30 for non-U.S. plans). The discount rate for U.S. plans was determined based on published rates for high quality corporate bonds. The discount rate for non-U.S. plans was generally determined in a similar manner. Differences between the expected future cash flows of our plans and the maturities of the high quality corporate bonds are not expected to have a material impact on the selection of discount rates. In recent years, decreasing interest rates, particularly outside the U.S., have increased our net plan costs. The increase in net plan costs has been in large part offset by a declining number of plan participants as a result of our various restructuring programs. The entire impact of declining discount rates is not recognized immediately under current accounting standards. As of October 31, 2006, delayed recognition of the impact of declining discount rates was the primary factor resulting in approximately $16 million in unrecognized net actuarial losses for non-U.S. plans that were transferred to us by Agilent. These losses are being recognized over the expected average future service lives of plan participants.

The expected long-term return on plan assets is estimated using current and expected asset allocations, as well as historical and expected returns. Declining rate of return assumptions generally result in increased pension expense while increasing rate of return assumptions generally result in lower pension expense. A one percent change in the estimated long-term return on plan assets would result in a $0.3 million impact on pension expense for our fiscal year 2006.

In connection with our separation from Agilent, Agilent transferred to us the liabilities associated with the defined benefit plans for our employees located in Germany, France, Korea, Italy and Taiwan. With

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the exception of Italy and France, Agilent funded these plans on June 1 2006 based on 80% of the estimated accumulated benefit obligations as of the separation date. Verigy made no additional contributions to the retirement plans during fiscal year 2006. Effective our separation date, we put in place a new defined benefit plan for our employees in Japan as well as a new retiree medical account program for our employees in the U.S. who meet certain age and service criteria.

Effective November 28, 2006, Agilent substantially completed their obligation to fund our Germany defined benefit plans at the accumulated benefit obligation level as of the separation date. With the exception of Italy, which is insignificant, Agilent will fund the remaining plans based on 100% of the accumulated benefit obligation level as of June 1, 2006, as soon as the actuarial valuations are completed in the first quarter of fiscal 2007.

In fiscal years 2006, 2005 and 2004 we incurred expenses of $2 million, $5 million and $6 million, respectively, for our defined benefit retirement and post-retirement plans in the U.S. and $5 million, $6 million, and $6 million for the same respective periods for our non-U.S plans.

Workforce-related events such as restructurings or divestitures can result in curtailment and settlement gains or losses to the extent they have an impact on the average future working lifetime or total number of participants in our retirement and postretirement plans.

Goodwill and purchased intangible assets.   We adopted SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”) on November 1, 2002 and recorded an allocation of goodwill from Agilent. Goodwill is not amortized but is reviewed annually (or more frequently if impairment indicators arise) for impairment. Impairment indicators include the significant decrease in market price of an asset, significant adverse changes in the extent or use or physical condition of an asset, significant adverse change in legal or regulatory factors affecting an asset, accumulation of costs significantly in excess of expected costs to acquire or construct an asset, operating or cash flow losses (or projections of losses) that demonstrates continuing losses associated with the use of an asset, or a current expectation that is more likely than not, that an asset will be sold or disposed of significantly before the end of its previously estimated useful life. Purchased intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over the economic lives of the respective assets, generally three to five years.

The process of evaluating the potential impairment of goodwill and other intangibles is highly subjective and requires significant judgment. We estimate expected future cash flows then compare the carrying value including goodwill and other intangibles to the discounted future cash flows. If the total of future cash flows is less than the carrying amount of the assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Estimates of the future cash flows associated with the assets are critical to these assessments. Changes in these estimates based on changed economic conditions or business strategies could result in material impairment charges in future periods.

Separation costs.   Separation costs are one-time internal and external spin-off related costs, such as information technology set-up costs and consulting and legal and other professional fees.

Shipping and handling costs.   Our shipping and handling costs charged to customers are included in net revenue and the associated expense is recorded in cost of products in the combined statements of operations for all years presented.

Advertising.   Business specific advertising costs are expensed as incurred. Advertising costs were insignificant for all three years presented. Some corporate advertising expenses were allocated to us by Agilent as part of corporate allocations described in Note 5 but are not separately identifiable.

Research and development.   Costs related to research, design and development of our products are charged to research and development expense as they are incurred.

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Net loss per share.   Basic net loss per share is computed by dividing net loss—the numerator—by the weighted average number of common shares outstanding—the denominator—during the period excluding the dilutive effect of stock options and other employee stock plans. Diluted net loss per share gives effect to all potentially dilutive common stock equivalents outstanding during the period. In computing diluted net loss per share, the average stock price for the period is used in determining the number of shares assumed to be purchased from the proceeds of stock option exercises and unamortized share based compensation. The calculation of dilutive net loss per share excludes shares of potential ordinary shares if the effect is anti-dilutive.

Cash, cash equivalent, and short-term investments.   We classify highly liquid investments as cash equivalents if their original or remaining maturity is three months or less at the date of purchase. Cash and cash equivalents consist of cash deposited in checking and money market accounts.

Accounting for income taxes.   Although our operating results prior to our separation have been included in Agilent’s consolidated tax returns our provision for income taxes in our combined and consolidated financial statements have been determined on a separate return basis. We are required to assess the realization of our net deferred tax assets and the need for a valuation allowance on a separate return basis, and exclude from that assessment any utilization of those losses by Agilent. This assessment requires that our management make judgments about benefits that could be realized from future taxable income, as well as other positive and negative factors influencing the realization of deferred tax assets. Due to the losses we incurred in the U.S. and Japan, prior to fiscal year 2003, we recorded a valuation allowance against any net deferred tax assets in these jurisdictions. Until our separation, we maintained a full valuation allowance in these jurisdictions.

We did not retain any deferred tax assets and liabilities related to temporary differences, net operating losses and credit carryforwards from Agilent. We did, however, retain approximately $4 million of prepaid tax assets upon our separation. As a result, for periods after June 1, 2006, our deferred tax assets and liabilities are based on temporary differences between the book and tax basis of the net assets that were transferred in connection with our separation from Agilent and our operating activities beginning as of June 1, 2006.

Our effective tax rate varies based on a variety of factors, including overall profitability, the geographical mix of income before taxes and the related tax rates in the jurisdictions where we operate, as well as discrete events, such as audit settlements. Certain combinations of these factors could cause us to owe significant taxes (and to have high effective tax rates) during periods when we experience low income before taxes or loss before taxes. Conversely, we expect to realize more favorable effective tax rates as our profitability increases. We will also be subject to audits and examinations of our tax returns by tax authorities in various jurisdictions, including the Internal Revenue Service. We will regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Fair value of financial instruments.   The carrying values of accounts receivable, accounts payable, accrued employee compensation and benefits and other accrued liabilities approximate fair value because of their short maturities.

Concentration of credit risk.   We sell our products through our direct sales force. In fiscal year 2006, one customer accounted for 10.1% of our net revenue. In fiscal year 2005, no single customer accounted for 10% or more of our net revenue. In fiscal year 2004, one customer accounted for 15.1% of our net revenue. One customer accounted for 20.2% of our accounts receivable balance at October 31, 2006. No single customer accounted for 10% or more of the combined accounts receivable balance at October 31, 2005. We perform ongoing credit evaluations of our customers’ financial conditions, and require collateral, such as letters of credit and bank guarantees, in certain circumstances.

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Concentration of suppliers.   Certain components and parts used in our products are procured from a single or a limited group of suppliers, some of whom are relatively small in size. The failure of these suppliers to meet our requirements in a timely manner could impair our ability to ship products and to realize the related revenues when anticipated which could adversely affect our business and operating results.

Derivative instruments.   We do not enter directly into any derivative instrument contracts, however Agilent has historically used such instruments and part of its gain or loss has been allocated to us. Prior to our separation, Agilent had entered into foreign exchange contracts, primarily forward contracts and purchased options, to hedge exposures to changes in foreign currency exchange rates. These contracts were designated at inception as hedges of the related foreign currency exposures, which include committed and anticipated revenue and expense transactions and assets and liabilities that are denominated in currencies other than the functional currency of the entity that has the exposure. To achieve hedge accounting, contracts must reduce the foreign currency exchange rate risk otherwise inherent in the amount and duration of the hedged exposures and comply with established risk management policies. Neither Verigy nor Agilent uses derivative financial instruments for speculative or trading purposes.

For derivative instruments that were designated and qualified as a cash flow hedge, changes in the value of the effective portion of the derivative instrument were recognized in accumulated comprehensive income (loss). These amounts were reclassified and recognized in cost of sales when either the forecasted transaction occurs or it becomes probable the forecasted transaction will not occur, and allocated to us based on our forecasted revenue and cost exposures. Amounts recorded in all fiscal years presented were insignificant. For derivative instruments that were designated and qualified as a fair value hedge, changes in the value of the derivative were recognized in other income and expense in the current period, and allocated to us along with other general corporate expenses. In all fiscal years reported, amounts recorded were insignificant. Changes in the fair value of the ineffective portion of derivative instruments, if any, were recognized in income in the current period. Amounts recorded in any of all fiscal years presented were insignificant.

Inventory.   We assess the valuation of our inventory, including demonstration inventory, on a quarterly basis based upon estimates about future demand and actual usage. To the extent that we determine that we are holding excess or obsolete inventory, we write down the value of our inventory to its net realizable value. Such write-downs are reflected in cost of products and can be material in amount. Our inventory assessment involves difficult estimates of future events and, as a result, additional write-downs may be required. If actual market conditions are more favorable than anticipated, inventory previously written down may be sold to customers, resulting in lower cost of products and higher income from operations than expected in that period. Excess and obsolete inventory resulting from shifts in demand or changes in market conditions for raw materials and components can result in significant volatility in our costs of products.

In our inventory valuation analysis, we also include inventory that we could be obligated to purchase from our suppliers based on our production forecasts. To the extent that our committed inventory purchases exceed our forecasted productions needs, we write down the value of those inventories by taking a charge to our cost of products and increasing our supplier liability.

Property, plant and equipment.   Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Additions, improvements and major renewals are capitalized; maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation and amortization are removed from our general ledger and the resulting gain or loss is reflected in the combined statement of operations. Buildings and improvements are depreciated over ten to forty years, or the lease term if lower, and machinery and equipment over three to ten years. We are currently using the straight-line method to depreciate assets. However, prior to

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November 1, 2001, assets were being depreciated principally using accelerated methods and will continue to be depreciated under those methods until they are fully depreciated or retired.

Capitalized software.   We capitalize certain internal and external costs incurred to acquire or create internal use software in accordance with AICPA Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Capitalized software is included in property, plant and equipment and is depreciated over three to six years when development is complete.

Impairment of long-lived assets.   We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets, including intangible assets, may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the undiscounted future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Foreign currency translation.   We follow SFAS No. 52 “Foreign Currency Translation” for both the translation and remeasurement of balance sheet and income statement items into U.S. Dollars. For those business units that operate in a local currency functional environment, all assets and liabilities are translated into U.S. Dollars using the exchange rates in effect at the end of the period; revenue and expenses are translated using average exchange rates in effect during each period. Resulting translation adjustments are reported as a separate component of accumulated comprehensive income (loss) in shareholders’ equity.

For those business units that operate in a U.S. Dollar functional environment, foreign currency assets and liabilities are remeasured into U.S. Dollars using the exchange rates in effect at the end of the period except for nonmonetary assets and capital accounts, which are remeasured at historical exchange rates. Revenue and expenses are generally remeasured at monthly exchange rates which approximate average exchange rates in effect during each year, except for those expenses related to balance sheet amounts that are remeasured at historical exchange rates. An allocation from Agilent of the applicable gains or losses from foreign currency remeasurement for periods prior to June 1, 2006, is included in other income (expense) in the combined and consolidated statements of operations.

3.RECENT ACCOUNTING PRONOUNCEMENTS

In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“FSP 115-1 and 124-1”), which clarifies when an investment is considered impaired, whether the impairment is other than temporary, and the measurement of an impairment loss. It also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain related disclosures. FSP 115-1 and 124-1 will be effective for all reporting periods beginning after December 15, 2005. We do not believe that adopting or applying either standard will have a material impact on our financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position as well as provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 will be effective for fiscal years beginning after December 15, 2006 and are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of FIN 48. The cumulative effect of applying the

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provisions of FIN 48 should be reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity) for that fiscal year. We expect to adopt this pronouncement beginning in our fiscal year 2008 and we have not yet determined the potential financial impact of adopting FIN 48.

In June 2006, the FASB issued Emerging Issues Tax Force (EITF) Issue No. 06-3, “How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (i.e. Gross Versus Net Presentation)” (“EITF 06-3”). EITF 06-3 requires disclosure of accounting policy regarding the gross or net presentation of point-of-sales taxes such as sales tax and value-added tax. If taxes included in gross revenues are significant, the amount of such taxes for each period for which an income statement is presented should also be disclosed. EITF 06-3 will be effective for the first annual or interim reporting period beginning after December 15, 2006. We will be adopting this pronouncement beginning in our fiscal year 2007 and do not currently believe that it will have a material impact on our financial statements.

In September 2006, the Staff of the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of determining whether the current year’s financial statements are materially misstated. SAB 108 is effective for fiscal year ending after November 15, 2006. We are currently evaluating the impact of SAB 108 on our combined and consolidated financial positions, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and other Postretirement Plans, an amendment of FASB statements No. 87, 88, 106, and 132(R)” (“SFAS No. 158”), which requires companies to recognize a net liability or asset to report the funded status of their defined benefit pension and other postretirement benefit plans on their balance sheets. Except for the measurement date requirement, SFAS No. 158 is effective for fiscal years ending after December 15, 2006. The measurement date requirement will not be effective until fiscal years ending after December 15, 2008. SFAS No. 158 will be applied prospectively. We are currently evaluating the impact of adopting SFAS No. 158 on our consolidated financial position.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). The purpose of SFAS No. 157 is to define fair value, establish a framework for measuring fair value and enhance disclosures about fair value measurements. The measurement and disclosure requirements are effective for the company beginning in the first quarter of fiscal 2008. We are currently evaluating whether SFAS No. 157 will result in a change to its fair value measurements.

4.IPO, SEPARATION FROM AGILENT, AND DISTRIBUTION

On June 16, 2006, we completed our initial public offering (“IPO”) of 8.5 million ordinary shares at a price of $15 per share, which less underwriting discount and commission, resulted in aggregate net proceeds of approximately $118.6 million. On July 6, 2006, the underwriters of the IPO exercised a portion of their over-allotment option which resulted in the issuance of additional 151,559 shares and generated approximately $2.1 million in net proceeds. The remaining portion of the underwriters’ over-allotment option has lapsed. As part of the offering, Agilent made a one-time payment to us of $19.3 million, the amount by which our net proceeds from the IPO were less than $140 million.

Following the offering, Agilent owned 50 million ordinary shares or approximately 85 percent of Verigy’s ordinary shares. Effective October 31, 2006, Agilent distributed the 50 million Verigy ordinary shares it owned to its shareholders. Agilent shareholders of record as of October 16, 2006 received 0.122435 ordinary shares of Verigy for each Agilent share owned.

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Verigy and Agilent, and, in some cases, their respective subsidiaries, entered into agreements in connection with the June 1, 2006 separation of our business from Agilent, including a master separation and distribution agreement. These agreements cover a variety of matters, including the transfer, ownership and licensing of intellectual property and other assets and liabilities relating to our business, the use of shared facilities, employee and tax-related matters and the transitional services. In addition, a loan agreement between Agilent and Veirgy, provided for a $25 million revolving credit facility from Agilent to Verigy on the separation date with interest at one-month LIBOR plus 50 basis points. As of October 31, 2006, all amounts were paid back and the agreement was terminated. The agreements relating to the separation from Agilent were negotiated and entered into in the context of a parent-subsidiary relationship.

As of October 31, 2006, Verigy has replaced all the cash deposits that Agilent had made for us on our behalf and also released Agilent from all guarantees and security obligations that they had made for us on our behalf. These guarantees and security arrangements related to real property lease deposits and guarantees, security for company credit card programs and other credit arrangements and required deposits with governmental trade and tax agencies.

For up to two years following our separation from Agilent, Agilent will continue to provide services and access to resources necessary for Verigy under the transition services agreement. In general, these services and resources include facilities management, site information technology infrastructure, use of various applications and support systems, as well as employee related services for transitional employees remaining with Agilent. Under the transition services agreement, Verigy has the ability to negotiate with Agilent for the provision of additional transition services not set forth in the agreement, which additional services will generally be subject to the provisions of the agreement. The agreement will terminate, and Agilent will have no obligation to provide any further transition services to Verigy, two years after the separation date. Since our separation, our total transition services costs from Agilent were approximately $38 million, of which approximately $8 million was capitalized related primarily due to new site set up costs.

See Note 5, “Transactions with Agilent” for further information regarding the relationships we have with Agilent.

Indemnifications to Verigy

In connection with our spin-off, Agilent has agreed to indemnify us for certain liabilities that were excluded from the separation and were not transferred to us, for specified IPO-related liabilities and other specified items.

5.TRANSACTIONS WITH AGILENT

Prior to our separation, we were a wholly owned subsidiary of Agilent and thus our transactions with Agilent were considered intercompany. After our separation date, our transactions with Agilent are considered related party transactions since Agilent still owned approximately 85% of our outstanding ordinary shares until October 31, 2006.

Intercompany and Related Party Transactions

We derived revenue from the sales of products to other Agilent businesses for fiscal years ended October 31, 2006, 2005 and 2004 of $1.1 million, $2.0 million and $3.0 million, respectively. These revenues prior to June 1, 2006 were recorded using a cost plus methodology and may not necessarily represent a price an unrelated third party would pay.

We purchased materials from other Agilent businesses during fiscal years 2006, 2005 and 2004 of $5 million, $9 million and $7 million, respectively. All purchases were at cost and were recorded in cost of products for the respective years.

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Allocated Costs

The combined and consolidated statements of operations include our direct expenses as well as allocations of expenses arising from shared services and infrastructure provided to us by Agilent. These allocated expenses include costs of centralized research and development, legal and accounting services, employee benefits, real estate and facilities, corporate advertising, insurance services, information technology, treasury and other corporate and infrastructure services. These expenses are allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by us. The allocation methods include headcount, square footage, actual consumption and usage of services, adjusted invested capital and others.

Allocated costs included in the accompanying combined statements of operations are as follows:

	Year Ended October 31,
	2006			2005		2004
	(in millions)
Cost of products		$	16	$	26	$	30
Research and development		10		21		21
Selling, general and administrative		39		55		62
Other (income) expense, net		1		—		(1		)
Total allocated costs		$	66	$	102	$	112

Since our separation from Agilent became effective on June 1, 2006, fiscal year 2006 includes only seven months of allocated costs.

Receivables from and Payables to Agilent

	Year Ended October 31,
	2006			2005			2004
	(in millions)
Receivables from Agilent		$	8		$	—		$	—
Payables to Agilent		$	37		$	—		$	—

Receivables from Agilent consists of approximately $3 million of cash collected by Agilent from our customers that had not yet been remitted to Verigy and approximately $5 million of payments due to us from Agilent related to the remaining funding for our pension and employee benefit plans in accordance with the master separation agreement. The cash collected by Agilent from our customers is transferred to us on a weekly basis. Effective November 28, 2006, Agilent substantially completed its obligation to fund our Germany defined benefit plans at the accumulated benefit obligations level as of the separation date. With the exception of Italy, which is insignificant, Agilent will fund the remaining plans based on 100% of the accumulated benefit obligation level as of June 1, 2006, as soon as the actuarial valuations are completed by the end of our first quarter of fiscal 2007.

Payables to Agilent consists of approximately $26 million accrued liabilities for transition-related services provided to us by Agilent, approximately $8 million for capitalized costs relating to new site set ups as well as leasehold improvement for our new U.S. headquarters facilities and approximately $3 million accrued liabilities for the purchase of assets related to our China operations. Our total costs from Agilent under the transition services agreement for the five months since our separation totaled approximately $38 million. See Note 16, Separation Costs, for separation cost details and net gains associated with curtailment and settlement.

Agreements with Agilent

We share and operate under numerous agreements executed by Agilent with third parties, including but not limited to purchasing, manufacturing, supply, and distribution agreements; use of facilities owned, leased, and managed by Agilent; and software, technology and other intellectual property agreements.

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6.NET LOSS PER SHARE

Basic net loss per share is calculated by dividing net loss by the weighted-average number of ordinary shares outstanding. The weighted-average number of ordinary shares outstanding does not include the dilutive effect of ordinary equivalent shares, such as share options and restricted share units. Diluted net loss per share is calculated by dividing net loss by the weighted-average ordinary shares outstanding plus the dilutive effect of ordinary equivalent shares, such as share options. The calculation of diluted net loss per share excludes shares of potential ordinary shares if the effect is anti-dilutive.

The following is a reconciliation of the basic and diluted net loss per share computations for the periods presented below:

	Year Ended October 31,
	2006		2005			2004
Basic Net loss Per Share
Net loss (in millions)	$	—	$	(119	)	$	(8	)
Weighted average number of ordinary shares	53,356		50,000			50,000
Basic net (loss) per share	$	—	$	(2.38	)	$	(0.16	)
Diluted Net loss Per Share
Net loss (in millions)	$	—	$	(119	)	$	(8	)
Weighted average number of ordinary shares	53,356		50,000			50,000
Potentially dilutive common stock equivalents—stock options and other employee stock plans	—		—			—
Total shares for purpose of calculating diluted net loss per share	53,356		50,000			50,000
Diluted net loss per share	$	—	$	(2.38	)	$	(0.16	)

Weighted average shares are presented in thousands.

The dilutive effect of outstanding options and restricted share units is reflected in diluted net income per share by application of the treasury stock method, which includes consideration of share-based compensation required by SFAS No. 123(R).

The following table presents options to purchase ordinary shares, which were not included in the computation of diluted net income per share because they were anti-dilutive.

	Year Ended October 31,
	2006		2005		2004
Non-qualified share options
Number of options to purchase ordinary shares (in thousands)	3,504		—		—
Weighted-average exercise price	$	14.06	$	—	$	—
Average common stock price	$	16.14	Not Applicable		Not Applicable
Restricted share units
Number of restricted share units (in thousands)	197		—		—
Weighted-average exercise price	$	15.47	$	—	$	—
Average common stock price	$	16.14	Not Applicable		Not Applicable

Pursuant to the Master Separation and Distribution Agreement and the Employee Matters Agreement entered into between Verigy Ltd. and Agilent Technologies, Inc. in connection with Verigy’s separation from Agilent (collectively the “Separation Agreements”), on October 31, 2006, Agilent cancelled the unvested Agilent equity awards held by Verigy employees as of October 31, 2006 (the “Original Agilent Awards”). In accordance with the Separation Agreements, and in connection with the cancellation of the

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Original Agilent Awards, the compensation committee of the board of directors of Verigy Ltd. approved and issued under the Verigy Ltd. 2006 Equity Incentive Plan replacement Verigy equity awards to Verigy employees whose Original Agilent Awards were cancelled (the “Replacement Awards”).

Those awards that were provided to employees outside of the United States, where options are impractical and/or infeasible due to local requirement or where other awards may obtain more favorable treatment under Applicable Local Law, were cancelled and immediately replaced with Verigy restricted share units. The number of replaced restricted share units was based on the intrinsic value of the closing price of Agilent stock option on distribution date divided by the closing price of a Verigy ordinary share on the distribution date.

On October 31, 2006, the board of directors of Verigy approved and issued approximately 2.2 million and 0.05 million replacement options and restricted shares units, respectively. The replacement of the Agilent options with Verigy options was accounted for as a stock option modification in accordance with FAS 123(R).

7.PROVISION FOR TAXES

We recorded income tax provisions of approximately $21 million, $13 million and $14 million for fiscal years ended October 31, 2006, 2005 and 2004, respectively.

Through June 1, 2006, Verigy’s income tax expense reflected amounts based on Agilent’s consolidated tax profile so our income tax expense for the first seven months consisted of allocated expense from Agilent. Since our separation from Agilent on June 1, 2006, our tax expense is based on our new operating structure and tax status in the countries where we do business.

Prior to June 1, 2006, we considered the U.S. entities as our domestic entities as did Agilent. Following our separation from Agilent, we consider our Singapore entities as our domestic entities since that is where we are incorporated. Our provision for income taxes for fiscal years 2006, 2005, and 2004 are as follows:

	Five Months Ended October 31,				Seven Months Ended May 31,			Twelve Months Ended October 31,				Twelve Months Ended October 31,				Twelve Months Ended October 31,
	2006							2006				2005				2004
	(in millions)
Current:
Domestic (U.S.)		$	—			$	—		$	—			$	—			$	—
Domestic (Singapore)		1				—			1				—				—
Foreign		22				10			32				15				13
Deferred:
Domestic (U.S.)		—				—			—				—				(1		)
Domestic (Singapore)		—				—			—				—				—
Foreign		(13		)		1			(12		)		(2		)		2
Total tax provision		$	10			$	11		$	21			$	13			$	14

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The table below shows the geographical mix of our pre-tax profit and loss positions for fiscal years 2005 and 2004, as well as our pre and post separation income and losses for fiscal year 2006.

	Five Months Ended October 31,			Seven Months Ended May 31,				Twelve Months Ended October 31,				Twelve Months Ended October 31,				Twelve Months Ended October 31,
	2006							2006				2005				2004
	(in millions)
Domestic (U.S.)		$	—		$	(6	)		$	(6	)		$	(81	)		$	(7	)
Domestic (Singapore)		24			—				24				—				—
Foreign		22			(19		)		3				(25		)		13
Total net income (loss) before taxes		$	46		$	(25	)		$	21			$	(106	)		$	6

The table below reconciles the differences between our domestic statutory income tax rates and our effective tax rate:

	Five Months Ended October 31,			Seven Months Ended May 31,			Twelve Months Ended October 31,			Twelve Months Ended October 31,			Twelve Months Ended October 31,
	2006						2006			2005			2004
Notional U.S. federal tax rate		35.0	%		35.0	%		35	%		35.0	%		35.0	%
State income taxes, net of federal benefit		1.0			—			2.1			—			1.6
Foreign income taxed at different rates		(6.7	)		(70.8	)		68.9			(21.6	)		177.4
Nontaxable gain from reversal of prior years’ retirement expenses		(7.6	)		—			(16.6	)		—			—
R&D credits		—			—			—			1.3			(22.5	)
Other, net		—			—			0.5			0.7			(30.8	)
Valuation allowance—Others		—			(8.6	)		10.1			(27.5	)		65.4
		21.7	%		(44.4	)%		100	%		(12.1	)%		226.1	%

Our income taxes payable were approximately $15 million, $31 million and $23 million, at October 31, 2006, 2005 and 2004 respectively. These amounts are included within income taxes and other taxes payable. The payables as of fiscal year end October 31, 2005 and 2004 represent amounts that had not been settled through the Agilent invested equity account at the respective fiscal years.

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Deferred incomes taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities used for financial reporting and tax purposes. We had no deferred tax liabilities as of fiscal years ended October 31, 2006 and 2005. The significant components of deferred tax assets included in the combined and consolidated balance sheets as of October 31, 2006 and 2005 are:

	Year Ended October 31,
	2006			2005
	Deferred Tax Assets			Deferred Tax Assets
	(in millions)
Inventory		$	7		$	4
Property, plant and equipment		6			—
Intangible		25			—
Warranty		—			3
Employee benefits, other than retirement		5			17
Other retirement benefits		9			—
Net operating losses and credit carryforwards		—			120
Other		4			1
Subtotal		56			145
Tax valuation allowance		—			(135		)
Total deferred tax asset		$	56		$	10

The provisions for income taxes in the combined and consolidated financial statements have been determined on a separate return basis. We are required to assess the realization of our net deferred tax assets and the need for a valuation allowance on a separate return basis, prior to our separation, and exclude from that assessment any utilization of those losses by Agilent. This assessment requires that our management make judgments about benefits that could be realized from future taxable income, as well as other positive and negative factors influencing the realization of deferred tax assets.

As of October 31, 2006, we had $56 million of deferred tax assets due to temporary differences between the book and tax basis of the net assets which were acquired upon our separation from Agilent. As of October 31, 2005, we had net deferred tax assets of $10 million since we had recorded full valuation allowances in the United States and Japan against all deferred tax assets due to accumulated losses in successive years in those jurisdictions. Upon our separation from Agilent, we did not retain any pre-separation deferred tax assets or liabilities which had resulted from historical temporary differences, net operating losses and credit carryforwards. We did, however, retain approximately $4 million of prepaid tax assets upon our separation.

Going forward, our effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and the related tax rates in the jurisdictions where we operate, completion of separation, restructuring and other one-time charges, as well as discrete events, such as settlements of future audits. We will be subject to audits and examinations of our tax returns by tax authorities in various jurisdictions, including the Internal Revenue Service. We will regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

8.SHARE-BASED COMPENSATION

2006 Equity Incentive Plan

On June 7, 2006, our board of directors adopted the Verigy Ltd. 2006 Equity Incentive Plan (the “2006 EIP”). There are 10,300,000 ordinary shares authorized for issuance under the plan. The 2006 EIP

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provides for grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted shares and share units. At October 31, 2006, there were approximately 6.6 million ordinary shares available for issuance under the 2006 EIP.

Except for replacement options granted in connection with Verigy’s separation from Agilent, employee nonqualified stock options have an exercise price no less than 100% of the fair market value of a share on the date of grant, and generally vest at a rate of 25% per year over 4 years. The maximum allowable term is 10 years. Restricted share units awarded to employees pay out in an equal number of shares of stock, and generally vest at a rate of 25% per year over 4 years. Options and restricted share units cease to vest upon termination of employment. If an employee terminates employment due to death, disability or retirement due to age, then the vested portion of the employee’s option and restricted share unit award is determined by adding 12 months to the length of his or her actual service, and the option is exercisable as to the vested shares for one year after the date of termination, or, if earlier, the expiration of the term of the option.

Outside director options vest on the first anniversary of the date of grant and have a maximum term of 10 years. Outside director restricted share units vest on the first anniversary of the date of grant and are payable on the third anniversary of the date of grant. All awards granted to an outside director become fully vested upon the director’s termination of services because of death, disability, retirement at or after age 65, or if the Company is subject to a change in control before the director’s service terminates.

2006 Employee Shares Purchase Plan

On June 7, 2006, our board of directors adopted the 2006 Employee Shares Purchase Plan (the “Purchase Plan”). The Purchase Plan is intended to qualify for favorable tax treatment under section 423 of the U.S. Internal Revenue Code. The number of shares available for purchase under the plan is 1,700,000.

Under the Purchase Plan, eligible employees may elect to purchase shares from payroll deductions up to 10% of eligible compensation during 6-month offering periods. The purchase price is (i) 85% of the fair market value per ordinary share on the trading day before the beginning of an offering period or, in the case of the first offering period under the Purchase Plan, 85% of the IPO price; or (ii) 85% of the fair market value per ordinary share on the last trading day of an offering period, whichever is lower.  The Purchase Plan restricts the maximum number of shares that an employee can purchase to 2,500 shares each offering period and to $25,000 worth of ordinary shares each calendar year.

Share-Based Compensation for Verigy Options

As of November 1, 2005, we adopted the provisions of SFAS No. 123 (R) which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors including employee stock option awards and employee stock purchases made under our Employee Stock Purchase Plan (“ESPP”).

Subsequent to June 12, 2006, the effective date of our registration statement on from S-1, certain of our employees and directors were granted non-qualified share options and restricted share units (“RSU”). For the newly issued Verigy options, we have recognized compensation expense based on the estimated grant date fair value method required under SFAS No. 123 (R) using a straight-line amortization method. As SFAS No. 123 (R) requires that share-based compensation expense be based on awards that are ultimately expected to vest, estimated share-based compensation for the period from June 1, 2006 to October 31, 2006 has been reduced for estimated forfeitures. Verigy expenses restricted share units based on fair market value of the shares at the date of grant over the period during which the restrictions lapse.

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In addition, pursuant to the Master Separation and Distribution Agreement and the Employee Matters Agreement entered into between Verigy Ltd. and Agilent Technologies, Inc. in connection with Verigy’s separation from Agilent (collectively the “Separation Agreements”), on October 31, 2006, Agilent cancelled the unvested Agilent equity awards held by Verigy employees as of October 31, 2006 (the “Original Agilent Awards”). In accordance with the Separation Agreements, and in connection with the cancellation of the Original Agilent Awards, the compensation committee of the board of directors of Verigy Ltd. approved and issued under the Verigy Ltd. 2006 Equity Incentive Plan replacement Verigy equity awards to Verigy employees whose Original Agilent Awards were cancelled (the “Replacement Awards”). The ratio that was used for the replacement options is the average price of Agilent common stock on October 30, 2006 (the date prior to the distribution date), divided by the average price of Verigy ordinary shares on October 31, 2006 (the day of the distribution).

Those awards that were provided to employees outside of the United States, where options are impractical and/or infeasible due to local requirement or where other awards may obtain more favorable treatment under Applicable Local Law, were cancelled and immediately replaced with Verigy restricted share units. The number of replaced restricted share units was based on the intrinsic value of the closing price of Agilent stock option on distribution date divided by the closing price of Verigy ordinary share on distribution date.

As required by SFAS No. 123 (R) for modification of equity award, we are recognizing, over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original Agilent award on the modification date. The incremental compensation cost of approximately $3.8 million is the difference between the fair value of the modified replacement award and the fair value of the original Agilent award immediately before it was modified.

Share-Based Payment Award Activity Related to Verigy Options

The following table summarizes stock option and restricted share unit activity the year ended October 31, 2006:

	Option						Restricted Share Unit (RSU)
	Shares			Weighted Average Exercise Price			Shares		Weighted Average Grant Date Share Price
	(in thousands)						(in thousands)
Outstanding as of October 31, 2005		—			$	—		—		$	—
Granted		1,240			$	15		143		$	15
Exercised		—			$	—		—		$	—
Replacement award		2,267			$	14		54		$	17
Cancellations		(3	)		$	15		—		$	—
Outstanding as of October 31, 2006		3,504			$	14		197		$	15

On October 31, 2006, the board of directors of Verigy approved and issued approximately 2.2 million and 0.05 million of replacement options and restricted share units, respectively.

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The following table summarizes information about all outstanding options to purchase shares of Verigy ordinary shares at October 31, 2006:

	Options Outstanding
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price			Aggregate Intrinsic Value
	(in thousands)							(in thousands)
$  7.48 – 15		2,081		7.1 years		$	13		$	8,259
$15.01 – 20		1,423		9.4 years		$	16		1,349
		3,504		8.0 years		$	14		$	9,608

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on Verigy’s closing stock price of $16.80 at October 31, 2006, which would have been received by award holders had all award holders exercised their awards that were in-the-money as of that date.  As of October 31, 2006, none of the Verigy options were exercisable. Pursuant to the vesting schedule for the director and employee options granted by Verigy as of October 31, 2006, the first vesting date for any grant is November 15, 2006.

The following table summarizes information about all outstanding restricted share unit awards of Verigy ordinary shares at October 31, 2006:

	Restricted Share Units Outstanding
Range of Grant Date Share Price		Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Grant Date Share Price			Aggregate Intrinsic Value
	(in thousands)								(in thousands)
$14.75 – 15			141		2.9 years		$	15		$	261
$15.01 – 20			56		2.1 years		$	17		1
			197		2.6 years		$	15		$	262

Impact of the Adoption of SFAS No. 123 (R) Related Verigy Options and RSU

The impact on our results for share-based compensation for Verigy options for fiscal years 2006 was as follows:

	Twelve Months
	Ended
	October 31,
	2006
	(in millions, except per share data)
Cost of products and services		$	0.1
Research and development		0.1
Selling, general and administrative		1.4
Total share-based compensation expense		$	1.6
Impact of share-based compensation expense related to Verigy options on our net loss per share:
Basic		$	(0.03	)
Diluted		$	(0.03	)

For fiscal year 2006, share-based compensation capitalized within inventory was insignificant.

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The weighted average grant date fair value of awards related to Verigy options, as determined under SFAS No. 123 (R), granted during fiscal year 2006 was $7.28 per share. For fiscal year 2006, there was no tax benefit realized from exercised stock options and similar awards. As of October 31, 2006, the total unrecorded share-based compensation balance for unvested options and similar awards, net of expected forfeitures was approximately $19.0 million.

Valuation Assumptions for Verigy Options

The fair value of options granted was estimated at grant date using a Black-Scholes options-pricing model with the following weighted-average assumptions:

	Five Months Ended
	October 31, 2006
Risk-free interest rate for options		4.99	%
Risk-free interest rate for the ESPP		5.0	%
Dividend yield		0	%
Volatility for options		55.9	%
Volatility for the ESPP		38.7	%
Expected option life		4.09 years
Expected life for the ESPP		6 months

The Black-Scholes model requires the use of highly subjective and complex assumptions, including the option’s expected life and the price volatility of the Company’s underlying stock. Because we did not have historical data, we used data from peer companies to determine our assumptions for the expected option life and the volatility of our stock price. For the risk-free interest rate, we used the rate of return on US Treasury Strips as of October 31, 2006 with maturities commensurate with expected option life assumptions.

Valuation Assumptions for Verigy “Replacement Award” Options

The table below summarizes sets of weighted average assumptions used to estimate the fair values, using a Black-Scholes option-pricing model, of those replacement options which were issued to employees at distribution date.

	Original Agilent Award			Original Agilent Award Immediately Before Modification			Verigy Modified Replacement Award
	Year Ended October 31, 2006
Risk-free interest rate for options		4.40	%		4.69	%		4.70	%
Dividend yield		0	%		0	%		0	%
Volatility for options		29.0	%		30.4	%		55.9	%
Expected option life		4.25 years			3.00 years			2.86 years

The Black-Scholes model requires the use of highly subjective and complex assumptions, including the option’s expected life and the price volatility of the Company’s underlying stock. For the risk-free interest rate, we used the rate of return on US Treasury Strips as of October 31, 2006 with maturities commensurate with expected option life assumptions. The calculation of fair value of those original Agilent options was based the assumptions chosen by Agilent at grant date. The calculation of fair value immediately before modification was based on Agilent’s assumptions at grant date and updated to reflect Agilent’s specific experience. The estimated fair value calculations for the replacement options were based

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on the assumptions chosen by Agilent at the granted date for each option grant and were updated to reflect anticipated Verigy-specific experience.

Share-Based Compensation for Agilent Options Held by Verigy Employees

Share-based compensation.   Prior to our separation from Agilent, our employees participated in Agilent’s stock-based compensation plans. Until November 1, 2005, we accounted for stock-based awards, based on Agilent’s stock, using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. Under the intrinsic value method, we recorded compensation expense related to stock options in our condensed combined and consolidated statements of operations when the exercise price of our employee stock-based award was less than the market price of the underlying Agilent stock on the date of the grant. We had no stock option expenses where the exercise price was less than the market price on the date of the grant in any of the periods presented.

Share-Based Payment Award Activity Related to Agilent Options Held by Verigy Employees

The following table summarizes equity share-based payment award for the fiscal years 2006, 2005 and 2004:

	Shares			Weighted Average Exercise Price
	(in thousands)
Outstanding as of October 31, 2003		2,557			$	27
Granted under Option Exchange Program		692			$	28
Granted		957			$	25
Exercised		(92	)		$	15
Cancellations		(5	)		$	16
Outstanding as of October 31, 2004		4,109			$	29
Granted		682			$	18
Exercised		(282	)		$	22
Cancellations		(11	)		$	19
Outstanding as of October 31, 2005		4,498			$	28
Granted		584			$	34
Exercised		(1,358	)		$	25
Cancellations		(241	)		$	29
Net Transfer-Outs—Agilent employees		(1,034	)		$	29
Vested options remaining with Agilent		(1,135	)		$	30
Unvested options replaced with Verigy options and restricted share units		(1,314	)		$	31
Outstanding as of October 31, 2006		—			$	—

Impact of the Adoption of SFAS No. 123 (R) Related to Agilent Options Held by Verigy Employees

Agilent adopted SFAS No. 123 (R) using the modified prospective transition method beginning November 1, 2005. Accordingly, for the periods prior to our separation, we recorded share-based compensation expense for awards granted prior to, but not yet vested, as of November 1, 2005 as if the fair value method required for pro forma disclosure under SFAS No. 123 was in effect for expense recognition purposes, adjusted for estimated forfeitures. For these awards, we have continued to recognize compensation expense using the accelerated amortization method under FIN 28. For share-based awards granted after November 1, 2005, we have recognized compensation expense based on the estimated grant

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date fair value method required under SFAS No. 123 (R). For these awards we have recognized compensation expense using a straight-line amortization method. As SFAS No. 123 (R) requires that share-based compensation expense be based on awards that are ultimately expected to vest, estimated share-based compensation for all periods presented has been reduced for estimated forfeitures.

We recorded the distribution of share-based compensation expenses for Agilent options as an increase in Agilent’s invested equity in Verigy.

The calculations are based on Agilent stock options held by our employees and Agilent’s assumptions. To the extent that our employees’ Agilent options were unvested as of the distribution date, Verigy replaced the Agilent options with new Verigy options using a conversion ratio determined at the distribution date. The ratio was based upon the average of the high and low of the stock price of Agilent common stock on the trading day before the distribution date compared to the average of the high and low share price of our ordinary shares on the distribution date.

The impact on our results for share-based compensation for Agilent options for fiscal years 2006 was as follows:

	Twelve Months
	Ended
	October 31,
	2006
	(in millions, except per share data)
Cost of products and services		$	1.7
Research and development		1.2
Selling, general and administrative		5.9
Total share-based compensation expense		$	8.8
Impact of share-based compensation expense related to Verigy options on our net loss per share:
Basic		$	(0.16	)
Diluted		$	(0.16	)

For fiscal year 2006, our share-based compensation capitalized within inventory was insignificant.

Since our separation from Agilent, there were no Agilent option grants for Verigy employees. The weighted average grant date fair value of awards related to Agilent options, as determined under SFAS No. 123 (R), granted during fiscal years 2006, 2005 and 2004 was $10.38, $18.56 and $24.78  per share, respectively. For fiscal years 2006, 2005, and 2004 the tax benefit realized from exercised stock options and similar awards was insignificant. As of October 31, 2006, there was no unrecorded deferred share-based compensation balance for unvested shares.

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Valuation Assumptions for Agilent Options Held by Verigy Employees

The fair value of options granted was estimated at grant date using a Black-Scholes options-pricing model with the following weighted-average assumptions:

	Years Ended October 31,
	2006		2005		2004
Risk-free interest rate for options	4.4	%	3.55	%	3.25	%
Risk-free interest rate for the ESPP	4.5	%	2.42	%	1.17	%
Dividend yield	0	%	0	%	0	%
Volatility for options	29	%	39	%	57	%
Volatility for the ESPP	29	%	37	%	36	%
Expected option life	4.25 years		4 years		5.5 years
Expected life for the ESPP	6 months – 1.5 years		6 months – 2 years		6 months – 2 years

The Black-Scholes model requires the use of highly subjective and complex assumptions, including the option’s expected life and the price volatility of the underlying stock. Beginning November 1, 2005, the expected stock price volatility assumption was determined using the implied volatility for Agilent’s stock. Prior to the adoption of SFAS No. 123 (R), a combination of historical and implied volatility was used in deriving our expected volatility assumption. We have determined that implied volatility is more reflective of market conditions and a better indicator of expected volatility than a combined method of determining volatility.

Pro forma information.   Pro forma net income (loss) information, as required by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”) has been determined as if we had accounted for the employee stock options we granted, including shares issuable to our employees under the Agilent Employee Stock Purchase Plan , and the Option Exchange Program, under SFAS No. 123’s fair value method.

The pro forma information for fiscal years 2005 and 2004 was as follows:

	Years Ended October 31,
	2005				2004
	(in millions, except per share data)
Net loss as reported		$	(119	)		$	(8	)
SFAS No. 123 based compensation		(17		)		(19		)
Tax benefit		1				2
Net loss—pro forma		$	(135	)		$	(25	)
Net loss per share, basic and diluted:
As reported		$	(2.38	)		$	(0.16	)
Pro forma		$	(2.70	)		$	(0.50	)

9.INVENTORY

	Year Ended October 31,
	2006			2005
	(in millions)
Finished goods		$	42	$	33
Work in progress		8		9
Raw materials		37		68
Total inventory		$	87	$	110

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Finished goods inventory includes demonstration products of $18 million for 2006 and $20 million for 2005. Effective June 1, 2006, we sold approximately $19 million of raw material inventory to Flextronics for approximately net book value. See Note 19 “Flextronics” for further details.

The total cost of products in the combined and consolidated statements of operations for 2006, 2005 and 2004 included inventory-related gross charges of $18 million, $25 million and $3 million, respectively, for excess and obsolete inventory on our site as well inventory at our contract manufacturers and suppliers where we have non-cancelable purchase commitments. In addition, we sold previously written down inventory of $11 million, $7 million, and $1 million, respectively, for the same periods.

10.OTHER CURRENT ASSETS

	Year Ended October 31,
	2006			2005
	(in millions)
Current deferred tax assets		$	16		$	2
Transaction tax receivable		17			2
Prepaid taxes		2			8
Other prepayments		9			2
Sundry receivables		3			—
Other		1			—
Total other current assets		$	48		$	14

The $16 million current deferred tax assets as of October 31, 2006, pertain solely to temporary differences between the book and tax basis of the net assets which were acquired upon our separation.

The $17 million transaction tax receivable as of October 31, 2006, relates to transaction taxes that we paid for inventory purchases from our suppliers. We also had approximately $8 million of transaction tax payable as of October 31, 2006, which is included in income taxes and other taxes payable.

11.PROPERTY, PLANT AND EQUIPMENT, NET

	Year Ended October 31,
	2006			2005
	(in millions)
Leasehold improvements	$	12		$	1
Software	22			4
Machinery and equipment	46			55
Total property, plant and equipment	80			60
Accumulated depreciation and amortization	(36		)	(42		)
Total property, plant and equipment, net	$	44		$	18

We recorded approximately $9 million, $6 million and $6 million of depreciation and amortization expenses for fiscal years 2006, 2005, and 2004, respectively.

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12.OTHER LONG TERM ASSETS

	Year Ended October 31,
	2006			2005
	(in millions)
Deferred tax assets, non-current		$	40		$	8
Investments		4			3
Retirement plan assets		1			3
Prepaid taxes		—			2
Flexible time off assets		11			8
Other		5			2
Total other long term assets		$	61		$	26

Upon our separation from Agilent, we did not retain any pre-separation deferred tax assets or liabilities. The $40 million deferred tax assets as of October 31, 2006, pertains primarily to temporary differences between the book and tax basis of the net assets which were acquired upon our separation.

Our investments consist of investments in private companies accounted for using the cost method as we have no significant influence over the investee. All of our investments are subject to periodic impairment review, which requires significant judgment to identify events or circumstances that would likely have a significant adverse effect on the future use of the investment. Charges related to other than temporary impairments were $0.3 million in fiscal year 2005. This impairment charge was included in other income (expense), net in the combined and consolidated statements of operations. No impairment charges were recorded in the other periods presented.

Information about our pension plans and associated assets are presented in Note 17, “Retirement and Post-Retirement Pension Plans”.

13.GOODWILL

A summary of our goodwill activity for fiscal years 2006 and 2005 is shown in the table below:

	Year Ended October 31,
	2006			2005
	(in millions)
Beginning balance at November 1		$	17		$	18
Currency translation adjustment		1			(1		)
Ending balance at October 31		$	18		$	17

14.GUARANTEES

Standard Warranty

A summary of our standard warranty accrual activity for fiscal years ended October 31, 2006 and 2005 is shown in the table below; also see Note 18, “Other Accrued Liabilities”:

	Year Ended October 31,
	2006			2005
	(in millions)
Balance at beginning of year	$	6			$	7
Accruals for warranties issued during the year	10				8
Settlements made during the year	(10		)		(9		)
Balance at end of year	$	6			$	6

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Extended Warranty

A summary of our extended warranty deferred revenue activity for October 31, 2006 and 2005 is shown in the table below:

	Year Ended October 31,
	2006				2005
	(in millions)
Balance at beginning of year		$	13			$	13
Recognition of revenue		(6		)		(5		)
Deferral of revenue for new contracts		13				5
Balance at end of year		$	20			$	13

In our combined and consolidated balance sheets, current deferred revenue is reported separately and long-term deferred revenue is included in long-term liabilities. See Note 18, Other Accrued Liabilities and Long-Term Liabilities.

Indemnifications

As is customary in our industry and as provided for in local law in the U.S. and other jurisdictions, many of our standard contracts provide remedies to our customers and others with whom we enter into contracts, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of our products. From time to time, we indemnify customers, as well as our suppliers, contractors, lessors, lessees, companies that purchase our businesses or assets and others with whom we enter into contracts, against combinations of loss, expense, or liability arising from various triggering events related to the sale and the use of our products, the use of their goods and services, the use of facilities and state of our owned facilities, the state of the assets and businesses that we sell and other matters covered by such contracts, usually up to a specified maximum amount. In addition, from time to time we also provide protection to these parties against claims related to undiscovered liabilities, additional product liability or environmental obligations. In our experience, claims made under such indemnifications are rare and the associated estimated fair value of the liability is not material.

Under the agreements with Agilent, Verigy will indemnify Agilent in connection with Verigy activities conducted prior to and following its separation from Agilent in connection with the businesses that constitute Verigy and the liabilities that Verigy will be specifically assuming under the agreements. These indemnifications will cover a variety of aspects of Verigy’s business, including, but not limited to, employee, tax, intellectual property and environmental matters.

15.RESTRUCTURING AND ASSET IMPAIRMENT

Agilent initiated several restructuring plans in prior years; the 2001 Plan, the 2002 Plan and the 2003 Plan (collectively, the “Prior Plans”). Agilent’s Prior Plans were designed to reduce costs and expenses in order to return Agilent to profitability. The two main components of these plans are workforce reduction and consolidation of excess facilities. Under all plans, we directly incurred and recorded only charges for workforce management. In addition, we recorded charges allocated to us by Agilent for our share of the expenses they incurred to reduce costs for support services such as finance, information technology, and workplace services. Agilent achieved these cost reductions by moving global shared services operations sites to lower cost regions, reducing the number of properties, particularly sales and administrative sites, and by reducing their workforce through involuntary terminations and selected outsourcing of manufacturing and administrative functions. Our allocated portion of these costs is included in our combined and consolidated financial statements and the schedules below. All accrued liabilities associated with the allocated costs were recorded by Agilent and not us.

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In fiscal year 2004, we recorded $1 million in direct restructuring charges for workforce reductions and Agilent allocated approximately $4 million ($2 million for workforce management and $2 million for consolidation of excess facilities) to us. We had no accrued balances at the end of the respective reporting years for activities related to workforce management or consolidation of facilities.

A summary of Prior Plans restructuring activity (including restructuring costs allocated to us by Agilent) by year is shown below:

	Year Ended October 31,
	2006			2005			2004
	(in millions)
Workforce management		$	—		$	—		$	3
Consolidation of facilities		—			—			2
Total restructuring charges		$	—		$	—		$	5

Summary information for Agilent’s 2005 Plan

In fiscal year 2005, Agilent launched a new restructuring program to align its workforce with its smaller organization size after the announced sale of its semiconductor products business, which completed on December 1, 2005, and its announced intention to spin us off.

Also, in fiscal year 2005, we initiated a plan, as part of Agilent’s 2005 restructuring plan, to further reduce operational costs, primarily through closing, consolidating, and relocating some sites and reducing and realigning our workforce (“2005 Plan”). Under this plan, we took an $8 million charge in fiscal year 2005, $5 million of which related to a reduction in headcount, $2 million of which related to headcount reduction by Agilent for corporate and administrative personnel that had supported our business and $1 million of which related to consolidation of facilities. Overall, we reduced our workforce by approximately 250 people since October 31, 2005 and added approximately 100 people, ending with approximately 1,500 employees as of October 31, 2006.

A summary of Agilent’s 2005 Plan restructuring activity during fiscal years ended October 31, 2005 and 2006 is shown in the table below:

	Workforce Reduction				Asset Impairment and Consolidation of Excess Facilities				Total
	(in millions)
Balance at October 31, 2004		$	—			$	—		$	—
Total charges including amount allocated by Agilent		7				1			8
Less allocated and paid by Agilent		(2		)		(1		)	(3		)
Less cash payments		(4		)		—			(4		)
Balance at October 31, 2005		$	1			$	—		$	1
Total charges allocated by Agilent		19				3			22
Less amounts paid by Agilent		(4		)		(3		)	(7		)
Less cash payments		(10		)		—			(10		)
Less restructuring liabilities retained by Agilent		(6		)		—			(6		)
Balance at October 31, 2006		$	—			$	—		$	—

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We had no accrued restructuring liability as of October 31, 2006, compared to $1 million liability as of October 31, 2005 related to the Agilent 2005 Restructuring Plan. In accordance with the separation agreements with Agilent, Agilent retained and paid for all restructuring liabilities associated with the 2005 restructuring plan.

A summary of the statement of operations impact of the charges resulting from all restructuring plans for fiscal years ended October 31, 2006, 2005 and 2004 is shown below:

	Year Ended October 31,
	2006			2005			2004
	(in millions)
Restructuring charges (included in cost of sales)		$	7		$	1		$	1
Restructuring charges (included in operating expenses)		17			7			4
Total restructuring charges		$	24		$	8		$	5

The restructuring costs allocated to us by Agilent and included in the table above are shown separately below:

	Year Ended October 31,
	2006			2005			2004
	(in millions)
Restructuring charges (included in cost of sales)		$	2		$	—		$	1
Restructuring charges (included in operating expenses)		9			3			3
Total restructuring charges		$	11		$	3		$	4

Summary of Flextronics-related restructuring charges

In connection with the transfer of our manufacturing activities to Flextronics, we have transferred approximately 85 employees to Flextronics, and Flextronics has assumed certain pension and other employee liabilities associated with these employees. We are responsible for any liabilities associated with known future severance payments for the transferred employees and will benefit from the future services of these employees as they will be working exclusively on our products. On June 1, 2006, Agilent paid into a trust account approximately $3 million, on our behalf, for the severance payments associated with the transferred employees. On July 14, 2006, we reimbursed Agilent for all these payments, in accordance with the master separation and distribution agreement. Also, we have potential obligation in the future of approximately $2 million associated with these transferred employees. We have deferred these costs and are recognizing them ratably over the employees’ period of service until the respective dates of the employees’ termination from Flextronics. During fiscal year 2006, we recorded $1.8 million of these charges in our cost of products.

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16.SEPARATION COSTS

The following table presents the components of separation costs for fiscal years 2006, 2005, and 2004, respectively.

	Year Ended October 31,
	2006				2005			2004
	(in millions)
Separation costs (included in cost of sales)		$	8			$	—		$	—
Separation costs (included in operating expense)		75				3			—
Total of separation costs		83				3			—
Net curtailment and settlement gains (included in costs of sales)		(4		)		—			—
Net curtailment and settlement gains (included in operating expenses)		(6		)		—			—
Net separation costs		$	73			$	3		$	—

In connection with our separation from Agilent, we incurred one-time internal and external separation costs, such as information technology set-up costs and consulting and legal and other professional fees.

For fiscal year 2006, we incurred $83 million in separation costs, of which approximately $8 million was recorded in costs of sales. These expenses were partially offset by a net curtailment and settlement gain of approximately $10 million which pertained to Agilent’s U.S. Retirement Plans and Agilent’s Post Retirement Benefit Plan. These net curtailment and settlement gains which resulted from the separation of our business from Agilent and the significant workforce reductions we incurred during fiscal year 2006 were recorded by Agilent in accordance with SFAS No. 88 and were pushed down to our business. For fiscal year 2005, we incurred $3 million in separation costs and no expenses were recorded in costs of sales.

All separation-related costs which were incurred up to the separation date, approximately $22 million, was Agilent’s responsibility, and all separation-related costs incurred after the separation date is our responsibility.

17.RETIREMENT PLANS AND POST-RETIREMENT BENEFITS

General.   Substantially all of our employees are covered under various Verigy defined benefit and/or defined contribution plans. Additionally, we sponsor retiree medical accounts for certian eligible U.S. employees. Prior to the seperation, Agilent had sponsored post-retirement health care benefits and a death benefit under the Retiree Survivor’s Benefit Plan for our eligible U.S. employees.

U.S. Retirement and Post-retirement Health Care Benefits for U.S. Employees

Effective June 1, 2006, Verigy established a new defined contribution benefit plan (“Verigy 401(k) plan”) for its U.S employees. Verigy’s 401(k) plan provides matching contribution of up to 4% of eligible compensation. Eligible compensation consists of base and variable pay. In addition, we also adopted the profit sharing plan for our U.S. employees, whereby the Company will make a maximum 2% contribution to the employee’s 401(k) plan if certain annual financial targets are achieved. A small number of our U.S. employees meeting certain age and service requirements will also receive an additional 2% profit sharing contribution to their 401(k) accounts if certain annual financial targets are achieved.

Effective June 1, 2006, Verigy made available certain retiree benefits to U.S. employees meeting certain age and service requirements upon termination of employment through Verigy’s Retiree Medical Account (RMA) Plan. At the date of separation, the present value of Verigy’s responsibility for the retiree medical benefit obligation was approximately $2.3 million. We are ratably recognizing this obligation over a period of 6.4 years, the shorter of the estimated average working lifetime or retirement eligibility of these

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employees. There are no plan assets related to these obligations and we do not expect to make any contributions in the next fiscal year. For fiscal year 2006, the expenses amount recognized under the RMA plan was approximately $0.2 million.

Prior to the separation date, June 1, 2006, the former U.S. Agilent employees newly employed by Verigy benefited from Agilent 401(k) matching contributions. These amounts were reflected in the respective costs of sales, research and development, and selling, general and administrative in the accompanying combined and consolidated statement of operations. Agilent allocated the 401(k) matching amounts to Verigy on a headcount basis.

For fiscal year 2006, the Company’s matching expenses for our US employees under the Verigy 401(k) and the Verigy profit sharing plans were $0.7 million and $0.5 million, respectively.

Non-U.S. Retirement Benefit Plans.   Eligible employees outside the U.S. generally receive retirement benefits under various retirement plans based upon factors such as years of service and employee compensation levels. Eligibility is generally determined in accordance with local statutory requirements.

Change in Plans.   Upon the separation of the business from Agilent, the defined benefit plans in the U.S., United Kingdom, Switzerland, and Japan were not transferred to us while the liabilities associated with plans in Germany, Korea Taiwan, France and Italy were transferred to us. With the exception of Italy and France, Agilent funded the transferred plans on June 1 2006 based on 80% of the estimated accumulated benefit obligations as of the separation date. On November 28, 2006, Agilent substantially completed its obligation to fund our Germany defined benefit plans at the accumulated benefit obligation level as of the separation date. With the exception of Italy, which is insignificant, Agilent will fund the remaining plans based on 100% of the accumulated benefit obligation level as of June 1, 2006, as soon as the actuarial valuations are completed by the end of our first quarter of fiscal 2007. Verigy made no significant contributions to the retirement plans during fiscal year 2006.

Costs for All U.S. and Non-U.S. Plans.   The following tables provide the principal components of total retirement related benefit plans impact on income (loss) of Verigy:

U.S. Year Ended October 31,			Non-U.S. Year Ended October 31,			Total Year Ended October 31,
2006	2005	2004	2006	2005	2004	2006	2005	2004
(in millions)

Defined benefit and contribution pension plan costs	$	2	$	5	$	5	$	5	$	6	$	6	$	7	$	11	$	11
Non-pension post-retirement benefit costs	—		—		1		—		—		—		—		—		1
Total retirement-related plans costs	$	2	$	5	$	6	$	5	$	6	$	6	$	7	$	11	$	12

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Non-U.S. Defined Benefit.   For fiscal years ended October 31, 2006, 2005 and 2004, the net pension costs related to our employees participating in our non-U.S. defined benefit plans were comprised of:

	Non-U.S. Plans Year Ended October 31,
	Five Months Ended October 31,				Seven Months Ended May 31,				Twelve Months Ended October 31				Twelve Months Ended October 31,
	2006				2006				2005				2004
	(in millions)
Service cost—benefits earned during the year		$	1.9			1.9				$	2.9			$	2.7
Interest cost on benefit obligation		0.7				1.3				2.2				1.9
Expected return on plan assets		(0.3		)		(1.4		)		(2.3		)		(2.1		)
Amortization and deferrals:
Actuarial loss		0.2				0.7				0.8				0.8
Net transition obligation		—				—				—				—
Total net plan costs		$	2.5			$	2.5			$	3.6			$	3.3

Measurement date.   We use September 30 measurement date for all of our non-U.S. plans and October 31 for our U.S. retiree medical account.

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Funded status—As of our 2006 and 2005 fiscal year ends, the funded status of our non-U.S. defined benefit plans were:

	Non-U.S. Defined Benefit Plans
	Year Ended October 31,
	2006			2005
	(in millions)
Change in fair value of plan assets:
Fair value—beginning of period	$	37.1		$	33.2
Actual return on plan assets	1.6			5.2
Employer contributions	—			0.3
Participants’ contributions	—			—
Benefits paid	—			(0.3		)
Change in plan assets due to separation from Agilent	(7.3		)	—
Currency impact	(0.5		)	(1.3		)
Fair value—end of period	$	30.9		$	37.1
Change in benefit obligation:
Benefit obligation—beginning of period	$	53.5		$	39.7
Service cost	3.8			2.9
Interest cost	2.0			2.2
Participants’ contributions	—			—
Plan amendment	—			0.5
Actuarial (gain)/loss	(4.7		)	10.4
Benefits paid	(0.2		)	(0.2		)
Change in pension liabilities due to separation from by Agilent	—			—
Currency impact	1.5			(2.0		)
Benefit obligation—end of period	$	55.9		$	53.5
Plan assets less than benefit obligation	$	(25.0	)	$	(16.4	)
Unrecognized net actuarial loss	16.0			15.7
Unrecognized prior service cost	—			0.5
Net prepaid (accrued) costs	$	(9.0	)	$	(0.2	)
Amounts recognized in the combined and consolidated balance sheet consist of:
Prepaid defined benefit plan costs	$	—		$	2.9
Accrued defined benefit plan costs	(12.7		)	(3.9		)
Deferred tax assets	1.4			0.3
Accumulated other comprehensive income	2.3			0.5
Net prepaid (accrued) costs	$	(9.0	)	$	(0.2	)

As of October 31, 2006 and 2005, the amounts of the obligations and assets for our non-U.S. defined benefit plans were as follows:

	Year Ended October 31,
	2006			2005
	(in millions)
Aggregate projected benefit obligation (“PBO”)		$	56		$	54
Aggregate accumulated benefit obligation (“ABO”)		$	40		$	38
Aggregate fair value of plan assets		$	31		$	37

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As of October 31, 2006 and 2005, we had some non-U.S. defined benefit plans with accumulated benefit obligations (“ABO”) that were in excess of the fair value of the plan assets. The amounts of the obligations and assets for these plans were:

	Year Ended October 31,
	2006			2005
	(in millions)
Aggregate accumulated benefit obligation (“ABO”)		$	40		$	5
Aggregate fair value of plan assets		$	31		$	3

Additional Minimum Liability.   As the accumulated benefit obligation for three of our Germany pension plans exceeded their respective pension plan assets, an additional minimum pension liability adjustment was required in fiscal year 2006. The impact of the additional minimum liability on accumulated comprehensive income (loss) was $2.3 million with $1.4 million applied to deferred tax assets. In fiscal year 2005, an additional minimum pension liability adjustment was also required as the accumulated benefit obligation for one of our Germany pension plans exceeded its pension plan assets. The impact of the additional minimum liability on accumulated comprehensive income (loss) was $0.5 million with $0.3 million applied to deferred tax assets.

