10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended July 1, 2006

OR

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

For the transition period from              to             .

Commission File No. 0-121

KULICKE AND SOFFA INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

PENNSYLVANIA	23-1498399
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

1005 VIRGINIA DRIVE, FORT WASHINGTON, PENNSYLVANIA	19034
(Address of principal executive offices)	(Zip Code)

(215) 784-6000

(Registrant’s telephone number, including area code)

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  ¨

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

Large accelerated filer  ¨    Accelerated filer   x    Non-accelerated filer  ¨

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

As of August 1, 2006, there were 57,061,256 shares of the Registrant’s Common Stock, no par value, outstanding.

KULICKE AND SOFFA INDUSTRIES, INC.

FORM 10 - Q

July 1, 2006

INDEX

		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets September 30, 2005 and July 1, 2006 (unaudited)	3
	Consolidated Statements of Operations Three and Nine Months Ended June 30, 2005 and July 1, 2006 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows Nine Months Ended, June 30, 2005 and July 1, 2006 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6 - 18
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18 -37
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37
Item 4.	CONTROLS AND PROCEDURES	38
PART II.	OTHER INFORMATION
Item 1A.	RISK FACTORS	38
Item 6.	EXHIBITS	38
	SIGNATURES	40

PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

KULICKE AND SOFFA INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	September 30, 2005			(Unaudited) July 1, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	79,455		$	93,906
Restricted cash		1,381			1,946
Short-term investments		14,533			13,661
Accounts and notes receivable (less allowance for doubtful accounts: 9/30/05 - $2,086; 7/1/06 - $3,834)		128,376			152,390
Inventories, net		46,115			51,347
Prepaid expenses and other current assets		10,267			16,790
Deferred income taxes		1,605			1,634
Assets held for sale		4,428			4,776
Current assets of discontinued operations		22,294			—
Total current assets		308,454			336,450
Property, plant and equipment, net		31,915			28,243
Goodwill		29,684			29,684
Other assets		6,120			3,396
Non-current assets of discontinued operations		10,323			—
TOTAL ASSETS	$	386,496		$	397,773
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt	$	10,119		$	—
Accounts payable		53,498			52,301
Accrued expenses		32,748			34,027
Income taxes payable		17,196			19,659
Liabilities held for sale		529			95
Current liabilities of discontinued operations		5,421			—
Total current liabilities		119,511			106,082
Long-term debt		270,000			195,000
Other liabilities		6,389			9,019
Deferred income taxes		22,344			22,949
Total liabilities		418,244			333,050
Commitments and contingencies		—			—
Shareholders’ equity (deficit):
Common stock, no par value		218,426			274,907
Accumulated deficit		(243,994	)		(204,651	)
Accumulated other comprehensive loss		(6,180	)		(5,533	)
Total shareholders’ equity (deficit)		(31,748	)		64,723
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)	$	386,496		$	397,773

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

3

KULICKE AND SOFFA INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three months ended						Nine months ended
	June 30, 2005			July 1, 2006			June 30, 2005			July 1, 2006
Net revenue	$	117,601		$	169,935		$	313,569		$	534,896
Cost of sales		85,104			126,331			228,267			380,889
Gross profit		32,497			43,604			85,302			154,007
Selling, general and administrative		17,299			20,742			50,198			62,076
Research and development		7,335			10,043			21,020			28,105
Gain on sale of assets		(1,563	)		(4,544	)		(1,563	)		(4,544	)
Total operating expenses		23,071			26,241			69,655			85,637
Income from operations		9,426			17,363			15,647			68,370
Interest income		548			1,109			1,564			2,620
Interest expense		(953	)		(688	)		(2,846	)		(2,492	)
Gain on early extinguishment of Notes		—			—			—			4,040
Income from continuing operations before income taxes		9,021			17,784			14,365			72,538
Provision for income taxes		(1,733	)		1,438			1,589			8,454
Income from continuing operations		10,754			16,346			12,776			64,084
Loss from discontinued operations of Test Business, including loss on disposal of $773, net of tax, for the nine months ended July 1, 2006		(112,595	)		(1,581	)		(129,481	)		(24,741	)
Net income (loss)	$	(101,841	)	$	14,765		$	(116,705	)	$	39,343
Income per share from continuing operations:
Basic	$	0.21		$	0.29		$	0.25		$	1.18
Diluted	$	0.17		$	0.24		$	0.21		$	0.95
Loss per share from discontinued operations:
Basic	$	(2.18	)	$	(0.03	)	$	(2.52	)	$	(0.46	)
Diluted	$	(1.67	)	$	(0.02	)	$	(1.92	)	$	(0.36	)
Net income (loss) per share:
Basic	$	(1.97	)	$	0.26		$	(2.27	)	$	0.72
Diluted	$	(1.50	)	$	0.22		$	(1.71	)	$	0.59
Weighted average shares outstanding:
Basic		51,813			56,735			51,512			54,422
Diluted		67,584			69,018			67,446			68,739