Assumptions.   The assumptions used to determine the benefit obligations and expense for all of Verigy’s defined benefit and post-retirement benefit plans are presented in the tables below. The impacts of the assumptions listed for the years 2006, 2005 and 2004 have already been recognized in our combined and consolidated statement of operations. The expected long-term return on assets below is based on the historical rate of return for our chosen asset mix of equities and fixed income investments adjusted for anticipated future movements.

Assumptions used to calculate the net periodic cost in each year were as follows:

	Five Months Ended October 31,			Seven Months Ended May 31,			Year Ended October 31,			Year Ended October 31,
	2006			2006			2005			2004
U.S. defined benefit plans:
Discount rate		—			5.75	%		5.75	%		6.25	%
Average increase in compensation levels		—			4.0	%		4.0	%		4.25	%
Expected long-term return on assets		—			8.5	%		8.50	%		8.75	%
Non-U.S. defined benefit plans:
Discount rate		2.25 - 4.75	%		2.25 - 6.0	%		2.25 - 6.0	%		2.0 - 6.0	%
Average increase in compensation levels		2.5 - 3.0	%		2.5 - 5.0	%		2.5 - 5.0	%		2.5 - 5.0	%
Expected long-term return on assets		2.75 - 3.0	%		4.5 - 7.5	%		4.5 - 7.5	%		5.0 - 7.5	%
U.S. post-retirement benefits plans:
Discount rate		5.75	%		5.75	%		5.75	%		6.25	%
Expected long-term return on assets		—			8.5	%		8.5	%		8.75	%
Current medical cost trend rate		8.0	%		10.0	%		10.0	%		10.0	%
Ultimate medical cost trend rate		5.0	%		5.0	%		5.0	%		5.0	%
Medical cost trend rate decreases to ultimate rate in year		2010			2010			2010			2009

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Assumptions used to calculate the benefit obligations and the resulting additional minimum pension liability were as follows:

	Five Months Ended October 31,			Seven Months Ended May 31,			Year Ended October 31,
	2006			2006			2005
Non-U.S. defined benefit plans:
Discount rate		2.25 - 4.5	%		2.25—6.0	%		3.5 - 6.0	%
Average increase in compensation levels		3.0 - 4.0	%		2.5—5.0	%		3.0 - 5.0	%
Expected long-term return on assets		2.75 - 6.0	%		4.5 -7.5	%		6.75	%

18.OTHER ACCRUED LIABILITIES AND LONG TERM LIABILITIES

Other accrued liabilities at October 31, 2006 and 2005, were as follows:

	Year Ended October 31,
	2006			2005
	(in millions)
Supplier liabilities		$	6		$	13
Accrued warranty costs		6			6
Other		3			4
Total other accrued liabilities		$	15		$	23

Supplier liabilities reflect the amount by which our firmly committed inventory purchases from our suppliers exceed our forecasted production needs. The decrease in supplier liabilities from October 31, 2005 to October 31, 2006 is primarily due to our product portfolio being comprised of new generation products, and thus, less exposure for materials already purchased by suppliers for certain specific products and product components. See Note 14, “Guarantees” for additional information regarding warranty accruals. Per the master separation agreement, Agilent retained all separation-related costs which were accrued as of June 1, 2006.

Long-term liabilities at October 31, 2006 and 2005 were as follows:

	Year Ended October 31,
	2006			2005
	(in millions)
Long-term extended warranty and deferred revenue		$	15		$	10
Retirement plan accruals		15			4
Other		4			1
Total long-term liabilities		$	34		$	15

See Note 17, “Retirement and Post Retirement Pension Plans” for additional information regarding retirement plan accruals.

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19.FLEXTRONICS

In March 2006, we selected Flextronics Telecom Services Ltd. (“Flextronics”) as our primary contract manufacturer and signed several asset purchase agreements with them in connection with the transfer of our manufacturing activities to Flextronics as well as a global manufacturing services agreement. All of these agreements were entered into by Agilent, but upon the separation date, Verigy assumed all of Agilent’s rights and obligations under these agreements. Our agreements with Flextronics will expire in March 2010 although it may be automatically extended for subsequent terms of one year, absent nine-month notice of an intention to terminate the agreement from us or Flextronics. The agreements may also be terminated by us or Flextronics for other customary reasons, including if the other party becomes subject to bankruptcy proceedings or materially breaches the agreement. In addition, generally, we may terminate the agreements if Flextronics fails to make a timely delivery on more than 15% of our placed orders in any three-month period. We are not obligated to use Flextronics exclusively to manufacture our products, nor is Flextronics obligated to manufacture test equipment exclusively for us. However, the agreement does require our consent for Flextronics to sell any of our products to unaffiliated third parties.

Effective June 1, 2006, we sold to Flextronics approximately $19 million of inventory and approximately $2 million of machinery and equipment for approximately net book value. In addition, on October 16, 2006, we paid Flextronics $1.5 million for transition-related services, which we are recognizing as an expense ratably over the manufacturing contract period of approximately 4 years. Also, in connection with these agreements, Flextronics paid us $1.5 million on October 19, 2006, and will pay us an additional $1.5 million consideration in fiscal year 2007 that we will defer and recognize ratably over the manufacturing contract period.

See Note 15 “Restructuring and Asset Impairment” for information pertaining to the transfer of approximately 85 employees to Flextronics.

20.COMMITMENTS

Operating Lease Commitments:   Following our separation from Agilent, we entered into various operating lease arrangements with unrelated third parties. The following table reflects our non-cancellable operating lease commitments as of October 31, 2006:

Fiscal Year	Amount
	(in millions)
2007		$	13.0
2008		9.8
2009		9.6
2010		9.1
2011		8.4
Thereafter		30.4
Total		$	80.3

Rent expense was approximately $4.6 million, $2.0 and $2.0 million for fiscal years 2006, 2005, and 2004,  respectively. Prior to our separation from Agilent, Agilent had allocated to us our pro rata portion of expenses for rent, property tax, insurance, and routine maintenance.

As of October 31, 2006, Verigy has replaced all the cash deposits that Agilent had made for us on our behalf and also released Agilent from all guarantees and security obligations that they had made for us on our behalf. These guarantees and security arrangements related to real property lease deposits and guarantees, security for company credit card programs and other credit arrangements and required deposits with governmental trade and tax agencies.

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21.CONTINGENCIES

From time to time, we are involved in lawsuits, claims, investigations and proceedings, including patent, commercial and environmental matters that arise in the ordinary course of business. There are no such matters pending that we expect to be material in relation to our business, combined and consolidated financial condition, and results of operations or cash flows.

22.OTHER INCOME AND EXPENSE

The following table presents the components of other income (expense), net for fiscal years ended October 31, 2006, 2005, and 2004:

	Year Ended October 31,
	2006			2005				2004
	(in millions)
Interest income		$	4		$	—			$	—
Other, net		1			(1		)		1
Other income (expense), net		$	5		$	(1	)		$	1

Interest income is derived principally from the investment of our surplus cash balances in bank time deposits and other money market instruments.

23.SEGMENT & GEOGRAPHIC INFORMATION

SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” requires us to identify the segment or segments we operate in. Based on the standards set forth in SFAS 131, we operate in one reportable segment: we provide test system solutions that are used in the manufacture of semiconductor devices. Below is the revenue detail for the two product platforms within this segment:

	Year Ended October 31,
	2006		2005		2004
	(in millions)
Net revenue from products
SOC/SIP/High-Speed Memory	$	442	$	267	$	370
Memory	204		88		131
Net revenue from products	646		355		501
Net revenue from services	132		101		106
Total net revenue	$	778	$	456	$	607

Major customers

In fiscal year 2006, one customer accounted for 10.1% of our net revenue. In fiscal year 2005, no single customer accounted for 10% or more of our net revenue. In fiscal year 2004, one customer accounted for 15.1% of our net revenue.

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Geographic Net Revenue Information:

	Year Ended October 31,
	2006		2005		2004
	(in millions)
United States	$	245	$	118	$	168
Singapore	376		180		259
Japan	79		94		96
Rest of the World	78		64		84
Total net revenue	$	778	$	456	$	607

Net revenue is attributed to geographic areas based on the country in which the customer takes title to our products.

Geographic Property, Plant and Equipment Information:

	Year Ended October 31,
	2006			2005
	(in millions)
United States		$	13		$	8
Germany		4			4
Singapore		20			—
Japan		1			1
Rest of the World		6			5
Total long-lived assets		$	44		$	18

24.SUBSEQUENT EVENTS

Effective November 30, 2006, we issued 144,357 shares as part of the semi-annual Employee Shares Purchase Plan (“ESPP”).

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QUARTERLY SUMMARY
(Unaudited)

The following table presents our unaudited quarterly results of operations, in millions, for each of our last eight quarters through the quarter ended October 31, 2006. This table should be read in conjunction with the combined and consolidated audited annual financial statements and related notes contained elsewhere in this Form 10-K. We have prepared the unaudited information on the same basis as our audited combined and consolidated financial statements. Results of operations for any quarter are not necessarily indicative of results for any future quarters or years.

	Quarter Ended
	Oct. 31, 2006		Jul. 31, 2006		Apr. 30, 2006			Jan. 31, 2006			Oct. 31, 2005			Jul. 31, 2005			Apr. 30, 2005			Jan. 31, 2005
	(in millions)
Net revenue:
Products	$	164	$	181	$	158		$	143		$	131		$	93		$	76		$	55
Services	38		33		34			27			28			25			24			24
Total net revenue	202		214		192			170			159			118			100			79
Cost of sales:
Cost of products	88		88		81			74			81			58			49			40
Cost of services	25		23		25			24			23			22			22			21
Total cost of sales	113		111		106			98			104			80			71			61
Gross profit	89		103		86			72			55			38			29			18
Operating expenses:
Research and development	24		25		25			25			25			24			26			26
Selling, general and administrative	35		37		40			37			33			33			36			32
Restructuring charges	1		2		8			6			6			1			—			—
Separation costs	13		21		20			15			3			—			—			—
Total operating expenses	73		85		93			83			67			58			62			58
Income (loss) from operations	16		18		(7		)	(11		)	(12		)	(20		)	(33		)	(40		)
Other income (expense), net	3		2		—			—			(1		)	—			—			—
Income (loss) before taxes	19		20		(7		)	(11		)	(13		)	(20		)	(33		)	(40		)
Provision for taxes	5		7		4			5			2			2			4			5
Net loss	$	14	$	13	$	(11	)	$	(16	)	$	(15	)	$	(22	)	$	(37	)	$	(45	)
Weighted average net income (loss) per share:
Basic:	$	0.25	$	0.23	$	(0.22	)	$	(0.32	)	$	(0.30	)	$	(0.44	)	$	(0.74	)	$	(0.90	)
Diluted:	$	0.25	$	0.23	$	(0.22	)	$	(0.32	)	$	(0.30	)	$	(0.44	)	$	(0.74	)	$	(0.90	)
Weighted average shares (in thousands) used in computing net income (loss) per share:
Basic:	58,652		54,662		50,000			50,000			50,000			50,000			50,000			50,000
Diluted:	58,666		54,681		50,000			50,000			50,000			50,000			50,000			50,000

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The following table presents our historical results for the periods indicated as a percent of net revenue:

	Quarter Ended
	Oct. 31, 2006			Jul. 31, 2006			Apr. 30, 2006			Jan. 31, 2006			Oct. 31, 2005			Jul. 31, 2005			Apr. 30, 2005			Jan. 31, 2005
Net revenue:
Products		81.2	%		84.6	%		82.3	%		84.1	%		82.4	%		78.8	%		76.0	%		69.6	%
Services		18.8			15.4			17.7			15.9			17.6			21.2			24.0			30.4
Total net revenue		100.0			100.0			100.0			100.0			100.0			100.0			100.0			100.0
Cost of sales:
Cost of products		43.6			41.1			42.2			43.5			50.9			49.2			49.0			50.6
Cost of services		12.3			10.8			13.0			14.2			14.5			18.6			22.0			26.6
Total cost of sales		55.9			51.9			55.2			57.7			65.4			67.8			71.0			77.2
Gross margin		44.1			48.1			44.8			42.3			34.6			32.2			29.0			22.8
Operating expenses:
Research and development		11.9			11.7			13.0			14.7			15.7			20.3			26.0			32.9
Selling, general and administrative		17.3			17.2			20.8			21.8			20.8			28.0			36.0			40.5
Restructuring charges		0.5			0.9			4.2			3.5			3.8			0.8			0.0			0.0
Separation costs		6.4			9.8			10.4			8.8			1.8			0.0			0.0			0.0
Total operating expenses		36.1			39.6			48.4			48.8			42.1			49.1			62.0			73.4
Income (loss) from operations		8.0			8.5			(3.6	)		(6.5	)		(7.5	)		(16.9	)		(33.0	)		(50.6	)
Other income (expense), net		1.5			0.9			—			—			(0.6	)		—			—			—
Income (loss) before taxes		9.5			9.4			(3.6	)		(6.5	)		(8.1	)		(16.9	)		(33.0	)		(50.6	)
Provision for taxes		2.5			3.3			2.1			2.9			1.3			1.7			4.0			6.3
Net loss		6.9	%		6.1	%		(5.7	)%		(9.4	)%		(9.4	)%		(18.6	)%		(37.0	)%		(56.9	)%

Net Revenue.   The semiconductor test equipment market is cyclical and highly volatile. We experienced strong revenue growth in the fiscal year 2006 as demand for our test systems increased. The product revenue increased was primarily due to our SOC/SIP/high-speed memory test systems, with most of the sales being of the enhanced version of our 93000 Series platform. Continued customer demand for our 93000 series platform increased our penetration in a breadth of applications from next generation graphics and wireless gaming to high-end SOC applications and digital consumer applications. Revenue of our memory test systems also contributed to our product revenue due to the enhanced version of our Versatest V5000 Series platform. This demand was primarily a result of strong sales of flash memory devices as a result of greater demand of hand-held consumer products, as well as expansion of our addressable markets into NAND flash and flash final test.

Cost of Products.   As a percent of net revenue, cost of products will vary depending on a variety of factors, including the mix of system configurations in a particular period, competitive and other pressures on pricing, and our ability to manage inventory levels to avoid excess and obsolete inventory charges. As a result, our gross product margin has been highly volatile.

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Lower revenue adversely impacted our cost of products as a percent of revenue through the first half of fiscal year 2005. When revenues started increasing in the third quarter of fiscal year 2005, so did our gross margins, reflecting substantial improvements in utilization of overhead costs and manufacturing personnel. In the third and fourth quarter of fiscal year 2005, charges for excess and obsolete inventory related to discontinue products adversely impacted our cost of products as a percent of revenue.

Our cost of products in absolute amount are expected to increase or decrease with revenue. In order to mitigate the risk and to manage our costs through the peaks and valleys of the semiconductor industry, we are currently streamlining our cost structure by reducing our fixed costs and adding more flexibility to our manufacturing model through the outsourcing of the majority of our manufacturing. We believe our efforts will provide us with the flexibility to respond more rapidly to changes in industry conditions and to better capitalize on market opportunities during market upturns, and will provide us with more consistent cost of products.

Cost of Services.   Our cost of services in absolute amount is expected to increase or decrease with services revenue. As a percent of net services revenue, these costs will vary depending on a variety of factors, including our ability to weather price erosion, the reliability and quality of our products and our need to maintain customer service and support centers worldwide

Research and Development.   Our research and development expenses have fluctuated from quarter to quarter as a percent of net revenue, but have generally remained level in absolute dollars, reflecting management’s commitment to product innovation without regard to demand cycles. R&D spending levels tend to fluctuate modestly from quarter to quarter based on the timing of project activities.

Selling, General and Administrative.   SG&A expenses have generally stayed flat over time but have fluctuated and will continue to fluctuate from quarter to quarter as a percent of net revenue. In general, we believe our SG&A expenses will decrease due to our efforts to streamline our infrastructure, consolidate excess facilities and right-size our business. These cost reductions will be partially offset by incremental costs associated with professional fees such as legal, regulatory and accounting compliance costs that we are incurring as a stand-alone company. Our SG&A expenses will also be impacted as we progress with the implementation our new manufacturing model, expand in China and expense share-based compensation costs as required by FAS 123(R). In addition, commission expenses included in SG&A expenses will fluctuate with changes in sales volume and customer mix.

Our quarterly results of operations have varied in the past and are likely to do so again in the future primarily due to the cyclical nature of the semiconductor industry. As such, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of future performance. In future periods, the market price of our ordinary shares could decline if our revenues and results of operations are below the expectations of analysts and investors. Factors that may cause our revenue and results of operations to fluctuate include those discussed in the “Risk Factors” section of this Form 10-K.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in the company’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) information is accumulated and communicated to management, including the

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Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Based on their evaluation, Verigy’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

Because of its inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls 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, regardless of how remote.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended October 31, 2006, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Prior to becoming a stand alone company, we relied on the financial resources and the administrative and operational support systems of Agilent to operate our business. In conjunction with our separation from Agilent, we have separated our assets from those of Agilent and have created our own financial, administrative, operational and other support systems or contract with third parties to replace Agilent’s systems. Many of the new systems, including our ERP system, have been in effect only since the separation date. We have experienced, and expect to continue to experience periodic interruptions in our ERP system, and it may take additional time to fully implement and stabilize the ERP system as well as other support systems. In order to successfully implement our own systems and operate as a stand-alone business, we must be able to attract and retain a number of highly skilled employees.

Item 9B.Other Information

Director & Officer Indemnity Agreements

On December 20, 2006, our Board of Directors and the Board of Directors of our primary U.S. subsidiary approved a form of Indemnity Agreement to be entered into between the U.S. subsidiary and each officer and director of the company and each of it’s direct and indirect subsidiaries. This Indemnity Agreement is substantially similar to the indemnity agreements previously approved and entered into between the company and each officer and director of the company and its direct and indirect subsidiaries. The U.S. indemnity agreement is intended to supplement the existing indemnity agreements. The laws of the State of Delaware, where the company’s primary U.S. subsidiary is incorporated, permit indemnification of directors and officers under a broader range of circumstances than is permitted under the laws of Singapore, where the company is incorporated. As a result of these differences in law, directors and officers of the company and its subsidiaries may be entitled to indemnification under the U.S. Indemnity Agreements in circumstances where the company itself would not be permitted to provide indemnification. The form of U.S. Indemnity Agreement is attached hereto as Exhibit 10.11, and is incorporated by reference in this description.

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PART III

Item 10:Directors and Executive Officers of the Registrant

Certain information relating to our directors and executive officers, committee information, reports and charters, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our 2007 Annual General Meeting of Shareholders, which proxy statement will be filed with the Commission not later than 120 days after the close of our fiscal year. For this purpose, the Compensation Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein.

Standards of Business Conduct

We have adopted Standards of Business Conduct that apply to all of our employees and our Directors. The Standards of Business Conduct are available on our website at http://www.investor.verigy.com/documents.cfm. Any amendment (other than technical, administrative or other non-substantive amendments) to or material waiver (as defined by the SEC) of a provision of the Standards of Business Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions and relates to elements of the Standards of Business Conduct specified in the rules of the SEC will be posted on our website.

Item 11:Executive Compensation.

Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our 2007 Annual General Meeting of Shareholders, which proxy statement will be filed with the Commission not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein.

Item 12:Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our 2007 Annual General Meeting of Shareholders, which proxy statement will be filed with the Commission not later than 120 days after the close of the fiscal year. Also see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Equity Compensation Plans.”

Item 13:Certain Relationships and Related Transactions.

Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our 2007 Annual General Meeting of Shareholders, which proxy statement will be filed with the Commission not later than 120 days after the close of the fiscal year.

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Item 14:Principal Accountant Fees and Services.

Certain information relating to audit fees of Verigy’s independent registered public accounting firm is incorporated by reference herein from our definitive proxy statement in connection with our 2007 Annual General Meeting of Shareholders, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year.

PART IV

Item 15.Exhibits and Financial Statement Schedules

(a)The following documents are filed as part of this report:

1.     Financial Statements.

See Index to Consolidated Financial Statements under Item 8 on Page 49 of this report.

2.     Financial Statement Schedule.

The following additional financial statement schedule should be considered in conjunction with our consolidated financial statements. All other schedules have been omitted because the required information is either not applicable or not sufficiently material to require submission of the schedule:

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SIGNATURES

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

VERIGY LTD.
By:	/s/ KEITH L. BARNES
	Keith L. Barnes
	President, Chief Executive Officer, and Director

Date: December 21, 2006

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Keith L. Barnes and Robert J. Nikl, jointly and severally, his or her attorney-in-fact, each with the full power of substitution, for such person, in any and all capacities, to sign any and all 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 said attorney-in-fact and agent 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 might do or could do in person hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

	Signature		Title		Date
/s/ KEITH L. BARNES		President, Chief Executive Officer and Director		December 21, 2006
Keith L. Barnes		(Principal Executive Officer)
/s/ ROBERT J. NIKL		Chief Financial Officer (Principal Financial and		December 21, 2006
Robert J. Nikl		Accounting Officer)
/s/ ADRIAN T. DILLON		Chairman of the Board and Director		December 21, 2006
Adrian T. Dillon
/s/ PAUL CHAN KWAI WAH		Director		December 21, 2006
Paul Chan Kwai Wah
/s/ C. SCOTT GIBSON		Director		December 21, 2006
C. Scott Gibson
/s/ ERNEST GODSHALK		Director		December 21, 2006
Ernest Godshalk
/s/ ERIC MEURICE		Director		December 21, 2006
Eric Meurice
/s/ CLAUDINE SIMSON		Director		December 21, 2006
Claudine Simson

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SCHEDULE II

VERIGY LTD.
Valuation and Qualifying Accounts

Description	Balance at Beginning of Period			Additions Charged to Costs, Expenses or Other Accounts**			Deductions*				Balance at End of Period
	(In Millions)
2006
Allowance for doubtful accounts		$	0.2		$	—		$	(0.1	)		$	0.1
Tax valuation allowance(***)		$	135.0		$	—		$	(135.0	)		$	—
2005
Allowance for doubtful accounts		$	0.3		$	—		$	(0.1	)		$	0.2
Tax valuation allowance		$	105.6		$	29.4		$	—			$	135.0
2004
Allowance for doubtful accounts		$	1.0		$	—		$	(0.7	)		$	0.3
Tax valuation allowance		$	100.2		$	5.46		$	—			$	105.6

*Deductions include current year reduction in deferred tax assets due to current year decrease in net deferred tax assets for return to provision true-ups, other adjustments, and other comprehensive incomew impact to deferred taxes.

**Additions include valuation allowance build due to current year increase in net deferred tax assets, return to provision true-ups, other adjustments, and other comprehensive income impact to deferred taxes.

***Pursuant to our separation, all deferred tax asset and associated valuation allowances as of the separation date remained with Agilent.

3.Exhibits.

Exhibits are incorporated herein by reference or are filed with this report as indicated below (numbered in accordance with Item 601 of Regulation S-K):

EXHIBIT INDEX

		Incorporated By Reference
Exhibit Number	Exhibit Description	Form	File Number	Exhibit	Date	Filed Herewith
2.1	Master Separation and Distribution Agreement between Agilent and Verigy Ltd., effective May 31, 2006	S-1/A	333-132291	2.1	6/5/2006
2.2	General Assignment and Assumption Agreement between Agilent and Verigy Ltd., effective June 1, 2006	S-1/A	333-132291	2.2	6/5/2006
2.3	Intellectual Property Matters Agreement among Agilent, Verigy (Singapore) Pte. Ltd. and Verigy Ltd., effective June 1, 2006	S-1/A	333-132291	2.3	6/5/2006
2.4	Employee Matters Agreement between Agilent and Verigy Ltd., effective June 1, 2006	S-1/A	333-132291	2.4	6/5/2006

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2.5	Tax Sharing Agreement between Agilent and Verigy Ltd., effective June 1, 2006	S-1/A	333-132291	2.5	6/5/2006
2.6	Transition Services Agreement between Agilent and Verigy Ltd., effective June 1, 2006	S-1/A	333-132291	2.6	6/5/2006
2.7	Manufacturing Trademark License Agreement between Agilent and Verigy Ltd., effective June 1, 2006	S-1/A	333-132291	2.7	6/5/2006
3.1	Amended and Restated Memorandum and Articles of Association of Verigy Ltd.	S-1/A	333-132291	3.2	6/5/2006
4.1	Form of Specimen Share Certificate for Verigy Ltd.’s Ordinary Shares	S-1/A	333-132291	4.1	6/1/2006
10.1**	Form of Indemnity Agreement entered into by Verigy Ltd.with each of its directors and executive officers	S-1/A	333-132291	10.1	5/23/2006
10.2**	2006 Equity Incentive Plan, as amended December 13, 2006					X
10.2.1**	Form of Employee Share Option Grant Agreement, as amended December 20, 2006					X
10.2.2**	Form of Non-Employee Director Share Option Grant Agreement, as amended December 20, 2006					X
10.2.3**	Form of Employee Share Unit Agreement, as amended December 20, 2006					X
10.2.4**	Form of Non-Employee Director Share Unit Agreement, as amended December 20, 2006					X
10.2.5**	Form of Verigy Ltd. 2006 Equity Incentive Plan Share Option Agreement for Employees Located Outside of the United States, as amended December 20, 2006					X
10.2.6**	Form of Verigy Ltd. 2006 Equity Incentive Plan Share Unit Agreement for Employees Located Outside of the United States, as amended December 20, 2006					X
10.2.7**	Form of Verigy Ltd. 2006 Equity Incentive Plan Share Option Agreement for Employees Located in France, as amended December 20, 2006					X

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10.2.8**	Form of Verigy Ltd. 2006 Equity Incentive Plan Share Unit Agreement for Employees Located in France, as amended December 20, 2006					X
10.2.9**	Form of Replacement Option Award Agreement for U.S. Employees	8-K	000-52038	10.2.9	11/1/2006
10.2.10**	Form of Replacement Option Award Agreement for Employees Outside the U.S.	8-K	000-52038	10.2.10	11/1/2006
10.2.11**	Form of Replacement Share Unit Agreement for Employees Located in France	8-K	000-52038	10.2.11	11/1/2006
10.2.12**	Form of Four-Tranche Officer Share Option Agreement					X
10.2.13**	Form of Four-Tranche Officer Share Option Agreement for France-Based Officers					X
10.3**	2006 Employee Shares Purchase Plan, as amended December 20, 2006					X
10.4	Global Manufacturing Services Agreement between Agilent Technologies International SÀRL and Flextronics Telecom Services Ltd., effective March 2, 2006	S-1/A	333-132291	10.4	5/24/2006
10.5**	Employment Offer Letter to Keith L. Barnes, dated April 4, 2006	S-1/A	333-132291	10.11	5/1/2006
10.6**	Retention Bonus Agreement between Pascal Ronde and Verigy Ltd., dated May 19, 2006	S-1/A	333-132291	10.13	5/23/2006
10.7**	Employment Offer Letter to Robert Nikl, dated May 26, 2006	S-1/A	333-132291	10.14	6/1/2006
10.8	Lease Agreement by and between Verigy US, Inc. and Pau Moulds CPP-A LLC, dated May31, 2006					X
10.9**	Form of Severance Agreement for U.S.-based Officers					X
10.10**	Description of Verigy’s Pay-For-Results Program					X
10.11**	Form of Indemnification Agreement between Verigy US, Inc. and Verigy Ltd.’s Officers and Directors					X
21.1	Verigy Ltd.’s Subsidiaries					X
23.1	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm					X
24.1	Power of Attorney (see signature page to this Form 10-K)					X

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31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
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	X
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	X

**Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

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EX-10.2

Exhibit 10.2

Verigy Ltd.

2006 Equity Incentive Plan

(As Amended December 13, 2006)

TABLE OF CONTENTS

		Page
ARTICLE 1.	INTRODUCTION	1
ARTICLE 2.	ADMINISTRATION	1
2.1	Committee Composition	1
2.2	Committee Responsibilities	1
2.3	Committee for Non-Officer Grants	2
2.4	Administration with Respect to Substitute Awards	2
ARTICLE 3.	SHARES AVAILABLE FOR GRANTS	2
3.1	Basic Limitation	2
3.2	Shares Returned to Reserve	2
3.3	Substitute Awards	2
3.4	Dividend Equivalents	3
ARTICLE 4.	ELIGIBILITY	3
4.1	Incentive Stock Options	3
4.2	Other Grants	3
ARTICLE 5.	OPTIONS	3
5.1	Option Agreement	3
5.2	Number of Shares	3
5.3	Exercise Price	4
5.4	Exercisability and Term	4
5.5	Effect of Change in Control	5
5.6	Buyout Provisions	5
5.7	Payment for Option Shares	5
ARTICLE 6.	SHARE APPRECIATION RIGHTS	5
6.1	SAR Agreement	5
6.2	Number of Shares	6
6.3	Exercise Price	6
6.4	Exercisability and Term	6
6.5	Effect of Change in Control	7
6.6	Exercise of SARs	7
ARTICLE 7.	RESTRICTED SHARES	7
7.1	Restricted Share Agreement	7
7.2	Number of Shares	7
7.3	Payment for Awards	8
7.4	Vesting Conditions	8
7.5	Effect of Change in Control	9
7.6	Voting and Dividend Rights	9
ARTICLE 8.	SHARE UNITS	9
8.1	Share Unit Agreement	9
8.2	Number of Shares	9

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8.3	Payment for Awards	9
8.4	Vesting Conditions	9
8.5	Effect of Change in Control	10
8.6	Voting and Dividend Rights	10
8.7	Form and Time of Settlement of Share Units	10
8.8	Creditors’ Rights	11
ARTICLE 9.	AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS	11
9.1	Initial Grants	11
9.2	Annual Grants	11
9.3	Cessation of Eligibility to Vest	12
9.4	Accelerated Exercisability	12
9.5	Exercise Price	12
9.6	Term	12
9.7	Affiliates of Outside Directors	12
ARTICLE 10.	PROTECTION AGAINST DILUTION	12
10.1	Adjustments	12
10.2	Dissolution or Liquidation	13
10.3	Reorganizations	13
ARTICLE 11.	PAYMENT OF DIRECTOR’S FEES IN SECURITIES	14
11.1	Effective Date	14
11.2	Elections to Receive NSOs, Restricted Shares or Share Units	14
11.3	Number and Terms of NSOs, Restricted Shares or Share Units	14
ARTICLE 12.	LIMITATION ON RIGHTS	15
12.1	Retention Rights	15
12.2	Shareholders’ Rights	15
12.3	Regulatory Requirements	15
ARTICLE 13.	WITHHOLDING TAXES	15
13.1	General	15
13.2	Share Withholding	15
ARTICLE 14.	LIMITATION ON PAYMENTS	15
14.1	Scope of Limitation	15
14.2	Basic Rule	16
14.3	Reduction of Payments	16
14.4	Overpayments and Underpayments	16
14.5	Related Corporations	17
ARTICLE 15.	FUTURE OF THE PLAN	17
15.1	Term of the Plan	17
15.2	Amendment or Termination	17
15.3	Shareholder Approval	17
ARTICLE 16.	DEFINITIONS	17

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Verigy Ltd.

2006 Equity Incentive Plan

ARTICLE 1.INTRODUCTION.

The purpose of the Plan is to promote the long-term success of the Company and the creation of shareholder value by (a) encouraging Employees, Outside Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside Directors and Consultants directly to shareholder interests through increased share ownership.  The Plan seeks to achieve this purpose by providing for Awards in the form of Options (which may constitute ISOs or NSOs), SARs, Restricted Shares or Share Units.

The Plan shall be governed by, and construed in accordance with, the laws of the Republic of Singapore (except its choice-of-law provisions).

ARTICLE 2.ADMINISTRATION.

2.1Committee Composition.  The Committee shall administer the Plan.  The Committee shall consist exclusively of two or more directors of the Company, who shall be appointed by the Board.  In addition, each member of the Committee shall meet the following requirements:

(a)Any listing standards prescribed by the principal securities market on which the Company’s equity securities are traded;

(b)Such requirements as the Internal Revenue Service may establish for outside directors acting under plans intended to qualify for exemption under section 162(m)(4)(C) of the Code;

(c)Such requirements as the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and

(d)Any other requirements imposed by applicable law, regulations or rules.

2.2Committee Responsibilities.  The Committee shall (a) select the Employees, Outside Directors and Consultants who are to receive Awards under the Plan, (b) determine the type, number, vesting requirements and other features and conditions of such Awards, (c) interpret the Plan, (d) make all other decisions relating to the operation of the Plan and (e) carry out any other duties delegated to it by the Board.  The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan, including rules and procedures relating to the operation and administration of the Plan in order to accommodate the specific

requirements of local laws and procedures.  Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt (a) rules and procedures regarding the conversion of local currency, withholding procedures and handling of stock certificates that vary with local requirements and (b) such sub-plans and Plan addenda as the Committee deems desirable to accommodate foreign tax laws, regulations and practice.  The Committee’s determinations under the Plan shall be final and binding on all persons.

2.3Committee for Non-Officer Grants.  The Board may also appoint a secondary committee of the Board, which shall be composed of one or more directors of the Company who need not satisfy the requirements of Section 2.1.  Such secondary committee may administer the Plan with respect to Employees and Consultants who are not Outside Directors and are not considered executive officers of the Company under section 16 of the Exchange Act, may grant Awards under the Plan to such Employees and Consultants and may determine all features and conditions of such Awards.  Within the limitations of this Section 2.3, any reference in the Plan to the Committee shall include such secondary committee.

2.4Administration with Respect to Substitute Awards.   Notwithstanding any other provision of this Plan, in connection with issuing Substitute Awards, the Committee may provide that the Substitute Awards shall be subject to the terms and conditions of the plan and/or agreements under which the awards being assumed or substituted were originally issued, even where such terms are in conflict or inconsistent with the terms of this Plan.

ARTICLE 3.SHARES AVAILABLE FOR GRANTS.

3.1Basic Limitation.  Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares.  The aggregate number of Shares issued under the Plan shall not exceed (a) 10,300,000 plus (b) the additional Shares described in Section 3.3.  The number of Shares that are subject to Awards outstanding at any time under the Plan shall not exceed the number of Shares that then remain available for issuance under the Plan.  Notwithstanding any other provision of this Plan, the maximum number of Shares that may be issued upon the exercise of ISOs under this Plan is 10,300,000.  The limitations of this Section 3.1 shall be subject to adjustment pursuant to Article 10.

3.2Shares Returned to Reserve.  If Options, SARs or Share Units (including Replacement Awards) are forfeited or terminate for any other reason before being exercised or settled, then the Shares subject to such Options, SARs or Share Units shall again become available for issuance under the Plan.  If SARs are exercised, then only the number of Shares (if any) actually issued in settlement of such SARs shall reduce the number available under Section 3.1 and the balance shall again become available for issuance under the Plan.  If Share Units are settled, then only the number of Shares (if any) actually issued in settlement of such Share Units shall reduce the number available under Section 3.1 and the balance shall again become available for issuance under the Plan.  If Restricted Shares or Shares issued upon the exercise of Options are reacquired by the Company pursuant to a forfeiture provision or for any other reason, then such Shares shall again become available for issuance under the Plan.

3.3Substitute Awards.  Except with respect to Substitute Awards issued with respect to awards previously issued by Agilent Technologies, Inc., Substitute Awards shall not

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reduce the Shares authorized for issuance under the Plan or authorized for grant to a Participant in any calendar year.  Additionally, in the event that a company acquired by the Company or any Subsidiary, or with which the Company or any Subsidiary combines, has shares available under a pre-existing plan approved by shareholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of ordinary shares or common shares of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for issuance under the Plan; provided that Awards using such available Shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were employees, directors or consultants of such acquired or combined company before such acquisition or combination.

3.4Dividend Equivalents.  Any dividend equivalents paid or credited under the Plan shall be applied against the number of Shares that may be issued under the Plan if such dividend equivalents are converted into Share Units.

ARTICLE 4.ELIGIBILITY.

4.1Incentive Stock Options.  Only Employees who are common-law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs.  In addition, an Employee who owns more than 10% of the total combined voting power of all classes of outstanding shares of the Company or any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(5) of the Code are satisfied.

4.2Other Grants.  Only Employees, Outside Directors and Consultants shall be eligible for the grant of Restricted Shares, Share Units, NSOs or SARs.

ARTICLE 5.OPTIONS.

5.1Option Agreement.  Each grant of an Option under the Plan shall be evidenced by an Option Agreement between the Optionee and the Company.  Such Option shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan.  The Option Agreement shall specify whether the Option is an ISO or an NSO.  The provisions of the various Option Agreements entered into under the Plan need not be identical.  An Option Agreement may provide that a new Option will be granted automatically to the Optionee when he or she exercises a prior Option and pays the Exercise Price in the form described in Section 5.7(b).

5.2Number of Shares.  Each Option Agreement shall specify the number of Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article 10.  Options granted to any Optionee in a single fiscal year of the Company shall not cover more than 750,000 Shares, except that Options granted to a new Employee in the fiscal year of the Company in which his or her Service as an Employee first commences shall not cover

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more than 1,500,000 Shares.  The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with Article 10.

5.3Exercise Price.  Each Option Agreement shall specify the Exercise Price; provided that the Exercise Price shall in no event be less than 100% of the Fair Market Value of a Share on the Date of Grant.  Other than in connection with an event or transaction described in Article 10, Options may not be repriced, replaced, regranted through cancellation or modified without shareholder approval if the effect of such repricing, replacement, regrant or modification would be to reduce the exercise price of such Options.

5.4Exercisability and Term.

(a)General.  Each Option Agreement shall specify the date or event when all or any installment of the Option is to become exercisable.  The Option Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed 10 years from the Date of Grant.  Options may be awarded in combination with SARs, and such an Award may provide that the Options will not be exercisable unless the related SARs are forfeited.

(b)Cessation of Eligibility to Vest.  Unless otherwise provided by the Option Agreement, if an Optionee ceases to be an Awardee Eligible to Vest, other than as a result of circumstances described in Subsection (c) or (d) below, such Optionee’s Option shall terminate immediately as to the unvested Shares and such unvested Shares shall revert to the Plan, and such Optionee’s Option shall be exercisable as to the vested Shares for three months after the date such individual ceases to be an Awardee Eligible to Vest or, if earlier, the expiration of the term of such Option.  If, for any reason, the Optionee does not exercise his or her vested Option within the appropriate exercise period set forth above, the Option shall automatically terminate, and the Shares covered by such Option shall revert to the Plan.

(c)Death, Disability or Retirement of Optionee.  Unless otherwise provided by the Option Agreement, if an Optionee ceases to be an Awardee Eligible to Vest as a result of the Optionee’s death, total and permanent disability or retirement due to age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s retirement policy, then (i) the vested portion of such Optionee’s Option shall be determined by adding 12 months to the length of his or her actual Service, (ii) such Optionee’s Option shall terminate immediately as to the unvested Shares and such unvested Shares shall revert to the Plan, and (iii) such Optionee’s Option shall be exercisable as to the vested Shares for one year after the date such individual ceases to be an Awardee Eligible to Vest or, if earlier, the expiration of the term of such Option.  Where an individual ceases to be an Awardee Eligible to Vest as a result of death, the Option may be exercised by the beneficiary designated by the Optionee, the executor or administrator of the Optionee’s estate or, if none, by the person(s) entitled to exercise the Option under the Optionee’s will or the laws of descent or distribution.  If, for any reason, the Option is not so exercised within the time specified herein, the Option shall automatically terminate, and the Shares covered by such Option shall revert to the Plan.

(d)Voluntary Severance Incentive Program.  If an Optionee ceases to be an Awardee Eligible to Vest as a result of participation in a voluntary severance incentive

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program or workforce management plan approved by the Board or a Committee, unvested Options shall vest and Options shall remain exercisable, to the extent provided by the Board or a Committee in such voluntary severance incentive program or workforce management plan.  Absent a specific provision for acceleration or extended exercise period, the provisions of Subsection (b) above shall apply.

5.5Effect of Change in Control.  The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become exercisable as to all or part of the Shares subject to such Option if a Change in Control occurs with respect to the Company or if the Optionee’s Service is terminated without Cause after a Change in Control.  In addition, acceleration of exercisability may be required under Section 10.3.

5.6Buyout Provisions.  The Committee may at any time (a) offer to buy out for a payment in cash or cash equivalents an Option previously granted or (b) authorize an Optionee to elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.

5.7Payment for Option Shares.

(a)General Rule.  The entire Exercise Price of Shares issued upon exercise of Options shall be payable in cash or cash equivalents at the time when such Shares are purchased, except that the Committee at its sole discretion may accept payment of the Exercise Price in any other form(s) described in this Section 5.7.  However, if the Optionee is an Outside Director or executive officer of the Company, he or she may pay the Exercise Price in a form other than cash or cash equivalents only to the extent permitted by section 13(k) of the Exchange Act.

(b)Surrender of Shares.  With the Committee’s consent, all or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee.  Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan.

(c)Exercise/Sale.  With the Committee’s consent, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (in a manner prescribed by the Company) an irrevocable direction to a securities broker approved by the Company to sell all or part of the Shares being purchased under the Plan and to deliver all or part of the sales proceeds to the Company.

(d)Other Forms of Payment.  With the Committee’s consent, all or any part of the Exercise Price and any withholding taxes may be paid in any other form that is consistent with applicable laws, regulations and rules.

ARTICLE 6.SHARE APPRECIATION RIGHTS.

6.1SAR Agreement.  Each grant of a SAR under the Plan shall be evidenced by a SAR Agreement between the Optionee and the Company.  Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with

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the Plan.  The provisions of the various SAR Agreements entered into under the Plan need not be identical.

6.2Number of Shares.  Each SAR Agreement shall specify the number of Shares to which the SAR pertains and shall provide for the adjustment of such number in accordance with Article 10.  SARs granted to any Optionee in a single fiscal year shall in no event pertain to more than 750,000 Shares, except that SARs granted to a new Employee in the fiscal year of the Company in which his or her Service as an Employee first commences shall not pertain to more than 1,500,000 Shares.  The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with Article 10.

6.3Exercise Price.  Each SAR Agreement shall specify the Exercise Price; provided that the Exercise Price shall in no event be less than 100% of the Fair Market Value of a Share on the Date of Grant.  Other than in connection with an event or transaction described in Article 10, SARs may not be repriced, replaced, regranted through cancellation or modified without shareholder approval if the effect of such repricing, replacement, regrant or modification would be to reduce the exercise price of such SARs.

6.4Exercisability and Term.

(a)General.  Each SAR Agreement shall specify the date when all or any installment of the SAR is to become exercisable.  The SAR Agreement shall also specify the term of the SAR.  SARs may be awarded in combination with Options, and such an Award may provide that the SARs will not be exercisable unless the related Options are forfeited.  An SAR may be included in an ISO only at the time of grant but may be included in an NSO at the time of grant or thereafter.  An SAR granted under the Plan may provide that it will be exercisable only in the event of a Change in Control.

(b)Cessation of Eligibility to Vest.  Unless otherwise provided by the SAR Agreement, if an Optionee ceases to be an Awardee Eligible to Vest, other than as a result of circumstances described in Subsection (c) or (d) below, such Optionee’s SAR shall terminate immediately as to the unvested Shares and such unvested Shares shall revert to the Plan, and the SAR shall be exercisable as to the vested Shares for three months after the date such individual ceases to be an Awardee Eligible to Vest or, if earlier, the expiration of the term of such SAR.  If, for any reason, the Optionee does not exercise his or her vested SARs within the appropriate exercise period set forth above, the SAR shall automatically terminate, and the Shares covered by such SAR shall revert to the Plan.

(c)Death, Disability or Retirement of Optionee.  Unless otherwise provided by the SAR Agreement, if an Optionee ceases to be an Awardee Eligible to Vest as a result of the Optionee’s total and permanent disability or retirement due to age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s retirement policy, then (i) the vested portion of such Optionee’s SAR shall be determined by adding 12 months to the length of his or her actual Service, (ii) such Optionee’s SAR shall terminate immediately as to the unvested Shares and such unvested Shares shall revert to the Plan, and (iii) such Optionee’s SAR shall be exercisable as to the vested Shares for one year after the date such individual ceases to be an Awardee Eligible to Vest or, if earlier, the expiration of the term of such SAR.  Where an

6

individual ceases to be an Awardee Eligible to Vest as a result of death, the SAR may be exercised by the beneficiary designated by the Optionee, the executor or administrator of the Optionee’s estate or, if none, by the person(s) entitled to exercise the SAR under the Optionee’s will or the laws of descent or distribution.  If, for any reason, the SAR is not so exercised within the time specified herein, the SAR shall automatically terminate, and the Shares covered by such SAR shall revert to the Plan.

(d)Voluntary Severance Incentive Program.  If an Optionee ceases to be an Awardee Eligible to Vest as a result of participation in a voluntary severance incentive program or workforce management plan approved by the Board or a Committee, unvested SARs shall vest and SARs shall remain exercisable, to the extent provided by the Board or a Committee in such voluntary severance incentive program or workforce management plan.  Absent a specific provision for acceleration or extended exercise period, the provisions of Subsection (b) above shall apply.

6.5Effect of Change in Control.  The Committee may determine, at the time of granting a SAR or thereafter, that such SAR shall become exercisable as to all or part of the Shares subject to such SAR if a Change in Control occurs with respect to the Company or if the Optionee’s Service is terminated without Cause after a Change in Control.  In addition, acceleration of exercisability may be required under Section 10.3.

6.6Exercise of SARs.  Upon exercise of a SAR, the Optionee (or any person having the right to exercise the SAR after his or her death) shall receive from the Company consideration in the form of (a) Shares, (b) cash or (c) a combination of Shares and cash, as the Committee shall determine.  Each SAR Agreement shall specify the amount and/or Fair Market Value of the consideration that the Optionee will receive upon exercising the SAR; provided that the aggregate consideration shall not exceed the amount by which the Fair Market Value (on the date of exercise) of the Shares subject to the SAR exceeds the Exercise Price of the SAR.  If, on the date when a SAR expires, the Exercise Price of the SAR is less than the Fair Market Value of the Shares subject to the SAR on such date but any portion of the SAR has not been exercised, then the SAR shall automatically be deemed to be exercised as of such date with respect to such portion.  An SAR Agreement may also provide for an automatic exercise of the SAR on an earlier date.

ARTICLE 7.RESTRICTED SHARES.

7.1Restricted Share Agreement.  Each grant of Restricted Shares under the Plan shall be evidenced by a Restricted Share Agreement between the recipient and the Company.  Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan.  The provisions of the various Restricted Share Agreements entered into under the Plan need not be identical.

7.2Number of Shares.  Each Restricted Share Agreement shall specify the number of Shares to which the Agreement pertains.  Such number shall be subject to the limitation of Section 7.4(a), if applicable.

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7.3Payment for Awards.  Restricted Shares may be sold or awarded under the Plan for such consideration as the Committee may determine, including (without limitation) cash, cash equivalents, property, past services and future services.  Within the limitations of the Plan, the Committee may accept the cancellation of outstanding options in return for the grant of Restricted Shares.

7.4Vesting Conditions.

(a)General.  Each Award of Restricted Shares may or may not be subject to vesting.  Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Share Agreement.  The Committee may include among such conditions continued performance of Service and/or the requirement that the performance of the Company (or a Subsidiary, Affiliate or business unit of the Company) for a specified period of not less than one fiscal year equal or exceed a target determined by the Committee.  Such target shall be based on one or more of the criteria set forth in Appendix A, and shall be determined not later than the 90 days following commencement of the specified performance period.  As to Awards with respect to which the Company desires to secure an exemption from section 162(m) of the Code, no Participant shall receive more than 400,000 Restricted Shares subject to performance-based vesting conditions in a single fiscal year, except that a new Employee may receive up to 800,000 Restricted Shares subject to performance-based vesting conditions in the fiscal year of the Company in which his or her Service as an Employee first commences.  The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with Article 10.

(b)Cessation of Eligibility to Vest.  Unless otherwise provided by the Restricted Share Agreement, if a Participant ceases to be an Awardee Eligible to Vest, other than as a result of circumstances described in Subsection (c) or (d) below, then:

(i)To the extent that the Participant did not purchase the Restricted Shares, all unvested Shares subject to a Restricted Share Agreement shall immediately be forfeited and shall revert to the Plan; and

(ii)To the extent that the Participant purchased the Restricted Shares, the Company shall have a right to repurchase the unvested Restricted Shares at the original price paid by the Participant upon the Participant’s ceasing to be an Awardee Eligible to Vest.

(c)Death, Disability or Retirement of Participant.  Unless otherwise provided by the Restricted Share Agreement, if a Participant ceases to be an Awardee Eligible to Vest as a result of the Participant’s death, total and permanent disability or retirement due to age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s retirement policy, the provisions of Subsection (b) above will apply except that the vested portion of such Participant’s Restricted Shares shall be determined by adding 12 months to the length of his or her actual Service.

(d)Voluntary Severance Incentive Program.  If a Participant ceases to be an Awardee Eligible to Vest as a result of participation in a voluntary severance incentive

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program or workforce management plan approved by the Board or a Committee, unvested Restricted Shares shall vest to the extent provided by the Board or a Committee in such voluntary severance incentive program or workforce management plan.  Absent a specific provision for acceleration, the provisions of Subsection (b) above shall apply.

7.5Effect of Change in Control.  The Committee may determine, at the time of granting Restricted Shares or thereafter, that all or part of such Restricted Shares shall become vested if a Change in Control occurs with respect to the Company or if the Participant’s Service is terminated without Cause after a Change in Control.

7.6Voting and Dividend Rights.  The holders of Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Company’s other shareholders.  A Restricted Share Agreement, however, may require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares.  Such additional Restricted Shares shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid.

ARTICLE 8.SHARE UNITS.

8.1Share Unit Agreement.  Each grant of Share Units under the Plan shall be evidenced by a Share Unit Agreement between the recipient and the Company.  Such Share Units shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan.  The provisions of the various Share Unit Agreements entered into under the Plan need not be identical.

8.2Number of Shares.  Each Share Unit Agreement shall specify the number of Shares to which the Share Unit pertains and shall provide for the adjustment of such number in accordance with Article 10.  Such number shall be subject to the limitation of Section 8.4(a), if applicable.

8.3Payment for Awards.  To the extent that an Award is granted in the form of Share Units, no cash consideration shall be required of the Award recipients.

8.4Vesting Conditions.

(a)General.  Each Award of Share Units may or may not be subject to vesting.  Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Share Unit Award.  The Committee may include among such conditions continued performance of Service and/or the requirement that the performance of the Company (or a Subsidiary, Affiliate or business unit of the Company) for a specified period of not less than one fiscal year equal or exceed performance targets determined by the Committee.  Such targets shall be based on one or more of the criteria set forth in Appendix A, and shall be determined not later than the 90 days following commencement of the specified performance period.  As to Awards with respect to which the Company desires to secure an exemption from section 162(m) of the Code, no Participant shall receive more than 400,000 Share Units subject to performance-based vesting conditions in a single fiscal year, except that a new Employee may receive up to 800,000 Share Units subject to performance-based vesting conditions in the fiscal year of the

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Company in which his or her Service as an Employee first commences.  The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with Article 10.

(b)Cessation of Eligibility to Vest.  Unless otherwise provided by the Share Unit Award, if a Participant ceases to be an Awardee Eligible to Vest, other than as a result of circumstances described in Subsection (c) or (d) below, then all unvested Share Units subject to a Share Unit Agreement shall immediately be forfeited and shall revert to the Plan.

(c)Death, Disability or Retirement of Participant.  Unless otherwise provided by the Share Unit Award, if a Participant ceases to be an Awardee Eligible to Vest as a result of the Participant’s death, total and permanent disability or retirement due to age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s retirement policy, the provisions of Subsection (b) above will apply except that the vested portion of such Participant’s Share Unit Award shall be determined by adding 12 months to the length of his or her actual Service.

(d)Voluntary Severance Incentive Program.  If a Participant ceases to be an Awardee Eligible to Vest as a result of participation in a voluntary severance incentive program or workforce management plan approved by the Board or a Committee, unvested Share Units shall vest to the extent provided by the Board or a Committee in such voluntary severance incentive program or workforce management plan.  Absent a specific provision for acceleration, the provisions of Subsection (b) above shall apply.

8.5Effect of Change in Control.  The Committee may determine, at the time of granting Share Units or thereafter, that all or part of such Share Units shall become vested if a Change in Control occurs with respect to the Company or if the Participant’s Service is terminated without Cause after a Change in Control.  In addition, acceleration of vesting may be required under Section 10.3.

8.6Voting and Dividend Rights.  The holders of Share Units shall have no voting rights.  Prior to settlement or forfeiture, any Share Unit awarded under the Plan may, at the Committee’s discretion, carry with it a right to dividend equivalents.  Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Share while the Share Unit is outstanding.  Dividend equivalents may be converted into additional Share Units.  Settlement of dividend equivalents may be made in the form of cash, in the form of Shares, or in a combination of both.  Prior to distribution, any dividend equivalents that are not paid shall be subject to the same conditions and restrictions as the Share Units to which they attach.

8.7Form and Time of Settlement of Share Units.  Settlement of vested Share Units may be made in the form of (a) cash, (b) Shares or (c) any combination of both, as determined by the Committee.  The actual number of Share Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors.  Methods of converting Share Units into cash may include (without limitation) a method based on the average Fair Market Value of Shares over a series of trading days.  Vested Share Units may be settled in a lump sum or in installments.  The distribution may occur or commence when all vesting conditions applicable to the Share Units have been satisfied or have lapsed, or it may be deferred to any later date.  The amount of a deferred distribution

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may be increased by an interest factor or by dividend equivalents.  Until an Award of Share Units is settled, the number of such Share Units shall be subject to adjustment pursuant to Article 10.

8.8Creditors’ Rights.  A holder of Share Units shall have no rights other than those of a general creditor of the Company.  Share Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Share Unit Agreement.

ARTICLE 9.AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.

9.1Initial Grants.  In connection with joining the Board, each Outside Director shall receive:

(a) A one-time grant of an NSO covering Shares with an Accounting Value of $110,000.  Such NSO shall be granted on the date when such Outside Director first joins the Board, and shall vest and become exercisable on the first anniversary of the Date of Grant; and

(b)A one-time grant of Share Units with an Accounting Value of $110,000.  Such Share Units shall be granted on the date when such Outside Director first joins the Board and shall vest on the first anniversary of the Date of Grant.  Settlement of vested Share Units shall be made in a lump sum on the third anniversary of the Date of Grant.  Such lump sum shall consist of a number of Shares equal to the number of vested Share Units.

(c)With respect to an Outside Director who first becomes a member of the Board prior to completion of the Company’s initial public offering, the initial grants referred to in subparagraphs (a) and (b) above shall be granted on the date of the Company’s initial public offering and the prices shall be calculated by reference to the initial public offering price reflected in the final prospectus related to the offering.

An Outside Director who was previously an Employee shall not receive grants under this Section 9.1.

9.2Annual Grants.  Upon the conclusion of each regular annual meeting of the Company’s shareholders held in the year 2007 or thereafter, each Outside Director who will continue serving as a member of the Board thereafter shall receive:

(a)A grant of an NSO covering Shares with an Accounting Value of $55,000.  Such NSO shall vest and become exercisable on the first anniversary of the Date of Grant; and

(b)A grant of Share Units with an Accounting Value of $55,000.  Such Share Units shall vest on the first anniversary of the Date of Grant.  Settlement of vested Share Units shall be made in a lump sum on the third anniversary of the Date of Grant, unless deferred to a later date.  Such lump sum shall consist of a number of Shares equal to the number of vested Share Units.

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Notwithstanding the foregoing, no grants shall be made pursuant to this Section 9.2 in the calendar year in which the same Outside Director received grants described in Section 9.1.  An Outside Director who previously was an Employee shall be eligible to receive grants under this Section 9.2.

9.3Cessation of Eligibility to Vest.  Unless otherwise provided by the Award Agreement, if an Outside Director’s Service terminates prior to the vesting date specified in such agreement other than as a result of circumstances described in Section 9.4 below, then such Director’s unvested Award shall immediately be forfeited and such unvested Shares shall revert to the Plan.

9.4Accelerated Exercisability.  All Awards granted to an Outside Director under this Article 9 shall also become exercisable in full, and Restricted Shares and Share Units shall be distributed, in the event that:

(a)Such Outside Director’s Service terminates because of death, total and permanent disability, or retirement at or after age 65;

(b)The Company is subject to a Change in Control before such Outside Director’s Service terminates; or

(c)As otherwise required by Section 10.3.

9.5Exercise Price.  The Exercise Price under all NSOs granted to an Outside Director under this Article 9 shall be equal to 100% of the Fair Market Value of a Share on the Date of Grant, payable in one of the forms described in Section 5.7(a), (b) or (c).

9.6Term.  The Option Agreement shall specify the term of the option, which shall not exceed 10 years form the Date of Grant.  Each NSO granted to an Outside Director under this Article 9 shall terminate on the earlier of (a) the expiration of the term of such option or (b) the date 12 months after the termination of such Outside Director’s Service for any reason.

9.7Affiliates of Outside Directors.  The Committee may provide that the NSOs that otherwise would be granted to an Outside Director under this Article 9 shall instead be granted to an affiliate of such Outside Director.  Such affiliate shall then be deemed to be an Outside Director for purposes of the Plan, provided that the Service-related vesting and termination provisions pertaining to the NSOs shall be applied with regard to the Service of the Outside Director.

ARTICLE 10.PROTECTION AGAINST DILUTION.

10.1Adjustments.  In the event of a subdivision of the outstanding Shares, a declaration of a dividend payable in Shares or a combination or consolidation of the outstanding Shares (by reclassification or otherwise) into a lesser number of Shares, corresponding adjustments shall automatically be made in each of the following:

(a)The number of Options, SARs, Restricted Shares and Share Units available for future Awards under Article 3;

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(b)The limitations set forth in Sections 5.2, 7.2, 8.4(a) and 9.4(a);

(c)The number of Shares covered by each outstanding Option and SAR;

(d)The Exercise Price under each outstanding Option and SAR; or

(e)The number of Share Units included in any prior Award that has not yet been settled.

In the event of a declaration of an extraordinary dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of the foregoing.  Except as provided in this Article 10, a Participant shall have no rights by reason of any issuance by the Company of shares of any class or securities convertible into shares of any class, any subdivision or consolidation of shares of any class, the payment of any share dividend or any other increase or decrease in the number of shares of any class.

10.2Dissolution or Liquidation.  To the extent not previously exercised or settled, Options, SARs and Share Units shall terminate immediately prior to the dissolution or liquidation of the Company.

10.3Reorganizations.  In the event that the Company is a party to a merger or consolidation, all outstanding Awards shall be subject to the agreement of merger or consolidation.  Such agreement shall provide for one or more of the following:

(a)The continuation of such outstanding Awards by the Company (if the Company is the surviving corporation).

(b)The assumption of such outstanding Awards by the surviving corporation or its parent, provided that the assumption of Options or SARs shall comply with sections 409A and 424(a) of the Code (whether or not the Options are ISOs).

(c)The substitution by the surviving corporation or its parent of new awards for such outstanding Awards, provided that the substitution of Options or SARs shall comply with sections 409A and 424(a) of the Code (whether or not the Options are ISOs).

(d)Full exercisability of outstanding Options and SARs and full vesting of the Shares subject to such Options and SARs, followed by the cancellation of such Options and SARs.  The full exercisability of such Options and SARs and full vesting of such Shares may be contingent on the closing of such merger or consolidation.  The Optionees shall be able to exercise such Options and SARs during a period of not less than five full business days preceding the closing date of such merger or consolidation, unless (i) a shorter period is required to permit a timely closing of such merger or consolidation and (ii) such shorter period still offers the Optionees a reasonable opportunity to exercise such Options and SARs.  Any exercise of such Options and SARs during such period may be contingent on the closing of such merger or consolidation.

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(e)The cancellation of outstanding Options and SARs and a payment to the Optionees equal to the excess of (i) the Fair Market Value of the Shares subject to such Options and SARs (whether or not such Options and SARs are then exercisable or such Shares are then vested) as of the closing date of such merger or consolidation over (ii) their Exercise Price.  Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent with a Fair Market Value equal to the required amount.  Such payment may be made in installments and may be deferred until the date or dates when such Options and SARs would have become exercisable or such Shares would have vested.  Such payment may be subject to vesting based on the Optionee’s continuing Service, provided that the vesting schedule shall not be less favorable to the Optionee than the schedule under which such Options and SARs would have become exercisable or such Shares would have vested.  If the Exercise Price of the Shares subject to such Options and SARs exceeds the Fair Market Value of such Shares, then such Options and SARs may be cancelled without making a payment to the Optionees.  For purposes of this Subsection (e), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security.

(f)The cancellation of outstanding Share Units and a payment to the Participants equal to the Fair Market Value of the Shares subject to such Share Units (whether or not such Share Units are then vested) as of the closing date of such merger or consolidation.  Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent with a Fair Market Value equal to the required amount.  Such payment may be made in installments and may be deferred until the date or dates when such Share Units would have vested.  Such payment may be subject to vesting based on the Participant’s continuing Service, provided that the vesting schedule shall not be less favorable to the Participant than the schedule under which such Share Units would have vested.  For purposes of this Subsection (f), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security.

ARTICLE 11.PAYMENT OF DIRECTOR’S FEES IN SECURITIES.

11.1Effective Date.  No provision of this Article 11 shall be effective unless and until the Board has determined to implement such provision.

11.2Elections to Receive NSOs, Restricted Shares or Share Units.  An Outside Director may elect to receive his or her annual retainer payments and/or meeting fees from the Company in the form of cash, NSOs, Restricted Shares or Share Units, or a combination thereof, as determined by the Board.  Such NSOs, Restricted Shares and Share Units shall be issued under the Plan.  An election under this Article 11 shall be filed with the Company on the prescribed form.

11.3Number and Terms of NSOs, Restricted Shares or Share Units.  The number of NSOs, Restricted Shares or Share Units to be granted to Outside Directors in lieu of annual retainers and meeting fees that would otherwise be paid in cash shall be calculated in a manner determined by the Board.  The Board shall also determine the terms of such NSOs, Restricted Shares or Share Units.

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ARTICLE 12.LIMITATION ON RIGHTS.

12.1Retention Rights.  Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an Employee, Outside Director or Consultant.  The Company and its Parents, Subsidiaries and Affiliates reserve the right to terminate the Service of any Employee, Outside Director or Consultant at any time, with or without cause, subject to applicable laws, the Company’s Articles of Association and a written employment agreement (if any).

12.2Shareholders’ Rights.  A Participant shall have no dividend rights, voting rights or other rights as a shareholder with respect to any Shares covered by his or her Award prior to the time when such Shares are issued or, if applicable, the time when he or she becomes entitled to receive such Shares by filing any required notice of exercise and paying any required Exercise Price.  No adjustment shall be made for cash dividends or other rights for which the record date is prior to such time, except as expressly provided in the Plan.

12.3Regulatory Requirements.  Any other provision of the Plan notwithstanding, the obligation of the Company to issue Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required.  The Company reserves the right to restrict, in whole or in part, the delivery of Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing.

ARTICLE 13.WITHHOLDING TAXES.

13.1General.  To the extent required by applicable federal, state, local or foreign law, a Participant or his or her successor shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan.  The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied.

13.2Share Withholding.  To the extent that applicable law subjects a Participant to tax withholding obligations, the Committee may permit such Participant to satisfy all or part of such obligations by having the Company withhold all or a portion of any Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Shares that he or she previously acquired.  Such Shares shall be valued at their Fair Market Value on the date when they are withheld or surrendered.

ARTICLE 14.LIMITATION ON PAYMENTS.

14.1Scope of Limitation.  This Article 14 shall apply to an Award only if:

(a)The independent auditors selected for this purpose by the Committee (the “Auditors”) determine that the after-tax value of such Award to the Participant, taking into account the effect of all federal, state and local income taxes, employment taxes and excise taxes applicable to the Participant (including the excise tax under section 4999 of the

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Code), will be greater after the application of this Article 14 than it was before the application of this Article 14; or

(b)The Committee, at the time of making an Award under the Plan or at any time thereafter, specifies in writing that such Award shall be subject to this Article 14 (regardless of the after-tax value of such Award to the Participant).

If this Article 14 applies to an Award, it shall supersede any contrary provision of the Plan or of any Award granted under the Plan.

14.2Basic Rule.  In the event that the Auditors determine that any payment or transfer by the Company under the Plan to or for the benefit of a Participant (a “Payment”) would be nondeductible by the Company for federal income tax purposes because of the provisions concerning “excess parachute payments” in section 280G of the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount.  For purposes of this Article 14, the “Reduced Amount” shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any Payment to be nondeductible by the Company because of section 280G of the Code.

14.3Reduction of Payments.  If the Auditors determine that any Payment would be nondeductible by the Company because of section 280G of the Code, then the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Company in writing of his or her election within 10 days of receipt of notice.  If no such election is made by the Participant within such 10-day period, then the Company may elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election.  For purposes of this Article 14, present value shall be determined in accordance with section 280G(d)(4) of the Code.  All determinations made by the Auditors under this Article 14 shall be binding upon the Company and the Participant and shall be made within 60 days of the date when a Payment becomes payable or transferable.  As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan.

14.4Overpayments and Underpayments.  As a result of uncertainty in the application of section 280G of the Code at the time of an initial determination by the Auditors hereunder, it is possible that Payments will have been made by the Company which should not have been made (an “Overpayment”) or that additional Payments which will not have been made by the Company could have been made (an “Underpayment”), consistent in each case with the calculation of the Reduced Amount hereunder.  In the event that the Auditors, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant that the Auditors believe has a high probability of success, determine that an Overpayment has been made, such Overpayment shall be treated for all purposes as a loan to the Participant that he

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or she shall repay to the Company, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount that is subject to taxation under section 4999 of the Code.  In the event that the Auditors determine that an Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code.

14.5Related Corporations.  For purposes of this Article 14, the term “Company” shall include affiliated corporations to the extent determined by the Auditors in accordance with section 280G(d)(5) of the Code.

ARTICLE 15.FUTURE OF THE PLAN.

15.1Term of the Plan.  The Plan, as set forth herein, shall become effective on the date of the Company’s initial public offering.  The Plan shall remain in effect until the earlier of (a) the date when the Plan is terminated under Section 15.2 or (b) the 10th anniversary of the date when the Board adopted the Plan.

15.2Amendment or Termination.  The Board may, at any time and for any reason, amend or terminate the Plan.  No Awards shall be granted under the Plan after the termination thereof.  The termination of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan.

15.3Shareholder Approval.  An amendment of the Plan shall be subject to the approval of the Company’s shareholders only to the extent required by applicable laws, regulations or rules.  However, section 162(m) of the Code may require that the Company’s shareholders approve:

(a)The Plan not later than the first regular meeting of shareholders that occurs in the fourth calendar year following the calendar year in which the Company’s initial public offering occurred; and

(b)The performance criteria set forth in Appendix A not later than the first meeting of shareholders that occurs in the fifth year following the year in which the Company’s shareholders previously approved such criteria.

ARTICLE 16.DEFINITIONS.

16.1“Awardee Eligible to Vest” means a Participant who is in active service with the Company or a Subsidiary or Affiliate (or who is on an approved leave of absence or taking vacation or otherwise approved flexible time off (“FTO”) in accordance with the Company’s FTO policy) on the vesting date fixed in the Award Agreement, subject to the exceptions provided in Articles 5, 7, 8 and 9.  With the exception of an individual who is on an approved leave of absence or taking FTO, in no event shall an individual be considered an Awardee Eligible to Vest if and at the time the individual ceases or has ceased to perform job duties for which he or she is compensated directly by the Company or a Subsidiary or Affiliate. The foregoing shall be true in the event that the individual, prior to ceasing to perform job duties

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for which he or she is compensated directly by the Company or a Subsidiary or Affiliate, received or provided notice of termination (irrespective of any notice period or similar period prescribed under the laws of a jurisdiction outside the United States) whether such notice of termination or transfer is lawful or unlawful under applicable employment law or is in breach of an employment contract.  Continued affiliation or relationship with the Company or a Subsidiary or Affiliate pursuant to a statutory or contractual notice period shall not constitute continuation of an individual’s status as an Awardee Eligible to Vest.  In accordance with the definition above, status as an Awardee Eligible to Vest will always cease upon termination of employment with the Company or a Subsidiary or Affiliate except as provided in Articles 5, 7, 8 and 9.

16.2“Accounting Value” means, with respect to an Award, a value calculated using the same methodology as was applied by the Company for purposes of determining the accounting charge associated with similar Awards for the fiscal period immediately preceding the date on which the subject Award is granted.

16.3“Affiliate” means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity.

16.4“Award” means any award of an Option, a SAR, a Restricted Share or a Share Unit under the Plan.

16.5“Board” means the Company’s Board of Directors, as constituted from time to time.

16.6“Cause” means:

(a)An unauthorized use or disclosure by the Participant of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company;

(b)A material breach by the Participant of any agreement between the Participant and the Company;

(c)A material failure by the Participant to comply with the Company’s written policies or rules;

(d)The Participant’s conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any State thereof or the equivalent under the applicable laws outside of the United States;

(e)The Participant’s gross negligence or willful misconduct;

(f)A continuing failure by the Participant to perform assigned duties after receiving written notification of such failure; or

(g)A failure by the Participant to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested the Participant’s cooperation.

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16.7“Change in Control” means:

(a)The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if persons who were not shareholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of the outstanding securities of each of (i) the continuing or surviving entity and (ii) any direct or indirect parent corporation of such continuing or surviving entity;

(b)The sale, transfer or other disposition of all or substantially all of the Company’s assets;

(c)A change in the composition of the Board, as a result of which fewer than 50% of the incumbent directors are directors who either:

(i)Had been directors of the Company on the date 24 months prior to the date of such change in the composition of the Board (the “Original Directors”); or

(ii)Were appointed to the Board, or nominated for election to the Board, with the affirmative votes of at least a majority of the aggregate of (A) the Original Directors who were in office at the time of their appointment or nomination and (B) the directors whose appointment or nomination was previously approved in a manner consistent with this Paragraph (ii); or

(d)Any transaction as a result of which any person is the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least 30% of the total voting power represented by the Company’s then outstanding voting securities.  For purposes of this Subsection (d), the term “person” shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Parent or Subsidiary and (ii) a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of Shares.

A transaction shall not constitute a Change in Control if its sole purpose is to change the jurisdiction of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

16.8“Code” means the U.S. Internal Revenue Code of 1986, as amended.

16.9“Committee” means a committee of the Board, as described in Article 2.

16.10“Company” means Verigy Ltd., a Singapore corporation.

16.11“Consultant” means a consultant or adviser who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an independent contractor.

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16.12“Date of Grant” means the latest of: (a) the date on which the Committee determines that the Option or SAR shall be granted; (b) the date on which the Optionee’s Service commences; or (c) the date on which all material terms of the Option or SAR, including (without limitation) the Exercise Price, are ascertainable; provided, however, that with respect to automatic awards to Outside Directors, “Date of Grant” means the date of such automatic award as provided in the applicable provision of this Plan.

16.13“Employee” means a full time or part time employee of the Company or any Subsidiary or Affiliate, including Officers and Directors, who is treated as an employee in the personnel records of the Company or a Subsidiary or Affiliate for the relevant period, but shall exclude individuals who are classified by the Company or a Subsidiary or Affiliate as (a) leased from or otherwise employed by a third party, (b) independent contractors or (c) intermittent or temporary, even if any such classification is changed retroactively as a result of an audit, litigation or otherwise.  A Participant shall not cease to be an Employee in the case of (i) any vacation or sick time or otherwise approved FTO in accordance with the Company’s (or a Subsidiary’s or Affiliate’s) FTO policy or (ii) transfers between locations of the Company or between the Company and/or any Subsidiary or Affiliate.  Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

16.14“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

16.15“Exercise Price,” in the case of an Option, means the amount for which one Share may be purchased upon exercise of such Option, as specified in the applicable Option Agreement.  “Exercise Price,” in the case of a SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of one Share in determining the amount payable upon exercise of such SAR.

16.16“Fair Market Value” means the market price of Shares, determined by the Committee as follows:

(a)If the Shares are traded on Nasdaq or on a stock exchange, then the Fair Market Value shall be equal to the last sale price of the Shares on such market or exchange as of the date in question or, if the market or exchange was closed on the date in question, then the Fair Market Value will be equal to the last sale price on the last trading day immediately preceding the day in question.  If the Shares are traded on more than one market or exchange, then the Fair Market Value shall be determined by reference to the primary market or exchange where the Shares trade.

(b)If foregoing provisions are not applicable, then the Committee shall determine the Fair Market Value in good faith on such basis as it deems appropriate.  Such determination shall be conclusive and binding on all persons.

16.17“ISO” means an incentive stock option described in section 422(b) of the Code.

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16.18“NSO” means a share option not described in sections 422 or 423 of the Code.

16.19“Option” means an ISO or NSO granted under the Plan and entitling the holder to purchase Shares.

16.20“Option Agreement” means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to his or her Option.

16.21“Optionee” means an individual or estate that holds an Option or SAR.

16.22“Outside Director” means a member of the Board who is not an Employee.

16.23“Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns shares possessing 50% or more of the total combined voting power of all classes of shares in one of the other corporations in such chain.  A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

16.24“Participant” means an individual or estate that holds an Award.

16.25“Plan” means this Verigy Ltd. 2006 Equity Incentive Plan, as amended from time to time.

16.26“Replacement Awards” means Awards granted or Shares issued by the Company in the conversion, assumption, substitution, or exchange of awards previously granted under the Agilent Technologies, Inc. 1999 Stock Plan or the Agilent Technologies, Inc. 1999 Non-employee Director Stock Plan.

16.27“Restricted Share” means a Share awarded under the Plan.

16.28“Restricted Share Agreement” means the agreement between the Company and the recipient of a Restricted Share that contains the terms, conditions and restrictions pertaining to such Restricted Share.

16.29“SAR” means a share appreciation right granted under the Plan.

16.30“SAR Agreement” means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to his or her SAR.

16.31“Service” means service as an Employee, Outside Director or Consultant.

16.32“Shares” means the Ordinary Shares of the Company.

16.33“Share Unit” means a bookkeeping entry representing the equivalent of one Share, as awarded under the Plan.

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16.34“Share Unit Agreement” means the agreement between the Company and the recipient of a Share Unit that contains the terms, conditions and restrictions pertaining to such Share Unit.

16.35“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns shares possessing 50% or more of the total combined voting power of all classes of shares in one of the other corporations in such chain.  A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

16.36“Substitute Awards” means:

(a)Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted by: (i) a company acquired by the Company; (ii) a company acquired by any Subsidiary; or (iii) a company with which the Company or any Subsidiary combines; and

(b)Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted by Agilent Technologies, Inc.

Adoption and Amendment History:

Action	Date
Adopted by the Board of Directors:	June 7, 2006
Approved by the sole shareholder:	June 7, 2006
Amended by the Board of Directors to revise definition of “Fair Market Value” (Section 16.16)	August 29, 2006
Amended by the Board of Directors to add definition of Date of Grant (Section 16.12)	December 13, 2006

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ADDENDUM TO THE VERIGY LTD. 2006 EQUITY INCENTIVE PLAN

Pursuant to Section 2.2 of the Verigy Ltd. 2006 Equity Incentive Plan the following modifications to the Plan will apply in the countries as set forth below:

CHINA

All stock options granted in China will only be exercisable using the full cashless exercise method (i.e., cashless exercise for cash).  Only full cashless exercise (proceeds remitted in cash) will be permitted.  Cash exercises are prohibited.

FRANCE

All options and restricted stock units (“RSUs”) granted in France shall be subject to the additional terms and conditions of the Verigy Ltd. 2006 Equity Incentive Plan Option Sub-Plan for French Employees and the Verigy Ltd. 2006 Equity Incentive Plan RSU Sub-Plan for French Employees, as applicable.

ITALY

All stock options granted in Italy will only be exercisable using the full cashless exercise method (i.e., cashless exercise for cash).  Only full cashless exercise (proceeds remitted in cash) will be permitted.  Cash exercises are prohibited.

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Appendix A

Performance Criteria for Restricted Shares and Share Units

The Committee may apply any one or more of the following performance criteria, individually, alternatively or in any combination, either to the Company as a whole or to a business unit, Subsidiary or Affiliate, measured annually, quarterly or cumulatively over a period of years, either on an absolute basis or relative to a pre-established target, with respect to previous years’ results or a designated comparison group, in each case as specified by the Committee: (i) cash flow (before or after dividends), (ii) earnings per share (including earnings before interest, taxes, depreciation and amortization), (iii) share price, (iv) return on equity, (v) total shareholder return, (vi) return on capital (including return on total capital or return on invested capital), (vii) return on assets or net assets, (viii) market capitalization, (ix) economic value added, (x) debt leverage (debt to capital), (xi) revenue or net revenue, (xii) income or net income, (xiii) operating income, (xiv) operating profit or net operating profit, (xv) operating margin or profit margin, (xvi) return on operating revenue, (xvii) cash from operations, (xviii) operating ratio, (xix) operating revenue, (xx) customer satisfaction measures, (xxi) net order dollars, (xxii) guaranteed efficiency measures; (xxiii) service agreement renewal rates; (xxiv) service revenues as a percentage of product revenues, either with respect to one or more particular transactions or with respect to revenues as a whole; or (xxv) individual performance.  To the extent consistent with section 162(m) of the Code, the Committee may appropriately adjust any evaluation of performance under a performance criterion to exclude any of the following events that occurs during a performance period: (i) asset write-downs, (ii) litigation, claims, judgments or settlements, (iii) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (iv) accruals for reorganization and restructuring programs and (v) any extraordinary, unusual or non-recurring items.

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EX-10.2.1

Exhibit 10.2.1

Us Option Agreement Revised December 2006

Verigy Ltd. 2006 Equity Incentive Plan

Notice of Share Option Grant

You have been granted an option to purchase Ordinary Shares of Verigy Ltd. (the “Company”).  Your option is summarized on the Award Summary page of your Smith Barney account.

Your option becomes exercisable with respect to the first <<vesting percentage>> of the Shares subject to your option when you complete <<vesting months>> of continuous “Service” (as defined in the Plan) as an “Awardee Eligible to Vest” (as defined in the Plan) from the date of grant.  Thereafter, your option becomes exercisable with respect to an additional <<vesting percentage>> of the Shares subject to this option on each <<vesting months>>, provided that you continue to be an Awardee Eligible to Vest as of such date.

You and the Company agree that your option is granted under and governed by the terms and conditions of the Verigy Ltd. 2006 Equity Incentive Plan (the “Plan”), the Stock Option Agreement (of which this notice is a part), and the Award Summary.

You further agree that the Company shall cause the shares issued upon exercise of the option to be deposited in your Smith Barney Account and, further, that the Company may deliver electronically all documents relating to the Plan or your option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you regarding such posting.

By clicking on the “accept” button on the screen titled “Step 3: Confirm the Review/Acceptance of your Award,” you agree to be bound by the Stock Option Agreement, this Notice and the Plan.	By:	Verigy Ltd.
		/s/ KEITH L. BARNES
		Keith L. Barnes
		President and Chief Executive Officer

Verigy Ltd. 2006 Equity Incentive Plan

Share Option Agreement

Tax Treatment	This option is intended to be a nonstatutory stock option.
Vesting	This option becomes exercisable in installments, during the Option term as shown in the Notice of Stock Option Grant, as long as you remain an Awardee Eligible to Vest (as defined in the Plan). In addition, this option is subject to certain vesting acceleration provisions set forth in the Plan in the event your Service terminates because of retirement, total and permanent disability, or death. This option will in no event become exercisable for additional shares after your Service has terminated for any reason, except as otherwise provided in the Plan and this agreement.
Term	This option expires in any event at the close of business at Company headquarters on the day before the 7th anniversary of the Date of Grant, as shown in the Award Summary. (It may expire earlier if your Service terminates, as described below.)
Regular Termination	If your Service terminates for any reason except death, total and permanent disability, or retirement due to age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s retirement policy, then this option will expire at the close of business at Company headquarters on the date three months after your termination date, or, if earlier, the expiration of the term of this option. The Company determines when your Service terminates for this purpose.
Termination as a result of Death, Disability or Retirement	If you die before your Service terminates, or if your Service terminates because of your total and permanent disability or in connection with your retirement due to age, then (i) the vested portion of this option will be determined by adding 12 months to your length of service and (ii) you will be entitled to exercise this option until the close of business at Company headquarters on the one year anniversary of the date of death, disability or retirement, or, if earlier, until the expiration of the term of this option, as provided in the Plan. For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last for a continuous period of not less than one year.

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Leaves of Absence and Part-Time Work	For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another Company approved leave of absence, and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work. Your status as an Awardee Eligible to Vest (as defined in the Plan) will always cease upon termination of employment with the Company or a Subsidiary or Affiliate except as provided in Article 5 of the Plan. If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Restrictions on Exercise	The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.
Notice of Exercise	You may exercise this option from time to time for any number of shares for which the option is then exercisable, by notice in writing, electronically or by other means to, and as prescribed by, the Company’s equity incentive administration service provider (the “administration service provider”). Your exercise notice will be effective and irrevocable at such time as your notice, method of payment (whether by cash, check, proceeds from the immediate sale of the option shares, or as otherwise provided in the Plan) and such other documentation as the administration service provider may require have been received by the administration service provider. You hereby direct the Company to deposit any shares issued upon exercise of the option in your Smith Barney account. If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
Form of Payment	When you exercise this option, you must provide for payment of the option exercise price for the shares that you are purchasing. To the extent permitted by applicable law, payment may be made in one (or a combination of two or more) of the forms set forth in Sections 5.7 (a), (c) and (d) of the Plan.

3

Withholding Taxes and Stock Withholding	You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise.Such arrangements include an irrevocable direction to the Company’s securities broker service provider to sell all or a part of the Shares being purchased under this option and to deliver all or part of the sales proceeds to the Company, pursuant to Section 5.7(c) of the plan.
Restrictions on Resale	You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option	Unless determined otherwise by the Committee, this option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by the beneficiary designation, will or by the laws of descent or distribution and may be exercised, during your lifetime, only by you.  If the Committee makes this option transferable, it shall contain such additional terms and conditions as the Committee deems appropriate.
Retention Rights	Your option or this Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.
Stockholder Rights	You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by submitting the required notice in accordance with the provisions under “Notice of Exercise” set forth above and paying the exercise price and any applicable withholding taxes. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the Plan.
Applicable Law	This Agreement shall be governed by, and construed in accordance with, the laws of the Republic of Singapore (except its choice-of-law provisions).

4

The Plan and Other Agreements The text of the Plan is incorporated in this Agreement by reference. This Agreement, together with the Award Summary and the Plan, constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Agreement may be amended only by another written agreement between the parties.

By clicking on the “accept” button on the screen titled “Step 3: Confirm the Review/Acceptance of your Award,” you agree to be bound by this Stock Option Agreement, the Notice and the Plan.

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EX-10.2.2

Exhibit 10.2.2

Director Share Option Agreement Revised December 2006

Verigy Ltd. 2006 Equity Incentive Plan

Notice of Share Option Grant

You have been granted an option to purchase Ordinary Shares of Verigy Ltd. (the “Company”).  Your option is summarized on the Award Summary page of your Smith Barney account.

Your option becomes exercisable on the first anniversay of the date of grant.

You and the Company agree that your option is granted under and governed by the terms and conditions of the Verigy Ltd. 2006 Equity Incentive Plan (the “Plan”), the Stock Option Agreement (of which this notice is a part), and the Award Summary.

You further agree that the Company shall cause the shares issued upon exercise of the option to be deposited in your Smith Barney Account and, further, that the Company may deliver electronically all documents relating to the Plan or your option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you regarding such posting.

BY CLICKING ON THE “ACCEPT” BUTTON ON THE SCREEN TITLED “STEP 3: CONFIRM THE REVIEW/ACCEPTANCE OF YOUR AWARD,” YOU AGREE TO BE BOUND BY THE STOCK OPTION AGREEMENT, THIS NOTICE AND THE PLAN.	By:	Verigy Ltd.
		/s/ KEITH L. BARNES
		Keith L. Barnes
		President and Chief Executive Officer

Verigy Ltd. 2006 Equity Incentive Plan

Share Option Agreement

Tax Treatment	This option is intended to be a nonstatutory Share option.
Vesting	This option becomes exercisable on the first anniversary of the date of grant. This option shall also become exercisable in full in the event that (a) your Service terminates because of death, total and permanent disability, or retirement at or after age 65; or (b) the Company is subject to a Change in Control (as defined in the Plan) before your Service terminates. This option will in no event become exercisable for additional shares after your Service has terminated for any reason, except as otherwise provided in the Plan or this Agreement
Term	This option expires on the earlier of (a) the date 7 years after the date of grant or (b) the date 12 months after the termination of your Service for any reason.
Restrictions on Exercise	The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.
Notice of Exercise	You may exercise this option from time to time for any number of shares for which the option is then exercisable, by notice in writing, electronically or by other means to, and as prescribed by, the Company’s equity incentive administration service provider (the “administration service provider”). Your exercise notice will be effective and irrevocable at such time as your notice, method of payment (whether by cash, check, proceeds from the immediate sale of the option shares, or as otherwise provided in the Plan) and such other documentation as the administration service provider may require have been received by the administration service provider. You hereby direct the Company to deposit any shares issued upon exercise of the option in your Smith Barney account. If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.

2

Form of Payment	When you exercise this option, you must provide for payment of the option exercise price for the shares that you are purchasing pursuant to Section 5.7 of the Plan.
Withholding Taxes and Stock Withholding	You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise.
Restrictions on Resale	You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option	Unless determined otherwise by the Committee, this option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by the beneficiary designation, will or by the laws of descent or distribution and may be exercised, during your lifetime, only by you.  If the Committee makes this option transferable, it shall contain such additional terms and conditions as the Committee deems appropriate.
Retention Rights	Your option or this Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity.
Shareholder Rights	You, or your estate or heirs, have no rights as a Shareholder of the Company until you have exercised this option by submitting the required notice in accordance with the provisions under “Notice of Exercise” set forth above and paying the exercise price and any applicable withholding taxes. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the Plan.
Applicable Law	This Agreement shall be governed by, and construed in accordance with, the laws of the Republic of Singapore (except its choice-of-law provisions).

3

The Plan and Other Agreements The text of the Plan is incorporated in this Agreement by reference. This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Agreement may be amended only by another written agreement between the parties.

By clicking on the “accept” button on the screen titled “Step 3: Confirm the Review/Acceptance of your Award,” you agree to be bound by this Stock Option Agreement, the Notice and the Plan.

4

EX-10.2.3

Exhibit 10.2.3

U.S. RSU Agreement Revised December 2006

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN

NOTICE OF SHARE UNIT AWARD

You have been granted units representing Ordinary Shares of Verigy Ltd. (the “Company”).  Your grant is summarized on the Award Summary page of your Smith Barney account.

The first <<vesting percent>> of your units vest when you complete <<vesting months>> of continuous “Service” (as defined in the Plan) as an “Awardee Eligible to Vest” (as defined in the Plan) from the date of grant.  Thereafter, an additional <<vesting percent>> of your units vest on each <<vesting months>>, provided that you continue to be an Awardee Eligible to Vest as of such date.

You and the Company agree that these units are granted under and governed by the terms and conditions of the Verigy Ltd. 2006 Equity Incentive Plan (the “Plan”), the Share Unit Agreement (of which this notice is a part), and the Award Summary.

You further agree that the Company shall cause the shares issued upon payment of your units to be deposited in your Smith Barney account and, further, that the Company may deliver electronically all documents relating to the Plan or this award (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you regarding such posting.

By clicking on the “accept” button on the screen titled “Step 3: Confirm the Review/Acceptance of your Award,” you agree to be bound by the SHARE UNIT Agreement, this Notice and the Plan.	By:	Verigy Ltd.
		/s/ kEITH L. BARNES
		Keith L. Barnes
		President and Chief Executive Officer

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN

SHARE UNIT AGREEMENT

Payment for Units	No payment is required for the units that you are receiving.
Vesting	The units vest in installments, as shown in the Notice of Share Unit Award, as long as you remain an Awardee Eligible to Vest (as defined in the Plan). In addition, the units are subject to certain vesting acceleration provisions set forth in the Plan in the event your Service terminates because of retirement, total and permanent disability, or death.
	No additional units vest after your Service has terminated for any reason, except as otherwise provided in the Plan and this agreement.
	For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Forfeiture	If your Service terminates for any reason, then your units will be forfeited to the extent that they have not vested before the termination date and do not vest as a result of the termination. This means that the units will immediately be cancelled. You receive no payment for units that are forfeited.
	The Company determines when your Service terminates for this purpose.
Leaves of Absence and Part-Time Work	For purposes of this award, your Service does not terminate when you go on a military leave, a sick leave or another Company approved leave of absence, and if continued crediting of Service is required by applicable law, the Company’s leave of absence policy or the terms of your leave. But your Service terminates when the approved leave ends, unless you immediately return to active work. Your status as an Awardee Eligible to Vest will cease upon termination of employment with the Company or a Subsidiary or Affiliate except as provided in Article 8 of the Plan.

	If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Share Unit Award may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Nature of Units	Your units are mere bookkeeping entries. They represent only the Company’s unfunded and unsecured promise to issue Ordinary Shares on a future date. As a holder of units, you have no rights other than the rights of a general creditor of the Company.
No Voting Rights or Dividends	Your units carry neither voting rights nor rights to cash dividends. You have no rights as a shareholder of the Company unless and until your units are settled by issuing Ordinary Shares of the Company’s stock.
Units Nontransferable	You may not sell, transfer, assign, pledge or otherwise dispose of any units. For instance, you may not use your units as security for a loan.
Settlement of Units	Each of your units will be settled when it vests, unless you and the Company have agreed to a later settlement date. At the time of settlement, you will receive one share of the Company’s Ordinary Shares for each vested unit. You agree that the Company shall cause the shares to be deposited in your Smith Barney Account. But the Company, at its sole discretion, may substitute an equivalent amount of cash if the distribution of stock is not reasonably practicable due to the requirements of applicable law. The amount of cash will be determined on the basis of the market value of the Company’s Ordinary Shares at the time of settlement.
Withholding Taxes	No Ordinary Shares or cash will be distributed to you unless you have made acceptable arrangements to pay any withholding taxes that may be due as a result of the settlement of this award. With the Company’s consent, these arrangements may include (a) withholding shares of Company stock that otherwise would be issued to you when the units are settled or (b) surrendering shares that you previously acquired. The fair market value of these shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied to the withholding taxes.
Restrictions on Resale	You agree not to sell any shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.

No Retention Rights	Your award or this Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of your units will be adjusted accordingly, as the Company may determine pursuant to the Plan.
Beneficiary Designation	You may dispose of your units in a written beneficiary designation. A beneficiary designation must be filed with the Company on the proper form. It will be recognized only if it has been received at the Company’s headquarters before your death. If you file no beneficiary designation or if none of your designated beneficiaries survives you, then your estate will receive any vested units that you hold at the time of your death.
Applicable Law	This Agreement shall be governed by, and construed in accordance with, the laws of the Republic of Singapore (except its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference.
	This Agreement, together with the Award Summary and the Plan, constitute the entire understanding between you and the Company regarding this award. Any prior agreements, commitments or negotiations concerning this award are superseded. This Agreement may be amended only by another written agreement between the parties.

BY CLICKING ON THE “ACCEPT” BUTTON ON THE SCREEN TITLED “STEP 3: CONFIRM THE REVIEW/ACCEPTANCE OF YOUR AWARD,” YOU AGREE TO BE BOUND BY THIS SHARE UNIT AGREEMENT, THE NOTICE AND THE PLAN.

EX-10.2.4

Exhibit 10.2.4

Director RSU Agreement Revised December 2006

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN

NOTICE OF SHARE UNIT AWARD

You have been granted units representing Ordinary Shares of Verigy Ltd. (the “Company”).  Your grant is summarized on the Award Summary page of your Smith Barney account.

The units subject to this award vest on the first anniversary of the date of grant, provided that you continue Service (as defined in the Plan) as an Outside Director through such date.

You and the Company agree that these units are granted under and governed by the terms and conditions of the Verigy Ltd. 2006 Equity Incentive Plan (the “Plan”), the Share Unit Agreement (of which this notice is a part), and the Award Summary.

You further agree that the Company shall cause the shares issued upon payment of your units to be deposited in your Smith Barney account and, further, that the Company may deliver electronically all documents relating to the Plan or this award (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you regarding such posting.

By clicking on the “accept” button on the screen titled “Step 3: Confirm the Review/Acceptance of your Award,” you agree to be bound by the share unit Agreement, this Notice and the Plan.	By:	Verigy Ltd.
		/s/ KEITH L. BARNES
		Keith L. Barnes
		President and Chief Executive Officer

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN

SHARE UNIT AGREEMENT

Payment for Units	No payment is required for the units that you are receiving.
Vesting	The units vest on the first anniversary of the date of this Award provided that your Service as an Outside Director continues through such date. In addition, the units are subject to accelerated vesting, as set forth in the Plan, in the event your Service terminates because of death, total and permanent disability, retirement at or after age 65, or the Company is subject to a Change in Control (as defined in the Plan).
	No units vest after your Service has terminated for any reason, except as otherwise provided in the Plan and this agreement.
	For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Forfeiture	If your Service terminates for any reason, then your units will be forfeited to the extent that they have not vested before the termination date and do not vest as a result of the termination. This means that the units will immediately be cancelled. You receive no payment for units that are forfeited.
	The Company determines when your Service terminates for this purpose.
Nature of Units	Your units are mere bookkeeping entries. They represent only the Company’s unfunded and unsecured promise to issue Ordinary Shares on a future date. As a holder of units, you have no rights other than the rights of a general creditor of the Company.
No Voting Rights or Dividends	Your units carry neither voting rights nor rights to cash dividends. You have no rights as a shareholder of the Company unless and until your units are settled by issuing Ordinary Shares of the Company’s stock.
Units Nontransferable	You may not sell, transfer, assign, pledge or otherwise dispose of any units. For instance, you may not use your units as security for a loan.

Settlement of Units	Each of your vested units will be settled in a lump sum on the third anniversary of the date of grant, unless you and the Company have agreed to a later settlement date. At the time of settlement, you will receive one share of the Company’s Ordinary Shares for each vested unit. You agree that the Company shall cause the shares to be deposited in your Smith Barney Account. But the Company, at its sole discretion, may substitute an equivalent amount of cash if the distribution of stock is not reasonably practicable due to the requirements of applicable law. The amount of cash will be determined on the basis of the market value of the Company’s Ordinary Shares at the time of settlement.
Withholding Taxes	No Ordinary Shares or cash will be distributed to you unless you have made acceptable arrangements to pay any withholding taxes that may be due as a result of the settlement of this award. With the Company’s consent, these arrangements may include (a) withholding shares of Company stock that otherwise would be issued to you when the units are settled or (b) surrendering shares that you previously acquired. The fair market value of these shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied to the withholding taxes.
Restrictions on Resale	You agree not to sell any shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
No Retention Rights	Your award or this Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of your units will be adjusted accordingly, as the Company may determine pursuant to the Plan.
Beneficiary Designation	You may dispose of your units in a written beneficiary designation. A beneficiary designation must be filed with the Company on the proper form. It will be recognized only if it has been received at the Company’s headquarters before your death. If you file no beneficiary designation or if none of your designated beneficiaries survives you, then your estate will receive any vested units that you hold at the time of your death.

Applicable Law	This Agreement shall be governed by, and construed in accordance with, the laws of the Republic of Singapore (except its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference.
	This Agreement, together with the Award Summary and the Plan, constitute the entire understanding between you and the Company regarding this award. Any prior agreements, commitments or negotiations concerning this award are superseded. This Agreement may be amended only by another written agreement between the parties.

BY CLICKING ON THE “ACCEPT” BUTTON ON THE SCREEN TITLED “STEP 3: CONFIRM THE REVIEW/ACCEPTANCE OF YOUR AWARD,” YOU AGREE TO BE BOUND BY THIS SHARE UNIT AGREEMENT, THE NOTICE AND THE PLAN.

EX-10.2.5

Exhibit 10.2.5

Non US Option Agreement Revised December 2006

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN
NOTICE OF SHARE OPTION GRANT

For Awardees located outside the United States

You have been granted an option to purchase Ordinary Shares of Verigy Ltd. (the “Company”).  Your option is summarized on the Award Summary page of your Smith Barney account.

Your option becomes exercisable with respect to the first <<vesting percentage>> of the Shares subject to your option when you complete <<vesting months>> of continuous “Service” (as defined in the Plan) as an “Awardee Eligible to Vest” (as defined in the Plan) from the date of grant.  Thereafter, your option becomes exercisable with respect to an additional <<vesting percentage>> of the Shares subject to this option on each <<vesting months>>, provided that you continue to be an Awardee Eligible to Vest as of such date.

You and the Company agree that your option is granted under and governed by the terms and conditions of the Verigy Ltd. 2006 Equity Incentive Plan (the “Plan”), the Stock Option Agreement (of which this notice is a part), and the Award Summary.

You further agree that the Company shall cause the shares issued upon exercise of the option to be deposited in your Smith Barney Account and, further that the Company may deliver electronically all documents relating to the Plan or your option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you regarding such posting.

By clicking on the “accept” button on the screen titled “Step 3: Confirm the Review/Acceptance of your Award,” you agree to be bound by the Stock Option Agreement, this Notice and the Plan.	By:	Verigy Ltd.
		/s/KEITH L. BARNES
		Keith L. Barnes
		President and Chief Executive Officer

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN
SHARE OPTION AGREEMENT

For Awardees located outside the United States

Tax Treatment	This option is intended to be a nonstatutory stock option.
Vesting	This option becomes exercisable in installments, during the Option term as shown in the Notice of Share Option Grant, as long as you remain an Awardee Eligible to Vest (as defined in the Plan). In addition, this option is subject to certain vesting acceleration provisions set forth in the Plan in the event your Service terminates because of retirement, total and permanent disability, or death.
	This option will in no event become exercisable for additional shares after your Service has terminated for any reason, except as otherwise provided in the Plan and this Share Option Agreement.
Term	This option expires in any event at the close of business at Company headquarters on the day before the 7th anniversary of the Date of Grant, as shown in the Award Summary. (It may expire earlier if your Service terminates, as described below.)
Regular Termination	If your Service terminates for any reason except death, total and permanent disability, or retirement due to age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s retirement policy, then this option will expire at the close of business at Company headquarters on the date three months after your termination date, or, if earlier, the expiration of the term of this option. The Company determines when your Service terminates for this purpose.
Termination as a result of Death, Disability or Retirement	If you die before your Service terminates, or if your Service terminates because of your total and permanent disability, or in connection with your retirement due to age, then (i) the vested portion of this option will be determined by adding 12 months to your length of service and (ii) you will be entitled to exercise this option until the close of business at Company headquarters on the one year anniversary of the date of

	death, disability or retirement, or, if earlier, until the expiration of the term of this option, as provided in the Plan. For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Leaves of Absence and Part-Time Work	For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another Company approved leave of absence, and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work.
	Your status as an Awardee Eligible to Vest (as defined in the Plan) will always cease upon termination of employment with the Company or a Subsidiary or Affiliate except as provided in Article 5 of the Plan.
	If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Share Option Grant may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Restrictions on Exercise	The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.
Notice of Exercise	You may exercise this option from time to time for any number of shares for which the option is then exercisable, by notice in writing, electronically or by other means to, and as prescribed by, the Company’s equity incentive administration service provider (the “administration service provider”). Your exercise notice will be effective and irrevocable at such time as your notice, method of payment (whether by cash, check, proceeds from the immediate sale of the option shares, or as otherwise provided in the Plan) and such other

	documentation as the administration service provider may require have been received by the administration service provider. You hereby direct the Company to deposit any shares issued upon exercise of the option in your Smith Barney account.
	If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
Form of Payment	When you exercise this option, you must provide for payment of the option exercise price for the shares that you are purchasing. To the extent permitted by applicable law, payment may be made in one (or a combination of two or more) of the forms set forth in Sections 5.7 (a), (c) and (d) of the Plan.
Withholding Taxes and Stock Withholding	Regardless of any action the Company or your employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the option grant, including the grant, vesting or exercise of the option, the subsequent sale of shares acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the option to reduce or eliminate your liability for Tax-Related Items. Prior to exercise of the option, you will pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer or from proceeds of the sale of shares. Alternatively, or in addition, if permissible under local law, the Company may (1) sell or arrange for the sale of shares that you acquire to meet the withholding obligation for

	Tax-Related Items, and/or (2) withhold in shares, provided that the Company only withholds the amount of shares necessary to satisfy the minimum withholding amount. Finally, you will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of shares that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to deliver the shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section.
Restrictions on Resale	You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option	This option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by the beneficiary designation, will or by the laws of descent or distribution and may be exercised, during your lifetime, only by you.
Retention Rights	Your option or this Share Option Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.
Stockholder Rights	You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by submitting the required notice in accordance with the provisions under “Notice of Exercise” set forth above and paying the exercise price and any applicable withholding taxes. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares

covered by this option and the exercise price per share may be adjusted pursuant to the Plan.

Nature of the Grant

In accepting the grant, you acknowledge that: (a)  the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Share Option Agreement; (b)  the grant of the option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted repeatedly in the past; (c)  all decisions with respect to future option grants, if any, will be at the sole discretion of the Company; (d)  you are voluntarily participating in the Plan; (e)  the option is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Companyor the Employer, and which is outside the scope of your employment contract, if any; (f)  the option is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or the Employer; (g)  in the event that you are not an employee of the Company, the option grant will not be interpreted to form an employment contract or relationship with the Company; and furthermore, the option grant will not be interpreted to form an employment contract with the Employer or any subsidiary or affiliate of the Company; (h)  the future value of the underlying shares is unknown and cannot be predicted with certainty; (i)  if the underlying shares do not increase in value, the option will have no value; (j)  if you exercise your option and obtain shares, the value of those shares acquired upon exercise may increase or decrease in value, even below the exercise price; (k)  in consideration of the grant of the option, no

claim or entitlement to compensation or damages shall arise from termination of the option or diminution in value of the option or shares purchased through exercise of the option resulting from termination of your employment by the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and you irrevocably release the Companyand the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this Share Option Agreement, you shall be deemed irrevocably to have waived your entitlement to pursue such claim; and (l)  in the event of termination of your employment (whether or not in breach of local labor laws), your right to receive the option and vest in the option under the Plan, if any, will terminate effective as of the date that you are no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); furthermore, in the event of termination of employment (whether or not in breach of local labor laws), your right to exercise the option after termination of employment, if any, will be measured by the date of termination of your active employment and will not be extended by any notice period mandated under local law; the Company shall have the exclusive discretion to determine when you are no longer actively employed for purposes of your option grant.

Data Privacy Notice and Consent

You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Share Option Agreement by and among, as applicable, your employer, the Company, its subsidiaries and its affiliates for the exclusive purpose of implementing, administering and managing your participation in the Plan. You understand that the Company and your employer may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all

	options or any other entitlement to shares awarded, canceled, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country, or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required to a broker, escrow agent or other third party with whom the shares received upon exercise of the option may be deposited. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, upon request, view Data, request additional information about the storage and processing of Data, correct Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. You understand that refusal or withdrawal of consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, You understand that You may contact your local human resources representative.
Language	If you have received this Share Option Agreement or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control.
Applicable Law	This Share Option Agreement shall be governed by, and construed in accordance with, the laws of the Republic of Singapore (except its choice-of-law provisions).

The Plan and Other Agreements	The text of the Plan is incorporated in this Share Option Agreement by reference.
	This Share Option Agreement, together with the Award Summary and the Plan, constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Share Option Agreement may be amended only by another written agreement between the parties.
	If one or more of the provisions of this Share Option Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provisions which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Share Option Agreement to be construed so as to foster the intent of this Share Option Agreement and the Plan

BY CLICKING ON THE “ACCEPT” BUTTON ON THE SCREEN TITLED “STEP 3: CONFIRM THE REVIEW/ACCEPTANCE OF YOUR AWARD,” YOU AGREE TO BE BOUND BY THIS STOCK OPTION AGREEMENT, THE NOTICE AND THE PLAN.

EX-10.2.6

Exhibit 10.2.6

Non US RSU Agreement Revised December 2006

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN

NOTICE OF SHARE UNIT AWARD

For Awardees located outside the United States

You have been granted units representing Ordinary Shares of Verigy Ltd. (the “Company”).  Your grant is summarized on the Award Summary page of your Smith Barney account.

The first <<vesting percentage>> of your units vest when you complete <<vesting months>> of continuous “Service” (as defined in the Plan) as an “Awardee Eligible to Vest” (as defined in the Plan) from the date of grant.  Thereafter, an additional <<vesting percentage>> of your units vest on each <<vesting months>>, provided that you continue to be an Awardee Eligible to Vest as of such date.

You and the Company agree that these units are granted under and governed by the terms and conditions of the Verigy Ltd. 2006 Equity Incentive Plan (the “Plan”), the Share Unit Agreement (of which this notice is a part), and the Award Summary.

You further agree that the Company shall cause the shares issued upon payment of your units to be deposited in your Smith Barney account and, further, that the Company may deliver electronically all documents relating to the Plan or this award (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you regarding such posting.

By clicking on the “accept” button on the screen titled “Step 3: Confirm the Review/Acceptance of your Award,” you agree to be bound by the share unit Agreement, this Notice and the Plan.	By:	Verigy Ltd.
		/s/ KEITH L. BARNES
		Keith L. Barnes
		President and Chief Executive Officer

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN
SHARE UNIT AGREEMENT

For Awardees located outside the United States

Payment for Units	No payment is required for the units that you are receiving.
Vesting	The units vest in installments, as shown in the Notice of Share Unit Award, as long as you remain an Awardee Eligible to Vest (as defined in the Plan). In addition, the units are subject to certain vesting acceleration provisions in the event your Service terminates because of retirement, total and permanent disability or death, as provided in the Plan.
	No additional units vest after your Service has terminated for any reason, except as otherwise provided in the Plan and this agreement.
	For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Forfeiture	If your Service terminates for any reason, then your units will be forfeited to the extent that they have not vested before the termination date and do not vest as a result of the termination. This means that the units will immediately be cancelled. You receive no payment for units that are forfeited.
	The Company determines when your Service terminates for this purpose.
Leaves of Absence and Part-Time Work	For purposes of this award, your Service does not terminate when you go on a military leave, a sick leave or another Company approved leave of absence, and if continued crediting of Service is required by applicable law, the Company’s leave of absence policy or the terms of your leave. But your Service terminates when the

	approved leave ends, unless you immediately return to active work.
	Your status as an Awardee Eligible to Vest will cease upon termination of employment with the Company or a Subsidiary or Affiliate except as provided in Article 8 of the Plan.
	If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Share Unit Award may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Nature of Units	Your units are mere bookkeeping entries. They represent only the Company’s unfunded and unsecured promise to issue Ordinary Shares on a future date. As a holder of units, you have no rights other than the rights of a general creditor of the Company.
No Voting Rights or Dividends	Your units carry neither voting rights nor rights to cash dividends. You have no rights as a shareholder of the Company unless and until your units are settled by issuing Ordinary Shares of the Company’s stock.
Units Nontransferable	You may not sell, transfer, assign, pledge or otherwise dispose of any units. For instance, you may not use your units as security for a loan.
Settlement of Units	Each of your units will be settled when it vests, unless you and the Company have agreed to a later settlement date.
	At the time of settlement, you will receive one share of the Company’s Ordinary Shares for each vested unit. You agree that the Company shall cause the shares to be deposited in your Smith Barney Account. But the Company, at its sole discretion, may substitute an equivalent amount of cash if the distribution of stock is not reasonably practicable due to the requirements of applicable law. The amount of cash will be determined on the basis of the market value of the Company’s Ordinary Shares at the time of settlement.
Withholding Taxes	Regardless of any action the Company or your actual

employer takes with respect to any or all income tax (including federal, state and local taxes), social insurance, payroll tax, payment on account or other tax-related withholding (“Tax Related Items”), you acknowledge that the ultimate liability for all Tax Related Items legally due by you is and remains your responsibility and that the Company and/or your actual employer (i) make no representations or undertakings regarding the treatment of any Tax Related Items in connection with any aspect of the units, including the grant of the units, the vesting of units, the conversion of the units into shares or the receipt of an equivalent cash payment, the subsequent sale of any shares acquired at vesting and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the units to reduce or eliminate your liability for Tax Related Items.

Prior to the issuance of shares upon vesting of the units or the receipt of an equivalent cash payment, you shall pay, or make adequate arrangements satisfactory to the Company or to your actual employer (in their sole discretion) to satisfy all withholding and payment on account obligations of the Company and/or your actual employer. In this regard, you authorize the Company or your actual employer to withhold all applicable Tax Related Items legally payable by you from your wages or other cash compensation payable to you by the Company or your actual employer or from any equivalent cash payment received upon vesting of the units. Alternatively, or in addition, if permissible under local law, the Company or your actual employer may, in their sole discretion, (i) sell or arrange for the sale of shares to be issued on the vesting of the units to satisfy the withholding or payment on account obligation, and/or (ii) withhold in shares, provided that the Company and your actual employer shall withhold only the amount of shares necessary to satisfy the minimum withholding amount. You shall pay to the Company or to your actual employer any amount of Tax Related Items that the Company or your actual employer may be required to withhold as a result of your receipt of units, the vesting of units, the receipt of an equivalent cash payment, or the conversion of vested units to shares that cannot be satisfied by the means previously described. The Company may refuse to deliver shares to you if you fail to comply with your obligation in connection with

	the Tax Related Items as described herein.
Restrictions on Resale	You agree not to sell any shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
No Retention Rights	Your award or this Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of your units will be adjusted accordingly, as the Company may determine pursuant to the Plan.
Nature of the Grant	In accepting the award, you acknowledge that: (a)  the Plan is established voluntarily by the Company, it is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, as provided in the Plan; (b)  the award of units is voluntary and occasional and does not create any contractual or other right to receive future awards of units, or benefits in lieu of units even if units have been awarded repeatedly in the past; (c)  all decisions with respect to future awards, if any, will be at the sole discretion of the Company; (d)  your participation in the Plan is voluntary; (e)  the units are an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or to your actual employer, and units are outside the scope of your employment contract, if any; (f)  the units are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement

benefits or similar payments;

(g)  neither the units nor any provision of this Agreement, the Plan or the policies adopted pursuant to the Plan confer upon you any right with respect to employment or continuation of current employment, and in the event that you are not an employee of the Company or any subsidiary of the Company, the units shall not be interpreted to form an employment contract or relationship with the Company or any subsidiary of the Company;

(h)  the future value of the underlying shares is unknown and cannot be predicted with certainty;

(i)  if you receive shares, the value of such shares acquired on vesting of units may increase or decrease in value;

(j)  no claim or entitlement to compensation or damages arises from termination of units, and no claim or entitlement to compensation or damages shall arise from any diminution in value of the units or shares received upon vesting of units resulting from termination of your Service by the Company or your actual employer (for any reason whatsoever and whether or not in breach of local labor laws) and you irrevocably release the Company and your actual employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this agreement, you shall be deemed irrevocably to have waived your entitlement to pursue such claim; and

(k)  in the event of involuntary termination of your Service (whether or not in breach of local labor laws), your right to receive units and vest under the Plan, if any, will terminate effective as of the date that you are no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); furthermore, in the event of involuntary termination of Service (whether or not in breach of local labor laws), your right to receive shares pursuant to the units after termination of Service, if any, will be measured by the date of termination of your active Service and will not be extended by any notice period mandated under local law.

Data Privacy Notice and Consent You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Agreement by and among, as applicable, your employer, the Company, its subsidiaries and its affiliates for the exclusive purpose of implementing, administering and managing your participation in the Plan. You understand that the Company and your employer may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all units or any other entitlement to shares awarded, canceled, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country, or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required to a broker, escrow agent or other third party with whom the shares received upon vesting of the units may be deposited. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, upon request, view Data, request additional information about the storage and processing of Data, correct Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. You understand that refusal or withdrawal of consent may affect your

	ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, You understand that You may contact your local human resources representative.
Language	If you have received this Agreement or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control.
Applicable Law	This Agreement shall be governed by, and construed in accordance with, the laws of the Republic of Singapore (except its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference.
	This Agreement, together with the Award Summary and the Plan, constitute the entire understanding between you and the Company regarding this award. Any prior agreements, commitments or negotiations concerning this award are superseded. This Agreement may be amended only by another written agreement between the parties.
	If one or more of the provisions of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provisions which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Agreement to be construed so as to foster the intent of this Agreement and the Plan.

BY CLICKING ON THE “ACCEPT” BUTTON ON THE SCREEN TITLED “STEP 3: CONFIRM THE REVIEW/ACCEPTANCE OF YOUR AWARD,” YOU AGREE TO BE BOUND BY THIS SHARE UNIT AGREEMENT, THE NOTICE AND THE PLAN.

EX-10.2.7

Exhibit 10.2.7

France Option Agreement Revised December 2006

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN
NOTICE OF SHARE OPTION GRANT

For Awardees located in France

You have been granted an option to purchase Ordinary Shares of Verigy Ltd. (the “Company”).  Your option is summarized on the Award Summary page of your Smith Barney account.

This option becomes vested and exercisable with respect to all of the Shares subject to this option when you complete 4 years of continuous “Service” (as defined in the U.S. Plan) as an “Awardee Eligible to Vest” (as defined in the U.S. Plan) from the date of this award.  You and the Company agree that this option is granted under and governed by the terms and conditions of the Verigy Ltd. 2006 Equity Incentive Plan (the “U.S. Plan”) and the Verigy Ltd. 2006 Equity Incentive Plan for Options Granted to Employees in France (the “French Option Plan”)(together, the “Plan”)  and the Share Option Agreement, both of which are attached to and made a part of this document.

You further agree that the Company shall cause the shares issued upon exercise of the option to be deposited in your Smith Barney Account and, further, that the Company may deliver electronically all documents relating to the Plan or your option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you regarding such posting.

Your option grant is intended to qualify for favorable tax and social security contributions treatment in France under Sections L. 225-177 to L. 225-186 of the French Commercial Code, as subsequently amended.

OPTIONEE:	VERIGY LTD.
	By:
	Title:

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN
SHARE OPTION AGREEMENT

For Awardees located in France

Tax Treatment	This option is intended to be a nonstatutory stock option, as provided in the Notice of Share Option Grant.
Term	This option expires in any event at the close of business at Company headquarters on the day before the date that is 7 years after the Date of Grant, as shown in the Notice of Share Option Grant. (It may expire earlier if your Service terminates, as described below.)
Vesting	This option becomes exercisable during the Option term, as shown in the Notice of Share Option Grant, as long as you remain an Awardee Eligible to Vest (as defined in the U.S. Plan).
	This option will in no event become exercisable for additional shares after your Service has terminated for any reason, except as otherwise provided in the Plan and this Share Option Agreement.
Regular Termination	If your Service terminates for any reason except death, disability (as defined below), or retirement due to age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s retirement policy, then this option will expire at the close of business at Company headquarters on the date three months after your termination date, or, if earlier, the expiration of the term of this option. The Company determines when your Service terminates for this purpose.
Death	If you die before your Service terminates, this option will become immediately vested and exercisable in full and will expire at the close of business at Company headquarters on the date 6 months after the date of death. In the event of your death after cessation of employment but prior to the termination of the option, your heirs may exercise the vested options for 6 months following your death. In these circumstances, all unvested options will lapse upon your death. All vested options that are not exercised within 6 months of your death will be forfeited. The 6-month exercise period will apply without regard to the term of the option.
Disability	If your Service terminates because of your disability which is defined as disability under categories 2 or 3 under Section L. 341-4 of the French Social Security Code, then this option will become immediately vested and exercisable in full and expire at the close of business at Company headquarters on the date 12 months after your termination date, or, if earlier, the expiration of the term of this option.
Retirement	If your Service terminates because of retirement due to age, the options will continue to vest for 12 months following the date of termination, the option shall terminate as to the shares that do not vest in such 12-month period and the option shall be exercisable as to the vested shares for one year after the date you cease to be an Awardee Eligible to Vest or, if

	earlier, the expiration of the term of the option.
Leaves of Absence and Part-Time Work	For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another Company approved leave of absence, and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work.
	Your status as an Awardee Eligible to Vest (as defined in the U.S. Plan) will always cease upon termination of employment with the Company or a Subsidiary or Affiliate except as provided in Article 5 of the U.S. Plan.
	If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Share Option Grant may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Restrictions on Exercise	The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.
Notice of Exercise	You may exercise this option from time to time for any number of shares for which the option is then exercisable, by notice in writing, electronically or by other means to, and as prescribed by, the Company’s equity incentive administration service provider (the “administration service provider”). Your exercise notice will be effective and irrevocable at such time as your notice, method of payment and such other documentation as the administration service provider may require have been received by the administration service provider. You hereby direct the Company to deposit any shares issued upon exercise of the option in your Smith Barney account.
	If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
Form of Payment	When you exercise this option, you must provide for payment of the option exercise price for the shares that you are purchasing. Notwithstanding any provision in the U.S. Plan to the contrary, upon exercise of an option, the full exercise price will be paid either in cash, by check or by credit transfer. Under a cashless exercise program, you may give irrevocable instructions to the administration service provider to properly deliver the option price to the Company.
Withholding Taxes and Stock Withholding	Regardless of any action the Company or your employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the option grant, including the grant, vesting or exercise of the option, the subsequent sale of shares acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the option to reduce or eliminate your liability for Tax-Related Items.

	Prior to exercise of the option, you will pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer, within legal limits, or from proceeds of the sale of shares. Finally, you will pay to the Company or the Employer, by means of cash, check or credit transfer, any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of shares that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to deliver the shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section.
Restrictions on Resale	You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option	This option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by the beneficiary designation, will or by the laws of descent or distribution and may be exercised, during your lifetime, only by you.
Retention Rights	Your option or this Share Option Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time.
Stockholder Rights	You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by submitting the required notice in accordance with the provisions under “Notice of Exercise” set forth above and paying the exercise price and any applicable withholding taxes. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the Plan.
Nature of the Grant	In accepting the grant, you acknowledge that: (a)  the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Share Option Agreement; (b)  the grant of the option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted repeatedly in the past; (c)  all decisions with respect to future option grants, if any, will be at the sole discretion of the Company; (d)  you are voluntarily participating in the Plan; (e)  the option is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the

Companyor the Employer, and which is outside the scope of your employment contract, if any; (f)  the option is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or the Employer; (g)  in the event that you are not an employee of the Company, the option grant will not be interpreted to form an employment contract or relationship with the Company; and furthermore, the option grant will not be interpreted to form an employment contract with the Employer or any subsidiary or affiliate of the Company; (h)  the future value of the underlying shares is unknown and cannot be predicted with certainty; (i)  if the underlying shares do not increase in value, the option will have no value; (j)  if you exercise your option and obtain shares, the value of those shares acquired upon exercise may increase or decrease in value, even below the exercise price; (k)  in consideration of the grant of the option, no claim or entitlement to compensation or damages shall arise from termination of the option or diminution in value of the option or shares purchased through exercise of the option resulting from termination of your employment by the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and you irrevocably release the Companyand the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this Share Option Agreement, you shall be deemed irrevocably to have waived your entitlement to pursue such claim; and (l)  in the event of termination of your employment, your right to receive the option and vest in the option under the Plan, if any, will terminate effective as of the date that you are no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); furthermore, in the event of termination of employment, your right to exercise the option after termination of employment, if any, will be measured by the date of termination of your active employment and will not be extended by any notice period mandated under local law; the Company shall have the exclusive discretion to determine when you are no longer actively employed for purposes of your option grant.

Data Privacy Notice and Consent

You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Share Option Agreement by and among, as applicable, your employer, the Company, its subsidiaries and its affiliates for the exclusive purpose of implementing, administering and managing your participation in the Plan. You understand that the Company and your employer may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all options or any other entitlement to shares awarded,

	canceled, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country, or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required to a broker, escrow agent or other third party with whom the shares received upon exercise of the option may be deposited. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, upon request, view Data, request additional information about the storage and processing of Data ,correct Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. You understand that refusal or withdrawal of consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, You understand that You may contact your local human resources representative.
Language	If you have received this Share Option Agreement or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control.
Applicable Law	This Share Option Agreement shall be governed by, and construed in accordance with, the laws of the Republic of Singapore (except its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Share Option Agreement by reference.
	This Share Option Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Share Option Agreement may be amended only by another written agreement between the parties.
	If one or more of the provisions of this Share Option Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provisions which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Share Option Agreement to be construed so as to foster the intent of this Share Option Agreement and the Plan

YOUR ELECTRONIC SIGNATURE TO THIS NOTICE AND AGREEMENT IS YOUR AGREEMENT TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

EX-10.2.8

Exhibit 10.2.8

France RSU Agreement Revised December 2006

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN

NOTICE OF SHARE UNIT AWARD

For Awardees located in France

You have been granted units representing Ordinary Shares of Verigy Ltd. (the “Company”).  Your grant is summarized on the Award Summary page of your Smith Barney account.

Your units vest when you complete 48 months of continuous “Service” (as defined in the Plan) as an “Awardee Eligible to Vest” (as defined in the Plan) from the date of grant.

You and the Company agree that these units are granted under and governed by the terms and conditions of the Verigy Ltd. 2006 Equity Incentive Plan (the “U.S. Plan”) and the Verigy Ltd. 2006 Equity Incentive Plan for Awards Granted to Employees in France (the “French Share Units Plan”) (together, the “Plan”), the Share Unit Agreement (of which this notice is a part), and the Award Summary.

These units are intended to be a grant of a French qualified RSU which qualifies for favorable tax and social security contributions treatment in France under Section L. 225-197-1 to L. 225-197-5 of the French Commercial Code, as amended.

You further agree that the Company shall cause the shares issued upon payment of your units to be deposited in your Smith Barney account and, further,  that the Company may deliver electronically all documents relating to the Plan or this award (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you regarding such posting.

By clicking on the “accept” button on the screen titled “Step 3: Confirm the Review/Acceptance of your Award,” you agree to be bound by the shaer unit Agreement, this Notice and the Plan.	By:	Verigy Ltd.
		/s/ KEITH L. BARNES
		Keith L. Barnes
		President and Chief Executive Officer

VERIGY LTD. 2006 EQUITY INCENTIVE PLAN
SHARE UNIT AGREEMENT

For Awardees located in France

Payment for Units	No payment is required for the units that you are receiving.
Vesting	The units vest in installments, as shown in the Notice of Share Unit Award, as long as you remain an Awardee Eligible to Vest (as defined in the Plan).
	No additional units vest after your Service has terminated for any reason, except as otherwise provided in the Plan and this agreement.
	Notwithstanding any provision in the U.S. Plan to the contrary, in the event of your death while employed by the Company or its French Subsidiary, on the date of death, your units shall become fully vested. Your heirs may request issuance of the underlying shares within six months of your death. However, your heirs must comply with the restrictions on sale as set forth under the French Share Units Plan to the extent and as long as applicable under French law.
	If your Service is terminated because of retirement or total and permanent disability, after the second anniversary of the grant date, your the units are subject to certain vesting acceleration provisions as provided in the U.S. Plan.
	For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.