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

4

KULICKE AND SOFFA INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine months ended
	June 30, 2005			July 1, 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(116,705	)	$	39,343
Less: Loss from discontinued operations		(129,481	)		(24,741	)
Income from continuing operations		12,776			64,084
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization		9,761			7,445
Stock-based compensation and non-cash employee benefits		967			5,252
Gain on sale of assets		(2,768	)		(4,544	)
Gain on early extinguishment of notes		—			(4,040	)
Changes in operating assets and liabilities, net of businesses sold:
Accounts receivable		(9,397	)		(25,117	)
Inventory		5,624			(5,226	)
Prepaid expenses and other assets		(384	)		(4,251	)
Accounts payable and accrued expenses		(10,283	)		(5,614	)
Income taxes payable		1,599			2,461
Other, net		(1,774	)		1,653
Net cash provided by continuing operations		6,121			32,103
Net cash used in discontinued operations		(18,344	)		(17,915	)
Net cash provided by (used in) operating activities		(12,223	)		14,188
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments classified as available for sale		35,720			22,269
Purchase of investments classified as available for sale		(32,967	)		(21,408	)
Purchases of property, plant and equipment		(5,612	)		(8,092	)
Changes in restricted cash, net		(240	)		(565	)
Proceeds from sale of assets		2,772			—
Net cash used in continuing operations		(327	)		(7,796	)
Net cash provided by (used in) discontinued operations		(3,098	)		28,879
Net cash provided by (used in) investing activities		(3,425	)		21,083
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings associated with direct financing arrangement		10,622			—
Proceeds from issuance of common stock		828			5,555
Payments on borrowings, including capitalized leases		(393	)		(26,634	)
Net cash provided by (used in) continuing operations		11,057			(21,079	)
Net cash provided by (used in) discontinued operations		—			—
Net cash provided by (used in) financing activities		11,057			(21,079	)
Effect of exchange rate changes on cash and cash equivalents		(43	)		259
Changes in cash and cash equivalents		(4,634	)		14,451
Cash and cash equivalents at beginning of period		60,333			79,455
Cash and cash equivalents at end of period	$	55,699		$	93,906
CASH PAID DURING THE PERIOD FOR:
Interest	$	1,697		$	1,536
Income taxes	$	4,595		$	4,185

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

5

KULICKE AND SOFFA INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, contain all adjustments necessary to state fairly the Company’s financial position as of July 1, 2006, and the results of its operations and cash flows for the three and nine month periods ended June 30, 2005 and July 1, 2006, respectively. The results of operations for interim periods are not necessarily indicative of the results that may be expected for a full year. These financial statements should be read in conjunction with other recent filings with the Securities and Exchange Commission and the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2005.