Forfeiture	If your Service terminates for any reason, then your units will be forfeited to the extent that they have not vested before the termination date and do not vest as a result of the termination. This means that the units will immediately be cancelled. You receive no payment for units that are forfeited.
	The Company determines when your Service terminates for this purpose.
Leaves of Absence and Part-Time Work	For purposes of this award, your Service does not terminate when you go on a military leave, a sick leave or another Company approved leave of absence, and if continued crediting of Service is required by applicable law, the Company’s leave of absence policy or the terms of your leave. But your Service terminates when the approved leave ends, unless you immediately return to active work.
	Your status as an Awardee Eligible to Vest will cease upon termination of employment with the Company or a Subsidiary or Affiliate except as provided in Article 8 of the Plan.
	If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Share Unit Award may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Nature of Units	Your units are mere bookkeeping entries. They represent only the Company’s unfunded and unsecured promise to issue Ordinary Shares on a future date. As a holder of units, you have no rights other than the rights of a general creditor of the Company.
No Voting Rights or Dividends	Your units carry neither voting rights nor rights to cash dividends or dividend equivalent payments on the units and no cash dividends or dividend equivalents will accrue during the period between the grant date and the issuance date. You have no rights as a shareholder of the Company unless and until your units are settled by issuing Ordinary Shares of the Company’s stock.

Units Nontransferable	You may not sell, transfer, assign, pledge or otherwise dispose of any units. For instance, you may not use your units as security for a loan.
Settlement of Units	Each of your units will be settled when it vests, unless you and the Company have agreed to a later settlement date.
	At the time of settlement, you will receive one share of the Company’s Ordinary Shares for each vested unit. You agree that the Company shall cause the shares to be deposited in your Smith Barney Account.
Withholding Taxes	Regardless of any action the Company or your actual employer takes with respect to any or all income tax (including federal, state and local taxes), social insurance, payroll tax, payment on account or other tax-related withholding (“Tax Related Items”), you acknowledge that the ultimate liability for all Tax Related Items legally due by you is and remains your responsibility and that the Company and/or your actual employer (i) make no representations or undertakings regarding the treatment of any Tax Related Items in connection with any aspect of the units, including the grant of the units, the vesting of units, the conversion of the units into shares or the receipt of an equivalent cash payment, the subsequent sale of any shares acquired at vesting and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the units to reduce or eliminate your liability for Tax Related Items. Prior to the issuance of shares upon vesting of the units or the receipt of an equivalent cash payment, you shall pay, or make adequate arrangements satisfactory to the Company or to your actual employer (in their sole discretion) to satisfy all withholding and payment on account obligations of the Company and/or your actual employer. In this regard, you authorize the Company or your actual employer to withhold all applicable Tax Related Items legally payable by you from your wages or other cash compensation payable to you by the Company or your actual employer, within legal limits, or from any equivalent cash payment received upon vesting of the units. You shall pay to the Company or to your actual employer, by means of cash check or

	credit transfer, any amount of Tax Related Items that the Company or your actual employer may be required to withhold as a result of your receipt of units, the vesting of units, the receipt of an equivalent cash payment, or the conversion of vested units to shares that cannot be satisfied by the means previously described. The Company may refuse to deliver shares to you if you fail to comply with your obligation in connection with the Tax Related Items as described herein.
Restrictions on Resale	You may not sell or transfer the shares issued pursuant to the share units prior to the second anniversary of each vesting date or such other period as is required to comply with the minimum mandatory holding period applicable to shares underlying French-qualified awards under Section L. 225-197-1 of the French Commercial Code, as amended. In addition, the underlying shares cannot be sold during certain “Closed Periods” as provided for by Section L. 225-197-1 of the French Commercial Code, as amended, so long as those Closed Periods are applicable to shares underlying French-qualified awards. You agree not to sell any shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
No Retention Rights	Your award or this Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of your units will be adjusted accordingly, as the Company may determine pursuant to the Plan.

Nature of the Grant In accepting the award, you acknowledge that: (a)  the Plan is established voluntarily by the Company, it is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, as provided in the Plan; (b)  the award of units is voluntary and occasional and does not create any contractual or other right to receive future awards of units, or benefits in lieu of units even if units have been awarded repeatedly in the past; (c)  all decisions with respect to future awards, if any, will be at the sole discretion of the Company; (d)  your participation in the Plan is voluntary; (e)  the units are an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or to your actual employer, and units are outside the scope of your employment contract, if any; (f)  the units are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (g)  neither the units nor any provision of this Agreement, the Plan or the policies adopted pursuant to the Plan confer upon you any right with respect to employment or continuation of current employment, and in the event that you are not an employee of the Company or any subsidiary of the Company, the units shall not be interpreted to form an employment contract or relationship with the Company or any subsidiary of the Company; (h)  the future value of the underlying shares is unknown and cannot be predicted with certainty; (i)  if you receive shares, the value of such shares acquired on vesting of units may increase or decrease in value; (j)  no claim or entitlement to compensation or damages arises from termination of units, and no claim or entitlement to compensation or damages shall arise from any diminution in value of the units or shares received upon vesting of units resulting from termination of your Service by the Company or your actual employer (for any reason whatsoever and whether or not in breach of local labor laws) and you irrevocably release the Company and your

actual employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this agreement, you shall be deemed irrevocably to have waived your entitlement to pursue such claim; and (k)  in the event of involuntary termination of your Service, your right to receive units and vest under the Plan, if any, will terminate effective as of the date that you are no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); furthermore, in the event of involuntary termination of Service, your right to receive shares pursuant to the units after termination of Service, if any, will be measured by the date of termination of your active Service and will not be extended by any notice period mandated under local law.

Data Privacy Notice and Consent

You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Agreement by and among, as applicable, your employer, the Company, its subsidiaries and its affiliates for the exclusive purpose of implementing, administering and managing your participation in the Plan. You understand that the Company and your employer may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all units or any other entitlement to shares awarded, canceled, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country, or elsewhere, and that the

	recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required to a broker, escrow agent or other third party with whom the shares received upon vesting of the units may be deposited. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, upon request, view Data, request additional information about the storage and processing of Data, correct Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. You understand that refusal or withdrawal of consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, You understand that You may contact your local human resources representative.
Language	If you have received this Agreement or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control.
Applicable Law	This Agreement shall be governed by, and construed in accordance with, the laws of the Republic of Singapore (except its choice-of-law provisions).

The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference.
	This Agreement, together with the Award Summary and the Plan, constitute the entire understanding between you and the Company regarding this award. Any prior agreements, commitments or negotiations concerning this award are superseded. This Agreement may be amended only by another written agreement between the parties.
	If one or more of the provisions of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provisions which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Agreement to be construed so as to foster the intent of this Agreement and the Plan.

BY CLICKING ON THE “ACCEPT” BUTTON ON THE SCREEN TITLED “STEP 3: CONFIRM THE REVIEW/ACCEPTANCE OF YOUR AWARD,” YOU AGREE TO BE BOUND BY THIS SHARE UNIT AGREEMENT, THE NOTICE AND THE PLAN.

EX-10.2.12

Exhibit 10.2.12

Verigy Ltd. 2006 Equity Incentive Plan

Notice of Share Option Award

(Four Tranche)

You have been granted the following option to purchase Verigy Ltd. (the “Company”) ordinary shares as follows:

Name of Optionee:	«Name»
Total Number of Shares:	«TotalShares»
Type of Option:	Nonstatutory Stock Option
Date of Award:	«AwardDate»
Expiration Date:	«ExpDate». This option may expire earlier if your Service terminates earlier, as described in the Stock Option Agreement.

The Option shall be divided into four tranches of «1/4shares» each, with exercise prices(1) and vesting as follows:

Exercise Prices
Exercise Price Per Share, 1st Tranche:	$«PricePerShare1st» (the last sale price of Verigy ordinary shares on the Date of Award);
Exercise Price Per Share, 2nd Tranche:	Last sale price of Verigy ordinary shares on the third business day following Verigy’s announcement of financial results for the fiscal quarter ending «2pricingdate»;
Exercise Price Per Share, 3rd Tranche:	Last sale price of Verigy ordinary shares on the third business day following Verigy’s announcement of financial results for the fiscal quarter ending «3pricingdate»; and
Exercise Price Per Share, 4th Tranche:	Last sale price of Verigy ordinary shares on the third business day following Verigy’s announcement of financial results for the fiscal quarter ending «4pricingdate».
Vesting Schedule
1st Tranche («1/4shares»):	The first tranche of shares subject to this option vests and becomes exercisable in 16 equal quarterly installments(2) commencing three months from the Date of Award, provided that you continue to be an Awardee Eligible to Vest as of the applicable vesting date.
2nd Tranche («1/4shares»):	The second tranche of shares subject to this option vests and becomes exercisable in 15 equal quarterly installments(2) commencing three months from «2pricingdate», provided that you continue to be an Awardee Eligible to Vest as of the applicable vesting date.
3rd Tranche («1/4shares»):	The third tranche of shares subject to this option vests and becomes exercisable in 14 equal quarterly installments(2) commencing three months from «3pricingdate», provided that you continue to be an Awardee Eligible to Vest as of the applicable vesting date.

4th Tranche («1/4shares»): The fourth tranche of shares subject to this option vests and becomes exercisable in 13 equal quarterly installments(2) commencing three months from «4pricingdate», provided that you continue to be an Awardee Eligible to Vest as of the applicable vesting date.

You and the Company agree that this option is granted under and governed by the terms and conditions of the Verigy Ltd. 2006 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, both of which are made a part of this document.

You further agree that the Company shall cause the shares issued upon exercise of this option to be deposited in your Smith Barney Account and, further, that the Company may deliver electronically all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you regarding such posting.

Optionee:	Verigy Ltd.
	By:
	Title:

(1) The exercise price for the 1st tranche is equal to the closing price of Verigy’s ordinary shares on the Date of Award.  Except as set forth in the accompanying Option Agreement, the exercise prices for the 2nd through 4th tranches shall be equal to the closing price of Verigy ordinary shares on the pricing dates indicated above.  Such prices shall be set automatically and without any further action on the part of the Company or the optionee.

(2) No fractional shares shall be issuable.  The number of shares exercisable at each vesting event other than the last shall be rounded down to the nearest whole share and the last vesting event shall cover all shares not previously vested.

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Verigy Ltd. 2006 Equity Incentive Plan

Share Option Agreement

(Four Tranche)

Tax Treatment	This option is intended to be an incentive stock option under section 422 of the Internal Revenue Code or a nonstatutory stock option, as provided in the Notice of Stock Option Award.
Vesting	This option becomes exercisable in installments, during the Option term as shown in the Notice of Stock Option Award, as long as you remain an Awardee Eligible to Vest (as defined in the Plan). This option will in no event become exercisable for additional shares after your Service has terminated for any reason, except as otherwise provided in the Plan and this agreement.
Term	This option expires in any event at the close of business at Company headquarters on the day before the 7th anniversary of the Date of Award, as shown in the Notice of Stock Option Award. (It may expire earlier if your Service terminates, as described below.)
Regular Termination	Unless otherwise provided in an agreement between you and the Company, if your Service terminates for any reason except death, total and permanent disability, or retirement due to age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s retirement policy, then this option will expire at the close of business at Company headquarters on the date three months after your termination date, or, if earlier, the expiration of the term of this option. The Company determines when your Service terminates for this purpose.
Termination as a result of Death, Disability or Retirement	If you die before your Service terminates, or if your Service terminates because of your total and permanent disability or in connection with your retirement due to age, then (i) the vested portion of each tranche of this option will be determined by adding 12 months to your length of service and (ii) you will be entitled to exercise this option until the close of business at Company headquarters on the one year anniversary of the date of death, disability or retirement, or, if earlier, until the expiration of the term of this option, as provided in the Plan. For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last for a continuous period of not less than one year.

Special Provisions for Accelerated Pricing of Unpriced Tranches	Notwithstanding the establishment of pricing dates for the 2nd, 3rd and 4th tranches of the award as set forth in the Notice of Stock Option Award, the exercise price of any previusly unpriced tranche shall be established in accordance with the following in the following circumstances: Change of Control. In the event that prior to any pricing date the Company or any third party publicly announces any transaction or event which, as announced or if consummated, would constitute a Change of Control (as defind in the Plan) of the Company, the per-share exercise price for each tranche of this option not already priced as of the date of such announcement shall become fixed at an amount equal to the closing price of Verigy ordinary shares on the last trading day immediately preceding such announcement. Termination of Employment. In the event that prior to any pricing date your Service (as defined in the Plan) with the Company and its affiliates shall terminate for any reason, then the per-share exercise price for each tranche of this option not already priced as of the date of such termination of Service shall become fixed at an amount equal to the closing price of Verigy ordinary shares on the last trading day immediately preceding your last day of Service. No Affect On Vesting. The Vesting provisions applicable to any tranche shall not be affected by a change in the timing of establishing the exercise price in accordance with the preceding paragraphs.
Leaves of Absence and Part-Time Work	For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another Company approved leave of absence, and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work. Your status as an Awardee Eligible to Vest (as defined in the Plan) will always cease upon termination of employment with the Company or a Subsidiary or Affiliate except as provided in Article 5 of the Plan. If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Stock Option Award may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Restrictions on Exercise	The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.
Notice of Exercise	You may exercise this option from time to time for any number of shares for which the option is then exercisable, by notice in writing, electronically or by other means to, and as prescribed by, the Company’s equity incentive administration service provider (the “administration service provider”). Your exercise notice will be effective and irrevocable at such time as your notice, method of payment (whether by cash, check, proceeds from the immediate sale of the option shares, or as otherwise

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	provided in the Plan) and such other documentation as the administration service provider may require have been received by the administration service provider. Your exercise notice must specify which tranche(s) of this option you are exercising. If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
Form of Payment	When you exercise this option, you must provide for payment of the option exercise price for the shares that you are purchasing. To the extent permitted by applicable law, payment may be made in one (or a combination of two or more) of the forms set forth in Sections 5.7 (a), (c) and (d) of the Plan.
Withholding Taxes and Stock Withholding	You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise.Such arrangements include an irrevocable direction to the Company’s securities broker service provider to sell all or a part of the Shares being purchased under this option and to deliver all or part of the sales proceeds to the Company, pursuant to Section 5.7(c) of the plan.
Restrictions on Resale	You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option	Unless determined otherwise by the Committee, this option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by the beneficiary designation, will or by the laws of descent or distribution and may be exercised, during your lifetime, only by you.  If the Committee makes this option transferable, it shall contain such additional terms and conditions as the Committee deems appropriate.
Retention Rights	Your option or this Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.
Stockholder Rights	You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by submitting the required notice in accordance with the provisions under “Notice of Exercise” set forth above and paying the exercise price and any applicable withholding taxes. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the Plan.

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Applicable Law	This Agreement shall be governed by, and construed in accordance with, the laws of the Republic of Singapore (except its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference. This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Agreement may be amended only by another written agreement between the parties.

Your electronic signature to this Notice and Agreement is your
agreement to all of the terms and conditions described above and in
the Plan.

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EX-10.2.13

Exhibit 10.2.13

Verigy Ltd. 2006 Equity Incentive Plan
Notice of Share Option Award(Four Tranche - French Optionee)

You have been granted the following option to purchase Verigy Ltd. (the “Company”) ordinary shares as follows:

Name of Optionee:	«Name»
Total Number of Shares:	«TotalShares»
Type of Option:	Nonstatutory Stock Option
Date of Award:	«AwardDate»
Expiration Date:	«ExpDate». This option may expire earlier if your Service terminates earlier, as described in the Stock Option Agreement.

The Option shall be divided into four tranches of «1/4shares» each, with exercise prices(1) and vesting as follows:

Exercise Prices

Exercise Price Per Share, 1st Tranche:	$«PricePerShare1st» (the last sale price of Verigy ordinary shares on the Date of Award);
Exercise Price Per Share, 2nd Tranche:	The last sale price of Verigy ordinary shares on the 11th business day following Verigy’s announcement of financial results for the fiscal quarter ending «2pricingdate»(2);
Exercise Price Per Share, 3rd Tranche:	The last sale price of Verigy ordinary shares on the 11th business day following Verigy’s announcement of financial results for the fiscal quarter ending «3pricingdate»(2); and
Exercise Price Per Share, 4th Tranche:	The last sale price of Verigy ordinary shares on the 11th business day following Verigy’s announcement of financial results for the fiscal quarter ending «4pricingdate»(2).

Vesting Schedule

1st Tranche («1/4shares»):	The first tranche of shares subject to this option vests in 16 equal quarterly installments commencing three months from the Date of Award, provided that you continue to be an Awardee Eligible to Vest as of the applicable vesting date.
2nd Tranche («1/4shares»):	The second tranche of shares subject to this option vests in 15 equal quarterly installments commencing three months from «2pricingdate», provided that you continue to be an Awardee Eligible to Vest as of the applicable vesting date.

(1) The exercise price for the 1st tranche is equal to the closing price of Verigy’s ordinary shares on the Date of Award.  Except as set forth in the accompanying Option Agreement, the exercise prices for the 2nd through 4th tranches shall be equal to the closing price of Verigy ordinary shares on the pricing dates indicated above.  Such prices shall be set automatically and without any further action on the part of the Company or the optionee.

(2) If such pricing date falls during a Closed Period (as defined by Section L. 255-177 of the French Commercial Code), then the pricing shall take place on the next trading day following expiration of the Closed Period.

3rd Tranche («1/4shares»):	The third tranche of shares subject to this option vests in 14 equal quarterly installments commencing three months from «3pricingdate», provided that you continue to be an Awardee Eligible to Vest as of the applicable vesting date.
4th Tranche («1/4shares»):	The fourth tranche of shares subject to this option vests in 13 equal quarterly installments commencing three months from «4pricingdate», provided that you continue to be an Awardee Eligible to Vest as of the applicable vesting date.
Exercisability of Option	Except as otherwise provided in the event of death or disability, each tranche of this option shall first become exercisable on that date that is four years and one day following the date on which the exercise price of such tranche became fixed.

You and the Company agree that this option is granted under and governed by the terms and conditions of the Verigy Ltd. 2006 Equity Incentive Plan and the Verigy Ltd. 2006 Equity Incentive Plan for Options Granted to Employees in France (the “French Option Plan”) (together, the “Plan”) and the Stock Option Agreement, both of which are made a part of this document.

You further agree that the Company shall cause the shares issued upon exercise of this option to be deposited in your Smith Barney Account and, further, that the Company may deliver electronically all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you regarding such posting.

Your option grant is intended to qualify for favorable tax and social security contributions treatment in France under Sections L. 225-177 to L. 225-186 of the French Commercial Code, as subsequently amended.

Optionee:	Verigy Ltd.
	By:
	Title:

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VERIGY LTD. 2006 EQUITY INCENTIVE PLAN
SHARE OPTION AGREEMENT

	(Four Tranche - French Optionee)
Tax Treatment	This option is intended to be a nonstatutory stock option, as provided in the Notice of Share Option Grant.
Term	This option expires in any event at the close of business at Company headquarters on the day before the date that is 7 years after the Date of Grant, as shown in the Notice of Share Option Grant. (It may expire earlier if your Service terminates, as described below.)
Vesting	This option becomes exercisable during the Option term, as shown in the Notice of Share Option Grant, as long as you remain an Awardee Eligible to Vest (as defined in the U.S. Plan).
	This option will in no event become exercisable for additional shares after your Service has terminated for any reason, except as otherwise provided in the Plan and this Share Option Agreement.
Regular Termination	If your Service terminates for any reason except death, disability (as defined below), or retirement due to age, in accordance with the Company’s or a Subsidiary’s or Affiliate’s retirement policy, then this option will expire as to each tranche at the close of business at Company headquarters on the later of (i) three months after your termination date or (ii) three months after the date such tranche first became exercisable. The Company determines when your Service terminates for this purpose.
Death	If you die before your Service terminates, this option will become immediately vested and exercisable in full and will expire at the close of business at Company headquarters on the date 6 months after the date of death.
	In the event of your death after cessation of employment but prior to the termination of the option, your heirs may exercise the vested options for 6 months following your death. In these circumstances, all unvested options will lapse upon your death.
	All vested options that are not exercised within 6 months of your death will be forfeited. The 6-month exercise period will apply without regard to the term of the option.
Disability	If your Service terminates because of your disability which is defined as disability under categories 2 or 3 under Section L. 341-4 of the French Social Security Code, then this option will become immediately vested and exercisable in full and expire at the close of business at Company headquarters on the date 12 months after your termination date, or, if earlier, the expiration of the term of this option.
Retirement	If your Service terminates because of retirement due to age, the options will continue to vest for 12 months following the date of termination, the option shall terminate as to the shares that do not vest in such 12-month period and the option shall be exercisable as to the vested shares for one year after the date you cease to be an Awardee Eligible to Vest or, if earlier, the expiration of the term of the option.

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Special Provisions for Accelerated Pricing of Unpriced Tranches	Notwithstanding the establishment of pricing dates for the 2nd, 3rd and 4th tranches of the award as set forth in the Notice of Stock Option Award, the exercise price of any previusly unpriced tranche shall be established in accordance with the following in the following circumstances:
	Change of Control. In the event that prior to any pricing date the Company or any third party publicly announces any transaction or event which, as announced or if consummated, would constitute a Change of Control (as defind in the Plan) of the Company, the per-share exercise price for each tranche of this option not already priced as of the date of such announcement shall become fixed at an amount equal to the closing price of Verigy ordinary shares on the last trading day immediately preceding such announcement.
	Termination of Employment. In the event that prior to any pricing date your Service (as defined in the Plan) with the Company and its affiliates shall terminate for any reason, then the per-share exercise price for each tranche of this option not already priced as of the date of such termination of Service shall become fixed at an amount equal to the closing price of Verigy ordinary shares on the last trading day immediately preceding your last day of Service.
	No Affect On Vesting or Exercisability. The Vesting provisions applicable to any tranche shall not be affected by a change in the timing of establishing the exercise price in accordance with the preceding paragraphs.
Leaves of Absence and Part-Time Work	For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another Company approved leave of absence, and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work.
	Your status as an Awardee Eligible to Vest (as defined in the U.S. Plan) will always cease upon termination of employment with the Company or a Subsidiary or Affiliate except as provided in Article 5 of the U.S. Plan.
	If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Share Option Grant may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Restrictions on Exercise	The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.
Notice of Exercise	You may exercise this option from time to time for any number of shares for which the option is then exercisable, by notice in writing, electronically or by other means to, and as prescribed by, the Company’s equity incentive administration service provider (the “administration service provider”). Your exercise notice will be effective and irrevocable at such time as your notice, method of payment and such other documentation as the administration service provider may require have been received by the administration service provider. You hereby direct the Company to deposit any shares issued upon exercise of the option in your Smith Barney account.

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	If someone else wants to exercise this option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
Form of Payment	When you exercise this option, you must provide for payment of the option exercise price for the shares that you are purchasing. Notwithstanding any provision in the U.S. Plan to the contrary, upon exercise of an option, the full exercise price will be paid either in cash, by check or by credit transfer. Under a cashless exercise program, you may give irrevocable instructions to the administration service provider to properly deliver the option price to the Company.
Withholding Taxes and Stock Withholding	Regardless of any action the Company or your employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the option grant, including the grant, vesting or exercise of the option, the subsequent sale of shares acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the option to reduce or eliminate your liability for Tax-Related Items.
	Prior to exercise of the option, you will pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer, within legal limits, or from proceeds of the sale of shares. Finally, you will pay to the Company or the Employer, by means of cash, check or credit transfer, any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of shares that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to deliver the shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section.
Restrictions on Resale	You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option	This option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by the beneficiary designation, will or by the laws of descent or distribution and may be exercised, during your lifetime, only by you.
Retention Rights	Your option or this Share Option Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time.

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Stockholder Rights	You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by submitting the required notice in accordance with the provisions under “Notice of Exercise” set forth above and paying the exercise price and any applicable withholding taxes. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the Plan.
Nature of the Grant	In accepting the grant, you acknowledge that: (a)   the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Share Option Agreement; (b)   the grant of the option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted repeatedly in the past; (c)   all decisions with respect to future option grants, if any, will be at the sole discretion of the Company; (d)   you are voluntarily participating in the Plan; (e)   the option is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Companyor the Employer, and which is outside the scope of your employment contract, if any; (f)   the option is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or the Employer; (g)   in the event that you are not an employee of the Company, the option grant will not be interpreted to form an employment contract or relationship with the Company; and furthermore, the option grant will not be interpreted to form an employment contract with the Employer or any subsidiary or affiliate of the Company; (h)   the future value of the underlying shares is unknown and cannot be predicted with certainty; (i)   if the underlying shares do not increase in value, the option will have no value; (j)   if you exercise your option and obtain shares, the value of those shares acquired upon exercise may increase or decrease in value, even below the exercise price; (k)   in consideration of the grant of the option, no claim or entitlement to compensation or damages shall arise from termination of the option or diminution in value of the option or shares purchased through exercise of the option resulting from termination of your employment by the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and you irrevocably release the Companyand the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this

6

	Share Option Agreement, you shall be deemed irrevocably to have waived your entitlement to pursue such claim; and (l)   in the event of termination of your employment, your right to receive the option and vest in the option under the Plan, if any, will terminate effective as of the date that you are no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of “garden leave” or similar period pursuant to local law); furthermore, in the event of termination of employment, your right to exercise the option after termination of employment, if any, will be measured by the date of termination of your active employment and will not be extended by any notice period mandated under local law; the Company shall have the exclusive discretion to determine when you are no longer actively employed for purposes of your option grant.
Data Privacy Notice and Consent	You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Share Option Agreement by and among, as applicable, your employer, the Company, its subsidiaries and its affiliates for the exclusive purpose of implementing, administering and managing your participation in the Plan.
	You understand that the Company and your employer may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all options or any other entitlement to shares awarded, canceled, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country, or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required to a broker, escrow agent or other third party with whom the shares received upon exercise of the option may be deposited. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, upon request, view Data, request additional information about the storage and processing of Data ,correct Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. You understand that refusal or withdrawal of consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, You understand that You may contact your local human resources representative.

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Language	If you have received this Share Option Agreement or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control.
Applicable Law	This Share Option Agreement shall be governed by, and construed in accordance with, the laws of the Republic of Singapore (except its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Share Option Agreement by reference.
	This Share Option Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Share Option Agreement may be amended only by another written agreement between the parties.
	If one or more of the provisions of this Share Option Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provisions which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Share Option Agreement to be construed so as to foster the intent of this Share Option Agreement and the Plan

YOUR ELECTRONIC SIGNATURE TO THIS NOTICE AND AGREEMENT IS YOUR AGREEMENT TO
ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

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EX-10.3

Exhibit 10.3

Verigy Ltd.

2006 Employee Shares Purchase Plan

(As Amended, December 20, 2006)

TABLE OF CONTENTS

	Page
SECTION 1. PURPOSE OF THE PLAN	1
SECTION 2. ADMINISTRATION OF THE PLAN	1
(a) Committee Composition	1
(b) Committee Responsibilities	1
SECTION 3. STOCK OFFERED UNDER THE PLAN	1
(a) Authorized Shares	1
(b) Anti-Dilution Adjustments	1
(c) Reorganizations	2
SECTION 4. ENROLLMENT AND PARTICIPATION	2
(a) Offering Periods	2
(c) Enrollment at IPO	2
(c) Enrollment After IPO	2
(d) Duration of Participation	3
SECTION 5. EMPLOYEE CONTRIBUTIONS	3
(a) Commencement of Payroll Deductions	3
(b) Amount of Payroll Deductions	3
(c) Changing Withholding Rate	3
(d) Discontinuing Payroll Deductions	3
(e) Limit on Number of Elections	4
SECTION 6. WITHDRAWAL FROM THE PLAN	4
(a) Withdrawal	4
(b) Re-Enrollment After Withdrawal	4
SECTION 7. CHANGE IN EMPLOYMENT STATUS	4
(a) Termination of Employment	4
(b) Leave of Absence	4
(c) Death	4
SECTION 8. PLAN ACCOUNTS AND PURCHASE OF SHARES	5
(a) Plan Accounts	5
(b) Purchase Price	5
(c) Number of Shares Purchased	5
(d) Available Shares Insufficient	5
(e) Issuance of Stock	5
(f) Tax Withholding	6
(g) Unused Cash Balances	6
(h) Stockholder Approval	6

SECTION 9. LIMITATIONS ON STOCK OWNERSHIP	6
(a) Five Percent Limit	6
(b) Dollar Limit	6
SECTION 10. RIGHTS NOT TRANSFERABLE	7
SECTION 11. NO RIGHTS AS AN EMPLOYEE	7
SECTION 12. NO RIGHTS AS A STOCKHOLDER	8
SECTION 13. AMENDMENT OR DISCONTINUANCE	8
SECTION 14. COMMITTEE RULES FOR NON-U.S. JURISDICTIONS	8
(a) Rules and Procedures	8
(b) Sub-Plans	8
SECTION 15. COMPLIANCE with LAW.	8
(a) Securities Laws and Regulations	8
(b) Governmental Approvals	9
(c) Choice of Law	9
SECTION 16. DEFINITIONS	9
(a) Board	9
(b) Code	9
(c) Committee	9
(d) Company	9
(e) Compensation	9
(f) Corporate Reorganization	9
(g) Eligible Employee	9
(h) Exchange Act	10
(i) Fair Market Value	10
(j) IPO	10
(k) Offering Period	10
(l) Participant	10
(m) Participating Company	10
(n) Plan	11
(o) Plan Account	11
(p) Purchase Price	11
(q) Stock	11
(r) Subsidiary	11

ii

Verigy Ltd.

2006 Employee Shares Purchase Plan

SECTION 1.PURPOSE OF THE PLAN.

The Board adopted the Plan effective as of the date of the IPO.  The purpose of the Plan is to provide Eligible Employees with an opportunity to increase their proprietary interest in the success of the Company by purchasing Shares from the Company on favorable terms and to pay for such purchases through payroll deductions.  The Plan is intended to qualify for favorable tax treatment under section 423 of the Code although the Company undertakes no obligation to maintain such qualification.  In addition, this Plan document authorizes the grant of options to Eligible Employees resident outside of the United States of America pursuant to terms, rules, procedures or sub-plans adopted by the Committee (or its designate) designed to achieve tax, securities law or other Company objectives but which may not qualify under section 423 of the Code, provided that such terms, rules, procedures or sub-plans shall apply on a uniform basis to all Eligible Employees employed by a Participating Company if the grants to the Eligible Employees employed by such Participating Company are intended to qualify under section 423 of the Code.

SECTION 2.ADMINISTRATION OF THE PLAN.

(a)Committee Composition.  The Committee shall administer the Plan.  The Committee shall consist exclusively of one or more directors of the Company, who shall be appointed by the Board.

(b)Committee Responsibilities.  The Committee shall have the authority and discretion to interpret the Plan and make all other policy decisions relating to the operation of the Plan.  The Committee may adopt such rules, guidelines and forms as it deems appropriate to implement the Plan.  The Committee’s determinations under the Plan shall be final and binding on all persons.

SECTION 3.SHARES OFFERED UNDER THE PLAN.

(a)Authorized Shares.  The number of Shares available for purchase under the Plan shall be 1,700,000 (subject to adjustment pursuant to Subsection (b) below).

(b)Anti-Dilution Adjustments.  The aggregate number of Shares offered under the Plan, the 2,500-share limitation described in Section 8(c) and the price of shares that any Participant has elected to purchase shall be adjusted proportionately for any increase or decrease in the number of outstanding Shares resulting from a subdivision or consolidation of Shares or the payment of a share dividend, any other increase or decrease in the outstanding Shares effected without receipt or payment of consideration by the Company, the distribution of the shares of a Subsidiary to the Company’s stockholders, or a similar event.  The determination

of the basis for, and the calculation of, any such adjustment shall be made in the discretion of the Committee.

(c)Reorganizations.  Any other provision of the Plan notwithstanding, immediately prior to the effective time of a Corporate Reorganization, the Offering Period then in progress shall terminate and shares shall be purchased pursuant to Section 8, unless the Plan is continued or assumed by the surviving corporation or its parent corporation.  The Plan shall in no event be construed to restrict in any way the Company’s right to undertake a dissolution, liquidation, merger, consolidation or other reorganization.

SECTION 4.ENROLLMENT AND PARTICIPATION.

(a)Offering Periods.  While the Plan is in effect and unless otherwise determined by the Committee, two Offering Periods shall commence in each calendar year.  The Offering Periods shall consist of the six-month periods commencing on each June 1 and December 1, except that:

(i)The first Offering Period under the Plan shall commence on the date of the IPO and shall end on November 30, 2006;

(ii)Prior to the commencement of any Offering Period, the Committee may in its discretion alter the length of such Offering Period, provided that an Offering Period shall in no event be longer than 27 months; and

(iii)The Committee may determine that the first Offering Period applicable to the Eligible Employees of a new Participating Company shall commence on any date specified by the Committee, provided that an Offering Period shall in no event be longer than 27 months.

(b)Enrollment at IPO.  Each individual who, on the day of the IPO, qualifies as an Eligible Employee shall automatically become a Participant on such day, and shall initially be deemed to have elected a payroll deduction rate of zero.  Each Participant who was automatically enrolled on the day of the IPO shall confirm their enrollment and participation level in the manner and within the time prescribed by the Company.

(c)Enrollment After IPO.  In the case of any individual who qualifies as an Eligible Employee on the first day of any Offering Period other than the first Offering Period, he or she may elect to become a Participant on such day by submitting the prescribed enrollment form to the Company in the manner prescribed by the Company not later than such day.  The Company may prescribe electronic enrollment procedures.

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(d)Duration of Participation.  Once enrolled in the Plan, a Participant shall continue to participate in the Plan until he or she:

(i)Reaches the end of the Offering Period in which his or her employee contributions were discontinued under Section 5(d) or 9(b);

(ii)Is deemed to withdraw from the Plan under Subsection (b) above;

(iii)Withdraws from the Plan under Section 6(a); or

(iv)Ceases to be an Eligible Employee.

A Participant whose employee contributions were discontinued automatically under Section 9(b) shall automatically resume participation at the beginning of the earliest Offering Period ending in the next calendar year, if he or she then is an Eligible Employee.  In all other cases, a former Participant may again become a Participant, if he or she then is an Eligible Employee, by following the procedure described in Subsection (c) above.

SECTION 5.EMPLOYEE CONTRIBUTIONS.

(a)Commencement of Payroll Deductions.  A Participant may purchase Shares under the Plan solely by means of payroll deductions.  Payroll deductions shall commence as soon as reasonably practicable after the Company has received the Participant’s enrollment instructions in the prescribed manner.

(b)Amount of Payroll Deductions.  An Eligible Employee shall designate in the enrollment instructions the portion of his or her Compensation that he or she elects to have withheld for the purchase of Shares.  Such portion shall be a whole percentage of the Eligible Employee’s Compensation, but not more than 10%.

(c)Changing Withholding Rate.  If a Participant wishes to change the rate of payroll withholding, he or she may do so by submitting new instructions with the Company in the prescribed manner at any time.  The new withholding rate shall be effective as soon as reasonably practicable after the Company has received such instructions.  The new withholding rate shall be a whole percentage of the Eligible Employee’s Compensation, but not less than 1% nor more than 10%.

(d)Discontinuing Payroll Deductions.  If a Participant wishes to discontinue employee contributions entirely, he or she may do so by submitting new enrollment instructions with the Company in the prescribed manner at any time.  Payroll withholding shall cease as soon as reasonably practicable after the Company has received such instructions.  (In addition, employee contributions may be discontinued automatically pursuant to Section 9(b).)  A Participant who has discontinued employee contributions may resume such contributions by submitting new enrollment instructions with the Company in the prescribed manner.  Payroll withholding shall resume as soon as reasonably practicable after the Company has received such instructions.

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(e)Limit on Number of Elections.  No Participant shall make more than three elections under Subsection (c) or (d) above during any Offering Period.

SECTION 6.WITHDRAWAL FROM THE PLAN.

(a)Withdrawal.  A Participant may elect to withdraw from the Plan by submitting his or her withdrawal instructions with the Company in the prescribed manner at any time before the last day of an Offering Period.  As soon as reasonably practicable thereafter, payroll deductions shall cease and the entire amount credited to the Participant’s Plan Account shall be refunded to him or her in cash, without interest.  No partial withdrawals shall be permitted.

(b)Deemed Withdrawal.  A Participant shall be deemed to have withdrawn from the Plan where, during an offering period the Participant has elected to reduce his or her withholding rate to zero (including, with respect to the first Offering Period, a Participant who does not reset his or her withholding level to a number above zero) and such election remains in effect at the end of an Offering Period.  A withdrawal pursuant to this Section 6(b) will be deemed effective with respect to the Offering Period first succeeding the Offering Period which ended with a withholding election at the zero level, but will not be deemed a withdrawal from the Offering Period in which the withholding level was reduced to zero. A former Participant who is deemed to have withdrawn from the Plan shall not be a Participant until he or she re-enrolls in the Plan under Subsection (c) below.  Re-enrollment may be effective only at the commencement of an Offering Period.

(c)Re-Enrollment After Withdrawal.  A former Participant who has withdrawn from the Plan pursuant to Sections 6(a) or 6(b) shall not be a Participant until he or she re-enrolls in the Plan under Section 4(c).  Re-enrollment may be effective only at the commencement of an Offering Period.

SECTION 7.CHANGE IN EMPLOYMENT STATUS.

(a)Termination of Employment.  Termination of status as an Eligible Employee for any reason, including death, shall be treated as an automatic withdrawal from the Plan under Section 6(a).  (A transfer from one Participating Company to another shall not be treated as a termination of employment.)  Determination of Eligible Employee status shall be made by the Committee in its sole discretion.

(b)Leave of Absence.  For purposes of the Plan, employment shall not be deemed to terminate when the Participant goes on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing.  Employment, however, shall be deemed to terminate 90 days after the Participant goes on a leave, unless a contract or statute guarantees his or her right to return to work.  Employment shall be deemed to terminate in any event when the approved leave ends, unless the Participant immediately returns to work.

(c)Death.  In the event of the Participant’s death, the amount credited to his or her Plan Account shall be paid to a beneficiary designated by him or her for this purpose in

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the prescribed manner or, if none, to the Participant’s estate.  Such designation shall be valid only if it was submitted to the Company in the prescribed manner before the Participant’s death and is otherwise valid under applicable law.

SECTION 8.PLAN ACCOUNTS AND PURCHASE OF SHARES.

(a)Plan Accounts.  The Company shall maintain a Plan Account on its books in the name of each Participant.  Whenever an amount is deducted from a Participant’s Compensation under the Plan, such amount shall be credited to the Participant’s Plan Account.  Amounts credited to Plan Accounts shall not be trust funds and may be commingled with the Company’s general assets and applied to general corporate purposes unless otherwise determined by the Committee in order to comply with local law.  No interest shall be credited to Plan Accounts.

(b)Purchase Price.  The Purchase Price for each Share purchased at the close of an Offering Period shall be the lower of:

(i)85% of the Fair Market Value of one Share on the last trading day before the commencement of such Offering Period or, in the case of the first Offering Period under the Plan, 85% of the IPO Price; or

(ii)85% of the Fair Market Value of one Share on the last trading day in such Offering Period.

(c)Number of Shares Purchased.  As of the last day of each Offering Period, each Participant shall be deemed to have elected to purchase the number of Shares calculated in accordance with this Subsection (c), unless the Participant has previously elected to withdraw from the Plan in accordance with Section 6(a).  The amount then in the Participant’s Plan Account shall be divided by the Purchase Price, and the number of shares that results shall be purchased from the Company with the funds in the Participant’s Plan Account.  The foregoing notwithstanding, no Participant shall purchase more than 2,500 Shares with respect to any Offering Period nor more than the amounts of Shares set forth in Sections 3(a) and 9(b).

(d)Available Shares Insufficient.  In the event that the aggregate number of shares that all Participants elect to purchase during an Offering Period exceeds the maximum number of shares remaining available for issuance under Section 3, then the number of shares to which each Participant is entitled shall be determined by multiplying the number of shares available for issuance by a fraction.  The numerator of such fraction is the number of shares that such Participant has elected to purchase, and the denominator of such fraction is the number of shares that all Participants have elected to purchase.

(e)Issuance of Shares.  Shares purchased by a Participant under the Plan shall be credited to an account with the transfer agent in the name of the Participant as soon as reasonably practicable after the close of the applicable Offering Period.  The Committee may provide that such shares shall initially be held for each Participant’s benefit by a broker designated by the Committee.

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(f)Tax Withholding.  To the extent required by applicable federal, state, local or foreign law, as determined by the Committee, a Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan.  The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied.

(g)Unused Cash Balances.  An amount remaining in the Participant’s Plan Account that represents the Purchase Price for any fractional share shall be carried over in the Participant’s Plan Account to the next Offering Period.  Any amount remaining in the Participant’s Plan Account that represents the Purchase Price for whole shares that could not be purchased by reason of Subsection (c) above, Section 3 or Section 9(b) shall be refunded to the Participant in cash, without interest.

(h)Shareholder Approval.  Any other provision of the Plan notwithstanding, no Shares shall be purchased under the Plan unless and until the Company’s stockholders have approved the adoption of, and the issuance of Shares under, the Plan.

SECTION 9.LIMITATIONS ON STOCK OWNERSHIP.

(a)Five Percent Limit.  Any other provision of the Plan notwithstanding, no Participant shall be granted a right to purchase Shares under the Plan if such Participant, immediately after his or her election to purchase such Shares, would own stock possessing more than 5% of the total combined voting power or value of all classes of stock of the Company or any parent or Subsidiary of the Company.  For purposes of this Subsection (a), the following rules shall apply:

(i)Ownership of stock shall be determined after applying the attribution rules of section 424(d) of the Code;

(ii)Each Participant shall be deemed to own any stock that he or she has a right or option to purchase under this or any other plan; and

(iii)Each Participant shall be deemed to have the right to purchase 2,500 Shares under this Plan with respect to each Offering Period.

(b)Dollar Limit.  Any other provision of the Plan notwithstanding, no Participant shall purchase Shares with a Fair Market Value in excess of the following limit:

(i)In the case of Shares purchased during an Offering Period that commenced in the current calendar year, the limit shall be equal to (A) $25,000 minus (B) the Fair Market Value of the Shares that the Participant previously purchased in the current calendar year (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company);

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(ii)In the case of Shares purchased during an Offering Period that commenced in the immediately preceding calendar year, the limit shall be equal to (A) $50,000 minus (B) the Fair Market Value of the Shares that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company) in the current calendar year and in the immediately preceding calendar year; or

(iii)In the case of Stock purchased during an Offering Period that commenced in the second preceding calendar year, the limit shall be equal to (A) $75,000 minus (B) the Fair Market Value of the Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company) in the current calendar year and in the two preceding calendar years.

For purposes of this Subsection (b), the Fair Market Value of Shares shall be determined in each case as of the beginning of the Offering Period in which such Shares is purchased.  Shares purchased under stock purchase plans not intended to qualify under section 423 of the Code shall be disregarded.  If a Participant is precluded by this Subsection (b) from purchasing additional Shares under the Plan, then his or her employee contributions shall automatically be discontinued and shall automatically resume at the beginning of the earliest Offering Period ending in the next calendar year (if he or she then is an Eligible Employee).

SECTION 10.RIGHTS NOT TRANSFERABLE.

The rights of any Participant under the Plan, or any Participant’s interest in any Shares or monies to which he or she may be entitled under the Plan, shall not be transferable by voluntary or involuntary assignment or by operation of law, or in any other manner other than by beneficiary designation or the laws of descent and distribution.  If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interest under the Plan, other than by beneficiary designation or the laws of descent and distribution, then such act shall be treated as an election by the Participant to withdraw from the Plan under Section 6(a).

SECTION 11.NO RIGHTS AS AN EMPLOYEE.

Nothing in the Plan or in any right granted under the Plan shall confer upon the Participant any right to continue in the employ of a Participating Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Participating Companies or of the Participant, which rights are hereby expressly reserved by each, to terminate his or her employment at any time and for any reason, with or without cause.

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SECTION 12.NO RIGHTS AS A SHAREHOLDER.

A Participant shall have no rights as a stockholder with respect to any Shares that he or she may have a right to purchase under the Plan until such shares have been purchased on the last day of the applicable Offering Period and issued to the Participant.

SECTION 13.AMENDMENT OR DISCONTINUANCE.

The Board shall have the right to amend, suspend or terminate the Plan at any time and without notice.  Except as provided in Section 3, any increase in the aggregate number of Shares that may be issued under the Plan shall be subject to the approval of the Company’s stockholders.  In addition, any other amendment of the Plan shall be subject to the approval of the Company’s stockholders to the extent required by any applicable laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded.  The Plan shall terminate automatically 20 years after its adoption by the Board, unless (a) the Plan is extended by the Board and (b) the extension is approved within 12 months by a vote of the stockholders of the Company.

SECTION 14.COMMITTEE RULES FOR NON-U.S. JURISDICTIONS.

(a)Rules and Procedures.  The Committee may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures.  Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules and procedures regarding handling of payroll deductions, enrollment/withdrawal procedures, conversion of local currency, payroll tax, withholding procedures and handling of evidence of stock ownership which vary with local requirements.  In addition, the Committee may adopt rules regarding the payment of interest on amounts held in Plan Accounts, provided that such rules shall apply on a uniform basis to all Eligible Employees employed by a Participating Company if the grants to the Eligible Employees employed by such Participating Company are intended to qualify under section 423 of the Code.

(b)Sub-Plans.  The Committee may also adopt sub-plans applicable to particular Subsidiaries, which sub-plans may be designed to be outside the scope of Code section 423.  The rules of such sub-plans may take precedence over other provisions of this Plan, with the exception of Section 3(a), but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan.

SECTION 15.COMPLIANCE WITH LAW.

(a)Securities Laws and Regulations.  Shares shall not be issued under the Plan unless the issuance and delivery of such shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the U.S. Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state and non-U.S. securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded.

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(b)Governmental Approvals.  This Plan and the Company’s obligation to sell and deliver shares of its stock under the Plan shall be subject to the approval of any governmental authority required in connection with the Plan or the authorization, issuance, sale, or delivery of stock hereunder.

(c)Choice of Law.  This Plan shall be governed by the laws of the Republic of Singapore, without regard to choice of law rules.

SECTION 16.DEFINITIONS.

(a)“Board” means the Board of Directors of the Company, as constituted from time to time.

(b)“Code” means the U.S. Internal Revenue Code of 1986, as amended.

(c)“Committee” means a committee of the Board, as described in Section 2.

(d)“Company” means Verigy Ltd., a Singapore corporation.

(e)“Compensation” means (i) the following to the extent paid in cash to a Participant by a Participating Company:  salaries; base wages; commissions and other sales achievement-based compensation; shift premiums; salaries and wages paid during flexible time off, paid holidays, jury duty, bereavement periods and other approved time off; plus (ii) any pre-tax contributions made by the Participant under section 401(k) or 125 of the Code.  The Committee shall determine whether a particular item is included in Compensation.”

(f)“Corporate Reorganization” means:

(i)The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization; or

(ii)The sale, transfer or other disposition of all or substantially all of the Company’s assets or the complete liquidation or dissolution of the Company.

(g)“Eligible Employee” means any employee of a Participating Company who meets both of the following requirements:

(i)His or her customary employment is for more than five months per calendar year and for more than 20 hours per week; and

(ii)He or she has been an employee of a Participating Company for not less than three consecutive months, or such other period as the Committee may determine before the beginning of the applicable Offering Period.

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The foregoing notwithstanding, (A) for the first Offering Period, the requirements of subparagraph (ii) above shall not be applicable; (B) an individual shall be considered an Eligible Employee regardless of whether the individual satisfies the requirements of Paragraphs (i) and (ii) above where so provided by the law of any country that has jurisdiction over him or her or if he or she is subject to a collective bargaining agreement that so provides; and (C) an individual shall not be considered an Eligible Employee if his or her participation in the Plan is prohibited by the law of any country that has jurisdiction over him or her or if he or she is subject to a collective bargaining agreement that does not provide for participation in the Plan, provided that the eligibility requirements of the Plan shall apply on a uniform basis to all employees of a Participating Company if the grants to the Eligible Employees employed by such Participating Company are intended to qualify under section 423 of the Code.

(h)“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

(i)“Fair Market Value” means the market price of Shares, determined by the Committee as follows:

(i)If the Shares are traded on Nasdaq or on a stock exchange, then the Fair Market Value shall be equal to the last sale price of the Shares on such market or exchange as of the date in question or, if the market or exchange was closed on the date in question, then the Fair Market Value will be equal to the last sale price on the last trading day immediately preceding the day in question. If the Shares are traded on more than one market or exchange, then the Fair Market Value shall be determined by reference to the primary market or exchange where the Shares trade.

(ii)If the foregoing provisions are not applicable, then the Committee shall determine the Fair Market Value in good faith on such basis as it deems appropriate.  Such determination shall be conclusive and binding on all persons.

(j)“IPO” means the effective date of the registration statement filed by the Company with the U.S. Securities and Exchange Commission for its initial offering of Shares to the public.

(k)“IPO Price” means the price at which the shares will be first offered to the public (as reflected on the cover page of the final prospectus prepared in connection with the IPO).

(l)“Offering Period” means a period with respect to which the right to purchase Shares may be granted under the Plan, as determined pursuant to Section 4(a).

(m)“Participant” means an Eligible Employee who participates in the Plan, as provided in Section 4.

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(n)“Participating Company” means (i) the Company and (ii) each present or future Subsidiary designated by the Committee as a Participating Company.

(o)“Plan” means this Verigy Ltd. 2006 Employee Shares Purchase Plan, as it may be amended from time to time.

(p)“Plan Account” means the account established for each Participant pursuant to Section 8(a).

(q)“Purchase Price” means the price at which Participants may purchase Shares under the Plan, as determined pursuant to Section 8(b).

(r)“Shares” means the Ordinary Shares of the Company.

(s)“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

ADOPTION & AMENDMENT HISTORY

Adopted by the Board of Directors:	June 7, 2006
Approved by the sole shareholder:	June 7, 2006
Amended by the Board of Directors to revise the definition of “Compensation” (Section 16(e)):	August 29, 2006
Amended by the Board of Directors to revise definition of “Fair Market Value” (Section 16(i)):	December 20, 2006

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EX-10.8

Exhibit 10.8

LEASE AGREEMENT

between

PAU MOULDS CPP-A LLC,

a California limited liability company

as “Landlord”

and

VERIGY US, INC.

a Delaware corporation

as “Tenant”

TABLE OF CONTENTS

1.	PREMISES	1
2.	TERM	2
3.	RENT	4
4.	SECURITY DEPOSIT	8
5.	USE AND COMPLIANCE WITH LAWS	11
6.	ALTERATIONS	14
7.	MAINTENANCE AND REPAIRS	17
8.	TENANT’S TAXES	19
9.	UTILITIES AND SERVICES	19
10.	EXCULPATION AND INDEMNIFICATION	20
11.	INSURANCE	21
12.	DAMAGE OR DESTRUCTION	23
13.	CONDEMNATION	24
14.	ASSIGNMENT AND SUBLETTING	26
15.	DEFAULT AND REMEDIES	29
16.	LATE CHARGE AND INTEREST	32
17.	PARKING	33
18.	ENTRY, INSPECTION AND CLOSURE	33
19.	SURRENDER AND HOLDING OVER	33
20.	ENCUMBRANCES	35
21.	ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS	36
22.	NOTICES	36
23.	ATTORNEYS’ FEES	37
24.	QUIET POSSESSION	37
25.	SECURITY MEASURES	37
26.	COMMON AREAS	37
27.	RULES AND REGULATIONS	37
28.	LANDLORD’S LIABILITY	37
29.	CONSENTS AND APPROVALS	38
30.	BROKERS	38
31.	WAIVER	38
32.	ENTIRE AGREEMENT	38

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33.	MISCELLANEOUS	39
34.	TIME	40
35.	AUTHORITY	40
36.	TITLE TO PROJECT	40

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INDEX OF DEFINED TERMS

Additional Rent	7
Alterations	15
Award	24
Base Rent	4
Bonus Rent	27
Broker	38
Building	1
Building Systems	12
Business Days	19
Business Hours	19
Claims	20
Commencement Date	2
Common Areas	1
Condemnation	25
Condemnor	25
Controls	19
Date of Condemnation	25
Encumbrance	35
Environmental Losses	13
Environmental Requirements	12
Event of Default	29
Expiration Date	3
Handled by Tenant	12
Handling by Tenant	12
Hazardous Materials	12
HVAC	12
Interest Rate	32
Invitees	12
Landlord	1
Laws	11
Liens	16
Mortgagee	35
Operating Costs	4
Parking Facility	1
Permitted Hazardous Materials	13
Premises	1
Property	1
Proposed Transferee	27
Rental Tax	19

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Representatives	12
Rules and Regulations	37
Service Failure	20
Taxes	6
Tenant	1
Tenant’s Share	7
Tenant’s Taxes	19
Term	2
Trade Fixtures	16
Transfer	26
Transfer Documents	27
Transferee	27

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BASIC LEASE INFORMATION

Lease Date:

For identification purposes only, the date of this Lease is May       , 2006

Landlord:

PAU MOULDS CPP-A LLC, a California limited liability company

Tenant:

Verigy US, Inc., a Delaware corporation

Project:

10100-10200 Tantau Project

Building:

10100-10200 North Tantau Avenue, Cupertino, California

Premises:

Approximately 100,491 square feet of Rentable Area located in the Building, as shown on Exhibit A

Term:

One Hundred Twenty (120) full calendar months (plus any partial month at the beginning of the Term), unless extended or sooner terminated as provided herein.

Commencement Date:

September 1, 2006 (the “Commencement Date”), subject to the terms and conditions of Sections 2 and 33.10 below.

Expiration Date:

The last day of the one hundred twentieth (120th) full calendar month in the Term, subject to Section 2 hereof.

Base Rent:

Months	Monthly Base Rent
1-12*	$	130,638.30
13-24	$	134,557.45
25-36	$	138,594.17
37-48	$	142,752.00
49-60	$	147,034.56
61-72	$	151,445.59
73-84	$	155,988.96
85-96	$	160,668.63
97-108	$	165,488.69
109-120	$	170,453.35

*(plus any partial month at the beginning of the Term, the Monthly Base Rent for which shall be prorated as provided in Section 3.1)

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Tenant’s Share:

63.7%

Security Deposit:

Five Million Dollars ($5,000,000.00), subject to Section 4.

Landlord’s Address for Payment of Rent and Notices:

Pau Moulds CPP-A LLC

c/o Sand Hill Property Company

30 East Fourth Avenue

San Mateo, California 94401

Attn:  John Tze

Tenant’s Address for Notices:

Verigy US, Inc.

4700 Innovation Drive

Fort Collins, CO  80525

Attn: Real Estate Manager

Business Hours:

8:00 a.m. to 6:00 p.m.

Guarantor(s):

Agilent Technologies, Inc., subject to Section 4.

Broker(s):

Cushman & Wakefield (Tenant); CPS (Landlord)

Exhibits:
Exhibit A:	The Premises
Exhibit B:	Rules and Regulations
Exhibit C:	Work Letter
Exhibit D:	Determination of Fair Market Rent
Exhibit E:	Form of Agilent Guaranty
Exhibit F:	Permitted Hazardous Materials

The Basic Lease Information set forth above is part of the Lease.  In the event of any conflict between any provision in the Basic Lease Information and the Lease, the Lease shall control.

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LEASE

THIS LEASE is made as of the Lease Date set forth in the Basic Lease Information, by and between the Landlord identified in the Basic Lease Information (“Landlord”), and the Tenant identified in the Basic Lease Information (“Tenant”).  Landlord and Tenant hereby agree as follows:

1.PREMISES.

1.1Premises.  Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, on and subject to the terms and conditions of this Lease, the office space identified in the Basic Lease Information as the Premises (the “Premises”), in the Building located at the address specified in the Basic Lease Information (the “Building”).  The approximate configuration and location of the Premises is shown on Exhibit A.  Landlord and Tenant agree that the Rentable Area of the Premises and Tenant’s Share for all purposes under this Lease shall be the Rentable Area and Tenant’s Share specified in the Basic Lease Information (unless modified pursuant to the provisions of this Lease).  Tenant also shall have the right during the Term of the Lease to the nonexclusive use of the sidewalks, parking facility serving the Building (the “Parking Facility”), elevators, stairs, corridors and other common areas of the Property (collectively, the “Common Areas”), subject to the provisions of this Lease regarding such use.  The real property on which the Building is located and all improvements thereon (including the Building and the Common Areas) are referred to herein, collectively, as the “Property.”  Tenant agrees and acknowledges that all references to the “Property” and the “Project” are to that certain real property consisting of approximately 9.4 acres and the buildings located thereon commonly known as 10100 and 10200 North Tantau Avenue, Cupertino, California.  As of the Commencement Date, Landlord will also own commercial property adjacent to the Property consisting of approximately 2.5 acres of real property and a commercial building located thereon commonly known as 5425 Stevens Creek Boulevard, Santa Clara, California (the “Stevens Creek Property”).  The Stevens Creek Property is not included in the Property or the Project for the purposes of determining rent hereunder, and Tenant agrees and acknowledges that the Stevens Creek Property may be sold by Landlord and/or redeveloped for other uses at a later date, and Tenant waives any and all claims arising out of any sale and/or redevelopment of the Stevens Creek Property; provided, however, that the foregoing waiver shall not be deemed to be a waiver of Tenant’s rights as an occupant of the Property to appear at public meetings and otherwise file claims to oppose or support any planned use or redevelopment of the Stevens Creek Property in the same manner and to the same extent as other owners and occupants of real property in the vicinity of the Stevens Creek Property.

1.2Condition of Premises.  Tenant acknowledges that possession of the Premises is being delivered to Tenant concurrently with the execution and delivery of this Lease, and except for Landlord’s obligation to perform and pay for certain work in and to the Building as expressly provided in Exhibit C, attached hereto, Tenant hereby accepts Premises in its “as is” condition with “all faults”.  Except as expressly provided in Sections 5.1, 7.2, 12 and 13 and Exhibit C, Landlord shall have no obligation whatsoever to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof either prior to or during the Term.  Tenant agrees and acknowledges that, excepting any express representations and warranties in this Lease, Landlord has not made any representations and warranties to Tenant concerning the Premises (including its suitability for Tenant’s use) and Tenant has not relied on any other representations and warranties by Landlord or Landlord’s Representatives (defined below) or any other parties concerning the Premises.  Tenant agrees and acknowledges that, prior to the date hereof, Tenant has thoroughly examined the Premises for the suitability of the Premises for Tenant’s use,

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including without limitation the construction and installation of all work and equipment required for Tenant’s use and occupancy of the Premises.

1.3Right of First Offer.  From and after the Commencement Date, so long as no Event of Default has occurred and is continuing, Tenant shall have a right of first offer (“ROFO”) on any “ROFO Space” (defined below) which Landlord may offer for rent to third parties during the Term.  If at any time Landlord executes a written proposal or letter of intent with a third party for all or a portion of the ROFO Space (a “Proposal”), Landlord will immediately offer the proposed space to Tenant on the same terms as contained in the Proposal by delivering written notice of such offer to Tenant.  Tenant shall then have ten (10) days to respond to Landlord in writing indicating its election to lease the entire space covered by such Proposal on the terms and conditions of such Proposal or waive its rights to lease the ROFO Space on such terms, in which case Tenant shall execute and deliver a lease for such space (together with any payments and deposits required thereunder) within ten (10) days after Landlord’s delivery of a written lease reflecting the terms and conditions of the Proposal, with all other terms and conditions of any such lease to be the same as the terms and conditions of this Lease;  provided, however, that Tenant’s failure to exercise its election and/or execute and deliver a lease (submitted by Landlord with all of the required terms and conditions) for any ROFO space shall be deemed Tenant’s waiver of its right to lease such ROFO Space, irrespective of whether the terms and conditions of the lease of such ROFO space to a third party, other than the terms reflected in the Proposal therefor, are different than the terms and conditions of this Lease.  Tenant’s ROFO shall be continuous throughout the Term, and if Landlord subsequently lowers the rental rate, reduces the length of the term, or materially alters any of the other terms of any written proposal rejected or waived by Tenant or enters into any additional written proposal(s) for any ROFO Space, Landlord shall re-submit the same to Tenant for acceptance or rejection.  Notwithstanding the foregoing, Landlord shall have no obligations under this paragraph in connection with any transaction whereby Landlord proposes to sell the Building to a third party purchaser who will occupy space in the Building, regardless of whether such third party’s occupancy commences before or after its acquisition of the Building.  The right of first offer provided under this paragraph shall be personal to Tenant (and any Permitted Transferee) and Landlord shall have no obligations under this paragraph if Tenant has assigned this Lease or sublet more than twenty percent (20%)  of the Premises to any party other than a Permitted Transferee.

As used herein, “ROFO Space” means the following:  (i) for the first three (3) years of the Term following the Commencement Date, the ROFO Space shall consist only of the last full available floor of the two-story portion of the Building (the “HP Premises”) and the last full available floor of the building located on the Stevens Creek Property (i.e., until and unless Landlord proposes to enter into a lease which would leave less than one complete floor available in either the Stevens Creek Property or the HP Premises, Landlord is not required to offer the ROFO to Tenant for such space); and (ii) after the third (3rd) anniversary of the Commencement Date, any rentable space which is available in the Project and the Stevens Creek Property and not included within the Premises; provided, however, that (1) no space in the Stevens Creek Property shall be included in the ROFO Space from and after the date Landlord sells the Stevens Creek Property, and (2) rentable space in the Project and the Stevens Creek Property which is not part of the Premises shall not be ROFO Space if any existing tenant wishes to extend or modify the terms and conditions of its lease with respect to its then existing premises (as opposed to any new or additional ROFO Space not already leased to such tenant).

2.TERM.