During the quarter ended December 31, 2005, the Company amended its by-laws to change its current fiscal year end from September 30 to a 52/53-week fiscal year ending on the Saturday closest to September 30 of each fiscal year. Each of the first three fiscal quarters will end on the Saturday that is 13 weeks after the end of the immediately preceding fiscal quarter. The fourth fiscal quarter in each year (and the fiscal year) will end on the Saturday closest to September 30. This change was effective for the quarterly period that began on October 1, 2005 and ended on Saturday, December 31, 2005. The fiscal quarters for fiscal 2006 will end on December 31, 2005, April 1, 2006, July 1, 2006 and September 30, 2006. In fiscal years consisting of 53 weeks, the fourth quarter will consist of 14 weeks.

During the quarter ended April 1, 2006, the Company sold its test business. In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the financial results of the test business, including certain balance sheet amounts relating to this business, have been classified as discontinued operations in the condensed consolidated financial statements for all periods presented. See Note 14 in Notes to Condensed Consolidated Financial Statements for further discussion of the test business divestiture. Unless otherwise indicated, amounts provided throughout this Form 10-Q relate to continuing operations only.

The presentation of certain amounts within the statement of cash flows for the nine months ended July 1, 2006 have been presented differently from amounts presented in the statement of cash flows for the six months ended April 1, 2006. Specifically, the impact on cash flows resulting from changes in accrued expenses, other liabilities and other assets of discontinued operations were incorrectly presented as components of Net Cash Provided by Continuing Operations within the Cash Flows from Operating Activities for the six months ended April 1, 2006. The Company’s Statement of Cash Flows for the nine month period ended July 1, 2006 has reflected the change in these accounts as components of Net Cash used in Discontinued Operations in the operating cash flow section. Had this presentation been reflected in the Statement of Cash Flows for the six months ended April 1, 2006, Net Cash Provided by Continuing Operations in the operating cash flow section would have decreased by $14 million and Net Cash Used in Discontinued Operations in the operating cash flow section would also have decreased by $14 million. This misclassification is not considered material to the consolidated financial statements for the three and six month periods ended April 1, 2006. The misclassification does not affect total cash flows, cash flows from operating activities or any amounts in the Consolidated Statement of Operations for the period ended April 1, 2006 or any amounts in the balance sheet as of April 1, 2006.

Reclassifications – Certain reclassifications have been made to prior year balances in order to conform these balances to the current year’s presentation.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) which requires measurement of all employee stock-based compensation awards using a fair-value method and the recording of such expense in the consolidated financial statements. In addition, the adoption of SFAS 123R requires additional accounting changes related to the income tax effects and disclosure regarding the cash flow effects resulting from share-based payment arrangements. In January 2005, the SEC issued Staff Accounting Bulletin No. 107, which provides supplemental implementation guidance for SFAS 123R. The Company selected the Black-Scholes option pricing model as the method to estimate the fair value for awards and will recognize compensation expense on a straight-line basis over the requisite service period. The Company adopted SFAS 123R in the first quarter of fiscal 2006. (See Note 3).

In November 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards” (“FSP 123R-3”). The Company elected to adopt the alternative transition method provided in FSP 123R-3 for calculating the tax effects of stock-based compensation under FAS 123R. The alternative transition method provides a “short-cut” method to determine the beginning balance of the additional paid-in-capital pool related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that were outstanding upon adoption of SFAS 123R.

In February 2006, the FASB issued FASB Staff Position No. FAS 123(R)-4, “Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event”. This position amends SFAS 123R to incorporate that a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employee’s control does not meet certain conditions in SFAS 123R until it becomes probable that the event will occur. The guidance in this FASB Staff Position shall be applied upon the initial adoption of Statement 123R. The adoption of this standard did not have a material impact on the Company’s results of operations and financial condition.

6

The Company also adopted the following accounting pronouncements in the first quarter of fiscal 2006:

• SFAS No. 151, “Inventory Costs – An Amendment of ARB No. 43, Chapter 4” (SFAS 151), and

• SFAS No. 153, “Exchanges of Non-Monetary Assets – An Amendment of APB Opinion No. 29” (SFAS 153).

The adoption of SFAS 151 and SFAS 153 did not have a material impact on the Company’s results of operations and financial condition.