2.1Initial Term.  The term of this Lease (the “Term”) shall commence on the Commencement Date   (“Commencement Date”) set forth in the Basic Lease Information and, unless sooner terminated or extended as provided herein, shall expire on the Expiration Date set forth in the

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Basic Lease Information (the “Expiration Date”); provided, however, that (i) if Landlord has not substantially completed the “Demising Work” (as the foregoing terms are defined in Exhibit C, attached hereto) on or before September 1, 2006, then the Commencement Date shall be extended by one day for each day beyond September 1, 2006, that Landlord fails to substantially complete the Demising Work; (ii) if there is any delay in the “substantial completion” of the Demolition Work beyond the Demolition Deadline or the “Base Building Repair Work” beyond the “Base Building Repair Work Deadline” (as the foregoing terms are defined in Exhibit C) and such delay likewise causes a delay to the substantial completion of the Tenant Work (as defined in Exhibit C) or prevents Tenant from commencing its business operations in the Premises on September 1, 2006, then the Commencement Date, and Tenant’s obligation to pay Base Rent, Operating Expenses and Taxes from and after the Commencement Date, shall be delayed by one (1) day for every one (1) day of delay in the substantial completion of the Demolition Work beyond the Demolition Deadline or the Base Building Repair Work beyond the Base Building Repair Work Deadline, as applicable; and (iii) the Commencement Date, and Tenant’s obligation to pay Base Rent, Operating Expenses and Taxes from and after the Commencement Date, shall be extended by one (1) day for every one (1) day of delay that Tenant is prevented from commencing its business operations in the Premises on September 1, 2006, due to any “Landlord Delays” or “Force Majeure Delays” (as the foregoing terms are defined in Exhibit C); provided, however, that (1) in no event shall any such Force Majeure Delay extend the Commencement Date in excess of one hundred twenty (120) calendar days, and (2) if Tenant has been unable to commence its business operations in the Premises prior to February 1, 2007, as a result of any Force Majeure Delay, either party hereto may terminate this Lease by providing written notice to the other party, in which case Landlord shall refund to Tenant all unapplied deposits delivered by Tenant hereunder and Landlord and Tenant shall thereupon have no further liability to the other under this Lease excepting obligations which expressly survive the termination hereof.  In the event of any of the foregoing delays in the Commencement Date, the Lease shall nevertheless remain in full force and effect, Landlord shall not be liable to Tenant for any loss, damage, cost or expense resulting from such delay (and Tenant waives the provisions of any Laws to the contrary), nor shall this Lease be void or voidable.  In case of any such delay in the Commencement Date, after the Commencement Date has been established, Landlord and Tenant, at the request of either party, shall confirm the Commencement Date and Expiration Date in writing; provided, however, that the failure of Landlord and Tenant to do so shall not alter the Commencement Date or the Expiration Date.

Notwithstanding anything to the contrary in this Section 2, if the Commencement Date has not occurred prior to December 1, 2006, as a result of Landlord’s failure to complete any of the Landlord Work (subject to extension as a result of any Tenant Delays or Force Majeure Delays), then Tenant may terminate this Lease by written notice to Landlord, in which case Landlord shall refund to Tenant all unapplied deposits delivered by Tenant hereunder and Landlord and Tenant shall thereupon have no further liability to the other under this Lease excepting  obligations which expressly survive the termination hereof.

2.2Early Delivery. Subject to the terms and conditions of Exhibit C, Landlord shall deliver occupancy of the Premises to Tenant for the purpose of commencing the installation of the Tenant Work, (defined in Exhibit C), on the date both parties have executed and delivered this Lease (the “Early Occupancy Date”).  From and after the Early Occupancy Date, Tenant shall be deemed to be in possession of the Premises and shall be subject to all of the terms and conditions of this Lease, save and except the obligation to pay Base Rent and Tenant’s Share of Operating Costs and Taxes; provided, however, that Tenant shall nevertheless pay Landlord for any and all services and utilities used by Tenant in the Premises during the period commencing on the Early Occupancy Date and ending on the Commencement Date, as reasonably determined by Landlord, which obligations shall survive the

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termination of this Lease.  From and after the Early Occupancy Date, Tenant shall provide Landlord and its contractors and agents access to the Premises for the purpose of completing the Landlord Work.

2.3Option to Extend.  So long as no Event of Default has occurred and is continuing at the time it exercises the Option to Extend or on the Expiration Date of the Term (or the first Extended Term, as the case may be), Tenant shall have the right and option to extend this lease (“Option to Extend”) for two (2) additional option periods of five (5) years (each an “Extended Term”), upon the same terms and conditions herein set forth except that the Base Rent (as defined in Section 3, below) shall be an amount equal to ninety-seven and one-half percent (97.5%) of “Fair Market Value” as defined in and determined in accordance with the terms and conditions of Exhibit D, attached hereto.  If Tenant exercises its Option to Extend, for either Extended Term, Base Rent for the first twelve (12) months of such Extended Term shall be amount determined in accordance with the preceding sentence, and shall be subject to increases of three percent (3%) for each subsequent twelve (12) month period during the Extended Term, adjusted as of each annual anniversary of the expiration of the initial Term.  To exercise the Option to Extend, Tenant must give Landlord notice in writing sent so as to be received at least two hundred seventy (270) days prior to the Expiration Date.  If Tenant timely exercises an Option to Extend, each applicable Extended Term shall be deemed included within the definition of “Term” hereunder; provided, however, that Tenant’s failure to properly exercise its Option to Extend for the initial Extended Term shall render Tenant’s right to the second Extended Term null and void.  At Landlord’s election, Tenant’s exercise of its Option to Extend shall be void if Tenant is in default under this Lease beyond any applicable notice and cure period on the date it exercises its Option to Extend or on the Expiration Date.

3.RENT.

3.1Payment of Base Rent.  Commencing on the Commencement Date, and continuing throughout the Term of the Lease, Tenant shall pay to Landlord the “Base Rent” set forth in the Basic Lease Information, in advance, without prior notice or demand, on the first day of each and every calendar month during the Term.  Monthly Base Rent for any partial month at the beginning or end of the Term shall be prorated based on the actual number of days in the month.  Within five (5) Business Days after the execution and delivery of this Lease by Tenant and Landlord, Tenant shall pay the sum of One Hundred Twenty Five Thousand and no/100 Dollars ($125,000.00) as an advance payment of Base Rent, which amount shall be credited toward Tenant’s Base Rent payable for the first calendar month (and any partial month) occurring immediately after the Commencement Date.

3.2Additional Rent:  Operating Costs and Taxes.

(a)Definitions.

(1)“Operating Costs” means all costs of owning, managing, operating, maintaining, repairing, replacing and restoring the Property, including all costs, expenditures, fees and charges for the following:  (A) supplying, operating, managing, maintaining, repairing, replacing and restoring utilities, services and systems (including all Building Systems, sewers, storm drains, elevators, telecommunications facilities and equipment, and providing the services specified in Section 9.1), and taxes thereon; (B) maintaining, repairing, restoring and replacing the Parking Facility (including resurfacing, repainting, restriping and cleaning) and other Common Areas of the Property (including landscaped areas); (C) compensation (including salaries, wages, employment taxes, fringe benefits and other payroll expenses) for persons who perform duties in connection with the operation, management, maintenance, repair and improvement of the Property, such compensation to be appropriately allocated for persons who also perform duties unrelated to the Property; (D) premiums for property (including

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coverage for earthquake and flood if carried by Landlord), liability, rental income and other insurance relating to the Property, and expenditures for deductible amounts paid under such insurance; (E) licenses, permits, certificates and inspections; (F) complying with the requirements of any Laws; (G) amortization of cost incurred for (i) capital improvements to the Property that are intended to reduce Operating Costs, and (ii) any repair, replacement or restoration of any components of the Building and the Property that that under generally accepted accounting principles are properly classified as capital expenditures (including without limitation HVAC equipment, parking lot resurfacing, roof covering), with interest on the unamortized balance at the rate paid by Landlord on funds borrowed to finance such capital improvements or replacements (or, if Landlord finances such improvements out of Landlord’s funds without borrowing, the rate that Landlord would have paid to borrow such funds, as reasonably determined by Landlord), over the useful life of such improvements or replacements, as reasonably determined by Landlord; (H) property management fees or, if no managing agent is retained for the Property, a sum in lieu thereof which is not in excess of the prevailing rate for management services charged by professional management companies for the operation of similar properties (but in no event shall any such management fees exceed four percent (4%) of the gross rent); (I) accounting, legal and other professional services incurred in connection with the oper­ation of the Property and the calculation of Operating Costs and Taxes; (J) supplies, materials, tools and rental equipment; and (K) any other cost, expenditure, fee or charge, whether or not hereinbefore described which in accordance with generally accepted property management practices would be considered an expense of owning, managing, operating, maintaining, repairing, replacing, restoring, and/or improving the Property.  The portion of Operating Costs that vary based on occupancy for any calendar year during which average occupancy of the Building is less than one hundred percent (100%) shall be calculated based upon the amount of such Operating Costs that would have been incurred if the Building had an average occupancy of one hundred percent (100%) during the entire calendar year.

Notwithstanding the foregoing or anything to the contrary contained in this Lease, Operating Costs shall not include, and Tenant shall have no obligation to pay or reimburse Landlord for any of the following: (i) ground rent payments; (ii) interest and principal payments on loans or indebtedness secured by the Property; (iii) costs of tenant or other special improvements for Tenant (to the extent Landlord has agreed to pay for such improvements) or other tenants of the Building; (iv) costs of services or other benefits which are not available to Tenant but which are available to other tenants or occupants, or for which Landlord is reimbursed by other tenants of the Building other than through payment of tenants’ shares of Operating Costs and Taxes; (v) leasing commissions, attorneys’ fees, advertising expenses, promotional expenses, and other expenses incurred in connection with leasing space in the Building or Project or enforcing such leases; (vi) depreciation, expense reserves, or amortization, other than as permitted under clause (G) of the definition of Operating Costs in the first paragraph of this provision; (vii) fines or penalties incurred due to Landlord’s violation of any Law or late payments of Operating Expenses; (viii) the cost of any repair, improvement, alteration, addition, change, replacement, extraordinary repair, and other item related to the Building or Project that under generally accepted accounting principles are properly classified as capital expenditures, except as otherwise provided in clause (G) of the definition of Operating Costs in the first paragraph of this provision; (ix) any costs of repair, replacement or restoration work occasioned by any casualty or condemnation, subject to Sections 12 and 13; (x) except for management fees (subject to the 4% cap in subsection H of the preceding paragraph), Landlord’s general overhead and any overhead or profit increment to any subsidiary or affiliate of Landlord for services on or to the Building or Project, to the extent that the cost of such service exceeds competitive costs for such services rendered by persons or entities of similar skill, competence and experience other than a subsidiary or affiliate of Landlord; (xi) except for management fees (subject to the 4% cap in subsection H of the preceding paragraph), any costs or expenses representing any amount paid for services and materials to a (personal or business) related person, firm, or entity to the extent such amount exceeds the amount that would have been paid for such service or materials at the then existing market

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rates in the absence of such relationship; (xii) compensation paid to any employee of Landlord above the grade of Property Manager/Building Superintendent, including officers and executives of Landlord; (xiii) costs of electrical energy or other utility service furnished and/or metered directly to tenants of the Building or Project other than Tenant, (xiv) insurance deductibles for Landlord’s insurance in excess of $25,000 for any casualty; (xv) costs incurred in connection with the presence of any Hazardous Materials (defined below), except to the extent caused by the Handling (defined below) of the Hazardous Materials in question by Tenant; (xvi) any costs relating to the structural components of the Building to the extent such costs are at Landlord’s sole expense under Section 7.2 below;  (xvii) the costs of repairs or maintenance to the extent Landlord is reimbursed for the cost thereof under any warranties; (xviii) the costs of repairs, alterations, and general maintenance to the extent necessitated as a result of the active negligence or willful misconduct of Landlord or its agents, employees, or contractors (and to the extent such costs are incurred as a result of the negligence or willful misconduct of any parties other than Tenant or Tenant’s Representatives or Invitees, Landlord agrees to make commercially reasonable efforts to seek compensation from such parties); (xix) the cost of artwork and décor in the Common Areas over and above the reasonable costs of such artwork and décor typically installed in similar industrial/commercial buildings in the vicinity of the Property; (xx) costs incurred in installing, operating, maintaining and owning any specialty service or facilities not normally installed, operated or maintained in buildings comparable to the Building; (xxi) charitable contributions and donations; or (xxii) any costs or expenses incurred by Landlord in connection with the Demolition Work, Demising Work or Base Building Repair Work.

(2)“Taxes” means all real property taxes and general, special and district assessments and other govern­men­tal impositions, fees, levies and charges of whatever kind, nature or origin, imposed on or by reason of the ownership or use of the Property, including:  governmental charges, fees or assessments for transit or traffic mitigation (including area-wide traffic improvement assessments and transportation system manage­ment fees), housing, police, fire or other governmental service or purported benefits to the Property, including assessments, taxes, fees, levies and charges imposed by governmental agencies for such purposes as street, sidewalk, road and utility construction and maintenance, refuse removal and for other governmental services; personal property taxes assessed on the personal property of Landlord used in the operation of the Property; service payments in lieu of taxes; any tax, fee or excise on the use or occupancy of any part of the Property, or on rent for the Property, or for space in the Property; and any other fees, taxes and assessments of any kind or nature whatsoever levied or assessed in addition to, in lieu of or in substi­tution for existing or additional real or personal property taxes on the Property or the personal property described above; any increases in the foregoing caused by changes in assessed valuation, tax rate or other factors or circumstances; and the reasonable cost of contesting by appropriate proceedings the amount or validity of any taxes, assessments or charges described above; but excluding (i) income taxes measured by the net income of Landlord and franchise, transfer, gift, sales, estate and inheritance taxes; (ii) penalties and interest, other than those attributable to Tenant’s failure to comply timely with its obligations pursuant to this Lease; (iii) increases in Taxes (whether increases result from increased rate, valuation, or both) attributable to additional improvements to the Building or Project so long as such increases have increased Taxes by over ten percent (10%) of the then-applicable amounts, unless such improvements are constructed for Tenant’s primary benefit or for the common benefit of Tenant and other tenants in the Project; and (iv) any taxes, excises, levies, fees and charges in excess of the amount which would be payable if such expense were paid in installments over the longest allowable term, but only to the extent Landlord shall have the right to pay such taxes, excises, levies, fees and charges in installments as of the Lease Date without lodging any formal appeal or commencing any proceeding with any taxing authority to implement installment payments or make a change to any such installment payments existing as of the Lease Date.  To the

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extent paid by Tenant or other tenants as “Tenant’s Taxes” (as defined in Section 8), “Tenant’s Taxes” shall be excluded from Taxes.

If Tenant disputes the amount or validity of any Taxes payable by Tenant hereunder, then upon not less than thirty (30) days prior written notice, Tenant shall have the right to contest and defend against the same on Landlord’s behalf, and in good faith to diligently conduct any necessary proceedings in connection therewith; provided, however, that any such contest shall be at Tenant’s sole expense.  Landlord may elect to participate in any such contest by Tenant, in which case Tenant shall reimburse Landlord’s reasonable out-of-pocket expenses (including attorneys’ fees) incurred thereby upon Landlord’s written demand.  Tenant may not postpone or defer payment of any contested or appealed Taxes, but shall be retroactively credited with any savings or refund of Taxes obtained by Landlord by reason of Tenant’s appeal.  Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, damages, liabilities and costs, including, without limitation, penalties, interest and attorneys’ fees, costs and disbursements, arising from or related to any such contest, which obligation shall survive the expiration or earlier termination of this Lease.

(3)“Tenant’s Share” means the Tenant’s Share as set forth in the Basic Lease Information.  If the rentable area of the Premises is changed by Tenant’s leasing of additional space hereunder or for any other reason, Tenant’s Share shall be adjusted accordingly.

(b)Additional Rent.

(1)Commencing on the Commencement Date, and continuing throughout the Term of the Lease, Tenant shall pay Landlord, as “Additional Rent,” Tenant’s Share of the sum of Operating Costs and Taxes for each calendar year, or portion thereof, occurring during the Term.

(2)As soon as reasonably practicable after the end of each calendar year, Landlord shall notify Tenant of Landlord’s estimate of Operating Costs, Taxes and Tenant’s Additional Rent for the following calendar year.  Commencing on the first day of January of each calendar year and continuing on the first day of every month thereafter in such year, Tenant shall pay to Landlord one-twelfth (1/12th) of the estimated Additional Rent.  If Landlord thereafter estimates that Operating Costs or Taxes for such year will vary from Landlord’s prior estimate, Landlord may, by notice to Tenant, revise the estimate for such year (and Additional Rent shall thereafter be payable based on the revised estimate).

(3)As soon as reasonably practicable after the end of each calendar year, Landlord shall furnish Tenant a statement with respect to such year, showing Operating Costs, Taxes and Additional Rent for the year, and the total payments made by Tenant with respect thereto; provided, however, that Landlord’s failure to deliver its statement (for up to, but not in excess of, three hundred sixty five (365) days after the end of such year) shall not waive or relinquish Landlord’s right to reconcile Operating Costs and Taxes, collect any underpayment by Tenant and refund any overpayment by Tenant, and prior to Tenant’s receipt of Landlord’s reconciliation statement Tenant shall continue to pay estimated Operating Costs and Taxes at the most recent estimated monthly amount provided by Landlord to Tenant.  Unless Tenant raises any objections to Landlord’s statement within one hundred eighty (180) days after receipt of the same, such statement shall conclusively be deemed correct and Tenant shall have no right thereafter to dispute such statement or any item therein or the computation of Additional Rent based thereon.  If Tenant does object to such statement within the required time period, then Landlord shall provide Tenant with reasonable verification of the figures shown on the statement and the parties shall negotiate in good faith to resolve any disputes.  Notwithstanding the foregoing,

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Tenant shall only be permitted to engage a certified public accountant, or other third party service provider primarily engaged in providing lease administration and audit services, to review Landlord’s statement, and in no event shall Tenant be entitled to engage any accountant for such review whose compensation is measured, in whole or in part, upon any adjustments to Landlord’s statement as a consequence of such review.  Any objection of Tenant to Landlord’s statement and resolution of any dispute shall not postpone the time for payment of any amounts due Tenant or Landlord based on Landlord’s statement, nor shall any failure of Landlord to deliver Landlord’s statement for not more than three hundred sixty five (365) days after the end of the year in question relieve Tenant of Tenant’s obligation to pay any amounts due Landlord based on Landlord’s statement.

(4)If Tenant’s Additional Rent as finally determined for any calendar year exceeds the total payments made by Tenant on account thereof, Tenant shall pay Landlord the deficiency within thirty (30) days of Tenant’s receipt of Landlord’s statement.  If the total payments made by Tenant on account thereof exceed Tenant’s Additional Rent as finally determined for such year, Tenant’s excess payment shall be credited toward the rent next due from Tenant under this Lease or refunded to Tenant if such determination is at or after the expiration or earlier termination of the Lease.  For any partial calendar year at the beginning or end of the Term, Additional Rent shall be prorated on the basis of a 365-day year by computing Tenant’s Share of the Operating Costs and Taxes for the entire year and then prorating such amount for the number of days during such year included in the Term.  Notwithstanding the termination of this Lease, Landlord shall pay to Tenant or Tenant shall pay to Landlord, as the case may be, within thirty (30) days after Tenant’s receipt of Landlord’s final statement for the calendar year in which this Lease terminates, the difference between Tenant’s Additional Rent for that year, as finally determined by Landlord, and the total amount previously paid by Tenant on account thereof.  Notwithstanding the foregoing or anything to the contrary contained in this Lease, Tenant shall have no obligation to pay for any Operating Costs or Taxes that are fairly allocable to any time period before the Commencement Date or after the Expiration Date (or earlier termination of this Lease).

If for any reason Taxes for any year during the Term are reduced, refunded or otherwise changed, Tenant’s Additional Rent shall be adjusted accordingly.  If Taxes are temporarily reduced as a result of space in the Building being leased to a tenant that is entitled to an exemption from property taxes or other taxes, then for purposes of determining Additional Rent for each year in which Taxes are reduced by any such exemption, Taxes for such year shall be calculated on the basis of the amount the Taxes for the year would have been in the absence of the exemption.  The obligations of Landlord to refund any overpayment of Additional Rent and of Tenant to pay any Additional Rent not previously paid shall survive the expiration or earlier termination of this Lease.

3.3Payment of Rent.  All amounts payable or reimbursable by Tenant under this Lease, including late charges and interest, shall constitute rent and shall be payable and recoverable as rent in the manner provided in this Lease.  Any sums payable to Landlord on demand under the terms of this Lease shall be payable within thirty (30) days after notice from Landlord of the amount due.  All rent shall be paid without offset, recoupment or deduction in lawful money of the United States of America to Landlord at Landlord’s Address for Payment of Rent as set forth in the Basic Lease Information, or to such other person or at such other place as Landlord may from time to time designate.

4.SECURITY DEPOSIT.  Within five (5) Business Days after both parties have executed and delivered this Lease (the “Deposit Delivery Date”), Tenant shall deposit with Landlord the amount specified in the Basic Lease Information as the Security Deposit (the “Security Deposit”) as security for the full and faithful performance of each and every obligation of Tenant under the Lease.  If an Event of Default occurs under this Lease, Landlord may, without prejudice to any other remedy Landlord has,

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apply all or a part of the Security Deposit to:  (i) any Event of Default in the payment of rent or other sum payable hereunder; (ii) any amount that Landlord may spend in exercising Landlord’s rights under this Lease or otherwise by reason of the Event of Default:  and/or (iii) any expense, loss or damage that Landlord may suffer because of any Event of Default by Tenant hereunder, including costs and reasonable attorneys’ fees incurred by Landlord to recover possession of the Premises following an Event of Default.  In the event Landlord so applies all or a part of the Security Deposit, Tenant shall pay to Landlord on demand an amount sufficient to replenish the Security Deposit to the full amount thereof, and Tenant’s failure to do so within ten (10) Business Days after receipt of such demand from Landlord shall constitute an Event of Default.  Within thirty (30) Business Days after the expiration of the Term or earlier termination of this Lease and Tenant’s surrender of possession of the Premises to Landlord, Landlord shall return to Tenant the Security Deposit, less any portion thereof which may have been applied by Landlord as permitted hereunder (including without limitation Landlord’s retention of any amounts required to remedy an Event of Default arising out of Tenant’s failure to surrender the Premises to Tenant as required hereunder, in an amount reasonably estimated by Landlord).  If Landlord transfers its interest in the Building, Landlord shall deliver or credit the Security Deposit to Landlord’s successor-in-interest, and Landlord thereupon shall be relieved of further responsibility with respect to the Security Deposit.

Tenant shall be entitled to deliver all or part of the Security Deposit in the form of an unconditional and irrevocable letter of credit (the “Letter of Credit Security Deposit”) in form and issued by a national bank with an office in the San Francisco Bay Area (i.e., wherein said letter of credit may be drawn) reasonably satisfactory to Landlord, as security for the full and faithful performance of every provision of this lease to be thereafter performed by Tenant (the Letter of Credit Security Deposit, together with (1) any cash from time to time held by Landlord as part of the security deposit following a draw on the Letter of Credit Security Deposit or (2) any cash from time to time held by Landlord as part of the security deposit under this Section 4, is sometimes referred to herein as the “Security Deposit”).  If Tenant defaults with respect to any provision of this Lease, and such default remains uncured beyond applicable cure periods provided herein, then Landlord may, as applicable, (i) use, apply or retain all or any part of the Security Deposit which is then held by Landlord in the form of cash (herein, the “Cash Security Deposit”), or (ii) draw on any Letter of Credit Security Deposit, in whole or in part, in either case to the extent necessary in Landlord’s reasonable judgment to cure such default (provided that Landlord may draw upon any Letter of Credit Security Deposit in whole in the event Tenant defaults in its obligation to timely deliver a replacement letter of credit as required hereunder), and Landlord may use, apply or retain all or any part of the proceeds thereof, for the payment of any rent and any other sum in default (beyond applicable cure periods provided herein), or for the payment of any other amount which Landlord is entitled to spend in exercising its rights under this Lease or otherwise by reason of Tenant’s default (beyond applicable cure periods provided herein), or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant’s Event of Default.  If any portion of the Cash Security Deposit or proceeds from a draw on any Letter of Credit Security Deposit is so used or applied, Tenant shall, within thirty (30) days after written demand therefor, as applicable, cause the issuing bank to restore any Letter of Credit Security Deposit to its original amount or deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenant’s failure to do so shall be a material breach of this Lease.  Landlord shall not be obligated to keep any Cash Security Deposit or any proceeds from a draw on the Letter of Credit Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on either.

Nothing in this Section 4 shall be construed to limit the amount of damages recoverable by Landlord or any other remedy to the amount of the Security Deposit.

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Any letter of credit delivered by Tenant hereunder as the Letter of Credit Security Deposit shall expire no earlier than twelve (12) months after issuance and shall provide for automatic renewals of one-year periods unless the issuer has provided Landlord written notice of non-renewal at least thirty (30) days prior to the then expiration date, in which case Tenant shall provide a replacement letter of credit meeting the requirements of this Section 4 no later than fifteen (15) days prior to the expiration date of the then outstanding and expiring letter of credit; provided, however, that any replacement letter of credit shall not be required to have an effective date earlier than the expiration date of the then existing letter of credit being so replaced.  Each subsequent replacement letter of credit shall expire no earlier than twelve (12) months from the expiration date of the then outstanding and expiring letter of credit and shall provide for automatic 1-year renewals as described above.  Tenant shall ensure that at all times during the Term of this Lease and for thirty (30) days after expiration of the Term, cash or one or more unexpired letters of credit in the aggregate amount of the Security Deposit required hereunder shall have been delivered to Landlord.  Failure by Tenant to deliver cash or any replacement letter of credit as required above shall entitle Landlord to draw under the outstanding letter(s) of credit and to retain the entire proceeds thereof for application as the Security Deposit under this Lease.  Each letter of credit shall be for the benefit of Landlord and its successors and assigns, shall be expressly transferable to such successor and assigns (and Tenant shall pay all costs associated with any such transfer), and shall entitle Landlord or its successors or assigns to draw from time to time under the letter of credit in portions or in whole upon presentation of (i) a sight draft, and (ii) a statement executed by Landlord stating that Landlord is entitled to make the subject draw pursuant to the terms of this Lease.

So long as no Event of Default has occurred and is continuing and/or no Event of Default has occurred within the previous twelve (12) month period, on each anniversary of the Commencement Date (or the date Tenant delivers the Security Deposit to Landlord pursuant to the following paragraph) Tenant shall be entitled to reduce the amount of the Security Deposit by Four Hundred Fifty Thousand and no/100 Dollars ($450,000.00); provided, however, that in no event shall the Security Deposit be reduced below the minimum amount of One Million and no/100 Dollars ($1,000,000.00).  If an Event of Default has occurred and is continuing on any date when Tenant would be entitled to reduce the Security Deposit as provided in this paragraph and/or an Event of Default has occurred within the previous twelve (12) month period, then Tenant shall not be entitled to any reduction of the Security Deposit at such time and may only resume such reductions in the Security Deposit amount on the following anniversary of the Commencement Date, subject to the same requirement that no Event of Default has occurred within the previous twelve (12) month period as a condition to any subsequent reduction.

Notwithstanding anything to the contrary in this Lease, if, prior to the Deposit Delivery Date, Tenant provides to Landlord a guaranty of this Lease by Agilent Technologies, Inc., in the form attached hereto as Exhibit E (the “Agilent Guaranty”), then Tenant’s obligation to post a Security Deposit hereunder shall be suspended, subject to the terms and conditions of this Section 4.  If, at any time during the Term, Tenant achieves a Standard and Poor’s rating of not less than BBB- and maintains the same for a continuous period of one hundred eighty (180) days after Tenant’s written notice to Landlord that it has been rated at least BBB- by Standard and Poor’s (the “Minimum Rating”) or posts the Security Deposit, then the Agilent Guaranty may be revoked and Tenant’s obligation to post the Security Deposit shall be suspended for so long as Tenant continuously satisfies the Minimum Rating thereafter.  Landlord agrees and acknowledges that Tenant is not required to provide the Agilent Guaranty as a condition to the effectiveness of this Lease, and may instead post the Security Deposit on or before the Deposit Delivery Date.  Landlord further acknowledges and agrees that if Tenant provides an Agilent Guaranty in lieu of the Security Deposit, then Tenant may at anytime thereafter post the Security Deposit (in the form of cash or a Letter of Credit Security Deposit) with Landlord, in which event the Agilent Guaranty shall thereupon be deemed canceled, void and of no further force or effect, and Landlord shall immediately

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return the original executed copy of the Agilent Guaranty to Tenant.  If Tenant has posted the Security Deposit and thereafter achieves the Minimum Rating, Landlord shall refund the Security Deposit (including returning any original letter of credit then held by Landlord) upon the expiration of the one hundred eighty (180) day period required to satisfy the Minimum Rating.  If Tenant is at any time entitled to suspension of its obligation to deliver the Security Deposit and Tenant thereafter becomes obligated to deliver the Security Deposit to Landlord pursuant to the terms and conditions of this Section 4, then Tenant shall be entitled to the reductions in the amount of the Security Deposit that Tenant would have obtained pursuant to the preceding paragraph (and subject to the terms and conditions thereof) and shall only be required to deliver to Landlord the amount of the Security Deposit which would have been held by Landlord at such time if the Security Deposit had been delivered to Landlord on the Deposit Delivery Date and periodically reduced thereafter in accordance with the preceding paragraph.  During all periods within the Term in which the Agilent Guaranty is not in force and Tenant has not delivered the Security Deposit to Landlord based on its satisfaction of the Minimum Rating, (1) each payment of rent by Tenant shall constitute a representation and warranty by Tenant to Landlord that, to Tenant’s knowledge, Tenant maintains the Minimum Rating at such time and that Tenant is not aware of any facts or circumstances that would be reasonably likely to reduce Tenant’s Standard and Poor’s rating below the Minimum Rating, and (2) Tenant shall make commercially reasonable efforts to update Landlord on the status of its Standard and Poor’s rating, and if during any such period Tenant receives notice that its Standard and Poor’s rating has been reduced below BBB-, Tenant shall immediately provide written notice thereof to Landlord and shall deliver the Security Deposit to Landlord within ten (10) Business Days thereafter.

Tenant waives the provisions of California Civil Code Section 1950.7, and all other provisions of law now in force or that become in force after the date of execution of this Lease, that provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy Events of Default in the payment of rent, to repair damage caused by Tenant, or to clean the Premises.  Landlord and Tenant agree that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any foreseeable or unforeseeable loss or damage caused by an Event of Default.  Tenant may not assign or encumber the Security Deposit, and any attempt to do so shall be void and, in all events, not binding upon Landlord.

5.USE AND COMPLIANCE WITH LAWS.

5.1Use.  The Premises shall be used and occupied only for general business office purposes, research and development (including semiconductor testing lab work and related storage uses) and for other legal uses and purposes related thereto.  Tenant, at its expense, shall comply with all present and future Laws relating to the condition, use or occupancy of the Premises (and shall make any repairs, alterations or improvements as required to comply with all such Laws), and shall observe the “Rules and Regulations” (as defined in Section 27); provided, however, that Landlord, not Tenant, shall be required to make and pay the cost of any alterations or improvements to the Premises or Building that are necessary to comply with any such Laws or Rules and Regulations, unless such alterations or improvements are required as a result of the Tenant’s particular use of the Premises (as opposed to improvements that are required to be made by landlords of office and research and development properties generally) or by Alterations to the Premises made and paid for by Tenant, in which case Tenant shall be required to make and pay for such alterations or improvements.  The term “Laws,” as used in this Lease, means all statutes, ordinances, codes, rules, regulations, requirements, licenses, permits, certificates, judgments, decrees, orders or directives of any federal, state, county or local governmental or quasi-governmental authority, agency, department, board, panel or court now in force or which may hereafter be in force, as same may be amended.  Tenant shall not do, bring, keep or sell anything in or about the Premises that is prohibited by, or that will cause a cancellation of or an increase

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in the existing premium for (unless Tenant agrees in writing to pay for such increase), any insurance policy covering the Property or any part thereof.  Tenant shall not permit the Premises to be occupied or used in any manner that will constitute waste or a nuisance, or disturb the quiet enjoyment of or otherwise annoy other tenants in the Building.  Without limiting the foregoing, the Premises shall not be used for educational activities, practice of medicine or any of the healing arts, providing social services, for any governmental use (including embassy or consulate use), or for personnel agency, customer service office, studios for radio, television or other media, travel agency or reservation center operations or uses, except to the extent such uses are merely incidental to Tenant’s primary business operations, or part of the services provided by Tenant to its employees and customers, at the Premises.  Tenant shall not, without the prior consent of Landlord, (i) bring into the Building or the Premises anything that may cause substantial noise, odor or vibration, overload the floors in the Premises or the Building  Systems, or jeopardize the structural integrity of the Building or any part thereof; (ii) connect to the utility systems of the Building any apparatus, machinery or other equipment other than equipment that would exceed the electrical or other utility capacity of the Building; or (iii) connect to any electrical circuit in the Premises any equipment or other load with aggregate electrical power requirements which would be reasonably likely to overload the rated capacity of the circuit or otherwise interfere with the regular operation of the electrical systems serving the Building.  The term “Building Systems,” as used in this Lease, means the heating, ventilating and air-conditioning (“HVAC”), mechanical, elevator, plumbing and sewer, electrical, fire protection, life safety, security and other systems in the Building and all components thereof, but excluding any supplemental or special HVAC, mechanical, elevator, plumbing and sewer, electrical, fire protection, life safety, security and other systems installed by Tenant in connection with the Lab Work (as defined in Exhibit C) constructed at Tenant cost, as supplemented by any other specific items Landlord and Tenant agree in writing to include or exclude from the Building Systems at or prior to the time Landlord approves Tenant’s Construction Drawings pursuant to Exhibit C.

5.2Hazardous Materials.

(a)Definitions.

(1)“Hazardous Materials” shall mean any substance, material or waste (A) that now or in the future is regulated or governed by, requires investigation or remediation under, or is defined as a hazardous waste, hazardous substance, hazardous material, pollutant or contaminant under any Laws, including the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., and Sections 25117 and 25316 of the California Health and Safety Code, or (B) that is toxic, explosive, corrosive, flammable, radioactive, carcinogenic, dangerous or otherwise hazardous, including gasoline, diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls (PCBs), asbestos, radon and urea formaldehyde foam insulation.

(2)“Environmental Requirements” shall mean all present and future Laws and other requirements of any kind applicable to Hazardous Materials.

(3)“Handled” and “Handling” shall mean and refer to any installation, generation, storage, use, disposal, discharge, release or transportation of Hazardous Materials by Tenant or Landlord, as applicable, or their respective agents, employees, contractors, licensees, assignees, sublessees, transferees or representatives (collectively, “Representatives”) or their respective invitees (collectively, “Invitees”), at or about the Premises and/or the Property.

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(4)“Environmental Losses” shall mean all costs and expenses of any kind (including attorneys’ fees), damages, including foreseeable and unforeseeable consequential damages, fines and penalties incurred in connection with any violation of and/or compliance with Environmental Requirements and all losses of any kind attributable to the diminution of value, loss of use or adverse effects on marketability or use of any portion of the Premises or Property.

(b)Tenant’s Covenants.  No Hazardous Materials shall be Handled by Tenant at or about the Premises or Property without Landlord’s prior written consent, which consent may be granted, denied, or conditioned upon compliance with Landlord’s requirements, all in Landlord’s reasonable discretion.  Notwithstanding the foregoing, (i) normal quantities and use of those products containing small amounts of Hazardous Materials customarily used in the conduct of general office activities, such as copier fluids and cleaning supplies, and (ii) the Hazardous Materials designated, and limited to the quantities listed, on Exhibit F, attached hereto (collectively, “Permitted Hazardous Materials”), may be used and stored at the Premises without Landlord’s prior written consent, provided that Tenant’s activities at or about the Premises and Property and the Handling by Tenant of all such products and the Hazardous Materials therein shall comply at all times with all Environmental Requirements.  At the expiration or termination of the Lease, Tenant shall promptly remove from the Premises and Property all Hazardous Materials Handled by Tenant at the Premises or the Property.  Tenant shall keep Landlord fully and promptly informed of all Handling by Tenant of Hazardous Materials other than Permitted Hazardous Materials.  Tenant shall be responsible and liable for the compliance with all of the provisions of this Section by all of Tenant’s Representatives and Invitees, and all of Tenant’s obligations under this Section (including its indemnification obligations under paragraph (e) below) shall survive the expiration or earlier termination of this Lease.

(c)Compliance.  Tenant shall at Tenant’s expense promptly take all actions required by any governmental agency or entity in connection with or as a result of the Handling by Tenant of Hazardous Materials Handled by Tenant or its Representatives at or about the Premises or Property, including inspection, monitoring and testing, performing all cleanup, removal and remediation work required with respect to such Hazardous Materials, complying with all closure requirements and post-closure monitoring, and filing all required reports or plans.  All of the foregoing work and all Handling by Tenant of all Hazardous Materials shall be performed in a good, safe and workmanlike manner by consultants and contractors qualified and licensed to undertake such work and in a manner that will not interfere with any other tenant’s quiet enjoyment of the Property or Landlord’s use, operation, leasing and sale of the Property.  Tenant shall deliver to Landlord prior to delivery to any governmental agency, or promptly after receipt from any such agency, copies of all permits, manifests, closure or remedial action plans, notices, and all other documents or communications relating to the Handling by Tenant of Hazardous Materials and/or compliance with Environmental Requirements regarding same at or about the Premises or Property.  If any lien attaches to the Premises or the Property in connection with or as a result of the Handling by Tenant of Hazardous Materials, and Tenant does not cause the same to be released, by payment, bonding or otherwise, within ten (10) days after Tenant’s receipt of written notice of the attachment thereof, Landlord shall have the right but not the obligation to cause the same to be released and any sums expended by Landlord (plus Landlord’s administrative costs) in connection therewith shall be payable by Tenant within thirty (30) days after its receipt of a written demand.

(d)Landlord’s Rights.  Landlord shall have the right, but not the obligation, to enter the Premises at any reasonable time (upon reasonable prior notice to Tenant and subject to Tenant’s reasonable security requirements) (i) to confirm Tenant’s compliance with the provisions of this Section 5.2, and (ii) to perform Tenant’s obligations under this Section if Tenant has failed to do so after reasonable notice to Tenant.  If there is any Handing by Tenant of Hazardous Materials at the Premises

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that are not Permitted Hazardous Materials, then Landlord shall also have the right to engage qualified Hazardous Materials consultants to inspect the Premises and review the Handling by Tenant of Hazardous Materials, including review of all permits, reports, plans, and other documents regarding same.  Tenant shall pay to Landlord within thirty (30) days after Tenant’s receipt of a written demand any reasonable out-of-pocket costs of Landlord’s consultants’ incurred by Landlord in performing Tenant’s obligations under this Section.  Landlord shall not be responsible for any interference caused by Landlord’s entry into the Premises; provided, however, that Landlord shall use reasonable efforts to minimize any interference with Tenant’s business during any such entry.

(e)Indemnification.  Tenant agrees to indemnify, defend, protect and hold harmless Landlord and its constituent partners or members and its or their partners, members, directors, officers, shareholders, employees and agents against and from all Environmental Losses and all other claims, actions, losses, damages, liabilities, costs and expenses of every kind, including reasonable attorneys’, experts’ and consultants’ fees and costs, incurred at any time and arising from or in connection with the Handling by Tenant of Hazardous Materials at or about the Property in violation of Environmental Requirements.  Landlord agrees to indemnify, defend, protect and hold harmless Tenant and its directors, officers, shareholders, employees and agents against and from all Environmental Losses and all other claims, actions, losses, damages, liabilities, costs and expenses of every kind, including reasonable attorneys’, experts’ and consultants’ fees and costs, incurred at any time and arising from or in connection with (i) the Handling by Landlord of Hazardous Materials at or about the Property in violation of Environmental Requirements, and (ii) any Hazardous Materials existing on,  under, or about the Building or Project as of the date of this Lease.

(f)Landlord’s and Tenant’s Disclaimer.  To the best knowledge of Landlord, (i) no Hazardous Materials are present in, on or under the Premises or Property or the soil, surface water or groundwater thereof in violation of any applicable Environmental Requirements, (ii) no underground storage tanks are present on the Property, and (iii) no action, proceeding or claim is pending or threatened regarding the Property concerning any Hazardous Materials pursuant to any Environmental Requirements.  Tenant agrees and acknowledges that, except for the express representations in the preceding sentence, Landlord and its agents have not made any representations or warranties concerning the environmental condition of the Project and Premises, including without limitation the presence of any Hazardous Materials located at or about the Premises or the Project, and Tenant agrees that it has relied on its own investigation to determine the environmental condition of the Premises and has elected to proceed with the Lease based on its own evaluation of such condition as it may affect Tenant’s use and occupancy of the Premises.  Landlord has obtained a Phase I environmental assessment concerning the Project and Tenant acknowledges its receipt and review of such report prior to the Lease Date.  Notwithstanding the foregoing or anything to the contrary in this Lease, under no circumstance shall Tenant be liable for any claims of any type or nature, directly or indirectly arising out of or in connection with any Hazardous Materials present at any time on or about the Premises or Project, or the violation of any Environmental Requirements, except to the extent that any of the foregoing actually results from the Handling of Hazardous Materials  by Tenant or its Representatives or Invitees in violation of applicable Environmental Requirements.

6.ALTERATIONS.

6.1Landlord’s Consent.

(a)Tenant shall not make or permit to be made any alterations, additions, installations or improvements within, on, to or about the Premises or any part thereof (singularly and

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collectively, “Alterations”) without the prior written consent of Landlord in each instance.  Notwithstanding the foregoing, Tenant may make the following Alterations (“Minor Alterations”) without the prior written approval of Landlord:  any Alterations that do not materially affect any of the Building Systems, the outside appearance of the Building or the structural components of the Building, and do not exceed an aggregate cost of $100,000 in any one instance and otherwise  conform with the requirements stated in Section 6.1(b) clauses (i) through (iv) below, and that nothing herein shall alter Tenant’s obligation to remove Alterations as provided in this Lease.  Tenant shall on request of Landlord promptly provide Landlord with all cost and other information relating to Tenant’s compliance with the foregoing conditions.

(b)Landlord will not unreasonably withhold or delay its consent to any Alterations, provided that all of the following conditions shall be satisfied:  (i) the Alterations do not affect the outside appearance of the Building; (ii) the Alterations do not materially adversely affect the structural integrity of the Building or any part thereof; (iii) excepting signage approved by Landlord, the Alterations are to the interior of the Premises and do not materially adversely affect any part of the Building outside of the Premises; and (iv) the Alterations do not adversely affect the proper functioning of the Building Systems or other utilities, systems and services of the Building, or materially increase the usage thereof by Tenant.  The final plans and specifications for the Alterations, any subsequent changes thereto, and all contractors and subcontractors who will perform them shall be subject to Landlord’s approval, which approval shall not be unreasonably be withheld.  All costs and expenses incurred in connection with the Alterations, including the construction and installation thereof, the preparation of the plans and specifications therefor, and the attaining of all necessary governmental approvals and permits, shall be paid by Tenant.  Upon Landlord’s written demand, Tenant shall pay to Landlord the actual out-of-pocket costs and expenses reasonably incurred by Landlord in having its consultants review Tenant’s plans and specifications and inspecting the Alterations to determine whether they are being performed in accordance with the approved plans and specifications and in compliance with Laws, including the fees of any architect or engineer employed by Landlord for such purpose.

(c)Not less than fifteen (15) days nor more than thirty (30) days prior to commencement of any Alterations, Tenant shall notify Landlord of the work commencement date so that Landlord may post notices of nonresponsibility about the Premises, and to the extent applicable, Tenant shall provide copies to Landlord of any and all permits and plans associated with any Alterations.  All Alterations must comply with all Laws, the other terms of this Lease, and the final plans and specifications approved by Landlord, and Tenant shall fully and promptly comply with and observe any rules and regulations of  Landlord then in force with respect to the making of Alterations and/or imposed by Landlord in connection with its approval of the plans and specifications for the Alterations (to the extent Landlord has approval rights with respect thereto).  Landlord’s review and approval of Tenant’s plans and specifications are solely for Landlord’s benefit, and Landlord shall have no duty toward Tenant, nor shall Landlord be deemed to have made any representation or warranty to Tenant, with respect to the safety, adequacy, correctness, efficiency or compliance with Laws of the design of the Alterations, the plans and specifications therefor, or any other matter regarding the Alterations.  Tenant shall be responsible for any additional alterations and improvements required by Laws to be made to or in the Building as a result of any Alterations to the Premises made by or for Tenant.

6.2Ownership and Surrender of Alterations.  If and when Landlord consents to an Alteration, Landlord shall also notify Tenant in writing of Landlord’s election either to: (i) allow such improvement to remain at the Premises at the termination of this Lease; or (ii) require Tenant to remove such improvement at the termination of this Lease.  With respect to Minor Alterations, Tenant may request in writing that Landlord elect either (i) or (ii) above.  Upon their installation, all Alterations,

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including, but not limited to, wall covering, paneling and built-in cabinetry, but excluding Trade Fixtures (as hereinafter defined), shall become a part of the realty and belong to Landlord and shall be surrendered with the Premises except to the extent Landlord has required removal of any such Alterations under subsection (ii) above (and has not subsequently waived such requirement), in which case, as a condition of Tenant’s surrender of the Premises to Landlord, Tenant shall remove from the Premises, at Tenant’s expense, upon the expiration or earlier termination of the Lease, any such Alterations installed by Tenant, and Tenant’s obligation hereunder shall survive the expiration or earlier termination of the Lease.  Notwithstanding anything to the contrary in this Lease, Landlord hereby agrees that Tenant shall not be required to remove the “Office TI Work”, as defined in Exhibit C.

6.3Liens.  Tenant shall pay when due all claims for labor, materials and services furnished by or at the request of Tenant or Tenant’s Representatives.  Tenant shall keep the Premises, the Building and the Property free from all liens, security interests (with the exception of security instruments on equipment leased by Tenant) and encumbrances (including, without limitation, all mechanic’s liens and stop notices) created as a result of or arising in connection with any Alterations or any other labor, services or materials provided for or at the request of Tenant or Tenant’s Representatives, or any other act or omission of Tenant or Tenant’s Representatives, or persons claiming through or under them (such liens, security interests and encumbrances singularly and collectively are herein called “Liens”).  Tenant shall not use materials in connection with the Alterations that are subject to any Liens.  Tenant shall indemnify Landlord against, and hold Landlord harmless from:  (a) all Liens; (b) the removal of all Liens and any actions or proceedings related thereto; and (c) all Claims in connection with the foregoing.  If Tenant fails to remove any Liens caused by Tenant within fifteen (15) days after Tenant receives notice of the filing of any such Liens, then, in addition to any other rights and remedies available to Landlord, Landlord may take any action necessary to discharge such Liens, including payment to the claimant on whose behalf the Lien was filed.  Any sums expended by Landlord (plus Landlord’s administrative costs) in connection with any such action shall be payable by Tenant on demand with interest thereon from the date of expenditure by Landlord at the Interest Rate (as defined in Section 16.2).

6.4Additional Requirements.  Tenant shall obtain all necessary permits and certificates for the commencement and performance of Alterations and for final approval thereof upon completion, and shall cause the Alterations to be performed in compliance therewith and with all applicable Laws and insurance requirements, and in a good and workmanlike manner.  Tenant, at its expense, shall diligently cause the cancellation or discharge of all notices of violation arising from or otherwise connected with Alterations, or any other work, labor, services or materials done for or supplied to Tenant or Tenant’s Representatives, or by any person claiming through or under Tenant or Tenant’s Representatives.  Alterations shall be performed so as not to unreasonably interfere with any other tenant in the Building, cause labor disharmony therein, or delay or impose any additional expense on Landlord in the maintenance, repair or operation of the Building.  Throughout the performance of the Alterations, Tenant, at its expense, shall carry, or cause to be carried, in addition to the insurance described in Section 11, Workers’ Compensation insurance in statutory limits and such other insurance as Landlord may reasonably require, with insurers reasonably satisfactory to Landlord.  Tenant shall furnish Landlord with satisfactory evidence that such insurance is in effect at or before the commencement of the Alterations and, upon request, at reasonable intervals thereafter until completion of the Alterations.

6.5Trade Fixtures.  Subject to the provisions of Section 5, and the foregoing provisions of this Section, Tenant may install and maintain furnishings, trade fixtures, movable partitions, and machines and equipment (“Trade Fixtures”) in the Premises.  Tenant shall promptly repair any damage to the Premises or the Building caused by any installation or removal of such Trade Fixtures.

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6.6Signage.  At its sole expense, Tenant shall have the right to install its corporate name and logo on the exterior of the Building, on the entrance doors to the Building and on the existing monument sign located on the Property, with such signage to be proportional to signage available to or used by other occupants of the Project based on the size of the Premises in relation to the size of such other occupants’ premises, and subject to limitations arising due to any preexisting signage of Hewlett Packard. Notwithstanding the foregoing and without limiting the provisions of Exhibit B, Section 2, such signage shall be subject to Landlord’s prior review and approval, not to be unreasonably withheld; provided, however, that Tenant agrees it shall be reasonable for Landlord to withhold its approval of any signage proposed by Tenant that would, under applicable Laws, provide Tenant with disproportionate signage and restrict or deny Landlord the ability to offer additional proportionate Building and/or monument signage to other occupants of the Project.  Tenant shall reimburse to Landlord the actual costs reasonably incurred by Landlord in approving any signage proposed by Tenant.  In any event, all such signage installed by Tenant shall comply with applicable Laws and shall be subject to Landlord’s right to require removal consistent with Landlord’s right to require removal of other Alterations by Tenant.

6.7Rooftop Communications Equipment.  Tenant may install, at Tenant’s sole cost and expense, but without the payment of any rent or a license or similar fee or charge, a satellite or microwave dish or other communications, HVAC or other equipment servicing the business conducted by Tenant from within the Premises (all such equipment, including non-telecommunication equipment is, for the sake of convenience, defined collectively as the “Telecommunications Equipment”) upon the roof of the Building, for Tenant’s personal use and not for any other commercial purpose.  The physical appearance and the size of the Telecommunications Equipment shall be subject to Landlord’s reasonable approval, the location of any such installation of the Telecommunications Equipment shall be designated by Tenant subject to Landlord’s reasonable approval and Landlord may require Tenant to install screening around such Telecommunications Equipment, at Tenant’s sole cost and expense, as reasonably required by Landlord.  Tenant shall maintain such Telecommunications Equipment at Tenant’s sole cost and expense.  In the event Tenant elects to exercise its right to install the Telecommunication Equipment, then Tenant shall give Landlord prior notice thereof.  Such Telecommunications Equipment shall be installed pursuant to plans and specifications approved by Landlord, which approval will not be unreasonably withheld, conditioned, or delayed.  Upon Landlord’s written demand, Tenant shall reimburse to Landlord the actual out-of pocket costs reasonably incurred by Landlord in approving such Telecommunications Equipment.  Tenant shall remove such Telecommunications Equipment upon the expiration or earlier termination of this Lease and shall return the affected portion of the rooftop and the Building to the condition the rooftop and the Building would have been in had no such Telecommunications Equipment been installed (reasonable wear and tear excepted).  Such Telecommunications Equipment shall, in all instances, comply with applicable Laws.

7.MAINTENANCE AND REPAIRS.

7.1Tenant’s Obligations.  During the Term, Tenant, at Tenant’s expense, but under the direction of Landlord if Landlord so elects and subject to Sections 5.1, 7.2, 12 and 13, shall repair and maintain the Premises, including all specialty equipment or facilities exclusively serving the Premises (e.g., supplemental HVAC), the interior walls, floor coverings, ceiling (ceiling tiles and grid), Tenant’s Alterations, fire extinguishers, outlets and fixtures (including without limitation bulbs and ballasts), and any appliances (including dishwashers, hot water heaters and garbage disposals) in the Premises, in good condition, and keep the Premises in a clean, safe and orderly condition.

7.2Landlord’s Obligations.  Subject to Sections 5.1, 12 and 13, Landlord shall maintain or cause to be maintained in good order, condition and repair the foundations, columns, footings, sub-flooring

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and load-bearing and exterior walls, windows and frames, gutters, and downspouts of the Building, the structural portions of the roof and the roof membrane, the Building Systems, and the Common Areas of the Property (including the sidewalks, curbs, and Parking Facility); provided, however, that nothing contained herein shall be construed to negate or limit Tenant’s obligation to pay Tenant’s Share of the costs incurred hereunder by Landlord (it being understood and agreed that such costs are Operating Costs, subject to the limitations in Section 3.2(a)(1)).  Landlord’s maintenance and repair of the structural components of the Building (foundation, columns, footings, floor slab, load-bearing and exterior walls and structural portions of the roof) shall be at Landlord’s sole expense; provided, however, that with respect to any maintenance and repair items described in this Section 7.2 Tenant shall pay the entire cost of repairs for any damage occasioned by Tenant’s use of the Premises or the Property, any act or omission of Tenant or Tenant’s Representatives or Invitees or Tenant’s Alterations, subject to Section 11.3 concerning waiver of subrogation rights.  Landlord shall be under no obligation to inspect the Premises.  Tenant shall promptly report in writing to Landlord any condition known to Tenant which Landlord is required to repair.  As a material part of the consideration for this Lease, Tenant hereby waives any benefits of any applicable existing or future Law, including the provisions of California Civil Code Sections 1932(1), 1941 and 1942, that allows a tenant to make repairs at its landlord’s expense.

Notwithstanding any of the terms and conditions set forth in this Lease to the contrary, if Tenant provides Notice (or oral notice in the event of an “Emergency,” as that term is defined, below) to Landlord of an event or circumstance which requires the action of Landlord with respect to repair and/or maintenance required to be performed by Landlord hereunder, which event or circumstance with respect to the Building Systems or structural portions of the Building materially adversely affects the conduct of Tenant’s business from the Premises, and Landlord fails to commence corrective action within a reasonable period of time, given the circumstances, after the receipt of such Notice, but in any event not later than thirty (30) days after receipt of such Notice, then Tenant may proceed to take the required action upon delivery of an additional ten (10) Business Days’ Notice to Landlord specifying that Tenant is taking such required action (provided, however, that the initial thirty (30) day Notice and the subsequent ten (10) day Notice shall not be required in the event of an Emergency) and if such action was required under the terms and conditions of this Lease to be taken by Landlord and was not commenced by Landlord within such ten (10) Business Day period (or sooner in the case of Emergency) and thereafter diligently pursued to completion, then Tenant shall be entitled to prompt reimbursement by Landlord of Tenant’s reasonable costs and expenses in taking such action.  Promptly following completion of any work taken by Tenant pursuant to the terms and conditions of this Section 7.2, Tenant shall deliver a detailed invoice of the work completed, the materials used and the costs relating thereto, and within thirty (30) days after receipt of Tenant’s invoice, Landlord shall either pay the same or provide a written objection to the payment of such invoice, setting forth with reasonable particularity Landlord’s reasons for its claim that such action did not have to be taken by Landlord pursuant to the terms and conditions of this Lease or that the charges are excessive (in which case Landlord shall pay the amount it contends would not have been commercially reasonable).  If Landlord fails to pay Tenant in a timely fashion the reasonable amount owed as a result of Tenant’s exercise of its rights under this paragraph, then Tenant may withhold such amount from future Base Rent and Additional Rent until Tenant is reimbursed in full for the sum plus interest at the Interest Rate.  As used herein, an “Emergency” shall mean an event threatening immediate and material danger to people located in the Building or immediate, material damage to the Building, Building Systems or Alterations, or creates a realistic possibility of an immediate and material interference with, or immediate and material interruption of a material aspect of Tenant’s business operations.

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7.3Landlord’s Rights.  Landlord hereby reserves the right, at any time and from time to time, upon reasonable prior notice to Tenant, without liability to Tenant, and without constituting an eviction, constructive or otherwise, or entitling Tenant to any abatement of rent or to terminate this Lease or otherwise releasing Tenant from any of Tenant’s obligations under this Lease:

(a)To make alterations, additions, repairs, improvements to or in or to decrease the size of area of, all or any part of the Building, the fixtures and equipment therein, and the Building Systems, so long as the foregoing does not materially adversely affect the Premises or the Building Systems serving the Premises, or Tenant’s parking for and access to the Premises;

(b)To change the Building’s name or street address;

(c)To install and maintain any and all signs on the exterior and interior of the Building without any reduction of Tenant’s signage;

(d)To reduce, increase, enclose or otherwise change at any time and from time to time the size, number, location, layout and nature of the Common Areas (including the Parking Facility) and other tenancies and premises in the Property and to create additional rentable areas through use or enclosure of common areas, so long as the foregoing does not materially adversely affect Tenant’s parking for and access to the Premises; and

(e)If any governmental authority promulgates or revises any Law or imposes mandatory controls or guidelines on Landlord or the Property relating to the use or conservation of energy or utilities or the reduction of automobile or other emissions or reduction or management of traffic or parking on the Property (collectively “Controls”), to comply with such Controls, or make any alterations to the Property related thereto.

8.TENANT’S TAXES.  “Tenant’s Taxes” shall mean (a) all taxes, assessments, license fees and other governmental charges or impositions levied or assessed against or with respect to Tenant’s personal property or Trade Fixtures in the Premises, whether any such imposition is levied directly against Tenant or levied against Landlord or the Property, (b) all rental, excise, sales or transaction privilege taxes arising out of this Lease (excluding, however, state, local and federal personal or corporate income taxes measured by the income of Landlord from all sources) imposed by any taxing authority upon Landlord or upon Landlord’s receipt of, or right to receive, any rent payable by Tenant pursuant to the terms of this Lease (“Rental Tax”), and (c) any increase in Taxes attributable to inclusion of a value placed on Tenant’s personal property, Trade Fixtures or Alterations.  Tenant shall pay any Rental Tax to Landlord in addition to and at the same time as Base Rent is payable under this Lease, and shall pay all other Tenant’s Taxes before delinquency (and, at Landlord’s request, shall furnish Landlord satisfactory evidence thereof).  If Landlord pays Tenant’s Taxes or any portion thereof, Tenant shall reimburse Landlord within thirty (30) days after receipt of written demand for the amount of such payment.

9.UTILITIES AND SERVICES.

9.1Description of Services.  Landlord shall furnish to the Premises:  reasonable amounts of water, gas, sewer service, heat, ventilation and air conditioning during the Business Hours specified in the Basic Lease Information (“Business Hours”) on weekdays except federal and state holidays (“Business Days”);  and reasonable amounts of electricity; Landlord shall also provide the Common Areas and exterior of the Building with window washing of outside faces of glass, Common Area janitorial services five (5) days a week (except federal and state holidays), Common Area fluorescent

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tube replacement and Common Area toilet room supplies as reasonably necessary.  Landlord shall provide an exterior area for Tenant’s trash receptacles, it being understood that Tenant shall contract for dumpsters and trash removal at its sole expense.  Any additional utilities or services that Landlord may agree to provide, at Tenant’s request, shall be at Tenant’s sole expense.

9.2Payment for Additional Utilities and Services.

(a)To the extent Tenant requires the use of Building System HVAC service at times other than Business Hours on Business Days, Landlord shall furnish such service to Tenant and Tenant shall pay for such services at Landlord’s actual cost, consistent with the amounts charged by Landlord for such services during Business Hours on Business Days.  Landlord shall make reasonable efforts to allow Tenant to control the Building System HVAC serving the Premises.

(b)If the temperature otherwise maintained in any portion of the Premises by the Building Systems HVAC is affected as a result of (i) any lights, machines or equipment used by Tenant in the Premises, or (ii) the occupancy of the Premises by more than one person per 150 square feet of Rentable Area, then Tenant shall be solely responsible for installing or upgrading supplemental HVAC service in and to the Premises at its sole expense.  Landlord shall not be liable for any failure of the HVAC service to the Premises so long as the Building Systems HVAC continues to perform at substantially the same capacity as existed as of the Lease Date.

(c)If Tenant’s usage of any utility service which (a) cannot be separately metered such that Tenant pays the utility provider directly for the expense thereof, and (b) exceeds the use of such utility Landlord determines to be typical, normal and customary for the uses in the Building permitted under Section 5.1, Landlord may determine the amount of such excess use by any reasonable means and charge Tenant for the cost of such excess usage.

9.3Interruption of Services.  In the event of an interruption in or failure or inability to provide any services or utilities to the Premises or Building for any reason (a “Service Failure”), such Service Failure shall not, regardless of its duration, impose upon Landlord any liability whatsoever, constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of rent (except as expressly provided in Section 15.4(b)) or to terminate this Lease or otherwise release Tenant from any of Tenant’s obligations under this Lease, and Tenant agrees and acknowledges that Tenant’s remedies under Section 15.4(b) shall be its exclusive remedy for any such Service Failure.  Tenant hereby waives any benefits of any applicable existing or future Law, including the provisions of California Civil Code Section 1932(1), permitting the termination of this Lease due to such interruption, failure or inability.

10.EXCULPATION AND INDEMNIFICATION.

10.1Tenant’s Indemnification of Landlord.  Tenant shall indemnify, protect, defend and hold harmless Landlord and its constituent partners or members and its or their partners, members, directors, officers, shareholders, employees and agents against and from any claims, demands, actions, liabilities, damages, losses, costs and expenses, including reasonable attorneys’ fees (collectively, “Claims”), arising out of Tenant’s use of the Premises or resulting from any cause in or on the Premises, and from any negligence or willful misconduct of Tenant or of any person claiming by, through or under Tenant or any of Tenant’s Representatives or Invitees, in or on the Project, or any breach or default under this Lease by Tenant, except to the extent any such Claims arise out of or result from the negligence or willful misconduct of Landlord or its agents, employees and contractors.

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10.2Damage to Tenant and Tenant’s Property.  Landlord shall not be liable to Tenant for any loss, injury or other economic damage to Tenant, Tenant’s Representatives, Tenant’s Invitees or to Tenant’s, Tenant’s Representatives’ or Invitees’ property in or about the Premises or the Property from any cause (including, without limitation, defects in the Property or in any equipment in the Property; fire, explosion or other casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes or lines, sprinklers, tanks, drains, drinking fountains or washstands in, above, or about the Premises or the Property; or acts of other tenants in the Property); and Tenant hereby waives all claims against Landlord for any such loss, injury or damage and the cost and expense of defending against claims relating thereto, including any such loss, injury or damage caused by Landlord’s negligence (whether active or passive) or willful misconduct, excluding claims for bodily injury arising out of the negligence or willful misconduct of Landlord or its agents, employees and contractors.  Notwithstanding any other provision of this Lease to the contrary, in no event shall Landlord be liable to Tenant for any punitive, indirect, special or consequential damages or damages for loss of business by Tenant.

10.3Survival.  The rights and obligations of the parties under this Section 10 shall survive the expiration or earlier termination of this Lease.

11.INSURANCE.

11.1Tenant’s Insurance.

(a)Liability Insurance.  Tenant shall maintain in full force throughout the Term, commercial general liability insurance providing coverage on an occurrence form basis with limits of not less than Five Million Dollars ($5,000,000.00) each occurrence for bodily injury and property damage combined, Five Million Dollars ($5,000,000.00) annual general aggregate, and Five Million Dollars ($5,000,000.00) products and completed operations annual aggregate.  Tenant may provide the part of the foregoing coverage through commercial umbrella coverage, provided that the foregoing requirements are met by such coverage.  Tenant’s liability insurance policy or policies shall:  (i) include premises and operations liability coverage, products and completed operations liability coverage, broad form property damage coverage including completed operations, blanket contractual liability coverage including, to the maximum extent possible, coverage for the indemnification obligations of Tenant under this Lease, and personal and advertising injury coverage; (ii) provide that the insurance company has the duty to defend all insureds under the policy; (iii) provide that defense costs are paid in addition to and do not deplete any of the policy limits, so long as such coverage is then generally available in the commercial insurance market and can be obtained for an amount equal to or less than two percent (2%) of the premium which would otherwise be payable for Tenant’s commercial general liability policy; (iv) cover liabilities arising out of or incurred in connection with Tenant’s use or occupancy of the Premises or the Property; and (v) extend coverage to cover liability for the actions of Tenant’s Representatives.  Each policy of liability insurance required by this Section shall:  (A) contain a cross liability endorsement or separation of insureds clause; (B) provide that any waiver of subrogation rights or release prior to a loss does not void coverage; (C) provide that it is primary to and not contributing with, any policy of insurance carried by Landlord covering the same loss; (D) provide that any failure to comply with the reporting provisions shall not affect coverage provided to Landlord, its partners, property managers and Mortgagees; and (E) name Landlord, its constituent partners, any property manager of the Property, and such other parties in interest as Landlord may from time to time reasonably designate to Tenant in writing, as additional insureds.  All endorsements effecting such additional insured status shall be at least as broad as additional insured endorsement form number CG 20 11 01 86 promulgated by the Insurance Services Office.  The insurance requirements set forth herein are independent of Tenant’s indemnification and other obligations under this Lease and shall not be construed to restrict, limit or modify such indemnification or other obligations of Tenant under the Lease.

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(b)Property Insurance.  Tenant shall at all times maintain in effect with respect to any Alterations and Tenant’s Trade Fixtures and other personal property, commercial property insurance providing coverage, on an “all risk” or “special form” basis, in an amount equal to at least 90% of the full replacement cost of the covered property.  Tenant may carry such insurance under a blanket policy, provided that such policy provides coverage equivalent to a separate policy.  During the Term, the proceeds from any such policies of insurance shall be used for the repair or replacement of the Alterations, Trade Fixtures and personal property so insured, excepting only such Alterations as Landlord has expressly agreed to repair or replace after casualty or condemnation under Section 12 or 13 below.  Landlord shall be provided coverage under such insurance to the extent of its insurable interest and, if requested by Landlord, both Landlord and Tenant shall sign all documents reasonably necessary or proper in connection with the settlement of any claim or loss under such insurance.  Landlord will have no obligation to carry insurance on any Alterations or on Tenant’s Trade Fixtures or personal property other than those Alterations Landlord has expressly agreed to repair or replace after casualty or condemnation under Section 12 or 13 below.

(c)Requirements For All Policies.  Each policy of insurance required under this Section 11.1 shall:  (i) be in a form, and written by an insurer, reasonably acceptable to Landlord, (ii) be maintained at Tenant’s sole cost and expense, and (iii) require at least thirty (30) days’ written notice to Landlord prior to any cancellation, non-renewal or modification of insurance coverage.  Insurance companies issuing such policies shall have rating classifications of “A” or better (or if they are admitted carriers, “A-” or better) and financial size category ratings of “VII” or better according to the latest edition of the A.M. Best Key Rating Guide.  All insurance companies issuing such policies shall be licensed to do business in the state where the Property is located.  Tenant shall provide to Landlord, upon request, evidence that the insurance required to be carried by Tenant pursuant to this Section, including any endorsement effecting the additional insured status, is in full force and effect and that premiums therefor have been paid.

(d)Updating Coverage.  Not more than twice during the Term, Tenant shall increase the amounts of such coverages of insurance as required by Landlord or any Mortgagee, but in no event shall such increases be in excess of the amounts of insurance that tenants of similar projects in the market area are then required to carry.  Any such increases shall be effective as of the next renewal of the policy period of the applicable Tenant’s insurance policy(ies).  Any limits set forth in this Lease on the amount or type of coverage required by Tenant’s insurance shall not limit the liability of Tenant under this Lease.

(e)Certificates of Insurance.  Prior to occupancy of the Premises by Tenant, and not less than thirty (30) days prior to expiration of any policy thereafter, Tenant shall furnish to Landlord a certificate of insurance reflecting that the insurance required by this Section is in force, satisfactory to Landlord in substance and form.  Such certificates shall include industry standard language providing  that Landlord shall be given ten (10) days notice of cancellation of any of Tenant’s insurance policies for nonpayment and thirty (30) days prior written notice of any cancellation or nonrenewal of any of Tenant’s insurance policies for any other reason, and Tenant shall make its best efforts to immediately provide to Landlord a copy of any such notice received from its insurer.

11.2Landlord’s Insurance.  During the Term, Landlord shall maintain in effect insurance on the Building (including any Alterations Landlord has expressly agreed to repair or replace after casualty or condemnation under Section 12 or 13 below) with responsible insurers, on an “all risk” or “special form” basis, insuring the Building in an amount equal to at least 90% of the replacement cost thereof, excluding land, foundations, footings and underground installations.  Landlord may, but shall not be

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obligated to, carry insurance against additional perils (such as earthquake and/or flood) and/or in greater amounts.

11.3Mutual Waiver of Right of Recovery & Waiver of Subrogation.  Notwithstanding anything to the contrary contained in this Lease, Landlord and Tenant each hereby waive any right of recovery against each other and the partners, members, shareholders, officers, directors and authorized representatives of each other for any loss or damage that is covered by any policy of insurance maintained (or required by this Lease to be maintained) by either party with respect to the Premises or the Property or any operation therein, regardless of cause, including negligence (whether active or passive) or willful misconduct of the party benefiting from the waiver, to the extent of the loss or damage covered thereby.  If any such policy of insurance relating to this Lease or to the Premises or the Property does not permit the foregoing waiver or if the coverage under any such policy would be invalidated as a result of such waiver, the party maintaining such policy shall obtain from the insurer under such policy a waiver of all right of recovery by way of subrogation against either party in connection with any claim, loss or damage covered by such policy.

12.DAMAGE OR DESTRUCTION.

12.1Landlord’s Duty to Repair.

(a)If all or a substantial part of the Premises are rendered untenantable or inaccessible by damage to all or any part of the Property from fire or other casualty then, unless either party is entitled to and elects to terminate this Lease pursuant to Sections 12.2 and 12.3, Landlord shall use reasonable efforts to repair and restore the Premises and/or the Property, as the case may be, to substantially their former condition to the extent permitted by then applicable Laws; provided, however, in no event shall Landlord have any obligation for repair or restoration of any of Tenant’s Personal Property, Trade Fixtures or Alterations other than the “Office TI Work”, as defined in Exhibit C, attached hereto, which Landlord shall restore after any fire or other casualty.

(b)If all or any portion of the Premises or Common Area should become unsuitable for Tenant’s use as a consequence of fire or other casualty, then Tenant shall be entitled to an equitable abatement of all Base Rent, Operating Costs and Expenses payable hereunder to the extent of the interference with Tenant’s use of the Premises occasioned thereby.  In no event shall Landlord be liable to Tenant by reason of any injury to or interference with Tenant’s business or property arising from fire or other casualty or by reason of any repairs to any part of the Property necessitated by such casualty.

12.2Landlord’s Right to Terminate.  Landlord may elect to terminate this Lease following damage by fire or other casualty under the following circumstances:

(a)If more than sixty five percent (65%) of the Premises or Property are damaged and in Landlord’s reasonable judgment the Premises and the Property cannot be substantially repaired and restored under applicable Laws within 270 days from the date of the casualty;

(b)If, based on Landlord’s reasonable estimate of the cost to repair or restore the Premises, adequate insurance proceeds (excluding the amount of any insurance deductibles then carried by Landlord) will not for any reason (other than Landlord’s breach of its obligation to carry property insurance hereunder), including a decision made by any Mortgagee (as defined in Section 20.2), available to Landlord from Landlord’s insurance policies to cover the entire cost of the required repairs in excess of the first One Hundred Fifty Thousand Dollars ($150,000.00) therefor, it being agreed that Landlord and Tenant shall split equally, on a dollar for dollar basis, the cost of such required repairs up to One

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Hundred Fifty Thousand Dollars ($150,000.00), and Tenant does not agree to fund such excess costs over the first One Hundred Fifty Thousand Dollars ($150,000.00) within twenty (20) days after its receipt of a written termination notice from Landlord; or

(c)If the fire or other casualty damage to the Premises occurs during the last year of the Term and the restoration of the Premises cannot be substantially completed within ninety (90) days after the date of such damage; provided, however, that Landlord may not terminate this Lease pursuant to this Section 12.2(c) (without limiting Landlord’s termination rights under Sections 12.2(a) and (b)) if Tenant, at the time of such damage, has an express written option to extend the Term and Tenant exercises such option within thirty (30) days following the delivery to Tenant of Landlord’s written termination notice.

If any of the circumstances described in subparagraphs (a), (b) or (c) of this Section 12.2 occur or arise, Landlord shall give Tenant notice within sixty (60) days after the date of the casualty, specifying whether Landlord elects to terminate this Lease as provided above and, if not, Landlord’s estimate of the time required to complete Landlord’s repair obligations under this Lease.  If Landlord elects to terminate this Lease, the Lease shall terminate thirty (30) days after the date Tenant receives notice of Landlord’s election.

12.3Tenant’s Right to Terminate.  If all or a substantial part of the Premises are rendered untenantable or inaccessible by damage to all or any part of the Property from fire or other casualty, and Landlord does not elect to terminate as provided above, then Tenant may elect to terminate this Lease if the reasonable estimate, by an independent general contractor engaged by Landlord, of the time required to complete Landlord’s repair obligations under this Lease is greater than 270 days from the date of the casualty, in which event Tenant may elect to terminate this Lease by giving Landlord notice of such election to terminate within fifteen (15) days after Landlord’s notice to Tenant pursuant to Section 12.2.  If Tenant elects to terminate this Lease, the Lease shall terminate thirty (30) days after the date Landlord receives notice of Tenant’s election.  Further, notwithstanding the foregoing, if Landlord elects, or is required to repair the Premises or the Building in accordance with the terms of this Lease and if the repairs are not completed within 270 days (regardless of the time estimated for completion of the repairs), subject to extension for any Force Majeure Delays (up to, but not in excess of, a total of ninety (90) days of any such Force Majeure Delays) or other delays caused by Tenant, Tenant shall have the right to terminate this Lease by delivering written notice thereof to Landlord within thirty (30) days after the expiration of the 270-day period (as the same may be extended by up to ninety (90) days of Force Majeure Delays or delays caused by Tenant), with any such termination effective thirty (30) days after delivery of the notice of termination.

12.4Waiver.  Landlord and Tenant each hereby waive the provisions of California Civil Code Sections 1932(2), 1933(4) and any other applicable existing or future Law permitting the termination of a lease agreement in the event of damage or destruction under any circumstances other than as provided in Sections 12.2 and 12.3.

13.CONDEMNATION.

13.1Definitions.

(a)“Award” shall mean all compensation, sums, or anything of value awarded, paid or received on a temporary, total or partial Condemnation.

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(b)“Condemnation” shall mean (i) a permanent taking (or a temporary taking for a period extending beyond the end of the Term) pursuant to the exercise of the power of condemnation or eminent domain by any public or quasi-public authority, private corporation or individual having such power (“Condemnor”), whether by legal proceedings or otherwise, or (ii) a voluntary sale or transfer by Landlord to any such authority, either under threat of condemnation or while legal proceedings for condemnation are pending.

(c)“Date of Condemnation” shall mean the earlier of the date that title to the property taken is vested in the Condemnor or the date the Condemnor has the right to possession of the property being condemned.

13.2Effect on Lease.

(a)If the Premises are totally taken by Condemnation, this Lease shall terminate as of the Date of Condemnation.  If a portion but not all of the Premises is taken by Condemnation, this Lease shall remain in effect; provided, however, that if more than fifteen percent (15%) of the floor area of the Premises is taken and the portion of the Premises remaining after the Condemnation will be unsuitable for Tenant’s continued use, or more than fifteen percent (15%) of the Parking Facility is taken (and Landlord does not provide substitute parking within a reasonable proximity of the Premises), then upon notice to Landlord within thirty (30) days after Landlord notifies Tenant of the Condemnation, Tenant may terminate this Lease effective as of the Date of Condemnation.

(b)If twenty-five percent (25%) or more of the parcel of land on which the Building is situated, of the Parking Facility or of the floor area in the Building is taken by Condemnation, or if as a result of any Condemnation the Building is no longer reasonably suitable for use as an office building, whether or not any portion of the Premises is taken, Landlord may elect to terminate this Lease, effective as of the Date of Condemnation, by notice to Tenant within thirty (30) days after the Date of Condemnation.

(c)If all or a portion of the Premises is temporarily taken by a Condemnor for a period not exceeding one (1) year, this Lease shall remain in full force and effect.

13.3Restoration.  If this Lease is not terminated as provided in Section 13.2, Landlord shall diligently proceed to repair and restore the Premises to substantially its former condition (to the extent permitted by then applicable Laws) and/or repair and restore the Building to an architecturally complete office building; provided, however, that (i) Landlord’s obligations to so repair and restore shall be limited to the amount of any Award received by Landlord and not required to be paid to any Mortgagee, and (ii) Tenant shall be entitled to terminate this Lease if Landlord does not or cannot restore those portions of the Premises for which Landlord is responsible to substantially their prior condition.  In no event shall Landlord have any obligation to repair or replace any of Tenant’s personal property, Trade Fixtures, or Alterations other than the “Office TI Work”, as defined in Exhibit C, attached hereto.

13.4Abatement and Reduction of Rent.  If any portion of the Premises is taken in a Condemnation or is rendered permanently untenantable by repairs necessitated by the Condemnation, and this Lease is not terminated, the Base Rent, Operating Costs and Taxes payable under this Lease shall be proportionally reduced as of the Date of Condemnation based upon the percentage of rentable square feet in the Premises so taken or rendered permanently untenantable.  In addition, if this Lease remains in effect following a Condemnation and Landlord proceeds to repair and restore the Premises, or Tenant is unable to use and occupy some or all of the Premises due to a temporary taking as described in

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Section 13.2(c) above, the Base Rent, Operating Costs and Taxes payable under this Lease shall be abated with regard to any portion of the Premises that Tenant is prevented from occupying during the period of such repair or restoration, or such temporary taking.  In no event shall Landlord be liable to Tenant by reason of any injury to or interference with Tenant’s business or property arising from Condemnation or by reason of any repairs to any part of the Property necessitated by Condemnation.

13.5Awards.  Any Award made shall be paid to Landlord, and Tenant hereby assigns to Landlord, and waives all interest in or claim to, any such Award, including any claim for the value of the unexpired Term; provided, however, that Tenant shall be entitled to receive, or to prosecute a separate claim for, a separate Award for relocation and moving expenses, the interruption of or damage to Tenant’s business (including without limitation loss of goodwill) and/or compensation for Tenant’s personal property, Alterations and Trade Fixtures.

13.6Waiver.  Landlord and Tenant each hereby waive the provisions of California Code of Civil Procedure Section 1265.130 and any other applicable existing or future Law allowing either party to petition for a termination of this Lease upon a partial taking of the Premises and/or the Property.

14.ASSIGNMENT AND SUBLETTING.

14.1Landlord’s Consent Required.  Tenant shall not assign this Lease or any interest therein, or sublet or license or permit the use or occupancy of the Premises or any part thereof by or for the benefit of anyone other than Tenant, or in any other manner transfer all or any part of Tenant’s interest under this Lease (each and all a “Transfer”), without the prior written consent of Landlord, which consent (subject to the other provisions of this Section 14) shall not be unreasonably withheld.  The term Transfer, as used herein, includes the following:  (i) the transfer, voluntary or involuntary, either by a single transaction or in a series of transactions, of a controlling interest in Tenant (or, if Tenant is a trust, in the trustee of such trust), (ii) any dissolution, merger, consolidation or other reorganization of Tenant, and (iii) the sale, by a single transaction or series of transactions, within any one (1) year period of assets equaling or exceeding forty percent (40%) (or, if Tenant is a trust, exceeding twenty-five percent) of the total value of Tenant’s assets.  As used herein, the term “controlling interest” means (a) in the case of a partnership, limited liability company or other business entity, the ownership of partnership interests, membership interests or other indicia of ownership constituting more than fifty percent (50%) of the ownership interests in Tenant (provided that in the case of a limited partnership or manager controlled limited liability company, it also means the ownership of more than fifty percent (50%) of the ownership interests in the general partner or manager of Tenant), and (b) in the case of a corporation, the ownership and/or the right to vote stock constituting more than fifty percent (50%) of the voting stock of Tenant.  Notwithstanding any provision in this Lease to the contrary, Tenant shall not mortgage, pledge, hypothecate or otherwise encumber this Lease or all or any part of Tenant’s interest under this Lease.  Further notwithstanding the foregoing, Tenant may assign this Lease or sublet all or any portion of the Premises, without the requirement of any consent, recapture or termination right by Landlord and without the sharing of any Bonus Rent, to any successor corporation to Tenant by way of merger, consolidation or other corporate reorganization, or to any parent, subsidiary or affiliate of Tenant, or to any party acquiring all or substantially all of Tenant’s assets or stock, or to any party acquiring and continuing that portion of Tenant’s business operations conducted at or from the Premises, or to any entity with whom Tenant is undertaking or will undertake a joint venture or similar joint research and development, marketing, distribution, sales or development project at the Premises, so long as (1) any assignee’s net worth (derived in accordance with generally accepted accounting principles) is equal to or greater than the lesser of (a) Tenant’s net worth as of the effective date of such assignment; or (b) One Hundred Million Dollars ($100,000,000.00), which amount shall be increased by three percent (3%) on each

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anniversary of the Commencement Date; (2) Tenant provides written notice to Landlord of any such sublease or assignment not less than thirty (30) days prior to such transaction (unless such notice is subject to contractual confidentiality restrictions, or is restricted by the regulations or requirements of the Securities and Exchange Commission, and in either case, such notification shall be made promptly following the date of such assignment or sublease), and in the case of an assignment such notice shall include evidence reasonably satisfactory to Landlord that the assignee satisfies the foregoing “net worth” requirement; (3) any such assignee shall assume all of the rights and obligations of Tenant hereunder in a written instrument delivered to Landlord immediately after the effective date thereof (except in the case of any merger, consolidation or sale of stock where the Tenant entity survives and remains as the Tenant hereunder, in which such written instrument shall not be required); and (4) any such sublease or assignment shall be subject to the terms and conditions of Section 14.9 below   (collectively, “Permitted Transferees”, individually, “Permitted Transferee”).

14.2Reasonable Consent.

(a)Prior to any proposed Transfer, Tenant shall submit in writing to Landlord, not less than thirty (30) days prior to the proposed effective date of the Transfer, (i) the name and legal composition of the proposed assignee, subtenant, user or other transferee (each a “Proposed Transferee”); (ii) the nature of the business proposed to be carried on in the Premises; (iii) a current balance sheet, income statements for the last two years and such other reasonable financial and other information concerning the Proposed Transferee as Landlord may request; and (iv) a copy of the proposed assignment, sublease or other agreement governing the proposed Transfer  (“Transfer Documents”).  Within fifteen (15) calendar days after Landlord receives all such information it shall notify Tenant whether it approves or disapproves such Transfer.

(b)Tenant acknowledges and agrees that, among other circumstances for which Landlord could reasonably withhold consent to a proposed Transfer, it shall be reasonable for Landlord to withhold consent where (i)  Landlord reasonably disapproves of the Proposed Transferee’s business operating ability or history, reputation or creditworthiness or the character of the business to be conducted by the Proposed Transferee at the Premises, (ii) the Proposed Transferee is a governmental agency or unit or an existing tenant in the Project (and Landlord then has comparable space available on the comparable terms for lease in the Project) or, for so long as Landlord or any affiliate of Landlord owns the Stevens Creek Property, the Stevens Creek Property, (iii) the proposed Transfer would violate any “exclusive” rights of any tenants in the Project, (iv) Landlord or Landlord’s agent has shown space in the Building to the Proposed Transferee or responded to any inquiries from the Proposed Transferee or the Proposed Transferee’s agent concerning availability of space in the Building, at any time within the preceding nine months and Landlord then has comparable space available for lease by such tenant on comparable terms in the Project or, for so long as Landlord or any affiliate of Landlord owns the Stevens Creek Property, the Stevens Creek Property, or (v) at the time Tenant requests Landlord’s consent an Event of Default has occurred and is continuing or Tenant has committed acts or omissions which with the passage of time or the giving of notice, or both, would constitute an a monetary or material Event of Default under this Lease.  Tenant shall not place any signs in or about the Premises or Building to market the Premises for assignment or sublease without Landlord’s prior written approval, not to be unreasonably withheld.

14.3Excess Consideration.  If Landlord consents to the Transfer, Tenant shall pay to Landlord as Additional Rent, as and when received by Tenant, fifty percent (50%) of any Bonus Rent (as hereinafter defined) payable by or on behalf of any transferee (the “Transferee”) for or in connection with the Transfer.  The term “Bonus Rent,” as used herein, means any and all rent and other

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consideration, whether denominated rent or otherwise, payable by or on behalf of the Transferee under the terms of the Transfer or any collateral agreement in excess of the Monthly Base Rent and Additional Rent payable hereunder (or in excess of the fair market value of any equipment or other goods or services included as part of the terms of the Transfer or any collateral agreement), less the reasonable cost of any improvements installed by the Tenant, at its expense, in the Premises pursuant to the Transfer for the specific subtenant or assignee (and approved by Landlord), reasonable attorneys’ fees incurred by Tenant in effecting the Transfer, reasonable leasing commissions actually paid by the Tenant in connection with the Transfer, moving allowances, free rent, or any other inducements necessary to secure an assignment or sublease with the proposed Transferee, without deduction for carrying costs due to vacancy or otherwise.  During any period in which an Event of Default by Tenant has occurred and is continuing, then at Landlord’s option, upon written notice to the Transferee, Landlord may require the Transferee to pay all or any portion of such Bonus Rent directly to Landlord; provided, however, that Landlord’s acceptance or collection of the Bonus Rent will not be deemed to be a consent to any Transfer or a cure of any default under this Section 14 or any other provisions of this Lease.  In the case of a sublease, the Bonus Rent shall be determined by comparing the rent and/or other consideration payable under the sublease to the portion of the Monthly Base Rent and Additional Rent allocable to the subleased portion of the Premises (and the portion of the Monthly Base Rent and Additional Rent allocable to the subleased portion of the Premises shall be determined by multiplying the Monthly Base Rent and Additional Rent by a fraction, the numerator of which is the Rentable Area of the subleased portion of the Premises and the denominator of which is the Rentable Area of the Premises).

14.4No Release Of Tenant.  No Transfer shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether accruing before or after such Transfer.  The consent by Landlord to any Transfer shall not relieve Tenant or any Transferee from the obligation to obtain Landlord’s express prior written consent to any subsequent Transfer by Tenant or any Transferee.  The acceptance of rent by Landlord from any other person (whether or not such person is an occupant of the Premises) shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any Transfer.

14.5Expenses and Attorneys’ Fees.  Tenant shall pay to Landlord on demand all out-of-pocket costs and expenses (including reasonable attorneys’ fees) reasonably incurred by Landlord in connection with reviewing and responding to any proposed Transfer (including any request for consent to, or any waiver of Landlord’s rights in connection with, any security interest in any of Tenant’s property at the Premises).

14.6Effectiveness of Transfer.  Except in the case of any Permitted Transfer, prior to the date on which any Transfer becomes effective, Tenant shall deliver to Landlord a counterpart of the fully executed Transfer document and Landlord’s standard form of Consent to Assignment or Consent to Sublease (subject to such commercially reasonable changes requested by Tenant or the Transferee) executed by Tenant and the Transferee in which each of Tenant and the Transferee confirms its obligations pursuant to this Lease.  Failure or refusal of a Transferee to execute any such instrument shall not release or discharge the Transferee from any liability.  The voluntary, involuntary or other surrender of this Lease by Tenant, or a mutual cancellation by Landlord and Tenant, shall not work a merger, and any such surrender or cancellation shall, at the option of Landlord, either terminate all or any existing subleases or operate as an assignment to Landlord of any or all of such subleases.

14.7Intentionally Deleted.

14.8Assignment of Sublease Rents.  Tenant hereby absolutely and irrevocably assigns to Landlord any and all rights to receive rent and other consideration from any sublease and agrees that

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Landlord, as assignee, or a receiver for Tenant appointed on Landlord’s application may (but shall not be obligated to) collect such rents and other consideration and apply the same toward Tenant’s obligations to Landlord under this Lease; provided, however, that Landlord grants to Tenant at all times prior to occurrence of any Event of Default by Tenant a license to collect such rents (which license shall automatically and without notice be deemed revoked and terminated immediately upon any Event of Default).

14.9Additional Requirements.  Any Transfer shall be null and void unless it complies with this Lease and:  (i) in the case of an assignment, provides that the assignee assumes all of Tenant’s obligations under this Lease first accruing after the date of such assignment, and agrees to be bound by all of the terms of this Lease; and (ii) in the case of a sublease, provides that (a) it is subject and subordinate to this Lease, (b) if there is any conflict or inconsistency between the sublease and this Lease, then as between Tenant and Landlord, or Landlord and the proposed sublessee, this Lease will prevail (but as between Tenant and any such sublessee only, the terms of the subject sublease will prevail), (c) Landlord may enforce all the provisions of the sublease, including the collection of rent, upon any Event of Default by Tenant, (d) the sublease may not be modified without Landlord’s prior written consent (which consent shall not be unreasonably withheld) and that any modification without such consent shall be null and void, (e) if this Lease is terminated or Landlord reenters or repossesses the Premises, Landlord may, at its option, take over all of Tenant’s right, title and interest as sublessor and, at Landlord’s option, the subtenant shall attorn to Landlord, but Landlord shall not be (x) liable for any previous act or omission of Tenant under the sublease (but Landlord shall be responsible for curing any default by Tenant or a continuing nature [e.g., repair and maintenance obligations]), (y) subject to any existing defense or offset against Tenant, or (z) bound by any previous modification of the sublease made without Landlord’s prior written consent or by any prepayment of more than one (1) month’s rent, with the exception of any prepaid Operating Costs.

15.DEFAULT AND REMEDIES.

15.1Events of Default.  The occurrence of any of the following shall constitute an “Event of Default” by Tenant:

(a)Tenant fails to make any payment of rent (including, without limitation, Base Rent and Additional Rent) on the date such payment is due and such failure shall continue for ten (10) days after Tenant’s receipt of a written notice of delinquency from Landlord.

(b)Tenant abandons the Premises; provided however, that no abandonment shall be considered to occur if the Premises are maintained to the extent necessary to maintain the insurance on the Premises.

(c)Tenant fails timely to deliver any subordination document, estoppel certificate or financial statement requested by Landlord within the applicable time period specified in Sections 20 and 21 and such failure shall continue for five (5) Business Days after a second written notice from Landlord (i.e., a notice in addition to Landlord’s written request for such document pursuant to Section 20 or 21).

(d)Tenant violates the restrictions on Transfer set forth in Section 14.

(e)Tenant ceases doing business as a going concern; makes an assignment for the benefit of creditors; is adjudicated an insolvent, files a petition (or files an answer admitting the material allegations of a petition) seeking relief under any state or federal bankruptcy or other statute, law or

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regulation affecting creditors’ rights; all or substantially all of Tenant’s assets are subject to judicial seizure or attachment and are not released within sixty (60) days, or Tenant consents to or acquiesces in the appointment of a trustee, receiver or liquidator for Tenant or for all or any substantial part of Tenant’s assets.

(f)Tenant fails, within sixty (60) days after the commencement of any proceedings against Tenant seeking relief under any state or federal bankruptcy or other statute, law or regulation affecting creditors’ rights, to have such proceedings dismissed, or Tenant fails, within sixty (60) days after an appointment, without Tenant’s consent or acquiescence, of any trustee, receiver or liquidator for Tenant or for all or any substantial part of Tenant’s assets, to have such appointment vacated.

(g)Tenant fails to perform or comply with any provision of this Lease other than those described in (a) through (f) above, and does not fully cure such failure within fifteen (15) days after notice to Tenant or, if such failure cannot reasonably be cured within such fifteen (15)-day period, Tenant fails within such fifteen (15)-day period to commence, and thereafter to diligently proceed with, all actions necessary to cure such failure as soon as reasonably possible.

(h)Tenant fails to replenish the Security Deposit as required under Section 4.

15.2Remedies.  Upon the occurrence of an Event of Default, Landlord shall have the following remedies, which shall not be exclusive but shall be cumulative and shall be in addition to any other remedies now or hereafter allowed by law:

(a)Landlord may terminate Tenant’s right to possession of the Premises at any time by written notice to Tenant, subject to applicable legal due process requirements.  Tenant acknowledges that in the absence of such written notice from Landlord, no other act of Landlord, including reentry into the Premises, efforts to relet the Premises, reletting of the Premises for Tenant’s account, storage of Tenant’s personal property and Trade Fixtures, acceptance of keys to the Premises from Tenant or exercise of any other rights and remedies under this Section, shall constitute an acceptance of Tenant’s surrender of the Premises or constitute a termination of this Lease or of Tenant’s right to possession of the Premises.  Upon such termination in writing of Tenant’s right to possession of the Premises, as herein provided, this Lease shall terminate and Landlord shall be entitled to recover damages from Tenant, including:  (i) the worth at the time of the award of the unpaid Base Rent and Additional Rent which had been earned or was payable at the time of termination; (ii) the worth at the time of the award of the amount by which the unpaid Base Rent and Additional Rent which would have been earned or payable after termination until the time of the 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 of the amount by which the unpaid Base Rent and Additional Rent which would have been paid for the balance of the Term 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 detriment proximately caused by Tenant’s failure to perform its obligations under the Lease or which in the ordinary course of things would be likely to result therefrom, including any reasonable costs or expenses incurred by Landlord in maintaining or preserving the Premises, the Building and the rest of the Property after such default, the cost of recovering possession of the Premises, reasonable expenses of reletting, including necessary renovation or alteration of the Premises, Landlord’s reasonable attorneys’ fees and costs incurred in connection therewith, and any real estate commissions paid or payable.  As used in subparts (i) and (ii) above, the “worth at the time of the award” is computed by allowing interest on unpaid amounts at the Interest Rate (as defined in Section 16.2).  As used in subpart (iii) above, the “worth at the time of the award” is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%).

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(b)Landlord shall have the remedy described in California Civil Code Section 1951.4 (Landlord may continue this Lease in effect after Tenant’s breach and abandonment and recover rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations).

(c)Landlord may, but shall not be obligated to, cure the Event of Default at Tenant’s expense.  If Landlord pays any sum or incurs any expense in curing the Event of Default, Tenant shall reimburse Landlord upon demand for the amount of such payment or expense with interest at the Interest Rate from the date the sum is paid or the expense is incurred until Landlord is reimbursed by Tenant.

(d)Subject to applicable legal due process requirements, Landlord may remove all Tenant’s property from the Premises, and such property may be stored by Landlord in a public warehouse or elsewhere at the sole cost and for the account of Tenant.  If Landlord does not elect to store any or all of Tenant’s property left in the Premises, Landlord may consider such property to be abandoned by Tenant, and Landlord may thereupon dispose of such property in any manner deemed appropriate by Landlord.  Any proceeds realized by Landlord on the disposal of any such property shall be applied first to offset all expenses of storage and sale, then credited against Tenant’s outstanding obligations to Landlord under this Lease, and any balance remaining after satisfaction of all obligations of Tenant under this Lease shall be delivered to Tenant.

(e)Tenant waives any and all rights of redemption granted by or under any Laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the Premises by reason of the violation by Tenant of any of the terms, covenants or conditions of this Lease, or otherwise.

15.3Notice Requirements.  When this Lease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notices required by Code of Civil Procedure Section 1161 or any similar or successor statute, subject to all statutory notice requirements.

15.4Landlord’s Default and Tenant’s Remedies.

(a)Landlord shall not be deemed to be in default of its obligations unless Landlord fails to perform any covenant, condition, or agreement contained in this Lease and fails to cure the nonperformance within a reasonable time, but not later than thirty (30) days after receiving written notice of the failure, provided, however, that if the nature of Landlord’s failure to perform reasonably requires more than thirty (30) days to cure, then Landlord shall not be deemed in default if Landlord commences to cure such failure within said thirty (30) day period and thereafter diligently and in good faith prosecutes such cure to completion.

(b)In the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof, as a result of (i) any failure to provide services, utilities or ingress to and egress from the Building, Property (including the parking areas), or Premises as a result of the negligence or willful misconduct of Landlord or its agents, employees or contractors, or (ii) (A) any failure to provide services, utilities or ingress to and egress from the Building, Property (including the parking areas) not caused by the negligence or willful misconduct of Landlord or its agents, employees or contractors and/or Tenant or Tenant’s Representatives, or (B) the presence of any Hazardous Materials not brought onto the Premises or otherwise Handled by Tenant or Tenant’s Representatives or Invitees (any such circumstances to be known as an “Abatement Event”), then Tenant shall give Landlord written notice of

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such Abatement Event, and if such Abatement Event continues for three (3) consecutive Business Days after Landlord’s receipt of any such notice (the “Eligibility Period”), then the Base Rent and Tenant’s Share of Operating Costs and Taxes shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises, or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use bears to the total rentable area of the Premises; provided, however, that in the case of any Abatement Event arising under subsection (ii) above (i.e.,  interruption of services, utilities or access for which neither party is responsible or Hazardous Materials for which Tenant is not responsible), Tenant shall only be entitled abatement of rent, and the Eligibility Period shall only continue for so long as, to the extent of and during any periods for which any rental loss insurance which may then be carried by Landlord compensates Landlord for such abated rent, without imposing any obligation on Landlord to carry such rental loss insurance.  Such right to abate Base Rent and Tenant’s Share of Tenant’s Share of Operating Costs and Taxes shall be Tenant’s sole and exclusive remedy at law or in equity for an Abatement Event; provided, however, that if Landlord has not cured such Abatement Event within one hundred eighty (180) days after receipt of notice from Tenant, Tenant shall have the right to terminate this Lease during the first five (5) Business Days of each calendar month following the end of such 180-day period until such time as Landlord has cured the Abatement Event, which right may be exercised by delivery of written notice to Landlord during such five (5) Business Day period, and shall be effective thirty (30) days after Landlord’s receipt thereof  Notwithstanding anything contained in this paragraph to the contrary, any termination notice provided by Tenant hereunder shall be null and void if Landlord cures such Abatement Event within such thirty (30) day period following receipt of such notice.  Except as expressly provided in this Section 15.4(b) or Sections 12 and 13, nothing contained in this Lease shall be interpreted to mean that Tenant is excused from paying rent due hereunder.

16.LATE CHARGE AND INTEREST.

16.1Late Charge.  Tenant acknowledges that late payment of rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain.  These costs include processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any ground leases and/or mortgages.  Accordingly, if any payment of rent is not received by Landlord within five (5) days after the date when such payment is due, Tenant shall pay to Landlord on demand as a late charge an additional amount equal to five percent (5%) of the overdue payment.  A late charge shall not be imposed more than once on any particular installment not paid when due, but imposition of a late charge on any payment not made when due does not eliminate or supersede late charges imposed on other (prior) payments not made when due or preclude imposition of a late charge on other installments or payments not made when due.  Tenant agrees that the late charge imposed by this provision is a fair and reasonable estimate of the costs Landlord will incur by reason of the late payment by Tenant.  Notwithstanding the foregoing or anything to the contrary contained herein, no later charge or interest shall be due on the first and only the first late payment of rent by Tenant in any calendar year during the Term so long as Tenant makes such payment within three (3) days after its receipt of a written notice of delinquency from Landlord

16.2Interest.  In addition to the late charges referred to above, which are intended to defray Landlord’s costs resulting from late payments, any payment from Tenant to Landlord not paid when due shall at Landlord’s option bear interest from the date due until paid to Landlord by Tenant at the rate of twelve percent (12%) per annum or the maximum rate that Landlord may charge to Tenant under applicable Laws, whichever is less (the “Interest Rate”).  Acceptance of any late charge and/or interest shall not constitute a waiver of Tenant’s default with respect to the overdue sum or prevent Landlord from exercising any of its other rights and remedies under this Lease.

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17.PARKING.  Tenant shall have the right to use throughout the Term (including any Extended Term), on a non-exclusive basis, at no additional charge to Tenant, three hundred fifteen (315) non-reserved automobile parking spaces in the Parking Facility located on the Property; provided, however, that the number of non-reserved automobile parking spaces provided to Tenant is based on a ratio of three and 14/100 (3.14) such parking spaces per one thousand (1,000) square feet of Rentable Area included in the Premises and, accordingly, the number of such spaces is subject to pro rata adjustment on the basis of the foregoing formula if the Rentable Area included in the Premises is adjusted.  All parking by Tenant, Tenant’s Representatives and Tenant’s Invitees shall be in compliance with all reasonable Rules and Regulations of Landlord regarding the use of the Parking Facility, as such Rules and Regulations may be modified reasonably from time to time.  In addition, if Tenant, Tenant’s Representatives or Tenant’s Invitees violate the Rules and Regulations, Landlord shall have the right after reasonable notice to Tenant to remove any vehicles so violating the Rules and Regulations, at Tenant’s expense, and Landlord shall not be liable for any damage incurred in connection with such removal.  Landlord reserves the right to require Tenant, Tenant’s Representatives and Tenant’s Invitees to use stickers or any other identification system established by Landlord; provided, however, that any such stickers or other form of identification supplied by Landlord shall remain the property of Landlord, and shall not be transferable.  All responsibility for damage to vehicles or persons in or about the Parking Facility is assumed by the owner of the vehicle and/or its driver.  Landlord reserves the right to designate certain areas of the Parking Facility as visitors’ parking, to be reserved for guests and/or visitors, and neither Tenant nor Tenant’s employees shall park in such designated areas.  Landlord also reserves the right to allow persons other than tenants of the Building and their guests and/or visitors to use the Parking Facility, provided the foregoing does not prevent Tenant from its use of the parking rights granted hereunder.

18.ENTRY, INSPECTION AND CLOSURE.  Upon reasonable (i.e., 24 hours) oral or written notice to Tenant (and without notice in emergencies), Landlord and its authorized representatives may enter the Premises during Business Hours (and at any time in case of Emergency), and subject to Tenant’s reasonable security requirements (except in the event of Emergency), to:  (a) determine whether the Premises are in good condition, (b) determine whether Tenant is complying with its obligations under this Lease, (c) perform any maintenance or repair of the Premises or the Building that Landlord has the right or obligation to perform, (d) install or repair improvements for other tenants where access to the Premises is required for such installation or repair, (e) serve, post or keep posted any notices required or allowed under the provisions of this Lease, (f) show the Premises to prospective brokers, agents, buyers, transferees, Mortgagees or, during the last one hundred eighty (180) days of the Term only, tenants, or (g) do any other act or thing necessary for the safety or preservation of the Premises or the Building.  When reasonably necessary Landlord may temporarily close entrances, doors, corridors, elevators or other facilities in the Building without liability to Tenant by reason of such closure.  Landlord shall conduct its activities under this Section in a commercially reasonable manner that will minimize inconvenience to Tenant.  In no event shall Tenant be entitled to an abatement of rent on account of any entry by Landlord, and Landlord shall not be liable in any manner for any inconvenience, loss of business or other damage to Tenant or other persons arising out of Landlord’s entry on the Premises in accordance with this Section.  No action by Landlord pursuant to this paragraph shall constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of rent or to terminate this Lease or otherwise release Tenant from any of Tenant’s obligations under this Lease.

19.SURRENDER AND HOLDING OVER.

19.1Surrender.  Upon the expiration or earlier termination of this Lease, Tenant shall surrender the Premises and all Alterations to Landlord broom clean and in their condition as of the

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Commencement Date, except for normal wear and tear, damage from casualty or condemnation and any changes resulting from approved Alterations that Tenant is not required to remove; provided, however, that prior to the expiration or earlier termination of this Lease Tenant:  (i) shall remove all telephone and other cabling installed in the Building by Tenant, all of Tenant’s personal property, furniture, decorations, interior or exterior signs, and Trade Fixtures, and all Alterations that Landlord timely elects in accordance with this Lease to require Tenant to remove; and (ii) shall repair any damage  to the Premises, the Building, Common Areas and perform any restoration work caused or occasioned by Tenant’s compliance with this Section. Tenant shall patch and refinish all penetrations made by Tenant or its agents or employees to the floor, walls, or ceiling of the Premises necessitated by Tenant’s removal of Alterations and/or Trade Fixtures, whether or not made or installed with Landlord’s approval. Tenant shall repair or replace all stained or damaged ceiling tiles, wall coverings, and floor coverings to the extent the same require repair or replacement beyond normal wear and tear.  All repairs shall be made to Landlord’s reasonable satisfaction. If any such removal or repair is not completed before the expiration or earlier termination of the Term, Landlord shall have the right (but no obligation) to cause such removal or repair  to be performed and to repair any damage and perform any restoration work caused or occasioned by such removal. Tenant shall pay Landlord on demand for all costs of removal, repair and restoration, for storage of Tenant’s property and for the rental value of the Premises for the period from the end of the Term through the end of the time reasonably required for such removal, repair and restoration.  Landlord shall also have the right to retain or dispose of all or any portion of Tenant’s property if Tenant does not pay all such costs and retrieve the property within ten (10) days after notice from Landlord (in which event title to all such property described in Landlord’s notice shall be transferred to and vest in Landlord).  Tenant waives all Claims against Landlord for any damage or loss to Tenant resulting from Landlord’s removal, storage, retention, or disposition of Tenant’s property.  Upon expiration or earlier termination of this Lease or of Tenant’s possession, whichever is earliest, Tenant shall surrender all keys to the Premises or any other part of the Building and shall deliver to Landlord all keys for or make known to Landlord the combination of locks on all safes, cabinets and vaults that may be located in the Premises.  The term “normal wear and tear,” for purposes of this provision, shall be construed to mean wear and tear caused to the Premises by the natural aging process that occurs in spite of prudent application of good standards for maintenance and repair; and it is not intended, nor shall it be construed, to include items of neglected or deferred maintenance which would have or should have been attended to during the Term of the Lease if good standards had been applied to properly maintain and keep the Premises at all times in good condition and repair.  Tenant’s obligations under this Section shall survive the expiration or earlier termination of this Lease.

19.2Holding Over.  If Tenant (directly or through any Transferee or other successor-in-interest of Tenant) remains in possession of the Premises after the expiration or earlier termination of this Lease, Tenant’s continued possession shall be on the basis of a tenancy at the sufferance of Landlord.  In such event, Tenant shall continue to comply with and perform all the terms and obligations of Tenant under this Lease, except that the Monthly Base Rent during Tenant’s holding over shall be one hundred fifty percent (150%) of the Monthly Base Rent payable in the last full month prior to the expiration or termination hereof.  Acceptance by Landlord of rent after such expiration or termination shall not constitute a renewal of this Lease; and nothing contained in this provision shall be deemed to waive Landlord’s right of reentry or any other right hereunder or at law.  Tenant shall indemnify, defend and hold Landlord harmless from and against all Claims arising or resulting directly or indirectly from Tenant’s failure to timely surrender the Premises, including (i) any rent payable by or any loss, cost, or damages claimed by any prospective tenant of the Premises, and (ii) Landlord’s damages as a result of such prospective tenant rescinding or refusing to enter into the prospective lease of the Premises or delaying the commencement of rent payable thereunder by reason of Tenant’s failure to timely surrender the Premises.

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20.ENCUMBRANCES.

20.1Subordination.  This Lease is expressly made subject and subordinate to any mortgage, deed of trust, ground lease, underlying lease or like encumbrance affecting any part of the Property or any interest of Landlord therein which is now existing or hereafter executed or recorded (“Encumbrance”); provided, however, that such subordination shall only be effective as to Encumbrances created by Landlord after the Commencement Date of this Lease if the holder of the Encumbrance agrees that so long as this Lease is in full force and effect and there exists no Event of Default hereunder, Tenant’s right to possession of the Premises shall not be disturbed by reason of foreclosure, exercise of the statutory power of sale, or receipt of a deed in lieu of foreclosure in the case of any mortgage or deed of trust that constitutes the Encumbrance or termination in the case of any ground lease that constitutes the Encumbrance.  Tenant shall execute and deliver to Landlord, within ten (10) days after written request therefor by Landlord and in a commercially reasonable form requested by Landlord, any additional documents evidencing the subordination of this Lease with respect to any such Encumbrance, provided that, in any case where Tenant is entitled to the above-described nondisturbance agreement, either prior to or concurrently with the request Tenant is provided the required nondisturbance agreement by the holder of the Encumbrance.  If the interest of Landlord in the Property is transferred pursuant to or in lieu of proceedings for enforcement of any Encumbrance, provided the new owner requires Tenant to do so or Tenant is party to a nondisturbance agreement as herein described, Tenant shall attorn to the new owner, and this Lease shall continue in full force and effect as a direct lease between the transferee and Tenant on the terms and conditions set forth in this Lease.  Anything in this Section 20.1 to the contrary notwithstanding, if a Mortgagee so elects in writing, this Lease shall be deemed superior to the Encumbrance held by the Mortgagee, regardless of the date of recordation of the Encumbrance, and Tenant will execute an agreement confirming the Mortgagee’s election on request.

20.2Mortgagee Protection.  Tenant agrees to give any holder of any Encumbrance covering any part of the Property (“Mortgagee”), by registered mail, a copy of any notice of default served upon Landlord, provided that prior to such notice Tenant has been notified in writing (by way of notice of assignment of rents and leases, or otherwise) of the address of such Mortgagee.  If Landlord shall have failed to cure such default within thirty (30) days from the effective date of such notice of default, then the Mortgagee shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may reasonably be necessary to cure such default, and this Lease shall not be terminated so long as such remedies are being diligently pursued; provided, however, that nothing contained in this Section 20.2 shall be construed to (i) limit Tenant’s offset or abatement rights under Sections 7.2 or 15.4(b) as against the Landlord at the time that the act or omission resulting in such offset right (“Act”) arises; provided, however, that upon any Mortgagee foreclosure or acceptance of a deed in lieu of foreclosure (collectively “Foreclosure”, and the Mortgagee or other party acquiring the Premises thereby being the “Successor”), Tenant may not offset or abate any amounts due to Tenant arising from any pre-Foreclosure Act against any rent or other amounts due Successor after Foreclosure, or (ii) impose any obligation on a Mortgagee to cure such default.  Landlord represents and warrants to Tenant that, as of the Lease Date, the only Mortgage encumbering the Property is deed of trust in favor of Wrightwood Capital Lender LLC (“Wrightwood”).  Notwithstanding the foregoing or anything to the contrary contained here, within thirty (30) days after the Lease Date Landlord shall obtain a nondisturbance agreement from Wrightwood in a commercially reasonable form.  If Landlord has not obtained such nondisturbance agreement as provided in the preceding sentence, then Tenant may terminate this Lease by written notice to Landlord, in which case Landlord shall refund to Tenant all funds and deposits delivered by Tenant hereunder and Landlord and

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Tenant shall thereupon have no further liability to the other under this Lease, excepting obligations which expressly survive the termination hereof.

21.ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.

21.1Estoppel Certificates.  Within ten (10) days after written request therefor, Tenant shall execute and deliver to Landlord, in a form provided by or satisfactory to Landlord, a certificate stating that this Lease is in full force and effect, describing any amendments or modifications hereto, acknowledging that this Lease is subordinate or prior, as the case may be, to any Encumbrance and stating any other information Landlord may reasonably request, including the Term, the date on which the Term began and expires, the monthly Base Rent, the date to which rent has been paid, the amount of any security deposit or prepaid rent, whether either party hereto is in default under the terms of the Lease, and whether Landlord has completed its construction obligations hereunder (if any).  If Tenant fails timely to execute and deliver such certificate as provided above then Tenant shall be deemed to have confirmed the information in any such estoppel certificate provided by Landlord and to have waived its right to contest the accuracy of such information at any later date.  Any person or entity purchasing, acquiring an interest in or extending financing with respect to the Property shall be entitled to rely upon any such certificate.  If Tenant fails to deliver such certificate within five (5) Business Days after Landlord’s second written request therefor, the Tenant’s failure or refusal to timely execute or deliver such estoppel certificate shall be an Event of Default.

21.2Financial Statements. Within ten (10) days after written request therefor, but not more than once a year, and only in connection with a sale or refinancing of Landlord’s interest in the Project or at any time Tenant is in default of its obligations hereunder, and only if Tenant’s financial statements are not publicly available, Tenant shall deliver to Landlord a copy of the financial statements (including at least a year end balance sheet and a statement of profit and loss) of Tenant (and of each guarantor, if any, of Tenant’s obligations under this Lease, but only if the financial statements of such guarantor are not publicly available) for each of the three most recently completed years, prepared in accordance with generally accepted accounting principles (and, if such is Tenant’s normal practice, audited by an independent certified public accountant), all then available subsequent interim statements, and such other financial information as may reasonably be requested by Landlord or required by any Mortgagee.  Landlord agrees to keep such financial reports (to the extent the same are not publicly available) confidential, although Landlord may disclose the contents thereof to Landlord’s professional advisors and to potential lenders and buyers pursuant to such parties’ agreement to maintain the confidentiality of such information.

22.NOTICES.  Any notice, demand, request, consent or approval that either party desires or is required to give to the other party under this Lease shall be in writing and shall be served personally, delivered by independent messenger or overnight courier service, sent by U.S. certified mail, return receipt requested, postage prepaid, addressed to the other party at the party’s address set forth in the Basic Lease Information.  Notices shall be deemed to have been given and be effective on the earlier of (i)  receipt (or refusal of delivery) if personally delivered or sent by independent messenger service, (ii) one (1) day after acceptance by an overnight courier service for delivery if sent by overnight courier service, or (iii) three (3) days after mailing if sent by mail in accordance with this Section.  If any notice or other act that is permitted or required under this Lease shall come due on a Saturday, Sunday or legal holiday, it shall be deemed to be due on the next business day.  Landlord or Tenant may change its address for notices hereunder, effective fifteen (15) days after notice to the other party complying with this Section.  If Tenant sublets the Premises, notices from Landlord shall be effective on the subtenant when given to Tenant pursuant to this Section.

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23.ATTORNEYS’ FEES.  In the event of any dispute between Landlord and Tenant in any way related to this Lease, the non-prevailing party shall pay to the prevailing party all reasonable attorneys’ fees and costs and expenses of any type incurred by the prevailing party in connection with any action or proceeding (including any appeal and the enforcement of any judgment or award), whether or not the dispute is litigated or prosecuted to final judgment.  The “prevailing party” shall be determined based upon an assessment of which party’s major arguments or positions taken in the action or proceeding could fairly be said to have prevailed (whether by compromise, settlement, abandonment by the other party of its claim or defense, final decision, after any appeals, or otherwise) over the other party’s major arguments or positions on major disputed issues.

24.QUIET POSSESSION.  Subject to Tenant’s full and timely performance of all of Tenant’s obligations under this Lease and subject to the terms of this Lease, including Section 20, Tenant shall have the quiet possession of the Premises throughout the Term as against any persons or entities lawfully claiming by, through or under Landlord.

25.SECURITY MEASURES.  Landlord may, but shall be under no obligation to, implement security measures for the Property, such as the registration or search of all persons entering or leaving the Building, requiring identification for access to the Building, evacuation of the Building for cause, suspected cause, or for drill purposes, the issuance of magnetic pass cards or keys for Building or elevator access and other actions that Landlord deems necessary or appropriate to prevent any threat of property loss or damage, bodily injury or business interruption; provided, however, that such measures shall be implemented in a way as not to inconvenience tenants of the Building unreasonably.  Landlord shall at all times have the right to change, alter or reduce any such security services or measures.  Tenant shall cooperate and comply with, and cause Tenant’s Representatives and Invitees to cooperate and comply with, such security measures.  Landlord, its agents and employees shall have no liability to Tenant or its Representatives or Invitees for the implementation or exercise of, or the failure to implement or exercise, any such security measures or for any resulting disturbance of Tenant’s use or enjoyment of the Premises.

26.COMMON AREAS.  Without Landlord’s prior written approval, Tenant will not obstruct the Common Areas, and Tenant will not use the Common Areas for any purpose other than ingress and egress to and from the Premises and parking in the Parking Facility as permitted under the Lease.  The Common Areas, except for the sidewalks, are not open to the general public and Landlord reserves the right to control and prevent access to the Common Areas by any person whose presence, in Landlord’s opinion, would be prejudicial to the safety, reputation and interests of the Building and its tenants.

27.RULES AND REGULATIONS.  Tenant shall be bound by and shall comply with the rules and regulations attached to and made a part of this Lease as Exhibit B, as well as any reasonable modifications thereof and/or additions thereto hereafter adopted by Landlord for all tenants of the Building upon notice to Tenant thereof (collectively, the “Rules and Regulations”).  Landlord shall not be responsible to Tenant or to any other person for any violation of, or failure to observe, the Rules and Regulations by any other tenant or other person.  In the event of any conflict between the rules and regulations and the other provisions of this Lease, the other provisions of this Lease shall govern.

28.LANDLORD’S LIABILITY.  The term “Landlord,” as used in this Lease, shall mean only the owner or owners of the Property at the time in question.  In the event of any conveyance of title to the Property, then from and after the date of such conveyance, the transferor Landlord shall be relieved of all liability with respect to Landlord’s obligations to be performed under this Lease first accruing after the date of such conveyance.  Notwithstanding any other term or provision of this Lease, the liability of

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Landlord arising out of or based upon its obligations under this Lease is limited solely to Landlord’s interest in the Property as the same may from time to time be encumbered (and any sales, assignment insurance or condemnation proceeds received by Landlord), and no personal liability shall at any time be asserted or enforceable against any other assets of Landlord or against Landlord’s constituent partners or members or its or their respective partners, shareholders, members, directors, officers or managers on account of any of Landlord’s obligations or actions under or related to this Lease.

29.CONSENTS AND APPROVALS.  The review and/or approval by Landlord of any item or matter to be reviewed or approved by Landlord under the terms of this Lease or any Exhibits hereto shall not impose upon Landlord any liability for the accuracy or sufficiency of any such item or matter or the quality or suitability of such item for its intended use.  Any such review or approval is for the sole purpose of protecting Landlord’s interest in the Property, and no third parties, including Tenant or the Representatives and Invitees of Tenant or any person or entity claiming by, through or under Tenant, shall have any rights as a consequence thereof.  If it is determined that Landlord failed to give its consent where it was required to do so under this Lease, Tenant shall be entitled to injunctive relief and actual damages resulting therefrom so long as (i) Tenant requested such consent in writing and (ii) provided written notice to Landlord promptly after Landlord’s refusal or failure to respond as required hereunder of Tenant’s assertion that such consent was wrongfully withheld; provided, however that in no event shall Tenant be entitled to terminate this Lease for Landlord’s failure to give any consent required to be given by Landlord under this Lease.

30.BROKERS.  Landlord shall have no obligation to pay a fee or commission to any broker or brokers identified in the Basic Lease Information (the “Broker”) except in accordance with a separate written agreement with any such Broker signed by Landlord.  Each party hereto warrants and represents to the other party that in connection with the negotiating and making of this Lease neither the warranting party nor anyone acting on its behalf has dealt with any broker or finder who might be entitled to a fee or commission for this Lease other than the Broker acting on behalf of the warranting party identified in the Basic Lease Information.  Each party hereto shall indemnify and hold the other party harmless from any Claims asserted by any other person or entity for a fee, commission or other compensation based upon any dealings with or statements made by the indemnifying party or the indemnifying party’s Representatives.

31.WAIVER.  No provisions of this Lease shall be deemed waived by Landlord or Tenant unless such waiver is in a writing signed by the waiving party.  The waiver by Landlord or Tenant of any breach of any provision of this Lease shall not be deemed a waiver of such provision or of any subsequent breach of the same or any other provision of this Lease.  No delay or omission in the exercise of any right or remedy of Landlord or Tenant upon any default by the other party shall impair such right or remedy or be construed as a waiver.  Landlord’s acceptance of any payments of rent due under this Lease shall not be deemed a waiver of any default by Tenant under this Lease (including Tenant’s recurrent failure to timely pay rent) other than Tenant’s nonpayment of the accepted sums, and no endorsement or statement on any check or payment or in any letter or document accompanying any check or payment shall be deemed an accord and satisfaction.  Landlord’s consent to or approval of any act by Tenant requiring Landlord’s consent or approval shall not be deemed to waive or render unnecessary Landlord’s consent to or approval of any subsequent act by Tenant requiring Landlord’s consent or approval.

32.ENTIRE AGREEMENT.  This Lease, including the Exhibits attached hereto, all of which Exhibits are incorporated into and made a part of this Lease by this reference thereto, constitutes the entire agreement between Landlord and Tenant with respect to the leasing of space by Tenant in the Building, and supersedes all prior or contemporaneous agreements, understandings, proposals and other

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representations by or between Landlord and Tenant, whether written or oral, all of which are merged herein.  Neither Landlord nor Landlord’s agents have made any representations or warranties whatsoever with respect to the Premises, the Building, the Property or this Lease except as expressly set forth herein, and no rights, easements or licenses shall be acquired by Tenant by implication or otherwise unless expressly set forth herein. This Lease may be amended or modified only by a written instrument signed by Landlord and Tenant.

33.MISCELLANEOUS.

33.1Submission of Lease. The submission of this Lease for examination does not constitute an option or offer to lease the Premises or a reservation of the Premises in favor of Tenant.  This Lease shall become effective as a binding agreement only upon execution and delivery thereof by Landlord to Tenant.

33.2Successors and Assigns.  Subject to Sections 14 and 28, this Lease shall be binding on and shall inure to the benefit of the parties and their respective successors, assigns and legal representatives.

33.3Severability.  The determination that any provisions hereof may be void, invalid, illegal or unenforceable shall not impair any other provisions hereof and all such other provisions of this Lease shall remain in full force and effect.  The unenforceability, invalidity or illegality of any provision of this Lease under particular circumstances shall not render unenforceable, invalid or illegal other provisions of this Lease, or the same provisions under other circumstances.

33.4Governing Law.  This Lease shall be governed by and construed and interpreted in accordance with the laws (excluding conflicts of laws principles) of the State of California.

33.5Interpretation.  The provisions of this Lease shall be construed in accordance with the fair meaning of the language used and shall not be strictly construed against either party, even if such party drafted the provision in question.  When required by the context of this Lease, the singular includes the plural and vice versa, and the masculine, feminine and neuter genders each include the others.  Wherever the term “including” is used in this Lease, it shall mean “including, but not limited to” the matter or matters thereafter enumerated.  The captions contained in this Lease are for purposes of convenience only and are not to be used to interpret or construe this Lease.  In any provision of this Lease relating to the conduct, acts or omissions of Tenant, the term “Tenant” shall include Tenant’s Representatives, and shall only include Tenant’s Invitees where expressly provided.

33.6Joint and Several Liability.  If more than one person or entity is identified as Tenant hereunder, the obligations of each and all of them under this Lease shall be joint and several.

33.7Recordation.  Neither Landlord nor Tenant shall record this Lease or a memorandum thereof.

33.8Suite Identification.  Landlord will provide, at Landlord’s expense, Tenant’s name plate on the suite door and Tenant’s name on the directory for the Building, both of which shall be in building standard size and design.

33.9Counterparts. This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document.  Both counterparts shall be construed together and shall constitute a single lease.

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33.10Access Control System:  Tenant may install, maintain, control, and operate, an electronic proximity card-reader access control system (the “Access Control System”) to regulate entry into the Premises and the Building; provided, however, that Landlord shall be provided with updated copies of all card keys in connection with such system for the purposes of Landlord’s right of entry hereunder.

34.TIME.  Time is of the essence for the performance of each and every obligation to be performed by Tenant under this Lease.

35.AUTHORITY.  If either party hereto is a corporation, partnership, limited liability company or other form of business entity, such party and each of the persons executing this Lease on behalf of such party warrant and represent to the other party hereto that such party is a duly organized and validly existing entity, that such party has full right and authority to enter into this Lease and that the persons signing on behalf of such party are authorized to do so and have the power to bind such party to this Lease.  Upon request, either party hereto shall provide the other party with evidence reasonably satisfactory to the other party confirming the foregoing representations.

36.TITLE TO PROJECT.  Landlord represents and warrants to Tenant that, as of the Lease Date, Landlord is the owner of fee title to the Project.

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IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of the Lease Date.

TENANT:	LANDLORD:
VERIGY US, INC., a Delaware corporation	PAU MOULDS CPP-A LLC a California limited liability company
By:	By:
Name:		Peter Pau, Manager
Title:
By:
Name:
Title:

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EXHIBIT A

THE PREMISES

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EXHIBIT B

RULES AND REGULATIONS

The following Rules and Regulations are additional provisions of the foregoing Lease.  Capitalized terms used herein have the meanings ascribed to them in the Lease.

1.No Access to Roof.  Except as expressly permitted under the Lease, Tenant has no right of access to the roof of the Building and will not install, repair or replace any antenna, aerial, aerial wires, fan, air conditioner, satellite dish or other device on the roof of the Building, without the prior written consent of Landlord.  Any such device installed without such written consent is subject to removal at Tenant’s expense without notice at any time.  In any event Tenant will be liable for any damages or repairs incurred or required as a result of its installation, use, repair, maintenance or removal of such devices on the roof and agrees to indemnify, protect, defend and hold harmless Landlord from any Claims arising from any activities of Tenant or of Tenant’s Representatives on the roof of the Building.

2.Signage.  Except as may be expressly permitted hereunder, no sign, placard, picture, name, advertise­ment or notice visible from the exterior of the Premises will be inscribed, painted, affixed or otherwise displayed by Tenant on or in any part of the Premises or the Building without the prior written consent of Landlord.  Landlord reserves the right to adopt general guidelines relating to signs in or on the Building.  Approved signage, if any, will be inscribed, painted or affixed at Tenant’s expense by a person approved by Landlord.

3.Prohibited Uses.  The Premises will not be used for manufacturing, for the storage of merchandise held for sale to the general public at the Premises, for lodging or for the sale of goods to the general public.  The foregoing prohibitions shall be in addition to, and not in lieu of, any other prohibitions applicable to the use of the Premises under the Lease and/or applicable Laws.  Except for seeing-eye dogs, neither Tenant nor its employees, agents, contractors, or invitees shall bring any animal or pet into the Premises, the halls or corridors or any other part of the Building, or the common areas, without the prior written consent of Landlord, which shall not be unreasonably refused as to animals which are required on account of an established disability.

4.Keys and Locks.  Landlord will furnish Tenant, free of charge, a reasonable number of keys to each door or lock in the Premises.  Landlord may make a reasonable charge for any replacement keys.  Tenant will not duplicate any keys, alter any locks or install any new or additional lock or bolt on any door of its Premises or on any other part of the Building without the prior written consent of Landlord and, in any event, Tenant will provide Landlord with a key for any such lock.  On the termination of the Lease, Tenant will deliver to Landlord all keys to any locks or doors in the Building which have been obtained by Tenant.

5.Freight.  An elevator will be made available for Tenant’s use for transportation of freight, subject to such scheduling as reasonably appropriate.  Tenant shall not transport freight in loads exceeding the weight limitations of such elevator.  Landlord reserves the right to prescribe in a reasonable fashion the weight, size and position of all equipment, materials, furniture or other property brought into the Building.  Landlord reserves the right to require that heavy objects will stand on wood strips of such length and thickness as is necessary to properly distribute the weight.  Landlord will not be

B-1

responsible for loss of or damage to any such property from any cause associated with Tenant’s use of the elevator, and Tenant will be liable for all damage or injuries caused by moving or maintaining such property.

6.Nuisances and Dangerous Substances.  Tenant will not conduct itself or permit Tenant’s Representatives or Invitees to conduct themselves, in the Premises or anywhere on or in the Property in a manner which is offensive or unduly annoying to any other tenant or Landlord’s property managers.  Tenant will not install or operate any phonograph, radio receiver, musical instrument, or television or other similar device in any part of the Common Areas and shall not operate any such device installed in the Premises in such manner as to disturb or annoy other tenants of the Building.  Tenant will not use or keep in the Premises or the Property any kerosene, gasoline or other combustible fluid or material other than limited quantities thereof reasonably necessary for the maintenance of Tenant’s equipment.  Tenant will not use or keep any foul or noxious gas or substance in the Premises or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business therein.

7.Building Name and Address.  Without Landlord’s prior written consent, Tenant will not use the name of the Building in connection with or in promoting or advertising Tenant’s business except as Tenant’s address.

8.Building Directory.  A directory for the Building will be provided for the display of the name and location of tenants.  Landlord reserves the right to approve or disapprove placing any additional names Tenant desires to place in the directory and, if so approved, Landlord may assess a reasonable charge for adding such additional names.

9.Window Coverings.  No curtains, draperies, blinds, shutters, shades, awnings, screens or other coverings, window ventilators, hangings, decorations or similar equipment shall be attached to, hung or placed in, or used in or with any window of the Building without the prior written consent of Landlord.

10.Floor Coverings.  Tenant will not lay or otherwise affix linoleum, tile, carpet or any other floor covering to the floor of the Premises in any manner except as approved in writing by Landlord.  Tenant will be liable for the cost of repair of any damage resulting from the violation of this rule or the removal of any floor covering by Tenant or its contractors, employees or invitees.

11.Wiring and Cabling Installations.  Landlord will reasonably direct Tenant’s electricians and other vendors as to where and how data, telephone, and electrical wires and cables are to be installed.  No boring or cutting portions of the Building outside the Premises for wires or cables will be allowed without the prior written consent of Landlord unless the same is a component of any Alterations approved by Landlord and/or is limited to the interior of the Premises and will not affect the Building structure or any Building Systems.  The location of burglar alarms, smoke detectors, telephones, call boxes and other office equipment affixed to the Premises shall be subject to the written approval of Landlord.

12.Office Closing Procedures.  Tenant will see that the doors of the Premises are closed and locked and that all water faucets, water apparatus and utilities are shut off before Tenant or its employees leave the Premises, so as to prevent waste or damage.  Tenant will be liable for all damage or injuries sus­tained by other tenants or occupants of the Building or Landlord resulting from Tenant’s carelessness

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in this regard or violation of this rule.  Tenant will keep the doors to the Building corridors closed at all times except for ingress and egress.

13.Plumbing Facilities.  The toilet rooms, toilets, uri­nals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be disposed of therein.  Tenant will be liable for any breakage, stoppage or damage resulting from the violation of this rule by Tenant, its employees or invitees.

14.Use of Hand Trucks.  Tenant will not use or permit to be used in the Premises or in the Common Areas any hand trucks, carts or dollies except those equipped with rubber tires and side guards or such other equipment as Landlord may approve.

15.Refuse.  Tenant shall store all Tenant’s trash and garbage within the Premises or in other facilities designated by Landlord for such purpose.  Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city in which the Building is located without being in violation of any law or ordinance governing such disposal.  All trash and garbage removal shall be made in accordance with reasonable directions issued from time to time by Landlord, only through such Common Areas provided for such purposes and at such times as Landlord may reasonable designate.  Tenant shall comply with the requirements of any recycling program adopted by Landlord for the Building.

16.Soliciting.  Canvassing, peddling, soliciting and/or distribution of handbills or any other written materials in the Building are prohibited, and Tenant will cooperate to prevent the same.

17.Parking.  Tenant will use, and cause Tenant’s Representatives and Invitees to use, any parking spaces to which Tenant is entitled under the Lease in a manner consistent with Landlord’s directional signs and markings in the Parking Facility.  Specifically, but without limitation, Tenant will not park, or permit Tenant’s Representatives or Invitees to park, in a manner that impedes access to and from the Building or the Parking Facility or that violates space reservations for handicapped drivers registered as such with the California Department of Motor Vehicles.  Landlord may use such reasonable means as may be necessary to enforce the directional signs and markings in the Parking Facility, including but not limited to towing services, and Landlord will not be liable for any damage to vehicles towed as a result of noncompliance with such parking regulations.

18.Fire, Security and Safety Regulations.  Tenant will comply with all reasonable or mandatory safety, security, fire protection and evacuation measures and procedures established by any governmental agency.

19.Responsibility for Theft.  Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.

20.Sales and Auctions.  Tenant will not conduct or permit to be conducted any sale by auction in, upon or from the Premises or elsewhere in the Property, whether said auction be voluntary, involuntary, pursuant to any assignment for the payment of creditors or pursuant to any bankruptcy or other insolvency proceeding.

21.Waiver of Rules.  Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord will be construed as a

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waiver of such Rules and Regulations in favor of any other tenant or tenants nor prevent Landlord from thereafter enforcing these Rules and Regulations against any or all of the tenants of the Building.

22.Effect on Lease.  These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease.  In the event of any conflict or inconsistency between these Rules and Regulations and the provisions of the Lease, the provisions of the Lease shall control.  Violation of these Rules and Regulations constitutes a failure to fully perform the provisions of the Lease, as referred to in Section 15.1.

23.Nondiscriminatory Enforcement.  Subject to the provisions of the Lease (and the provisions of other leases with respect to other tenants), Landlord shall use reasonable efforts to enforce these Rules and Regulations in a nondiscriminatory manner, but in no event shall Landlord have any liability for any failure or refusal to do so (and Tenant’s sole and exclusive remedy for any such failure or refusal shall be injunctive relief preventing Landlord from enforcing any of the Rules and Regulations against Tenant in a manner that discriminates against Tenant).

24.Additional and Amended Rules.  Landlord reserves the right to rescind or amend these Rules and Regulations and/or to adopt any other rules and regulations as in its reasonable judgment may from time to time be needed for the safety, care and cleanliness of the Building and the Property and for the preservation of good order therein and thereon.

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EXHIBIT C

WORK LETTER

This Work Letter shall set forth the terms and conditions relating to the construction of tenant improvements in and to the Premises and the Building by both Tenant and Landlord.  All references in this Work Letter to Articles or Sections of “the Lease” shall mean the relevant portions of the Lease Agreement to which this Work Letter is attached as  Exhibit C and of which this Work Letter forms a part, and all references in this Work Letter to Sections of “this Work Letter” shall mean the relevant portion this Exhibit C.  All capitalized terms used in this Work Letter and not defined shall have the meaning set forth in the Lease.

SECTION 1

CONDITION OF PREMISES AND BASE BUILDING

Tenant acknowledges that Tenant has accepted the Premises, and has agreed to Landlord’s obligations for the initial construction of Alterations in and to the Premises, subject to the terms and conditions of Section 1.2 of the Lease.

SECTION 2

TENANT AND LANDLORD WORK

The work to be performed pursuant to this Work Letter shall include the following components of work in and to the Premises and the Building:

2.1Demolition Work.  Landlord shall perform certain demolition work in the Premises necessary to prepare the Premises for the “Office TI Work” (defined below), consisting of the work described on Schedule 1, attached hereto (the “Demolition Work”).  The Landlord shall engage a contractor of its choice to perform the Demolition Work, and such work shall be completed at no cost or expense to Tenant.  The Demolition Work shall be substantially completed on or before the later of (i) June 30, 2006, or (ii) the date all required governmental permits and approvals necessary to commence the Office TI Work (defined below) have been issued and copies of the same have been provided to Landlord by Tenant (such later date shall be the “Demolition Deadline”).  As used herein and elsewhere in this Work Letter, the terms “substantially completed” and “substantial completion” shall mean the date by which all of the following have occurred:  (a) the work at issue shall have been completed in accordance with the requirements of this Work Letter, except for punch list items that are minor in character and do not materially, adversely interfere with Tenant’s use or enjoyment of the Premises or the commencement and completion of the Tenant Work (as defined below); and (b) Landlord (or Tenant, as applicable) shall have obtained any and all governmental permits and approvals required for the completion of the work at issue.

2.2Demising Work.  Landlord shall perform certain work to demise the Premises from that portion of the Building designated as 10200 North Tantau Avenue and, with respect to the Building Systems serving the Premises, shall either (i) separate such Building Systems so that discrete components of the Building Systems serve the Premises exclusively, or (ii) if such separation is not reasonably practicable, provide separate metering for the Building Systems serving the Premises (the “Demising Work”).  In addition, as part of the “Demising Work”, the Landlord shall also engage a contractor to

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power-wash the exterior of the Building.  The Landlord shall engage one or more contractors of its choice to perform the Demising Work, and such work shall be completed at no cost or expense to Tenant.  The Demising Work shall be substantially completed on or before September 1, 2006 (the “Demising Deadline”).

2.3Base Building Repair Work.  Landlord shall perform certain repair work in and to the Building and the Premises, consisting of those items specified on Schedule 1 attached hereto (the “Base Building Repair Work”).  The Landlord shall engage one or more contractors of its choice to perform the Demising Work, and such work shall be completed by licensed and qualified contractors at no cost or expense to Tenant.  The Base Building Repair Work shall be substantially completed on or before the Commencement Date (the “Base Building Repair Work Deadline”).  All Demising Work, Demolition Work, and Base Building Repair Work shall be completed in a good and workmanlike manner, using new materials and equipment of good quality, and in accordance with all applicable governmental laws, rules and regulations.  Landlord and Tenant shall reasonably cooperate with each other in coordinating the Demising Work, Demolition Work and Base Building Repair Work (including the plans therefor) with the design and construction of the Tenant Work (defined below).

2.4Office TI Work.  The Tenant shall construct interior improvements in and to the Premises which are in the nature of standard office tenant improvement work, including without limitation construction/relocation of interior walls, floor and wall coverings, installation/relocation of ceiling and lighting, installation/relocation of standard office electrical, plumbing and HVAC facilities, and installation of built-in shelving and cabinetry, all as shown on construction plans and specifications to be approved by Landlord (not to be unreasonably withheld) (collectively, the “Office TI Work”).  Tenant agrees and acknowledges that the “Office TI Work” does not include (i) the “Lab Work” (defined below), (ii) installation of network and communications cabling and equipment for Tenant’s operations in the Premises, and (iii) Tenant’s furnishings, fixtures and equipment (“FF&E”).  Landlord shall pay Tenant for the cost of specific components of the Office TI Work, as described on Schedule 1, attached hereto (the “Landlord TI Work”) based on the approved final costs of such work included in Tenant’s contract with Tenant’s Contractor.  Fifty percent (50%) of such costs shall be due and payable by Landlord to Tenant upon completion of fifty percent (50%) of the Landlord TI Work, within fifteen (15) days after Tenant has notified Landlord that such work is fifty percent (50%) complete, subject to Landlord’s right to inspect and approve the same (which approval shall not be unreasonably withheld) within such fifteen (15) day period.  The remaining fifty percent (50%) of the final cost of such work (and any additional costs for such work included in any change orders for such work approved by Landlord) shall be paid within fifteen (15) days after the substantial completion of Tenant’s Work.  Save and except for the cost charged by Tenant’s Contractor for the Landlord TI Work, any and all other work and expenses necessary to construct the Office TI Work and any other Tenant Work, including without limitation “soft costs” thereof, such as design costs, permit fees, insurance and the cost of any testing required by applicable governmental authorities for the Tenant Work, shall be at no cost to Landlord.

The Office TI Work shall be performed by Tenant’s general contractor, Scates Construction, Inc., or any other general contractor approved in writing by Landlord, which approval shall not be unreasonably withheld or delayed (“Tenant’s Contractor”).  Prior to commencement of the Office TI Work, Landlord shall have approved (which approval shall not be unreasonably withheld) Tenant’s construction contract for the Office TI Work, including without limitation (i) the economic terms of the construction contract for the Office TI Work (e.g., stipulated sum or guaranteed maximum price, contractor’s overhead and profit, profit on change orders, etc.), (ii) the line item budget for the Office TI Work, (iii) the stipulated sum or guaranteed maximum price for the Landlord TI Work and (iv) the schedule for completion of the Office TI Work (including milestone dates).  In addition, prior to Tenant’s  approval of (and the commencement of any work under) any change orders for the Office TI Work,

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Tenant shall provide copies of such change orders to Landlord, and Landlord shall have the right to approve (which approval shall not be unreasonably withheld) any and all such change orders to the extent such change orders would (A) increase the cost of the Landlord TI Work, or (B) materially alter the scope of the Office TI Work.  Landlord shall reimburse Tenant for the cost of the Landlord TI Work, including any adjustments arising out of change orders approved by Landlord (which approval shall not be unreasonably withheld) for the Landlord TI Work, upon substantial completion of the Office TI Work.

2.5Lab Work.  Tenant shall be permitted to construct within the Premises a laboratory, which may include a “clean room” and shall also include Tenant’s equipment to be used in the laboratory and all supplementary HVAC, mechanical, electrical and plumbing equipment and facilities located in and serving the laboratory and/or upgrades and additions to the Building Systems existing as of the Lease Date.  All of the foregoing work and installations, together with the interior finishes, ceiling and lighting within the laboratory, and all “soft costs” (as described in Paragraph 2.3 above) with respect to construction of the laboratory, shall be referred to herein as the “Lab Work”.  Tenant shall construct and complete the Lab Work at no expense to Landlord and shall engage a contractor for the Lab Work who shall be subject to Landlord’s prior approval, not to be unreasonably withheld; provided, however, that if Tenant intends to use the same contractor to perform the Office TI Work and the Lab Work, Landlord’s approval of Tenant’s Contractor for the Office TI Work shall constitute Landlord’s approval of such contractor for performance of the Lab Work.  Landlord shall have the right to review and approve Tenant’s construction contract for the Lab Work prior to Tenant’s executing the same, which approval shall not be unreasonably withheld.  In addition, prior to Tenant’s  approval of (and the commencement of any work under) any change orders for the Lab Work, Tenant shall provide copies of such change orders to Landlord, and Landlord shall have the right to reasonably approve any and all such change orders to the extent such change orders would materially alter the scope of the Lab Work.

2.6Landlord Work and Tenant Work.  As used in this Work Letter and in the Lease, the term “Landlord Work” means, collectively, the Demolition Work, Demising Work and the Base Building Repair Work.  The term “Tenant Work” means, collectively, the Office TI Work (subject to Landlord’s obligation to reimburse the cost of the Landlord TI Work), the Lab Work and any and all other work performed by Tenant for the use and occupancy of the Premises, including without limitation installation of Tenant’s cabling and FF&E.  All Landlord Work and Tenant Work shall be completed by licensed and qualified contractors in a good and workmanlike manner, using new materials and equipment of good quality, and in accordance with all applicable governmental laws, rules and regulations.    Landlord shall provide Tenant with at least ten (10) days’ prior written notice of the date upon which, in Landlord’s judgment, substantial completion the Demolition Work, Demising Work and Landlord’s Base Building Repair Work will occur and shall thereafter keep Tenant informed as to any change in Landlord’s estimate of the date which substantial completion of such work will occur.  All Tenant Work to be performed under this Work Letter shall be considered to be “Alterations”, as the same is defined in the Lease and subject to all of the terms and conditions of the Lease respecting Alterations, with the exception of Section 6.1(b), which Section shall not be applicable to the Tenant Work; provided, however, that notwithstanding the provisions of Section 6 of the Lease, (i) the time periods and conditions of Landlord’s consent to the Tenant Work shall be governed by this Work Letter, (ii) the Lab Work shall not be deemed to be owned by Landlord, and (iii) the insurance requirements applicable to the performance of the Tenant Work shall be governed by this Work Letter.

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SECTION 3

CONSTRUCTION DRAWINGS

3.1Construction Drawings.  Landlord acknowledges that Tenant has retained Chicago Design Network, as its architect/space planner in connection with the Office TI Work and the Lab Work (collectively, the “Tenant-Designed Work”).  Landlord also acknowledges that it has conceptually approved the preliminary plans for the Office TI Work identified on Schedule 2 attached hereto, it being understood that such conceptual approval shall not limit Tenant’s obligations under this Work Letter.  As soon as reasonably practicable, Tenant shall submit its proposed construction plans for all of the Tenant-Designed Work to Landlord for review and approval, which approval shall not be unreasonably withheld.  All such plans and construction drawings, including any reasonable revisions required by Landlord and/or revisions required by applicable governmental authorities shall be at no cost to Landlord.  The construction plans and drawings to be prepared for the Tenant-Designed Work shall be referred to collectively as the “Construction Drawings.”  Tenant’s Contractor shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the existing Building plans;  Landlord shall have no responsibility in connection therewith.  Landlord’s review of the Construction Drawings shall be for its sole purpose and shall not imply Landlord’s approval of the same for quality, design, compliance with applicable Laws or other like matters.  Accordingly, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and without limiting the scope thereof, Tenant’s waiver and indemnity set forth in the Lease shall specifically apply to the Construction Drawings.

3.2Landlord’s Approval.  If Landlord fails to approve or disapprove of the proposed Construction Drawings (or any subsequent material changes thereto) or any other items subject to Landlord’s approval under Sections 2.4 and 2.5 above in writing within five (5) days following delivery to Landlord of the proposed Construction Drawings (or subsequent material changes thereto) or Tenant’s written request for any other approval under Sections 2.4 and 2.5 above, the Construction Drawings (or subsequent material changes thereto) or other Tenant request shall be deemed approved.  If Landlord disapproves of the proposed Construction Drawings (or subsequent material changes thereto) or any other Tenant request for Landlord’s approval in any respect, Landlord shall deliver to Tenant its detailed written response indicating the reasons for its disapproval (and for the Construction Drawings and any material changes thereto, Landlord’s proposal for required changes) and the parties shall negotiate in good faith to reach agreement on any item in dispute. With respect to all disputed items, if Landlord and Tenant fail to agree with respect to such disputed item(s) within three (3) days of Landlord delivering its written notice of disapproval, any such continued disapproval shall be deemed to be a Force Majeure Delay (on a day-for-day basis until Landlord and Tenant have agreed on any disputed item subject to Landlord’s approval).  Notwithstanding to the contrary in this Work Letter, Tenant shall have the right to make subsequent changes to the Landlord-approved Construction Drawings and Landlord shall not have any right to approve such changes to the extent any such changes in the Construction Drawings and/or the work to be performed pursuant thereto (a) is required by the City of Cupertino or other applicable governmental body having jurisdiction over the Tenant-Designed Work, and (1) is reasonably consistent with the design intent of the approved Construction Drawings, and (2) Tenant agrees to pay for any additional cost to the Landlord TI Work caused by the proposed changes; or (b) consists of minor field changes that (1) are reasonably consistent with the intent or required for the proper execution of the Construction Drawings, and (2) that will not materially adversely affect the Building Systems, any of the Landlord Work and/or the design, use, or operation of the Premises.

3.3Permits.   Promptly after Landlord’s approval, Tenant shall cause the approved Construction Drawings to be submitted to the appropriate municipal authorities for all applicable

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building permits necessary to allow the contractors performing such work to commence and fully complete the construction of the Tenant-Designed Work and, in connection therewith, Tenant shall coordinate with Landlord in order to allow Landlord, at its option, to observe all phases of the permitting process.  Tenant shall deliver to Landlord copies of all required permits for the construction of Tenant Work prior to commencing such work.  Tenant shall undertake commercially reasonable efforts to obtain the Permits for the Tenant Work from the appropriate municipal authorities and to deliver such Permits to Landlord as soon as reasonably practicable.  Notwithstanding anything to the contrary set forth in this Work Letter, Tenant hereby agrees that neither Landlord nor Landlord’s consultants shall be responsible for obtaining any building permit for the Tenant-Designed Work or any signed-off permits for the completed Tenant-Designed Work, and in any event Tenant shall be responsible for obtaining a certificate of occupancy (or signed-off building permit) for the Office TI Work and Lab Work upon completion of the Tenant Work and shall provide the same to Landlord immediately upon receipt thereof; provided however that Landlord shall, in any event, cooperate with Tenant in executing permit applications and performing other acts reasonably necessary to enable Tenant to obtain any such permit, including any work that needs to be performed in connection with the Landlord Work to obtain such permit.  No material changes, modifications or alterations in the approved Construction Drawings may be made without the prior written consent of Landlord, which consent shall not be unreasonably withheld.

3.4Landlord Oversight of Tenant Work.  During the performance of the Tenant Work and in addition to Landlord’s rights under Sections 2.4 and 2.5 above with respect to change orders, Landlord shall have the right to observe the progress of the Tenant Work, as Landlord reasonably deems necessary or appropriate, in all aspects of the construction of the Tenant Work (including without limitation weekly meetings and inspections of the in-progress Tenant Work).  Landlord shall be provided with copies of all change orders as well as all written notices exchanged between Tenant and its contractors, architects and engineers to the extent such notices involve any changes to the cost or schedule of the Tenant Work and/or any disputes involving the performance of or payment for the Tenant Work.  Tenant agrees and acknowledges that Landlord’s exercise of its rights to participate in and oversee the performance of the Tenant Work shall be for its sole purpose and shall not imply Landlord’s approval of the same for quality, design, compliance with applicable Laws or other like matters.  Accordingly, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors in the performance of the Tenant Work, and without limiting the scope thereof, Tenant’s waiver and indemnity set forth in the Lease shall specifically apply to the performance of the Tenant Work.

3.5Coordination.  Landlord and Tenant shall require their respective contractors performing the Landlord Work and Tenant Work, and their respective architects and engineers to the extent the design of any Tenant Work impacts any Landlord Work, or vice versa, to cooperate with the other party’s contractors and, as applicable, architects and engineers, including schedule and staging coordination to the extent necessary and appropriate.  Tenant agrees and acknowledges that, because Tenant is responsible for providing an integrated set of Construction Drawings for all Tenant-Designed Work and because both Landlord and Tenant shall have approved the scope of the Tenant Work, Tenant hereby waives any and all claims against Landlord, under this Lease or otherwise, for any delays, liabilities, losses, costs and expenses arising out of the failure of any components of the design of the Tenant-Designed Work to be properly and efficiently coordinated and integrated.

SECTION 4

CONSTRUCTION OF THE TENANT WORK

4.1Tenant’s Contractor(s).  Tenant shall require that Tenant’s Contractor and any other contractors performing Tenant Work subject to a direct contract with Tenant indemnify Landlord and any

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parties designated by Landlord in writing who have an interest in the Building (e.g., Landlord’s lender) to the same extent that Tenant is indemnified by Tenant’s Contractor in such contract.  Tenant shall require its contractors to carry commercial general liability insurance meeting the requirements of the Lease with limits of liability that are not in excess of $2,000,000 or such other insurance as is approved by Landlord, including without limitation naming Landlord and such additional parties designated by Landlord in writing who have an interest in the building as Additional Insureds thereunder.  Tenant shall require its project architect to carry professional liability insurance for all professional design work performed in connection with the preparation of the Construction Drawings.  Tenant shall also carry, or cause its contractors to carry, “builder’s risk” insurance insuring all materials and incomplete Tenant Work during the construction of the Tenant Work.  Evidence reasonably satisfactory to Landlord that Tenant has complied with the foregoing requirements shall be provided to Landlord prior to Tenant’s commencing any work in the Premises.

4.2Substantial Completion of Tenant Work.  Tenant shall notify Landlord in writing upon substantial completion of the Tenant Work, whereupon Landlord, Tenant, Tenant’s Contractor (and any other contractor’s engaged by Tenant for such work) and the architects and engineers who prepared the Construction Drawings for the Tenant-Designed Work shall promptly arrange for a joint “walk-through” of the Premises to inspect such work and identify any “punch list” items to be corrected or completed in connection therewith.  Unless any party has objected to any components of the Tenant-Designed Work within ten (10) days after the walk-through, such party shall be deemed to have accepted the Tenant Work.

4.3Notice of Completion.  Within ten (10) days after completion of construction of the Tenant Work, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the County of Santa Clara in accordance with Section 3093 of the California Civil Code or any successor statute and furnish a copy thereof to Landlord upon recordation, and timely give all notices required pursuant to Section 3259.5 of the California Civil Code or any successor statute.  In addition, promptly after the substantial completion of all of the Tenant-Designed Work, at its sole expense Tenant shall cause its architects and engineers to prepare and deliver to Landlord a set of “as built” plans and specifications (including all working drawings), consisting of two (2) hard copies and one set of “CAD” drawings, for the completed Tenant-Designed Work.

SECTION 5

DELAYS

5.1Tenant Delays.  Landlord’s time for completion of any Landlord Work or for any other obligations of Landlord under this Work Letter, and under the Lease where expressly noted therein, shall be extended one (1) day for each day of any “Tenant Delay” as described below.  A “Tenant Delay” shall be any act or omission by Tenant or Tenant’s Representatives which delays Landlord’s performance of the Landlord Work, and Tenant fails to perform or cure the same within two (2) days after Tenant’s receipt of Landlord’s written notice of any such act or omission.  Landlord’s time for performance of the Landlord Work affected by a Tenant Delay shall be tolled by the number of days of delay to such work caused by any Tenant Delay, but only to the extent the same is the proximate cause of a delay in the performance of any of the Landlord Work.

5.2Force Majeure.  The term “Force Majeure Delay” shall mean any prevention, delay or stoppage due solely to acts of God, acts of war, terrorism, civil commotions, any strikes, labor disputes or lockouts affecting the Silicon Valley area or any particular trade in such area, any extraordinary or unusual delay b any governmental authority to process and issue necessary permits for the Landlord

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Work or Tenant Work, any delays identified in Section 3.2 as Force Majeure Delays, any delay caused by the discovery, investigation or remediation of any Hazardous Materials discovered at the Building or the Project, or fire or other casualty, but only to the extent the same is the proximate cause of a delay in the performance of any obligation of Landlord or Tenant hereunder.  Landlord and Tenant shall be excused for their time of performance under this Work Letter (and to the extent expressly provided in the Lease, under the Lease) for a period equal to any such Force Majeure Delay; provided, however, that (i) if either party believes such a Force Majeure Delay has occurred, such party shall waive its right to any claim for delay based thereon unless it provides written notice to the other party within ten (10) days after the occurrence of the conditions giving rise to such delay, which notice shall specify the nature and anticipated duration of such delay, and (ii) neither party to the Lease shall be excused as a result of any Force Majeure Delays, nor shall the defined term “Force Majeure Delays” be deemed incorporated into the Lease, unless and only to the extent expressly set forth in the Lease.

5.3Landlord Delays.  The term “Landlord Delay” shall mean any delays in the Demolition Deadline, Base Building Work Deadline or Demising Deadline which are caused by (i) Landlord’s failure to comply with its obligation to complete the Demolition Work, Base Building Work and/or Demising Work by the applicable deadlines, (ii) changes requested by Landlord to the Landlord-approved Construction Drawings, to the extent the foregoing are not the result of any Force Majeure Delay or Tenant Delay, and (iii) any disruption to or interference with the Tenant Work caused by Landlord’s employees or contractors that is not cured within two (2) days after Landlord’s receipt of Tenant’s written notice of same.

SECTION 6

MISCELLANEOUS

6.1Tenant’s Representative.  Tenant has designated Michael Fisher of Agilent Technologies as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter.

6.2Landlord’s Representative.  Landlord has designated Rochelle Cahn of Sand Hill Property Company as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter.

6.3Time of the Essence in This Work Letter.  Time is of the essence in the performance of the parties’ obligations under this Work Letter.  Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days.

6.4Tenant’s Lease Default.  Notwithstanding any provision to the contrary contained in this Lease, if an Event of Default as described in Article 15 of the Lease has occurred at any time on or before the Substantial Completion of any component of the Landlord Work, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to suspend Landlord’s installation of such Landlord Work  (in which case, Tenant shall be responsible for any delay caused by such work stoppage), and (ii) all other obligations of Landlord under the terms of this Work Letter shall be suspended until such time as such default is cured pursuant to the terms of the Lease.

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Schedule 1 to Exhibit C

A.The Demolition Work shall consist generally of the following:  removal of non-structural walls and carpeting, all as specifically identified to Landlord by Tenant in a timely manner prior to start of Demolition Work.

B.The “Base Building Repair Work” shall consist of the following items:

1.Repair or replace cooling tower media and mist elimination;

2.Repair or replace hot water heaters within Premises;

3.Grind and epoxy fill crack in the southeast corner of Premises concrete floor;

4.Upgrade Premises elevator to meet ADA compliance

5.Install hand rails for handicap ramps if required by the City of Cupertino;

6.Apply asphalt sealant and re-stripe parking areas;

7.Repair roof and roof components;

8.Perform mechanical equipment shutdown inspections and associated repair and maintenance;

9.Repair or replace sand filter pump system, if necessary;

10.Perform GFI and infrared testing and associated repair/replacement

11.Install refrigeration detection and exhaust system if required by the City of Cupertino; and

12.Install seismic shut off valve on existing gas line if required by the City of Cupertino.

C.The “Landlord TI Work” shall consist of the following:  reconfiguration of the ceiling, lighting, mechanical and sprinkler systems within the cross-hatched, two-story portion of the Premises shown on Exhibit A to the Lease, which work shall be described in a “reflected ceiling plan” to be prepared by Tenant as part of the Construction Drawings for the Tenant-Designed Work.

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Schedule 2 to Exhibit C

Office Plan Sheets SP-4 and SP-4 F2, dated 4/21/06 by Chicago Design Networks, as revised 4/27/06

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EXHIBIT D

DETERMINATION OF FAIR MARKET VALUE

The term “Fair Market Value” of Base Rent for each Extended Term, as used in Section 2.3,  shall mean the average of the annual rental rates then being charged in the market area in comparable buildings for space of comparable size and condition to the space for which the Fair Market Value is being determined, taking into consideration all relevant factors, including, without limitation, such factors as credit-worthiness of the tenant, the duration of the term, the automatic three percent (3%) annual increases stated in Section 2.3, any rental or other concessions granted, whether a broker’s commission or finder’s fee will be paid and responsibility for Operating Costs.  The Fair Market Value shall be determined as follows: Within forty five (45) days after receiving Tenant’s notice exercising its Option to Extend, Landlord shall notify Tenant of its determination of the Fair Market Value.  Tenant shall have thirty (30) days from the date of such notice (the “Response Period”) to notify Landlord whether it disagrees with such determination.  If Tenant fails to so timely notify Landlord during the Response Period, the Fair Market Value shall be as provided in Landlord’s notice.  If Tenant gives Landlord timely notice of its disagreement, Landlord and Tenant shall negotiate in good faith to agree on Fair Market Value for an additional fifteen (15) day period.  If the parties have not resolved Fair Market Value within such time, then within fifteen (15) days thereafter each shall specify in writing to each other the name and address of a person to act as the appraiser or broker on its behalf and at its cost.  Each such person shall be a licensed commercial real estate broker or MAI certified appraiser with at least five (5) years of experience with commercial and industrial properties in Santa Clara, Cupertino and the surrounding area.  If either party fails to timely appoint an appraiser or broker within such fifteen (15) day period, then the determination of the timely appointed appraiser or broker shall be final and binding.

The two appraiser/brokers shall have thirty (30) days from the day of their respective appointments (the “Determination Period”) to make their respective determinations and arrange for a simultaneous exchange of such written determinations.  If the two appraisers’ determinations are within five percent (5%) of one another, the average of the two determinations shall be deemed Fair Market Value; otherwise the two appraisers shall within ten (10) days after expiration of the Determination Period jointly appoint an impartial third appraiser with qualifications similar to those of the first two appraisers and within thirty (30) days after his or her appointment, the third appraiser shall independently make a determination of Fair Market Value without reference to the previous determinations of the parties’ respective appraisers (and such prior determinations shall not be disclosed to the third appraiser prior to the third appraiser’s making his or her determination of Fair Market Value).  On or prior to the expiration of such thirty (30) day period, the third appraiser shall provide written notice of his or her determination of Fair Market Value to the parties’ respective appraisers and to the parties, whereupon the parties’ respective appraisers shall promptly deliver their previous written determinations to the third appraiser.  Within ten (10) days of receipt thereof, third appraiser shall select which of the two previous determinations more closely approximates the third appraiser’s determination, and shall calculate the average of his or her determination and such other determination and provide written notice of the result to the parties’ respective appraisers and to the parties.  Such average amount calculated by the third appraiser shall conclusively be deemed Fair Market Value.  Each party shall pay the cost of its own appraiser and shall share equally the cost of the third appraiser.

In the event the appraisers have not determined Fair Market Value Base Rent as of the date the applicable Extended Term is to begin, Tenant shall on an interim basis pay Landlord  Base Rent based upon the Base Rent payable for the last month of the preceding Term. If the appraisers’ final determination is less than the preceding month’s rent, Tenant shall be entitled to a credit against the next rental payment(s) due from Tenant hereunder in the amount of the difference.  Alternatively, if the

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appraisers’ final determination is more than the preceding month’s rent, Tenant shall pay such difference with the next rental payment(s) due.

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EXHIBIT E

FORM OF AGILENT GUARANTY

GUARANTY OF LEASE

IN CONSIDERATION OF and as an inducement to the agreement by PAU MOULDS CPP-A LLC, a California limited liability company, as Landlord, to suspend its requirement for a Security Deposit under the terms and conditions of that certain Office Lease dated as of                 , 2006, with VERIGY US, INC, a Delaware corporation, as Tenant, for certain office space in the building located at 10100 North Tantau Avenue, Cupertino, California (the “Lease”) and other valuable consideration, the receipt of which is hereby acknowledged, the undersigned, AGILENT TECHNOLOGIES, INC., a Delaware corporation (hereinafter referred to as the “Guarantor”), hereby absolutely and unconditionally guarantees to Landlord, any assignees of Landlord’s interest under the Lease, or any parties entitled to enforce Landlord’s right thereunder, or any subsequent owner of the premises, the prompt and punctual payment of all rents and all other sums to be paid by Tenant under the Lease during the term thereof and during the period of any extension or renewal thereof; provided, however, that notwithstanding the foregoing or anything in this Guaranty to the contrary, in no event shall Guarantor’s liability under this Guaranty exceed an aggregate total amount of Five Million Dollars ($5,000,000). 

Guarantor hereby agrees that no extension of time granted to Tenant for the payment of said rents or other sums, or for the performance of any of the obligations of Tenant or forbearance or delay on the part of Landlord to enforce any of the provisions, covenants, agreements, conditions and stipulations of the Lease, or waiver by Landlord of any of said provisions, covenants, agreements, conditions and stipulations, shall operate to release or discharge the Guarantor from its full liability under this instrument of guaranty or prejudice the rights of Landlord hereunder.

Guarantor hereby expressly waives notice of acceptance of this Guaranty, notice of any default of Tenant, notice of any other action taken or omitted to be taken by Landlord with reference to the Lease, any and all other notices whatsoever given or received by Landlord under said Lease, and any duty of Landlord to advise Guarantor of any information known to Landlord regarding the financial condition of Tenant and all other circumstances affecting Tenant’s ability to perform its obligations to Landlord and agrees that no assignment by Tenant of said Lease, or any other transfer of Tenant’s interest therein and no bankruptcy, insolvency or similar proceedings shall operate to release or discharge this Guaranty or the obligations of the Guarantor hereunder. Guarantor further agrees that if said Lease contains provisions regarding acceptance of the improvements by Tenant, any such acceptance by Tenant shall be binding on the Guarantor hereunder the same as if the Guarantor had joined in the execution of such acceptance, and it shall not be necessary for the Guarantor to join in the execution or be notified of such acceptance.

Guarantor hereunder further agrees that Tenant may, as determined in its sole discretion, enter into any one or more agreements with Landlord amending the Lease, and any such amendment shall be binding upon the Guarantor hereunder without the necessity of the Guarantor joining in the execution of or being notified of any such amendment.

All of Landlord’s rights and remedies under the Lease and under this Guaranty shall be distinct, separate and cumulative, and no such right or remedy therein or herein set forth shall be in exclusion of or a waiver of any other rights or remedy to which Landlord shall be entitled at law or in equity with respect to the Lease or this Guaranty.

The obligations of the Guarantor hereunder shall be independent of the obligations of Tenant under the Lease, and Landlord may proceed to enforce this Guaranty without first proceeding against Tenant or joining Tenant. Guarantor further expressly agrees that, except as expressly provided herein, nothing shall operate as a release of this Guaranty, and this Guaranty shall be a continuing Guaranty and shall remain in full force and effect until the satisfaction of the express conditions hereunder for the cancellation of this Guaranty.  Notwithstanding the foregoing or anything to the contrary contained in this Guaranty, this Guaranty shall automatically be deemed void, terminated and of no further force or effect, and Landlord shall promptly return the original executed copy of this Guaranty to Guarantor, upon the first to occur of (i) Landlord’s receipt of the “Security Deposit”, or (ii) Tenant’s satisfaction of the “Minimum Rating” pursuant to (and as such terms are defined in) Section 4 of the Lease.  Guarantor acknowledges receipt of the Lease and agrees that it is familiar with the terms and conditions of the Lease governing the conditions upon which this Guaranty may be cancelled.

Guarantor hereby waives any defense, except payment, which Guarantor might have, including specifically but without limitation, any rights of subrogation Guarantor may have against Tenant until the guaranteed obligations are paid in full. Guarantor consents to any form or election of remedy pursued by the Landlord to enforce its rights under the Lease, in whatever order it may choose, including any remedies that may result in a relinquishment of any deficiency judgment in its favor against Tenant and Guarantor waives any right Guarantor may have under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899 and 3433, or any successor sections.

Guarantor agrees to pay all costs and expenses including reasonable attorneys’ fees, which may be incurred by Landlord in any effort to collect or enforce the Lease or the obligations of Guarantor hereunder, whether or not any lawsuit is filed, including without limitation, all costs and attorneys’ fees incurred by Landlord in any bankruptcy proceeding and in any judicial or nonjudicial foreclosure action.

If, prior to the termination of this Guaranty, any amount received by Landlord from Tenant in payment of Tenant’s obligations under the Lease is held to constitute a preference, fraudulent conveyance or similar voidable payment under any law now or hereinafter if effect, and Landlord is required to repay all or any part of said amount, then, notwithstanding any revocation or termination of this Guaranty or the termination of the Lease, Guarantor shall be and remain liable to Landlord for the amount so repaid to the same extent as if such amount had never originally been received by Landlord.

This Guaranty has been executed and delivered pursuant to, and shall be interpreted in accordance with, the laws of the State of California and shall be binding upon Guarantor and the legal representatives of Guarantor, and shall inure to the benefit of Landlord, its successors, transferees and assigns.

Guarantor hereby expressly consents to the jurisdiction of any California State Court or Federal Court sitting in Santa Clara County, California and any appellate court from any such court in any action or proceeding arising under this Guaranty.

Guarantor hereby represents and warrants to Landlord that the individual signing this Guaranty on behalf of Guarantor is authorized to bind Guarantor to the terms and conditions of this Guaranty.

Dated:	, 2006	GUARANTOR:
		AGILENT TECHNOLOGIES, INC.,
		A Delaware corporation
		By:
		Name:
		Its:

EXHIBIT F

PERMITTED HAZARDOUS MATERIALS

CONTACT: HAI TO

PHONE: 553-6819

BUSINESS UNIT: ATG CALIFORNIA SEMICONDUCTOR TEST DIVISION

Chemical Inventory

	MSDS
TRADE NAME	MANUFACTURER	Quantity
Flux off Rosin	Chemtronics	2-13.5 oz aerosol cans
LPS dry lubricant	LPS	11 oz Aerosol can
Derusto enamel paint	Dap	2-12 oz Aerosol cans
TFE dry lubricant	Miller-stephanson	500ml Aerosol can
High Vacuum Grease	Dow Corning	3-5.3 oz tubes
340 Heat sink compound	Dow Corning	1-5oz tube
Epoxi patch/seal repair resin	DEXTER	2.54 oz tube
Epoxi patch/seal repair hardener	DEXTER	0.81 oz tube
Loctite 444	Loctite	0.70 bottle
Loctite 7452	Loctite	1.75 oz bottle
Water soluble flux	Qualitek	2 oz bottle
Tread anti-seize	Weller	0.5 oz tube
Epoxy	Hardman	2-3.5 oz packages
Acrilic top coat nail polish	long nails	0.5 oz bottle
Duco Cement	Duco	1 oz tube
CPM #9 ink	Mercury	2-5oz bottles
Smoke detector test smoke	Home Safeguard	8-2.5 oz cans
Connector cleaner plus	Miller-stephanson	504 ml aerosol can
Staticide	GC electronics	16 oz bottle
Expo dry erase cleaner	Sanford	8 oz bottle
plate glass lens cleaner	xerox	4 oz bottle
Paint touch up	I/D/E/A	2 oz bottle
Isopropyl alcohol	pure tronics	32 oz bottle
Super clean de-flux	microcare	12 oz aerosol can
acetone	Bortz	1 gallon can
Flux-off	chemtronics	2-1 gallon cans
Foaming Rosin flux	kester	1 gallon can
Water soluble flux 2331-zx	kester	1 gallon can

Updated 4/18/2006

EX-10.9

Exhibit 10.9

SEVERANCE AGREEMENT

This Severance Agreement (the “Agreement”) is entered into this          day of                         , 2006 (the “Effective Date”), between Verigy Ltd., a Singapore corporation (the “Company”), and                                (“Executive”), who currently serves as [title] of the Company.

RECITALS

A.As is the case with most, if not all, publicly traded businesses, it is expected that the Company from time to time may consider or may be presented with the need to consider the possibility of an acquisition by another company or other change in control of the ownership of the Company.  The Board of Directors of the Company (the “Board”) recognizes that such considerations can be a distraction to Executive and can cause Executive to consider alternative employment opportunities or to be influenced by the impact of a possible change in control of the ownership of the Company on Executive’s personal circumstances in evaluating such possibilities.  The Board has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication and objectivity of Executive, notwithstanding the possibility, threat or occurrence of a Change of Control of the Company.

B.The Board believes that it is in the best interests of the Company and its shareholders to provide Executive with an incentive to continue his/her employment and to motivate Executive to maximize the value of the Company for the benefit of its shareholders.

C.The Board believes that it is important to provide Executive with certain benefits upon Executive’s termination of employment in certain instances that provide Executive with enhanced financial security and incentive and encouragement to Executive to remain with the Company.

D.At the same time, the Board expects the Company to receive certain benefits in exchange for providing Executive with this measure of financial security and incentive under the Agreement.  Therefore, the Board believes that Executive should provide various specific commitments, which are intended to assure the Company that Executive will not direct Executive’s skills, experience and knowledge to the detriment of the Company for a period not to exceed the period during which payments are being made to Executive under this Agreement.

E.Certain capitalized terms used in this Agreement are defined in Article VIII.

The Company and Executive hereby agree as follows:

ARTICLE I

EMPLOYMENT BY THE COMPANY

1.1This Agreement shall be in effect commencing on the Effective Date and ending on the later of (i) the date when Executive ceases to be employed by the Company for any reason or (ii) the date when all obligations of the parties under this Agreement have been met.

1.2The Company and Executive each agree and acknowledge that Executive is employed by the Company as an “at-will” employee and that either Executive or the Company has the right at any time to terminate Executive’s employment with the Company, with or without cause or advance notice, for any reason or for no reason.  This Agreement does not constitute a contract of employment or impose on Executive any obligation to remain as an employee or impose on the Company any obligation (i) to retain Executive as an employee, (ii) to change the status of Executive as an at-will employee or (iii) to change the Company’s policies regarding termination of employment.  In this Agreement, the Company and Executive wish to set forth the compensation and benefits that Executive shall be entitled to receive in the event that Executive’s employment with the Company terminates under the circumstances described in Article II or III.

1.3The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive’s past services to the Company, Executive’s continued employment with the Company, Executive’s compliance with the obligations described in Section 5.4, and Executive’s execution of the general waiver and release described in Section 5.5.  The Company and Executive agree that Executive’s compliance with the obligations described in Section 5.4 and Executive’s execution of the general waiver and release described in Section 5.5 are preconditions to Executive’s entitlement to the receipt of benefits under this Agreement and that these benefits shall not be earned unless all such conditions have been satisfied through the scheduled date of payment.  The Company hereby declares that it has relied upon Executive’s commitments under this Agreement to comply with the requirements of Article V and would not have been induced to enter into this Agreement or to execute this Agreement in the absence of such commitments.

ARTICLE II

TERMINATION BEFORE CHANGE IN CONTROL

2.1Termination without Cause.  In the event (i) Executive’s employment with the Company and its subsidiaries is involuntarily terminated at any time by the Company without Cause or (ii) Executive voluntarily terminates his/her employment within three months of the occurrence of an event constituting Good Reason and on account of an event constituting Good Reason and, in each case, Article III does not apply, then such termination of employment will be a Termination Event and the Company shall pay Executive the compensation and benefits described in this Article II, subject to Executive complying with his/her obligations described in Sections 5.4 and 5.5 of this Agreement.

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2.2Disability.  In the event Executive’s employment with the Company and its subsidiaries terminates as a result of his/her Disability, then Executive shall be entitled to the pro rated final period bonus described in Section 2.5, the stock award acceleration described in Section 2.6 and the Company-paid health insurance coverage described in Section 2.7 (but none of the other compensation and benefits described in this Article II).

2.3Death.  In the event Executive’s employment with the Company and its subsidiaries terminates as a result of his/her death, then Executive’s survivors shall be entitled to the pro rated final period bonus described in Section 2.5 and the stock award acceleration described in Section 2.6 (but none of the other compensation and benefits described in this Article II).

2.4Salary Continuation upon Termination before Change in Control.  If a Termination Event described in Section 2.1 occurs, Executive shall receive an amount equal to the sum of Executive’s Base Salary and Target Bonus, less any applicable withholding of federal, state, local or foreign taxes.  Such salary and bonus continuation shall be paid in accordance with the Company’s standard payroll procedures in equal installments over the 12 month period following the date of the Termination Event.

2.5Bonus for Final Period.  If a Termination Event described in Section 2.1 occurs, Executive shall receive a pro rated bonus for the performance period in which the Termination Event occurs (in addition to the amount described in Section 2.4).  The amount of the bonus shall be equal to the Target Bonus for the period in which the Termination Event occurred multiplied by a fraction in which (i) the numerator is the number of days from and including the first day of the performance period until and including the date of the Termination Event and (ii) the denominator is the number of days in the performance period.  Such bonus shall be paid on the date Executive would have received the bonus if the Termination Event had not occurred during such performance period.  Executive’s rights to the payment provided in this Section 2.5 shall not be subject to Section 5.4.

2.6Stock Award Acceleration upon Termination before Change in Control.

(a)The vested portion of Executive’s stock options and stock appreciation rights (the “Stock Options”) that are outstanding as of the date of an event described in Section 2.1, 2.2 or 2.3 shall be determined as follows upon the occurrence of such event:

(i)A period equal to 12 months shall be added to the actual length of Executive’s service; and

(ii)If the vested portion of the Stock Options otherwise would be determined in increments larger than one month, then the vesting of the Stock Options shall be prorated on the basis of the full months of service completed by Executive since the vesting commencement date of the Stock Options.(1)

(1) For example, assume that Executive’s Stock Options ordinarily vest in four equal annual installments and that Executive is subject to an event described in Section 2.1, 2.2 or 2.3 after completing 18 months of service from the vesting commencement date.  Executive would be vested in 18/48ths of the Stock Options for the actual period of service plus 12/48ths of the Stock Options for the added vesting provided herein, for a total of 30/48ths vested.

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(b)The Stock Options shall remain exercisable until the fifteen month anniversary of the date of the Termination Event provided that Executive complies with his/her obligations under Article V of this Agreement. The term “Stock Options” shall not include any rights of Executive under the Company’s 2006 Employee Shares Purchase Plan or similar plans.

(c)The vested portion of Executive’s restricted stock awards (“Restricted Stock”) that are outstanding as of the date of an event described in Section 2.1, 2.2 or 2.3 shall be determined as follows upon the occurrence of such event:

(i)A period equal to 12 months shall be added to the actual length of Executive’s service; and

(ii)If the vested portion of the Restricted Stock otherwise would be determined in increments larger than one month, then the vesting of the Restricted Stock shall be prorated on the basis of the full months of service completed by Executive since the vesting commencement date of the Restricted Stock.

All shares of Restricted Stock that have not yet been delivered to Executive or his/her designee (whether because subject to joint escrow instructions or otherwise) shall be promptly delivered to Executive or his/her designee upon the occurrence of an event described in Section 2.1, 2.2 or 2.3.

(d)The vested portion of Executive’s stock unit awards (the “Stock Units”) that are outstanding as of the date of an event described in Section 2.1, 2.2 or 2.3 shall be determined as follows upon the occurrence of such event:

(i)A period equal to 12 months shall be added to the actual length of Executive’s service; and

(ii)If the vested portion of the Stock Units otherwise would be determined in increments larger than one month, then the vesting of the Stock Units shall be prorated on the basis of the full months of service completed by Executive since the vesting commencement date of the Stock Units.

All Stock Units that have not yet been settled shall be promptly settled, in the form specified in the relevant Stock Unit agreements and relevant stock plans under which the Stock Units were granted, upon the occurrence of an event described in Section 2.1, 2.2 or 2.3.

2.7Health & Welfare Benefits Coverage.

(a)Following the occurrence of a Termination Event described in Section 2.1, to the extent permitted by the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and by the Company’s group health insurance policies, Executive and his/her covered dependents will be eligible to continue their health insurance benefits at their own

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expense.  If Executive elects COBRA continuation, the Company shall pay Executive’s and his/her covered dependents’ COBRA continuation premiums for 12 months following the date of such Termination Event, provided that the Company’s obligation to make such payments shall cease immediately to the extent that Executive and/or Executive’s covered dependents are no longer entitled to receive COBRA continuation coverage.  Executive agrees to notify a duly authorized officer of the Company, in writing, immediately upon Executive’s or a covered dependent’s beginning to receive health benefits from another source, or as otherwise required by COBRA.  This Section 2.7(a) provides only for the Company’s payment of COBRA continuation premiums for the periods specified above, and does not affect the rights of Executive or Executive’s covered dependents under any applicable law with respect to health insurance continuation coverage.

(b)Following the occurrence of a Termination Event described in Section 2.1, to the extent permitted by the Company’s health and welfare plans (other than the medical plan described in Section 2.7(a)), Executive and his/her covered dependents will be eligible to continue their benefits, and the Company shall pay Executive’s and his/her covered dependents’ continuation premiums under such plans for 12 months following the date of such Termination Event, provided that the Company’s obligation to make such payments shall cease immediately to the extent that Executive and/or Executive’s covered dependents are no longer entitled to receive continuation coverage in accordance with the plans.

ARTICLE III

TERMINATION AFTER CHANGE IN CONTROL

3.1Involuntary Termination upon or Following Change of Control.  In the event Executive’s employment with the Company and its subsidiaries is involuntarily terminated at any time by the Company without Cause either (i) at the time of or within 24 months following the occurrence of a Change of Control, (ii) within three months prior to a Change of Control, whether or not such termination is at the request of an Acquiror, or (iii) at any time prior to a Change of Control if such termination is at the request of an Acquiror, then such termination of employment will be a Termination Event and the Company shall pay Executive the compensation and benefits described in this Article III in the manner and at the time described in Section 3.3, subject to Executive complying with his/her obligations described in Sections 5.4 and 5.5 of this Agreement.  If the Company reasonably believes that a Change of Control will not occur within three months following the termination of Executive, but in fact a Change of Control does occur within three months following such termination, Executive will be provided with the compensation and benefits described in this Article III in the manner and at the time described in Section 3.3.  An “Acquiror” is either a person or a member of a group of related persons representing such group that in either case obtains effective control of the Company in the transaction or a group of related transactions constituting the Change of Control.  For the elimination of doubt, in the event Executive’s employment with the Company and its subsidiaries is involuntarily terminated by the Company without Cause and the circumstances described in this Section 3.1 are not applicable, then Article II will apply to such event.

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3.2Voluntary Termination For Good Reason Upon or Following Change of Control.

(a)In the event Executive voluntarily terminates his/her employment within three months of the occurrence of an event constituting Good Reason and on account of an event constituting Good Reason, which event occurs either (i) at the time of or within 24 months following the occurrence of a Change of Control, (ii) within three months prior to a Change of Control, whether or not such termination is at the request of an Acquiror, or (iii) at any time prior to a Change of Control if such triggering event or Executive’s termination is at the request of an Acquiror, then such termination of employment will be a Termination Event and the Company shall pay Executive the compensation and benefits described in this Article III in the manner and at the time described in Section 3.3, subject to Executive complying with his/her obligations described in Sections 5.4 and 5.5 of this Agreement.  If the Company reasonably believes that a Change of Control will not occur within three months following the voluntary termination for Good Reason by Executive, but a Change of Control does in fact occur within three months following such termination, Executive will be provided with the compensation and benefits described in this Article III in the manner and at the time described in Section 3.3.

(b)In the event Executive voluntarily terminates his/her employment for any reason other than on account of an event constituting Good Reason under the circumstances described in Section 3.2(a), then such termination of employment will not be a Termination Event, Executive will not be entitled to receive any payments or benefits under the provisions of this Agreement, and the Company will cease paying compensation or providing benefits to Executive as of Executive’s termination date.

3.3Lump Sum Payment upon Termination after Change in Control.

(a)If a Termination Event described in this Article III occurs, Executive shall receive an amount equal to two times the sum of Executive’s Base Salary and Target Bonus, less any applicable withholding of federal, state, local or foreign taxes; provided, however, that the Company may deduct from amounts payable to Executive pursuant to this Article III any amounts paid to Executive pursuant to Article II.

(b)The salary and bonus amounts payable pursuant to this Article III shall be paid in a single lump sum.  Such payments shall be made (i) not later than immediately prior to completion of the Change of Control where the Termination Event occurs prior to a Change of Control or (ii) within two business days after the date of a Termination Event where the Termination Event occurs subsequent to a Change of Control.

3.4Bonus for Final Period.  If a Termination Event described in this Article III occurs, Executive shall receive a pro rated bonus for the performance period in which the Termination Event occurs (in addition to the amount described in Section 3.3).  The amount of the bonus shall be equal to Target Bonus for the period in which the Termination Event occurred multiplied by a fraction in which (i) the numerator is the number of days from and including the first day of the performance period until and including the date of the Termination Event and (ii) the denominator is the number of days in the performance period.  Such bonus shall be paid at the time prescribed in Section 3.3(b).

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3.5Stock Award Acceleration upon Termination after Change in Control.

(a)Executive’s Stock Options that are outstanding as of the date of a Termination Event described in this Article III shall become fully vested upon the occurrence of such Termination Event and exercisable so long as Executive complies with the restrictions and limitations set forth in Article V.  The Stock Options shall remain exercisable until the second anniversary of the date of the Termination Event provided that Executive complies with his/her obligations under Article V of this Agreement. The term “Stock Options” shall not include any rights of Executive under the Company’s 2006 Employee Shares Purchase Plan or similar plans.

(b)Executive’s Restricted Stock awards that are outstanding as of the date of a Termination Event described in this Article III shall become fully vested and free from any contractual rights of the Company to repurchase or otherwise reacquire the Restricted Stock as a result of Executive’s termination of employment.  All shares of Restricted Stock that have not yet been delivered to Executive or his/her designee (whether because subject to joint escrow instructions or otherwise) shall be promptly delivered to Executive or his/her designee upon the occurrence of a Termination Event described in this Article III.

(c)Executive’s Stock Units that are outstanding as of the date of a Termination Event described in this Article III shall become fully vested as a result of Executive’s termination of employment.  All Stock Units that have not yet been settled shall be promptly settled, in the form specified in the relevant Stock Unit agreements and relevant stock plans under which the Stock Units were granted, upon the occurrence of a Termination Event described in this Article III.

3.6Health & Welfare Benefits Coverage.

(a)Following the occurrence of a Termination Event described in this Article III, to the extent permitted by COBRA and by the Company’s group health insurance policies, Executive and his/her covered dependents will be eligible to continue their health insurance benefits at their own expense.  If Executive elects COBRA continuation, the Company shall pay Executive’s and his/her covered dependents’ COBRA continuation premiums for 24 months following the date of such Termination Event, provided that the Company’s obligation to make such payments shall cease immediately to the extent that Executive and/or Executive’s covered dependents are no longer entitled to receive COBRA continuation coverage.  Executive agrees to notify a duly authorized officer of the Company, in writing, immediately upon Executive’s or a covered dependent’s beginning to receive health benefits from another source, or as otherwise required by COBRA.  This Section 3.6(a) provides only for the Company’s payment of COBRA continuation premiums for the periods specified above.  This Section 3.6(a) does not affect the rights of Executive or Executive’s covered dependents under any applicable law with respect to health insurance continuation coverage.

(b)Following the occurrence of a Termination Event described in this Article III, to the extent permitted by the Company’s health and welfare plans (other than the medical plan described in Section 3.6(a)), Executive and his/her covered dependents will be eligible to continue their benefits, and the Company shall pay Executive’s and his/her covered dependents’ continuation premiums under such plans for 24 months following the date of such Termination

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Event, provided that the Company’s obligation to make such payments shall cease immediately to the extent that Executive and/or Executive’s covered dependents are no longer entitled to receive continuation coverage in accordance with the plans.

ARTICLE IV

TERMINATION FOR CAUSE

4.1General Effect of Termination for Cause.  In the event Executive’s employment with the Company and its subsidiaries is involuntarily terminated by the Company with Cause at any time, whether before or after a Change of Control, then such termination of employment will not be a Termination Event, Executive will not be entitled to receive any payments or benefits under the provisions of this Agreement, and the Company will cease paying compensation or providing benefits to Executive as of Executive’s termination date.

4.2Procedure for “Cause” Finding.

(a)Prior to a Change in Control, Executive may only be terminated for Cause if a majority of the Board then in office determines that grounds for Cause exist.  In the event of such determination, the Company will give Executive notice of the finding of Cause with reasonable specificity, and will provide Executive with a reasonable opportunity to meet with the Board to refute the finding.

(1)If Executive elects to appear before the Board to dispute the finding, the Board will meet with the Executive.  Following such meeting, the Board shall reconsider its initial finding and the decision of a majority of the Board then in office will be required to confirm the determination that grounds for Cause exist.

(2)If Executive declines to appear before the Board to dispute the finding, then the initial action by the Board shall constitute the determination to terminate Executive for Cause.

(b)Subsequent to a Change in Control, the procedural requirements of Section 4.2(a) shall apply, except that the findings of the Board must be approved by not less than 2/3rds of the directors then in office.

ARTICLE V

LIMITATIONS AND CONDITIONS ON BENEFITS

5.1Right to Benefits.  If a Termination Event does not occur, Executive shall not be entitled to receive any benefits described in this Agreement, except as otherwise specifically set forth herein.  If a Termination Event occurs, Executive shall be entitled to receive the benefits described in this Agreement only if Executive complies with the restrictions and limitations set forth in this Article V.

5.2No Mitigation.  Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment

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provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by retirement benefits after the date of the Termination Event, or otherwise.

5.3Withholding Taxes.  The Company shall withhold appropriate federal, state, local or foreign income, employment and other applicable taxes from any payments hereunder.

5.4Obligations of Executive.

(a)For two years following a Termination Event, Executive agrees not to personally solicit any of the employees either of the Company or of any entity in which the Company directly or indirectly possesses the ability to determine the voting of 50% or more of the voting securities of such entity (including two-party joint ventures in which each party possesses 50% of the total voting power of the entity) to become employed elsewhere or provide the names of such employees to any other company that Executive has reason to believe will solicit such employees.

(b)Following the occurrence of a Termination Event, Executive agrees to continue to satisfy his/her obligations under the terms of the Company’s standard form of Agreement Regarding Confidential Information and Proprietary Development previously executed by Executive (or any comparable agreement subsequently executed by Executive in substitution or supplement thereto).

(c)Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees that for one year following a Termination Event, Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any person, company, business entity or other organization whatsoever, directly or indirectly, either (i) engage in any business that is a Competitive Business or (ii) enter the employ of, or render any services to, any person or entity (or any division of any person or entity) that engages in a Competitive Business.  For purposes of this Agreement, the term “Competitive Business” shall include any person or entity that competes with any business of the Company or its affiliates at the time of the Termination Event (including, without limitation, businesses that the Company or its affiliates have specific plans at the time of the Termination Event to conduct in the future, of which plans Executive is aware at that time) in any geographical area where the Company or its affiliates manufacture, sell, lease, rent, license, or otherwise provide their products or services (including, without limitation, geographical areas where the Company or its affiliates have specific plans at the time of the Termination Event to engage in one or more such activities, of which plans Executive is aware at that time).  Notwithstanding the preceding sentence, a person or entity shall be treated as a Competitive Business for purposes of this Agreement only if the Company includes such person or entity (which, unless otherwise specified by the Company, shall be considered to include all of the subsidiaries and other affiliates of such listed person or entity) on a list to be prepared by the Company at or shortly after the time of the Termination Event, such list is provided to Executive, and such list includes not more than 15 persons or entities.

Notwithstanding any provision in this Agreement to the contrary, it shall not be a violation of this Section 5.4(c) if any one or more of the following shall occur:

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(i)Executive may own, directly or indirectly, solely as a passive investment, securities of any person engaged in a Competitive Business, which securities are publicly traded on a national or regional stock exchange or on the over-the-counter market, if Executive (A) is not a controlling person of, or a member of a group that controls, such person and (B) does not, directly or indirectly, own 5% or more of any class of securities of such person.

(ii)If Executive is providing services to or for the benefit of an entity that has two or more distinct business units, at least one of which does not constitute a Competitive Business, Executive may provide services to such entity so long as Executive does not provide services, directly or indirectly, to or for the benefit of a business unit that constitutes a Competitive Business.

(iii)If Executive is providing services to or for the benefit of an entity that does not engage in a Competitive Business, and such entity subsequently is acquired by a person or entity that does engage in a Competitive Business, Executive may continue such employment so long as Executive does not personally engage, directly or indirectly, in such Competitive Business or otherwise advise or assist such Competitive Business.

(d)It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 5.4 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time or territory and to such maximum extent as such court may judicially determine or indicate to be enforceable.  Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.

(e)Executive acknowledges and agrees that the Company’s remedies at law for a breach or threatened breach of any of the provisions of Section 5.4(a), (b) or (c) would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to cease making any payments or providing any benefit otherwise required by this Agreement and, with respect to a breach or threatened breach of Section 5.4(a) or (b) only, obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction, or any other equitable remedy that may then be available.

5.5Employee Release Prior to Receipt of Benefits.  Upon the occurrence of a Termination Event, and prior to the receipt of any benefits under this Agreement on account of the occurrence of the Termination Event, Executive shall, as of the date of the Termination Event, execute an employee release substantially in the form attached hereto as Exhibit A.  Such employee release shall specifically relate to all of Executive’s rights and claims in existence at the time of such execution relating to Executive’s employment with the Company, but shall not include (i) Executive’s rights under this Agreement, (ii) Executive’s rights under any employee benefit plan sponsored by the Company or (iii) Executive’s rights to indemnification or advancement of expenses under applicable law, the Company’s bylaws or other governing

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instruments or any agreement addressing such subject matter between Executive and the Company.  It is understood that Executive has 21 days to consider whether to execute such employee release and Executive may revoke such employee release within seven days after execution of such employee release.  In the event Executive does not execute such employee release within the 21-day period, or if Executive revokes such employee release within the seven-day period, no benefits shall be payable under this Agreement and this Agreement shall be null and void.  Nothing in this Agreement shall limit the scope or time of applicability of such employee release once it is executed and not timely revoked.

5.6Compliance with Section 409A.  In the event that (i) one or more payments of compensation or benefits received or to be received by Executive pursuant to this Agreement (“Agreement Payment”) would constitute deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) Executive is deemed at the time of such termination of employment to be a “specified employee” under Section 409A(a)(2)(B)(i) of the Code, then such Agreement Payment shall not be made or commence until the earlier of (i) the expiration of the six-month period measured from the date of Executive’s “separation from service” (as such term is at the time defined in Treasury Regulations under Section 409A of the Code) with the Company or (ii) such earlier time permitted under Section 409A of the Code and the regulations or other authority promulgated thereunder; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to Executive under Section 409A of the Code, including (without limitation) the additional 20% tax for which Executive would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral.  During any period in which an Agreement Payment to Executive is deferred pursuant to the foregoing, Executive shall be entitled to interest on the deferred Agreement Payment at a per annum rate equal to the highest rate of interest applicable to six-month non-callable certificates of deposit with daily compounding offered by Citibank N.A., Wells Fargo Bank, N.A. or Bank of America on the date of such separation from service.  Upon the expiration of the applicable deferral period, any Agreement Payment that would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this Section 5.6 shall be paid to Executive or his/her beneficiary in one lump sum, including all accrued interest.

5.7Golden Parachute Payments.

(a)In the event that any payment received or to be received by Executive pursuant to this Agreement or otherwise (“Payment”) would be subject to the excise tax imposed by Section 4999 of the Code, or any comparable federal, state, local or foreign excise tax (such excise tax, together with any interest and penalties, is hereinafter collectively referred to as the “Excise Tax”), then Executive shall be entitled to receive an additional payment from the Company (“Gross-Up Payment”) in such an amount that after the payment of all taxes (including, without limitation, any interest and penalties on such taxes and the Excise Tax) on the Payment and on the Gross-Up Payment, Executive shall retain an amount equal to (a) the Payment minus (b) all applicable taxes on the Payment other than the Excise Tax.  The intent of the parties is that the Company shall be solely responsible for, and shall pay, any Excise Tax on the Payment and Gross-Up Payment and any income, employment and other taxes (including, without limitation, penalties and interest) imposed on the Gross-Up Payment (as well as any loss of tax deduction caused by the Payment or the Gross-Up Payment).  Notwithstanding the

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foregoing, in the event that Excise Taxes could be avoided by a reduction in payments to Executive pursuant to this Agreement, the Company may reduce such payments to bring the total payments to that amount that falls immediately below the threshold triggering the Excise Tax, up to a total reduction not to exceed $25,000.

(b)Unless the Company and Executive otherwise agree in writing, all determinations required to be made under this Section 5.7 and the assumptions to be utilized in arriving at such determinations shall be made in writing in good faith by an independent tax professional designated by the Company and reasonably acceptable to Executive (the “Independent Tax Professional”).  For purposes of making the calculations required by this Section 5.7, the Independent Tax Professional may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good-faith interpretations concerning the application of Sections 280G and 4999 of the Code.  The Company and Executive shall furnish to the Independent Tax Professional such information and documents as the Independent Tax Professional may reasonably request in order to make a determination under this Section 5.7.  The Company shall bear all costs that the Independent Tax Professional may reasonably incur in connection with any calculations contemplated by this Section 5.7.

ARTICLE VI

OTHER RIGHTS AND BENEFITS NOT AFFECTED

Nothing in the Agreement shall prevent or limit Executive’s continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company and for which Executive may otherwise qualify, nor shall anything herein limit such greater rights as Executive may have under any agreements with the Company applicable to his/her Stock Options, Restricted Stock, Stock Units or other equity awards; provided, however, that any benefits provided hereunder shall be in lieu of any other severance benefits to which Executive may otherwise be entitled, including (without limitation) under any employment contract or severance plan, program or arrangement.  Except as otherwise expressly provided herein, amounts that are vested benefits or that Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company at or subsequent to the date of a Termination Event shall be payable in accordance with such plan, policy, practice or program.

ARTICLE VII

NON-ALIENATION OF BENEFITS

No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void.

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ARTICLE VIII

DEFINITIONS

For purposes of the Agreement, the following terms shall have the meanings set forth below:

8.1“Base Salary” means Executive’s annual salary (excluding bonus, any other incentive or other payments and stock option exercises) from the Company at the time of the occurrence of the Change of Control (if applicable) or the Termination Event, whichever is greater.

8.2“Cause” means (i) an unauthorized use or disclosure by Executive of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company, (ii) a material breach by Executive of a material agreement between Executive and the Company, (iii) a material failure by Executive to comply with the Company’s written policies or rules resulting in material harm to the Company, (iv) Executive’s conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any State thereof or the equivalent under the applicable laws outside of the United States, (v) Executive’s gross negligence or willful misconduct resulting in material harm to the Company, (vi) a continuing failure by Executive to perform assigned duties after receiving written notification of such failure or (vii) a failure by Executive to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested Executive’s cooperation.

8.3“Change of Control” means:

(a)The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if persons who were not shareholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of the outstanding securities of each of (i) the continuing or surviving entity and (ii) any direct or indirect parent corporation of such continuing or surviving entity;

(b)The sale, transfer or other disposition of all or substantially all of the Company’s assets;

(c)A change in the composition of the Board, as a result of which fewer than 50% of the incumbent directors are directors who either:

(i)Had been directors of the Company on the date 24 months prior to the date of such change in the composition of the Board (the “Original Directors”); or

(ii)Were appointed to the Board, or nominated for election to the Board, with the affirmative votes of at least a majority of the aggregate of (A) the Original Directors who were in office at the time of their appointment or nomination and (B) the directors whose appointment or nomination was previously approved in a manner consistent with this Paragraph (ii); or

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(d)Any transaction as a result of which any person is the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), directly or indirectly, of securities of the Company representing at least 30% of the total voting power represented by the Company’s then outstanding voting securities.  For purposes of this Subsection (d), the term “person” shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Parent or Subsidiary and (ii) a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of Shares.

A transaction shall not constitute a Change in Control if its sole purpose is to change the jurisdiction of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

8.4“Company” means Verigy Ltd., a Singapore corporation, and any successor thereto and its subsidiaries; provided, however, that with respect to determining whether a Change in Control has occurred, the term “Company” shall mean Verigy Ltd. exclusively.

8.5“Disability” means that Executive is unable to perform the duties of his/her office with the Company or any subsidiary, and is unable to perform substantially equivalent duties, by reason of any medically determinable physical or mental impairment, and such condition has lasted or can be expected to last for a continuous period of not less than 12 months.

8.6“Good Reason” means: (i) a reduction of Executive’s rate of compensation as in effect on the Effective Date of this Agreement or, if a Change of Control has occurred, as in effect immediately prior to the occurrence of a Change of Control, other than reductions in Base Salary that apply broadly to employees of the Company or reductions due to varying metrics and achievement of performance goals for different periods under variable-pay programs; (ii) either (A) failure to provide a package of benefits that, taken as a whole, provides substantially similar benefits to those in which Executive is entitled to participate as of the Effective Date (except that employee contributions may be raised to the extent of any cost increases related to such benefits where such increases in employee contributions are broadly applicable to employees of the Company) or (B) any action by the Company that would significantly and adversely affect Executive’s participation or reduce Executive’s benefits under any of the Company’s benefit plans, other than changes that apply broadly to employees of the Company; (iii) a change in Executive’s duties, responsibilities, authority, job title or reporting relationships resulting in a significant diminution of position, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith that is remedied by the Company promptly after notice thereof is given by Executive; (iv) a request that Executive relocate to a worksite that is more than 25 miles from his/her prior worksite, unless Executive accepts such relocation opportunity; (v) a failure or refusal of a successor to the Company to assume the Company’s obligations under this Agreement, as provided in Section 9.9 or (vi) a material breach by the Company or any successor to the Company of any of the material provisions of this Agreement.  [Last Sentence Version A:  For purposes of clause (iii) of the immediately preceding sentence, Executive’s duties, responsibilities, authority, job title or reporting relationships shall not be considered to be significantly diminished (and therefore shall not constitute “Good Reason”) so

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long as Executive continues to perform substantially the same functional role for the Company as Executive performed immediately prior to the occurrence of the Change of Control, even if the Company becomes a subsidiary or division of another entity.] [Last Sentence Version B:  For purposes of clause (iii) of the immediately preceding sentence, Executive’s duties, responsibilities, authority, job title or reporting relationships shall be considered to be significantly diminished (and therefore shall constitute “Good Reason”) if Executive no longer to performs substantially the same functional role for the Company as Executive performed immediately prior to the occurrence of the Change of Control of an entity whose equity securities are publicly traded; provided, however, that prior to terminating his/her employment for Good Reason under clause (iii) of the immediately preceding sentence solely as a result of the entity for which Executive is providing services not being an entity whose securities are publicly traded, Executive shall notify the successor entity of his/her intention to so terminate his/her employment and shall provide the successor entity with a reasonable period of time, not to exceed 90 days, to negotiate terms of employment which meet Executive’s requirements.  If, at the end of the notice and negotiation period, the parties are unable to arrive at mutually satisfactory terms and conditions of employment, then Executive may exercise his/her right to termination for good reason as a result of no longer serving in a comparable role with a company whose securities are publicly traded.]

8.7 “Target Bonus” means:

(a)With respect to a Termination Event occurring on or before October 31, 2008, the “Target Bonus” shall be an amount equal to the annualized bonus compensation that Executive would be entitled to receive under the terms of any applicable performance-based compensation plan in effect at the time of Executive’s Termination Event, as set for Executive by the Compensation Committee of the Board or other authorized body, covering the 12-month period ending at the end of the performance period during which Executive’s Termination Event occurs, assuming that the performance objectives are fully met.  The “Target Bonus” amount shall equal 100% of the target amount regardless of whether or not, or to what degree, the actual performance objectives are met.

(b)With respect to a Termination Event occurring on or after November 1, 2008, the “Target Bonus” shall be an amount equal to an average of the annualized bonus compensation paid to Employee with respect to the two fiscal years of the Company most recently preceding the date of the Termination Event; provided, however, that if the Executive’s target bonus in the year in which the Termination Event occurs, expressed as a percent of Executive’s Base Salary, is higher than the percentage target bonus levels in the years used for purposes of the average, then an equitable adjustment will be made to the prior year amounts so as to treat Executive as if s/he were at the higher target bonus percentage for the years used to determine the average.

8.8“Termination Event” means an involuntary termination of employment described in Section 2.1 or 3.1(a) or a voluntary termination of employment described in Section 3.2(a).  No other event shall be a Termination Event for purposes of this Agreement.

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ARTICLE IX

GENERAL PROVISIONS

9.1Interpretation.  The parties acknowledge that Executive may serve as an officer and/director of the Company as well as an officer and/or director of one or more of the Company’s subsidiaries.  It is the parties’ intention that, when determining whether a Termination Event or Change of Control has occurred, the parties will look at the facts and circumstances affecting the highest level entity in the Company’s corporate family in which Executive plays a role.  For example, an executive officer of the Company who also served on the Board or as an officer of one or more of the Company’s subsidiaries will not be deemed to have experienced a change in Executive’s duties, responsibilities, authority, job title or reporting relationships resulting in a significant diminution of position solely as a result of the change at the subsidiary level, i.e., changes implemented solely at the subsidiary level but not at the higher level would not constitute Good Cause unless the overall effect of the subsidiary-level changes resulted in a significant diminution of overall position with the Company and its subsidiaries taken as a whole.

9.2Subsidiaries Bound.  To the extent that Executive is employed by a subsidiary of Verigy Ltd. and not by Verigy Ltd. itself, (i) Executive’s Base Salary and Target Bonus shall be the amounts as so defined as payable by Executive’s direct employer; and (ii) to the extent that Verigy Ltd. itself is not the direct employer or otherwise paying the benefits due to Executive under this Agreement, Verigy Ltd. shall cause the subsidiary directly employing Executive to make provide the benefits due to Executive under this Agreement.

9.3Notices.  Any notices provided hereunder must be in writing, and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile) or the third day after mailing by first-class mail, to the Company at its primary U.S. office location and to Executive at Executive’s address as listed in the Company’s payroll records.  Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at such address as listed in the Company’s payroll records.

9.4Severability.  It is the intent of the parties to this Agreement that, whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.

9.5Waiver.  If either party should waive any breach of any provisions of this Agreement, that party shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

9.6Complete Agreement.  This Agreement, including Exhibit A, constitutes the entire agreement between Executive and the Company and is the complete, final and exclusive

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embodiment of their agreement with regard to this subject matter; provided that nothing herein shall limit such greater rights as Executive may have under any agreements with the Company applicable to his/her Stock Options, Restricted Stock, Stock Units or other equity awards.  This Agreement shall be deemed to be an amendment of any agreements between Executive and the Company applicable to his/her Stock Options, Restricted Stock, Stock Units or other equity awards to the extent that this Agreement provides greater rights.  This Agreement is entered into without reliance on any promise or representation other than those expressly contained herein.  Without limiting the foregoing, this Agreement supersedes and replaces all prior agreements and understandings, whether written or oral, on the matters set forth herein that may exist between Executive and the Company or its predecessor, Agilent Technologies, Inc. or any of their respective subsidiaries.

9.7Counterparts.  This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.

9.8Headings.  The headings of the Articles and Sections hereof are inserted for convenience only and shall neither be deemed to constitute a part hereof nor to affect the meaning thereof.

9.9Successors and Assigns.  This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not delegate any of Executive’s duties hereunder and may not assign any of Executive’s rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably.  Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the Company’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession.  For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets, whether or not such successor executes and delivers an assumption agreement referred to in the preceding sentence or becomes bound by the terms of this Agreement by operation of law or otherwise.

9.10Amendment or Termination of this Agreement.  This Agreement may be changed or terminated only upon the mutual written consent of the Company and Executive.

9.11Attorney Fees.  If either party hereto brings any action to enforce such party’s rights hereunder, the prevailing party in any such action shall be entitled to recover such party’s reasonable attorneys’ fees and costs incurred in connection with such action.

9.12Arbitration.  In order to ensure rapid and economical resolution of any dispute that may arise under this Agreement, Executive and the Company agree that any and all disputes or controversies arising from or regarding the interpretation, performance, enforcement or termination of this Agreement shall first be submitted for non-binding mediation.  If complete agreement cannot be reached within 60 days after the date of submission to mediation, any remaining issues will be submitted to the American Arbitration Association to be resolved by

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final and binding arbitration under the its National Rules for the Resolution of Employment Disputes and California Law.

9.13Choice of Law.  All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of California.

9.14Construction of Agreement.  In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control.

In Witness Whereof, the parties have executed this Agreement on the day and year written above.

Verigy Ltd.,	EXECUTIVE
a Singapore corporation
(Signature of Authorized Signatory)	Signature
(Print Name & Title of Signatory)
Exhibit A: General Release and Agreement

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Exhibit A

GENERAL RELEASE AND AGREEMENT

This General Release and Agreement (the “Agreement”) is made and entered into by                                  (“Executive”).  The Agreement is part of an agreement between Executive and Verigy Ltd. (“Verigy”) to terminate Executive’s employment with Verigy on the terms set forth in the Severance Agreement dated                  , 200  , between Verigy and Executive (the “Severance Agreement”).

Verigy and Executive hereby agree as follows:

1.Executive agrees to attend a Functional Exit Interview on                          , 20    , at which time all company property and identification will be turned in and the appropriate personnel documents will be executed.  Thereafter, Executive agrees to do such other acts as may be reasonably requested by Verigy in order to effectuate the terms of this Agreement.  Executive agrees to remove all personal effects from his/her current office within seven days of signing this Agreement and in any event not later than                        , 20    .

2.Executive agrees not to make any public statement or statements to the press concerning Verigy, its business objectives, its management practices, or other sensitive information without first receiving Verigy’s written approval.  Executive further agrees to take no action that would cause Verigy or its employees or agents any embarrassment or humiliation or otherwise cause or contribute to Verigy’s or any such person’s being held in disrepute by the general public or Verigy’s employees, clients, or customers.  Verigy agrees to take no action that would cause Executive any embarrassment or humiliation or otherwise cause or contribute to Executive’s being held in disrepute by the general public or by Verigy’s employees, clients or customers.

3.Executive, on behalf of Executive and his/her heirs, estate, executors, administrators, successors and assigns, does fully release, discharge, and agree to hold harmless Verigy, its officers, agents, employees, attorneys, subsidiaries, affiliated companies, predecessors, successors and assigns from all actions, causes of action, claims, judgments, obligations, damages, liabilities, costs, or expense of whatsoever kind and character that he may have, including but not limited to:

a.any claims relating to employment discrimination on account of race, sex, age, national origin, creed, disability, or other basis, whether or not arising under the Federal Civil Rights Acts, the Age Discrimination in Employment Act, California Fair Employment and Housing Act, the Rehabilitation Act of 1973, the Americans With Disabilities Act, any amendments to the foregoing laws, or any other federal, state, county, municipal, foreign or other law, statute, regulation or order relating to employment discrimination;

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b.any claims relating to pay or leave of absence arising under the Fair Labor Standards Act, the Family Medical Leave Act, and any similar laws enacted in California or any other jurisdiction;

c.any claims for reemployment, salary, wages, bonuses, vacation pay, stock options, acquired rights, appreciation from stock options, stock appreciation rights, benefits or other compensation of any kind;

d.any claims relating to, arising out of, or connected with Executive’s employment with Agilent Technologies, Inc. (“Agilent”) or Verigy, or their respective subsidiaries, whether or not the same be based upon any alleged violation of public policy; compliance (or lack thereof) with any internal policy, procedure, practice or guideline; or any oral, written, express, and/or implied employment contract or agreement, or the breach of any terms thereof, including but not limited to, any implied covenant of good faith and fair dealing; or any federal, state, county, municipal or foreign law, statute, regulation or order, whether or not relating to labor or employment; and

e.any claims relating to, arising out of, or connected with any other matter or event occurring prior to the execution of this Agreement, whether or not brought before any judicial, administrative, or other tribunal.

The foregoing notwithstanding, Executive does not release any actions, causes of action, claims, judgments, obligations, damages, liabilities, costs or expense of whatsoever kind and character that he may have with respect to (i) Executive’s rights under this Agreement or the Severance Agreement, (ii) Executive’s rights under any employee benefit plan sponsored by Agilent or Verigy or (iii) Executive’s rights to indemnification or advancement of expenses under applicable law, the bylaws of Agilent or Verigy, or other governing instruments or any agreement addressing such subject matter between Executive and Agilent or Verigy.

4.Executive represents and warrants that Executive has not assigned any such claim or authorized any other person or entity to assert such claim on Executive’s behalf.  Further, Executive agrees that under this Agreement Executive waives any claim for damages incurred at any time in the future because of alleged continuing effects of past wrongful conduct involving any such claims and any right to sue for injunctive relief against the alleged continuing effects of past wrongful conduct involving such claims.

5.In entering into this Agreement, the parties have intended that this Agreement be a full and final settlement of all matters, whether or not presently disputed, that could have arisen between them.

6.Executive understands and expressly agrees that this Agreement extends to all claims of every nature and kind whatsoever, known or unknown, suspected or unsuspected, past or present, and all rights under Section 1542 of the California Civil Code and/or any similar statute or law or any other jurisdiction are hereby expressly waived.  Such Section reads as follows:

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“Section 1542.  A general release does not extend to claims which the creditor does not know or suspect to exist in his/her favor at the time of executing the release, which if known by him must have materially affected his/her settlement with the debtor.”

7.It is expressly agreed that the claims released pursuant to this Agreement include all claims against individual employees of Verigy, whether or not such employees were acting within the course and scope of their employment.

8.Executive understands and agrees that, as a condition of this Agreement, Executive shall not be entitled to any employment (including employment as an independent contractor or otherwise) with Verigy, its subsidiaries or related companies, or any successor, and Executive hereby waives any right, or alleged right, of employment or re-employment with Verigy.  Executive further agrees not to apply for employment with Verigy in the future and not to institute or join any action, lawsuit or proceeding against Verigy, its subsidiaries, related companies or successors for any failure to employ Executive.  In the event Executive should secure such employment, it is agreed that such employment is voidable without cause in the sole discretion of Verigy.  After terminating Executive’s employment, should Executive become employed by another company that Verigy merges with or acquires after the date of this Agreement, Executive may continue such employment only if Verigy makes offers of employment to all employees of the acquired or merged company.

9.Executive agrees that the terms, amount and fact of settlement shall be confidential until Verigy needs to make any required disclosure of any agreements between Verigy and Executive.  Therefore, except as may be necessary to enforce the rights contained herein in an appropriate legal proceeding or as may be necessary to receive professional services from an attorney, accountant, or other professional adviser in order for such adviser to render professional services, Executive agrees not to disclose any information concerning these arrangements to anyone, including, but not limited to, past, present and future employees of Verigy, until such time of the public filings.

10.The terms of this Agreement are intended by the parties as a final expression of their agreement with respect to such terms as are included in this Agreement and may not be contradicted by evidence of any prior or contemporaneous agreement.  The parties further intend that this Agreement constitutes the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial or other proceeding, if any, involving this Agreement.  No modification of this Agreement shall be effective unless in writing and signed by both parties hereto.

11.It is further expressly agreed and understood that Executive has not relied upon any advice from Verigy and/or its attorneys whatsoever as to the taxability, whether pursuant to federal, state, local or foreign income tax statutes or regulations or otherwise, of the payments made hereunder and that Executive will be solely liable for all tax obligations, if any, arising from payment of the sums specified herein and shall hold Verigy harmless from any tax obligations arising from said payment.

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12.If there is any dispute arising out of or related to this Agreement, which cannot be settled by good-faith negotiation between the parties, such dispute will be submitted to JAMS for non-binding mediation.  If complete agreement cannot be reached within 60 days of submission to mediation, any remaining issues will be submitted to JAMS for final and binding arbitration pursuant to JAMS Arbitration Rules and Procedures for Employment Disputes.  The reference to JAMS shall refer to any successor to JAMS, if applicable.  BY ENTERING INTO THIS AGREEMENT, EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE IS WAIVING EXECUTIVE’S RIGHT TO JURY TRIAL OF ANY DISPUTE COVERED BY THIS AGREEMENT.

13.The following notice is provided in accordance with the provisions of Federal Law:

You have up to 21 days from the date this General Release and Agreement is given to you in which to accept its terms, although you may accept it any time within those 21 days.  You are advised to consult with an attorney regarding this Agreement.  You have the right to revoke your acceptance of this Agreement at any time within seven days from the date you sign it, and this Agreement will not become effective and enforceable until this seven-day revocation period has expired.  To revoke your acceptance, you must send a written notice of revocation to Verigy Ltd., Attention: Vice President and General Counsel, by 5:00 p.m. on or before the seventh day after you sign this Agreement.

EXECUTIVE FURTHER STATES THAT EXECUTIVE HAS HAD THE OPPORTUNITY TO CONSULT WITH THE ATTORNEY OF EXECUTIVE’S CHOICE, THAT EXECUTIVE HAS CAREFULLY READ THIS AGREEMENT, THAT EXECUTIVE HAS HAD AMPLE TIME TO REFLECT UPON AND CONSIDER ITS CONSEQUENCES, THAT EXECUTIVE FULLY UNDERSTANDS ITS FINAL AND BINDING EFFECT, THAT THE ONLY PROMISES MADE TO EXECUTIVE TO SIGN THIS AGREEMENT ARE THOSE STATED ABOVE OR IN THE SEVERANCE AGREEMENT, AND THAT EXECUTIVE IS SIGNING THIS AGREEMENT VOLUNTARILY.

IN WITNESS WHEREOF, this Agreement has been executed in duplicate originals on the dates indicated below, and shall become effective as indicated above.

EXECUTIVE

Signature:

Print Name:

Date:

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EX-10.10

Exhibit 10.10

Description of Verigy’s Pay-for-Results Program

General

The following is summary of the key provisions of Verigy’s Pay-for-Results program as in effect during fiscal 2006.  There is no formal plan document related to this program.  The program is currently under review by Verigy’s Compensation Committee, and the program may be different for fiscal 2007 and in subsequent years than it was in fiscal 2006.

The pay-for-results program is designed to link the cash compensation for designated executives and other key contributors directly to business performance.  The program provides for the payment of cash bonuses above base pay if pre-determined business performance measures are met and/or exceeded.

Administration

Beginning with Verigy’s separation from Agilent Technologies, Inc., the Compensation Committee of the Board administered the program as it related to executives, and approved attainment levels for all participants.

Participation and Eligibility

All executives and certain other key contributors participated in the program during fiscal 2006.  To be eligible for payment, participants had to be employed at the last day of the bonus period.

Plan Operation

The program was administered in six-month performance periods that coincided with each half of Verigy’s fiscal year. Each participant’s target bonus was an amount, equal to a fixed percentage of the participant’s base salary.  The stated percentage included, in each case, a target of 15% of the participant’s base salary that is tied to the same objective as applies to all employees under Verigy’s company-wide bonus program.  Target bonuses were paid if 100% of all applicable performance measures were met in the performance period.

Performance measures for both periods in fiscal 2006 were achievement of target pro forma operating profit.  Pro forma operating margin is calculated for purposes of the program by excluding from GAAP results (i) FAS123R compensation expenses recorded with respect to equity-based compensation; and (ii) restructuring and separation expenses incurred in connection with Verigy’s separation from Agilent Technologies, Inc.  For certain individuals, the program provided weighting for the financial results associated with the product family with which they are primarily associated while other participants targets were based entirely on overall company-wide results.

For each 6-month performance period, a plan participant was eligible to earn a bonus of up to 2 times his or her target bonus.

As Verigy had not yet separated from Agilent Technologies, Inc. until part way into the second half of fiscal 2006, achievement of performance measures for the first half of fiscal 2006 was determined by Agilent management.  Achievement of performance measures, and the specific compensation amounts payable to executives, for the second half of fiscal 2006 were determined by Verigy’s Compensation Committee.

EX-10.11

Exhibit 10.11

INDEMNITY AGREEMENT

This Indemnity Agreement, dated as of                         ,            is made by and between Verigy US, Inc., a Delaware corporation (“Verigy US”) , and                                 , a director, officer or key employee of Verigy US or one of Verigy US’s affiliates or other service provider who satisfies the definition of Indemnifiable Person set forth below (the “Indemnitee”).

RECITALS

WHEREAS, Verigy US is an indirect, wholly-owned subsidiary of Verigy Ltd., a company organized under the laws of the Republic of Singapore (“Verigy Ltd.”); and

WHEREAS, based upon their experience as business managers, the members of the Board of Directors of Verigy US (the “Board”) have concluded that attracting and retaining competent and experienced persons to serve in key leadership roles with Verigy US and with each of its Affiliates is essential to the success of Verigy US; and

WHEREAS, Verigy US is aware that competent and experienced persons are increasingly reluctant to serve as representatives of corporations unless they are protected by comprehensive liability insurance and/or indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such representatives; and

WHEREAS, Verigy US believes that it is unfair for its representatives and for the representatives of its Affiliates (as defined below) to assume the risk of large judgments and Expenses and Other Liabilities (as defined below) that may be incurred in cases in which the representative received no personal profit and in cases where the representative was not culpable; and

WHEREAS, Verigy Ltd. has entered into indemnity agreements substantially similar to this Agreement with each of its directors, executive officers and certain other key employees and service providers (the “Singapore Indemnity Agreements”); and

WHEREAS, the Singapore Companies Act provides that Singapore companies may only indemnify officers and directors in very limited circumstances which, as a practical matter, means that that Verigy Ltd., may not be legally permitted to fulfill its obligations to the indemnitees under the Singapore Indemnity Agreements; and

WHEREAS, Section 145 (“Section 145”) of the Delaware General Corporation Law (the “DGCL”), under which Verigy US is organized, empowers Verigy US to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of Verigy US, as directors, officers, employees or agents of other corporations, partnerships, joint ventures, trusts or other enterprises, and expressly provides that the indemnification provided by Section 145 is not exclusive;

WHEREAS, Verigy US has determined that the liability insurance coverage available to Verigy US and its Affiliates for their representatives as of the date hereof may be inadequate.  Verigy US believes, therefore, that the interests of Verigy US’s stockholders would best be served by the indemnification by Verigy US of selected representatives of Verigy US and its Affiliates; and

WHEREAS, in recognition of Indemnitee’s need for substantial protection against personal liability in order to support and encourage Indemnitee’s continued service to Verigy US and/or its Affiliates in an effective manner, Verigy US wishes to provide in this Agreement for the indemnification of and the advancement of Expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the directors’ and officers’ liability insurance policies of Verigy US and its Subsidiaries and Affiliates.

AGREEMENT

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

1.Definitions.

(a)Affiliate.  For purposes of this Agreement, “Affiliate” of Verigy US means (i) Verigy Ltd.; (ii) any direct or indirect subsidiary of Verigy US or of Verigy Ltd., (iii) any corporation, partnership, joint venture, trust or other enterprise in respect of which the Indemnitee is or was or will be serving as a director, officer, advisory director, trustee, manager, member, partner, employee, agent, attorney, consultant, member of the entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise), fiduciary, or in any other similar capacity at the direct or indirect request of Verigy US or of Verigy Ltd., including, but not limited to, any employee benefit plan of Verigy US or of any Affiliate of Verigy US.

(b)Expenses.  For purposes of this Agreement, “Expenses” means all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys’ fees and related disbursements, and other out-of-pocket costs, including, without limitation, experts’ fees, court costs, retainers, transcript fees, duplicating, printing and binding costs, as well as telecommunications, postage and courier charges) paid or incurred by the Indemnitee in connection with the inquiry, investigation, defense or appeal of a Proceeding (as defined below), establishing, defending or enforcing a right to indemnification under this Agreement, Section 145 or otherwise or being a witness in or participating in (including on appeal) any Proceeding, or preparing for the inquiry, defense or appeal of a Proceeding or for being a witness in or participating in (including on appeal) any Proceeding; provided, however, that Expenses shall not include any judgments, fines, ERISA (or other employee benefit plan related) excise taxes or penalties or amounts paid in settlement of a Proceeding.

(c)Indemnifiable Event.For purposes of this Agreement, “Indemnifiable Event” means any event or occurrence related to Indemnitee’s service for Verigy US or its

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Affiliates as an Indemnifiable Person (as defined below), or by reason of anything done or not done, or any act or omission, by Indemnitee in any such capacity.

(d)Indemnifiable Person.  For the purposes of this Agreement, “Indemnifiable Person” means any person who is or was a director, officer, employee, attorney, advisory director, trustee, manager, member, partner, consultant, member of an entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise) or other agent or fiduciary of Verigy US or an Affiliate of Verigy US; or is or was serving at the request of Verigy US or an Affiliate of Verigy US, or for the convenience of, or to represent the interest of Verigy US or an Affiliate of Verigy US as a director, officer, employee, attorney, advisory director, trustee, manager, member, partner, consultant, member of an entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise) or other agent or fiduciary of another foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise or entity; or was a director, officer, employee, attorney, advisory director, trustee, manager, member, partner, consultant, member of an entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise) or other agent or fiduciary of a foreign or domestic corporation or other enterprise which was a predecessor of Verigy US or of any of its Affiliates, or was a director, officer, employee, attorney, advisory director, trustee, manager, member, partner, consultant, member of an entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise) or other agent or fiduciary of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise or entity at the request of, for the convenience of, or to represent the interests of such predecessor.

(e)Other Liabilities.  For purposes of this Agreement, “Other Liabilities” means any and all liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA (or other benefit plan related) excise taxes or penalties, and amounts paid in settlement and all interest, taxes, assessments and other charges paid or payable in connection with or in respect of any Expenses or any such judgments, fines, ERISA (or other benefit plan related) excise taxes or penalties, or amounts paid in settlement).

(f) Proceeding.  For the purposes of this Agreement, “Proceeding” means any threatened, pending, or completed action, suit or other proceeding, whether civil, criminal or administrative and including any appeal thereof, or any inquiry or investigation, whether instituted by Verigy US or any of its Affiliates or by any governmental agency or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or other proceeding, whether civil, criminal, administrative, investigative or any other type whatsoever, including any arbitration or other alternative dispute resolution mechanism.

2.Agreement to Serve.  The Indemnitee agrees to serve and/or continue to serve Verigy US or the Affiliate of Verigy US in the capacity or capacities in which Indemnitee currently serves Verigy US or such Affiliate(s) as an Indemnifiable Person, and any additional capacity in which Indemnitee may agree to serve, until such time as Indemnitee’s service in a particular capacity shall end according to the terms of an agreement, governing law, or otherwise.  Nothing contained in this Agreement is intended to create any right to continued

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employment or other form of service for Verigy US or any Affiliate of Verigy US by Indemnitee.

3.Mandatory Indemnification.  In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Proceeding by reason of (or arising in part out of) an Indemnifiable Event, Verigy US shall hold harmless and indemnify the Indemnitee to the fullest extent not prohibited (a) by the provisions of Verigy US’s Certificate of Incorporation and Bylaws as the same may be amended from time to time (but only to the extent that such amendment permits Verigy US to provide broader indemnification rights than the Certificate of Incorporation and/or Bylaws permitted prior to the adoption of such amendment) and (b) by the DGCL.  In addition to and not in limitation of the indemnification otherwise provided for herein, and subject only to the exclusions set forth in Section 10 below, Verigy US hereby further agrees to hold harmless and indemnify Indemnitee as follows:

(a)Third Party Actions.  If the Indemnitee is a person who was or is a party or is threatened to be made a party to any Proceeding (other than an action by or in the right of Verigy US, which actions are addressed in Section 3(b) below) by reason of the fact that he or she is or was serving Verigy US or an Affiliate of Verigy US as an Indemnifiable Person, or by reason of anything done or not done by Indemnitee in any such capacity as an Indemnifiable Person, or by reason of an Indemnifiable Event, against any and all Expenses and Other Liabilities incurred by Indemnitee in connection with (including in preparation for) the inquiry, investigation, defense, settlement or appeal of such Proceeding if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of Verigy US, and, with respect to any criminal action or Proceeding, had no reasonable cause to believe his or her conduct was unlawful; and

(b)Derivative Actions.  If the Indemnitee is a person who was or is a party or is threatened to be made a party to any Proceeding by or in the right of Verigy US to procure a judgment in its favor by reason of the fact that he or she is or was serving Verigy US or an Affiliate of Verigy US as an Indemnifiable Person, or by reason of anything done or not done by Indemnitee in any such capacity as an Indemnifiable Person, or by reason of an Indemnifiable Event, against any and all Expenses and Other Liabilities incurred by Indemnitee in connection with the inquiry, investigation, defense, settlement, or appeal of such Proceeding if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of Verigy US; except that no indemnification under this subsection shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable to Verigy US, unless and only to the extent that the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which the court shall deem proper; provided, however, that in the event that Indemnitee shall be adjudged to be liable to Verigy US, Verigy US shall use its best efforts to obtain a ruling of the court in which the Proceeding is brought to the effect that Indemnitee is nevertheless fairly and reasonably entitled to indemnification to the greatest extent possible.

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(c)Determination of “Good Faith”.  For purposes of any determination of  “good faith” hereunder, Indemnitee shall be deemed to have acted in good faith if in taking such action Indemnitee relied on the records or books of account of Verigy US or an Affiliate of Verigy US, including financial statements, or on information, opinions, reports or statements provided to Indemnitee by the officers or other employees of Verigy US or an Affiliate of Verigy US in the course of their duties, or on the advice of legal counsel for Verigy US or an Affiliate of Verigy US, or on information or records given or reports made to Verigy US or an Affiliate of Verigy US by an independent certified public accountant or by an appraiser or other expert selected by Verigy US or an Affiliate of Verigy US, or by any other person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of Verigy US.  In connection with any determination as to whether Indemnitee is entitled to be indemnified hereunder, the Reviewing Party (as defined below) or court shall presume that the Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification, and the burden of proof shall be on Verigy US to establish, by clear and convincing evidence, that Indemnitee is not so entitled.  The provisions of this Section 3(c) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.  In addition, the knowledge and/or actions, or failures to act, of any other person serving Verigy US or an Affiliate of Verigy US as an Indemnifiable Person shall not be imputed to Indemnitee for purposes of determining the right to indemnification hereunder.

4.Partial Indemnification.  If the Indemnitee is entitled under any provision of this Agreement to indemnification by Verigy US for some or a portion of any Expenses or Other Liabilities incurred by Indemnitee (a) in connection with (including in preparation for) the inquiry, investigation, defense, settlement or appeal of a Proceeding, (b) as or in preparation to be a witness or participant in a Proceeding, or (c) otherwise, but not entitled, however, to indemnification for the total amount of such Expenses or Other Liabilities, Verigy US shall nevertheless indemnify the Indemnitee for such total amount except as to the portion thereof to which the Indemnitee is not entitled as determined pursuant to the standard set forth in Section 3 above.  For avoidance of doubt, if Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, Verigy US shall indemnify Indemnitee in connection with each successfully resolved claim, issue or matter.  Indemnitee’s satisfaction of the applicable standard of conduct described in Section 3 above with respect to a particular claim, issue or matter shall be considered a successful resolution as to such claim, issue or matter.  Furthermore, for purposes of this Agreement and without limitation, the termination of any claim, issue or matter by dismissal with or without prejudice shall be deemed to be a successful resolution as to such claim, issue or matter.  In any review or Proceeding to determine the extent of indemnification, Verigy US shall bear the burden to establish, by clear and convincing evidence, the lack of a successful resolution of a particular claim, issue or matter and which amounts sought in indemnity are allocable to claims, issues or matters which were not successfully resolved.

5.Liability Insurance.  So long as Indemnitee shall continue to serve Verigy US or an Affiliate of Verigy US as an Indemnifiable Person and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed Proceeding as a result of an

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Indemnifiable Event, Verigy US shall use its best efforts to maintain in full force and effect for the benefit of Indemnitee as an insured (i) liability insurance issued by one or more reputable insurers and having the policy amount and deductible deemed appropriate by the Board and providing in all respects coverage at least comparable to and in the same amount as that then being provided to the Chairman of the Board or the Chief Executive Officer of Verigy US and (ii) any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that currently provided under such existing policy and providing in all respects coverage at least comparable to and in the same amount as that then being provided to the Chairman of the Board or the Chief Executive Officer of Verigy US (collectively, “D&O Insurance”).  Verigy US may make other financial arrangements in order to satisfy any obligations that it may incur under this Agreement, including but not limited to establishing one or more trust funds, letters of credit, or surety bonds on behalf of the Indemnitee against any and all liability, whether asserted against him or her in his or her capacity as an Indemnifiable Person or arising out of such capacity, whether or not Verigy US would have the power to indemnify him or her against such liability under the provisions of this Agreement or under the DGCL as it may then be in effect, or otherwise.  The purchase, establishment and maintenance of any such insurance or other arrangements shall not in any way limit or affect the rights and obligations of Verigy US or of the Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by Verigy US and the Indemnitee shall not in any way limit or affect the rights and obligations of Verigy US or the other party or parties thereto under any such insurance or other arrangement.

6. Mandatory Advancement of Expenses.  Subject to Section 10 below, Verigy US shall advance prior to the final disposition of the Proceeding all Expenses incurred by the Indemnitee in connection with (including in preparation for) a Proceeding related to an Indemnifiable Event.  Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by Verigy US under the provisions of this Agreement, Verigy US’s Certificate of Incorporation or By-laws or the DGCL.  Notwithstanding the preceding sentence or any other provision of this Agreement, Verigy US, on its own behalf and that of its Subsidiaries and Affiliates, waives any undertaking by Indemnitee to repay any advance or payment of Expenses, to the maximum extent permitted by the DGCL.  The advances to be made hereunder shall be paid by Verigy US to the Indemnitee or directly to a third party designated by Indemnitee within ten (10) days following delivery of a written request therefor by the Indemnitee to Verigy US.  In addition, for avoidance of doubt, Verigy US agrees to pay promptly, whether by way of reimbursement to Indemnitee or direct payment to a third party designated by Indemnitee, all Expenses incurred by Indemnitee or on Indemnitee’s behalf in connection with (including in preparation for) any Proceeding to which Indemnitee is a witness or other participant by reason of the fact that Indemnitee is or was serving Verigy US or an Affiliate of Verigy US as an Indemnifiable Person.  Indemnitee’s right to advancement of Expenses hereunder is absolute and shall not be subject to any prior determination by any Reviewing Party that the Indemnitee has satisfied any applicable standard of conduct for indemnification.  Indemnitee’s undertaking to repay any Expenses advanced to the Indemnitee hereunder shall be unsecured and shall not be subject to the accrual or payment of any interest thereon.

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7.Enforcement.  Any right to indemnification, advancement of Expenses or the exercise of other rights granted by this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in any court of competent jurisdiction if (i) the claim for indemnification or advancement of Expenses is denied, in whole or in part, or Indemnitee’s exercise of his or her rights is disputed, in whole or in part, or (ii) no decision on such claim is made within the applicable time period set forth herein.  Indemnitee, in such enforcement action, shall also be entitled to be paid all Expenses associated with enforcing his or her claim or exercise of rights, unless as a part of such enforcement action, the court of competent jurisdiction determines that the action was instituted in bad faith or was frivolous.  It shall be a defense to any action for which a claim for indemnification is made under Section 3 hereof (other than an action brought to enforce a claim for Expenses made under Section 6 hereof, provided that the required undertaking has been tendered to Verigy US) that Indemnitee is not entitled to indemnification because of the limitations set forth in Section 10 hereof.  Neither the failure of Verigy US (including the Board or its stockholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Indemnitee is proper under the circumstances, nor an actual determination by Verigy US (including the Board, its stockholders, or otherwise under Section 9(d)) that such indemnification is improper shall be a defense to the action or create a presumption that Indemnitee is not entitled to indemnification under this Agreement or otherwise.  In addition, in the event of an action instituted by or in the name of Verigy US or an Affiliate of Verigy US to enforce or interpret the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s counterclaims and cross-claims made in such action and including any appeal), unless as a part of such action, the court of competent jurisdiction determines that Indemnitee’s defenses to such action were made in bad faith or were frivolous.  The Board, may in its sole discretion, provide by resolution for payment of such Expenses to Indemnitee even if the Board is not certain that Indemnitee is or will be entitled to the payment of his or her Expenses under the provisions of this Section 7.

8.Notice and Other Indemnification Procedures.

(a) After receipt by the Indemnitee of notice of the commencement of, or the threat of commencement of, any Proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification or advancement of Expenses with respect thereto may be sought from Verigy US under this Agreement, notify Verigy US of the commencement or threat of commencement thereof.  However, a failure so to notify Verigy US within a reasonable period of time following Indemnitee’s receipt of such notice shall not relieve Verigy US from any liability that it may have to the Indemnitee otherwise than under this Agreement, including, without limitation, its liability under its Certificate of Incorporation or By-laws or the DGCL.

(b) The Indemnitee shall be entitled to select his or her own counsel to defend him or her with respect to a Proceeding and such counsel shall be paid directly by Verigy US in accordance with the provisions of Section 6.

9.Determination of Right to Indemnification.

(a) Unless Indemnitee is not entitled to indemnification as a result of an exclusion set forth in Section 10 below, Verigy US shall indemnify the Indemnitee against Expenses and Other Liabilities paid or incurred by Indemnitee in connection with any

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Proceeding referred to in Section 3 of this Agreement or any other Proceeding arising out of an Indemnifiable Event, including in the event that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Section 3 above or in the defense of any claim, issue or matter described herein, or consistent with Section 145.

(b) In the event that Section 9(a) is inapplicable, Verigy US shall also indemnify the Indemnitee if he or she has not failed to meet the applicable standard of conduct for indemnification.  In connection with any determination as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on Verigy US to prove by clear and convincing evidence that Indemnitee is not so entitled.

(c)Verigy US’s obligations to indemnify Indemnitee under this Agreement shall be satisfied fully no later than thirty (30) days following the receipt by Verigy US of written notice by or on behalf of Indemnitee that Indemnitee is so entitled.

(d)In the event that Verigy US fails to satisfy its obligations within the time frame set forth in Section 9(c) above, the Indemnitee, in his or her sole discretion, shall be entitled to select the forum in which determination of whether or not Indemnitee has met the applicable standard of conduct and such election will be made from among the following:

(1)Those members of the Board consisting of directors who are not parties to the Proceeding for which indemnification is being sought, even though less than a quorum;

(2)The stockholders of Verigy US;

(3)Independent legal counsel selected by the Indemnitee and approved by the Board, which approval may not be unreasonably withheld, which counsel shall make such determination in a written opinion; or

(4)In the event that Indemnitee is neither an officer nor a director of Verigy US at the time that Indemnitee is selecting the forum, a panel of three arbitrators, one of whom is selected by Verigy US, another of whom is selected by the Indemnitee and the last of whom is selected by the first two arbitrators so selected.

The selected forum shall be referred to herein as the “Reviewing Party”.

(e)As soon as practicable, and in no event later than thirty (30) days after receipt by Verigy US of written notice of the Indemnitee’s choice of forum pursuant to Section 9(d) above, Verigy US and Indemnitee shall each submit to the Reviewing Party such information as they believe is appropriate for the Reviewing Party to consider.  The Reviewing Party shall arrive at its decision within a reasonable period of time following the receipt of all such information from Verigy US and Indemnitee, but in no event later than sixty (60) days following the receipt of all such information.  Notwithstanding the foregoing, if additional information is requested by the Reviewing Party in order to be able to make a more informed decision, the Reviewing Party shall arrive at its decision within a reasonable period of time following the receipt of such additional information, but in no event later than thirty (30) days following the receipt of such additional information.  All Expenses associated with the process

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set forth in this Section 9(e), including but not limited to the Expenses of the Reviewing Party, shall be paid by Verigy US.

(f)In the event that a determination is not made within the time prescribed in Section 9(e), the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be absolutely entitled to such indemnification, absent (i) misrepresentation by Indemnitee of a material fact in the request for indemnification or (ii) a final judicial determination that all or any part of such indemnification is expressly prohibited by law.

(g)Notwithstanding a determination by any Reviewing Party listed in Section 9(d) hereof that Indemnitee is not entitled to indemnification with respect to a specific Proceeding, the Indemnitee shall have the right to apply to the court in which that Proceeding is or was pending, or any other court of competent jurisdiction, for the purpose of enforcing the Indemnitee’s right to indemnification pursuant to the Agreement.

(h)To the extent deemed appropriate by the court or the Reviewing Party, interest shall be paid by Verigy US at a reasonable interest rate (which shall generally be at the interest rate that Verigy US is then paying or would have to pay for unsecured loans) for amounts that Verigy US indemnifies or is obliged to indemnify the Indemnitee for the period commencing with the date on which Indemnitee requested indemnification (or advancement of Expenses) and ending with the date on which such payment is made to Indemnitee by Verigy US.

(i)Verigy US shall indemnify the Indemnitee against all Expenses incurred by the Indemnitee in connection with any hearing or Proceeding under this Section 9 involving the Indemnitee and against all Expenses and Other Liabilities incurred by the Indemnitee in connection with any other Proceeding between Verigy US and the Indemnitee involving the interpretation or enforcement of the rights of the Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims and/or defenses of the Indemnitee in any such Proceeding was frivolous or made in bad faith.  Such Expenses shall be paid to Indemnitee or directly to a third party designated by Indemnitee within ten (10) days of a written request by Indemnitee to Verigy US.

(j)If a determination is made or deemed to be made pursuant to the terms of this Section 9 that Indemnitee is entitled to indemnification, Verigy US shall be bound by such determination in any judicial proceeding or arbitration in the absence of (i) a misrepresentation of a material fact by Indemnitee or (ii) a final judicial determination that all or any part of such indemnification is expressly prohibited by law.

(k)Verigy US and Indemnitee agree that they shall be precluded from asserting that the procedures and presumptions of this Agreement are not valid, binding and enforceable.  Verigy US and Indemnitee further agree to stipulate in any such court that Verigy US and Indemnitee are bound by all of the provisions of this Agreement and are precluded from making any assertion to the contrary.

9

10.Exceptions.  Any other provision herein to the contrary notwithstanding, Verigy US shall not be obligated pursuant to the terms of this Agreement under the following circumstances:

(a) Claims Initiated by Indemnitee.  To indemnify or advance Expenses to the Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to (1) Proceedings brought to establish or enforce a right to indemnification under this Agreement, any other statute or law, as permitted under Section 145, or otherwise, and (2) Proceedings brought to discharge Indemnitee’s fiduciary responsibilities, whether under ERISA or otherwise, but such indemnification or advancement of Expenses may be provided by Verigy US in specific cases if the Board finds it to be appropriate; or

(b) Unauthorized Settlements.  To indemnify the Indemnitee under this Agreement for any amounts paid in settlement of a Proceeding unless Verigy US consents to such settlement, which consent shall not be unreasonably withheld or delayed; or

(c)Prior Payment from Another Source.  To indemnify the Indemnitee with respect to any Expense or Other Liability for which Indemnitee would otherwise be entitled to be indemnified if and to the extent that Indemnitee has actually received payment with respect to such Expense or Other Liability (net of costs incurred in collecting such payment) pursuant to this Agreement, any insurance policy, contract, agreement or otherwise; or

(d)Undeserved Personal Advantage.  To indemnify the Indemnitee under this Agreement for Other Liabilities from a Proceeding in which a court enters a judgment concluding that the Indemnitee gained in fact a material personal profit or advantage to which the Indemnitee is not entitled; or

(e)16(b) Actions.  To indemnify the Indemnitee on account of any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of Verigy US pursuant to the provisions of Section 16(b) of the Securities Exchange Act of l934 and amendments thereto or similar provisions of any federal, state or local statutory law; or

 (f)Unlawful Indemnification.  To indemnify the Indemnitee for Other Liabilities if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is prohibited by law. Both Verigy US and Indemnitee acknowledge that in certain instances, applicable law or public policy may prohibit Verigy US from indemnifying under this Agreement or otherwise a person serving Verigy US or an Affiliate of Verigy US as an Indemnifiable Person.

11.Non-exclusivity.  The provisions for indemnification and advancement of Expenses set forth in this Agreement shall not be deemed exclusive of any other rights which the Indemnitee may have under any provision of law, Verigy US’s Certificate of Incorporation or By-laws, the vote of Verigy US’s stockholders or disinterested directors, other agreements, or otherwise, both as to acts or omissions in his or her official capacity and to acts or omissions in another capacity while serving Verigy US or an Affiliate of Verigy US as an Indemnifiable

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Person and the Indemnitee’s rights hereunder shall continue after the Indemnitee has ceased serving Verigy US or an Affiliate of Verigy US as an Indemnifiable Person and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee.

12.Period of Limitations.  No legal action shall be brought and no cause of action shall be asserted by or in the right of Verigy US against Indemnitee, Indemnitee’s spouse, heirs, executors, administrators or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, a period that may not be lengthened for any reason, and any claim or cause of action of Verigy US shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

13.Interpretation of Agreement.  It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification and advancement of Expenses to the Indemnitee to the fullest extent now or hereafter not expressly prohibited by law.

14.Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 13 hereof.

15.Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) and except as expressly provided herein, no such waiver shall constitute a continuing waiver.

16.Successors and Assigns.  The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto.

17.Notice.  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and a receipt is provided by the party to whom such communication is delivered, (ii) if mailed by certified or registered mail with postage prepaid, return receipt requested, on the signing by the recipient of an acknowledgement of receipt form accompanying delivery through the U.S. mail, (iii) personal service by a process server, or (iv) delivery to the recipient’s address by overnight delivery (e.g., FedEx, UPS or DHL) or other commercial delivery service.  Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice complying with the provisions of this Section 17.  Delivery of

11

communications to Verigy US with respect to this Agreement shall be sent to the attention of Verigy US’s General Counsel.

18.No Presumptions.  For purposes of this Agreement, the termination of any claim, action, suit or Proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law or otherwise.  In addition, neither the failure of Verigy US or a Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by Verigy US or a Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of Proceedings by Indemnitee to secure a judicial determination by exercising Indemnitee’s rights under Sections 7 or 9(g) of this Agreement that Indemnitee should be indemnified under applicable law shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has failed to meet any particular standard of conduct or did not have any particular belief or is not entitled to indemnification under applicable law or otherwise.

19.Survival of Rights.

(a)The rights conferred on Indemnitee by this Agreement shall continue after Indemnitee has ceased to serve Verigy US or an Affiliate of Verigy US as an Indemnifiable Person and shall inure to the benefit of Indemnitee’s heirs, executors and administrators.

(b)Verigy US shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of Verigy US, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Verigy US would be required to perform if no such succession had taken place.

20.Subrogation.  In the event of payment under this Agreement, Verigy US shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable Verigy US effectively to bring suit to enforce such rights.

21.Duration.  All agreements and obligations of Verigy US contained herein shall continue during the period while Indemnitee is serving Verigy US or an Affiliate of Verigy US as an Indemnifiable Person and shall continue thereafter so long as the Indemnitee shall be subject to any possible claim or threatened, pending or completed Proceeding by reason of the fact that Indemnitee served Verigy US or an Affiliate of Verigy US as an Indemnifiable Person or otherwise in connection with an Indemnifiable Event.  Except to the extent prohibited by the DGCL, Verigy US, on its own behalf and that of its Subsidiaries and Affiliates, waives any defense to a claim by Indemnitee for indemnification or advancement of Expenses hereunder that such claim is barred by the running of the statute of limitations.

22.No Settlements.  Neither Verigy US nor any Subsidiary or Affiliate of Verigy US shall enter into a settlement of any Proceeding that might result in the imposition of any

12

Expense, penalty, limitation or any Other Liability or detriment on Indemnitee, whether indemnifiable under this Agreement or otherwise, without the written consent of Indemnitee, which consent to such proposed settlement shall not be unreasonably withheld or delayed.

23.Contribution in the Event of Joint Liability.  Whether or not indemnification is available to Indemnitee hereunder or otherwise, in respect of any threatened, pending or completed Proceeding in which Verigy US is jointly liable with Indemnitee (or would be if joined in such Proceeding), Verigy US shall pay, in the first instance, the entire amount of any and all Expenses and Other Liabilities paid or incurred by Indemnitee in connection with such Proceeding without requiring such Indemnitee to contribute to such payment and Verigy US hereby waives and relinquishes any right of contribution it may have against Indemnitee.  Verigy US shall not enter into any settlement of any Proceeding in which Verigy US is jointly liable with Indemnitee (or would be if joined in such action, suit or Proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

24.Security.  To the extent requested by Indemnitee and approved by the Board, Verigy US may at any time and from time to time provide security to Indemnitee for the obligations of Verigy US hereunder through an irrevocable bank line of credit, funded trust or other collateral or by other means.  Any such security, once provided to Indemnitee, may not be revoked, released or otherwise altered to the detriment of Indemnitee without the prior written consent of such Indemnitee.

25.Specific Performance, Etc.  The parties recognize that if any provision of this Agreement is violated by Verigy US, Indemnitee may be without an adequate remedy at law.  Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute Proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.

26.Counterparts.  This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement.  Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

27.Headings.  The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.

28.Governing Law.  This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware.

29.Consent to Jurisdiction.  Verigy US and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any Proceeding which arises out of or relates to this Agreement.

(Signature Page Follows)

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The parties hereto have entered into this Indemnity Agreement effective as of the date first above written.

		VERIGY US, Inc.
		10100 N. Tantau
		Cupertino, CA 94015
		By:
		Its:
	INDEMNITEE:
	Signature of Indemnitee
	Print Name of Indemnitee
Address:

EX-21.1

Exhibit 21.1

Subsidiaries of Registrant

Name of Subsidiary	Jurisdiction of Incorporation
Verigy (Canada) Inc.	Canada
Verigy Germany GmbH	Germany
Verigy Italia S.r.L.	Italy
Verigy (Japan) K.K.	Japan
Verigy (Korea) Ltd.	South Korea
Verigy France SAS	France
Verigy (Malaysia) Sdn. Bhd.	Malaysia
Verigy (Netherlands) B.V.	The Netherlands
Verigy (Singapore) Pte. Ltd.	Singapore
Verigy US, Inc.	Delaware
Verigy (US) Development, Inc.	Delaware
Verigy (Shanghai) Co. Ltd.	People’s Republic of China

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form No. S-8 (No. 333-134958) of Verigy Ltd. of our report dated December 20, 2006 relating to the combined and consolidated financial statements and financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

San Jose, CA

December 20, 2006

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14,
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Keith L. Barnes, certify that:

1.I have reviewed this annual report on Form 10-K of Verigy Ltd.;

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 annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we 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 first quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent function):

(a)all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: December 21, 2006	/s/ Keith L Barnes
	Keith L. Barnes
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14,
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert J. Nikl, certify that:

1.I have reviewed this annual report on Form 10-K of Verigy Ltd.;

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 annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we 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 first quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent function):

(a)all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: December 21, 2006	/s/ Robert J. Nikl
	Robert J. Nikl
	Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Verigy Ltd. (the “Company”) for the fiscal year ended October 31, 2006 filed with the Securities and Exchange Commission (the “Report”), I, Keith L. Barnes, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and consolidated results of operations of the Company for the periods presented.

Date: December 21, 2006	/s/ Keith L. Barnes
	Keith L. Barnes
	Chief Executive Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not filed with the Securities and Exchange Commission as part of the Form 10-K or as a separate disclosure document and is not to be incorporated by reference into any filing of the Verigy Ltd. under the Securities Act of 1933, as amended, or the Securities Exchange Act Filing of 1934, as amended (whether made before or after the date of the Form 10-K), irrespectively of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Verigy Ltd. and will be retained by Verigy Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Verigy Ltd. (the “Company”) for the fiscal year ended October 31, 2006 filed with the Securities and Exchange Commission (the “Report”), I, Robert J. Nikl, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and consolidated results of operations of the Company for the periods presented.

Date: December 21, 2006	/s/ Robert J. Nikl
	Robert J. Nikl
	Vice President and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not filed with the Securities and Exchange Commission as part of the Form 10-K or as a separate disclosure document and is not to be incorporated by reference into any filing of the Verigy Ltd. under the Securities Act of 1933, as amended, or the Securities Exchange Act Filing of 1934, as amended (whether made before or after the date of the Form 10-K), irrespectively of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Verigy Ltd. and will be retained by Verigy Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.