In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections” (“SFAS 154”), which replaces Accounting Principles Board Opinion No. 20 “Accounting Changes” and SFAS 3 “Reporting Accounting Changes in Interim Financial Statements – An Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the earliest practicable date, as the required method for reporting a change in accounting principle and restatement with respect to the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS 154 is required to be adopted by the Company in the first quarter of fiscal 2007.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140 (“SFAS 155”). SFAS 155 simplifies the accounting for certain hybrid financial instruments that contain an embedded derivative that otherwise would have required bifurcation. SFAS 155 also eliminates the interim guidance in SFAS 133, which provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS 133. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. SFAS 155 is required to be adopted by the Company in the first quarter of fiscal 2007. The Company does not expect the adoption of SFAS 155 to have a material impact on its results of operations and financial condition.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140 (“SFAS 156”). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. SFAS 156 is required to be adopted by the Company in the first quarter of fiscal 2007. The Company does not expect the adoption of SFAS 156 to have a material impact on its results of operations and financial condition.

In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN 47”) “Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143.” This Interpretation clarifies that a conditional retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The liability should be recognized when incurred, generally upon acquisition, construction or development of the asset. FIN 47 is effective no later than the end of the fiscal years ending after December 15, 2005. The Company is in the process of evaluating the impact of FIN 47 on its financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, (“FIN 48”) “Accounting for Uncertainty in Income Taxes”, an interpretation of FASB Statement No. 109 (“SFAS 109”).” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 is required to be adopted by the Company in fiscal 2008. The Company is currently evaluating the potential impact of FIN 48 on its financial position and results of operations.

7

NOTE 3 – ACCOUNTING FOR STOCK-BASED COMPENSATION

As of July 1, 2006, the Company has six stock-based employee compensation plans and two director compensation plans (the “Plans”), under which options have been or may be granted at 100% of the market price of the Company’s common stock on the date of grant. The Company may also grant Performance Stock and/or Share Unit Awards from the Company’s recently approved 2006 Equity Plan. Each share granted under a Performance Stock or Share Unit Award from this Plan reduces the aggregate number of shares that may be granted under this Plan by two shares. Options, Performance Stock and/or Share Unit Awards granted under the Plans vest at such dates as are determined in connection with their issuance, but not later than five years from the date of grant and expire ten years from date of grant. Upon share option exercise or upon attainment of designated performance goals, new shares of the Company’s common stock are issued. The Company does not expect to repurchase shares of its common stock through the remainder of fiscal 2006.

Effective October 1, 2005, the Company adopted the fair value measurement and recognition provisions of Statement of Financial Accounting Standards 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective basis transition method. Under this method, stock-based compensation expense recognized in the first nine months of fiscal 2006 includes: (a) compensation expense for all share-based payments granted prior to, but not yet vested as of October 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all share-based payments granted subsequent to October 1, 2005, based on the grant date fair value estimated using the Black-Scholes option pricing model under the provisions of SFAS 123R. The Company will recognize compensation expense for awards granted after September 30, 2005 on a straight-line basis over the requisite service period.

With respect to the accounting treatment of the retirement eligibility provisions of employee stock-based compensation awards, the Company follows the non-substantive vesting method and recognizes compensation expense immediately for awards granted to retirement eligible employees, or over the period from the grant date to the date retirement eligibility is achieved. Stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the first nine months of fiscal 2006 is based upon awards ultimately expected to vest. In accordance with SFAS 123R, forfeitures have been estimated at the time of grant and will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based upon historical experience.

The following table summarizes the total stock-based compensation expense resulting from employee stock options included in the condensed consolidated statements of operations:

(In thousands)	Three Months Ended July 1, 2006		Nine Months Ended July 1, 2006
Cost of sales	$	88	$	540
Selling, general and administrative		757		2,249
Research and development		247		932
Stock-based compensation from continuing operations before income taxes		1,092		3,721
Income tax provision		36		71
Total stock-based compensation from continuing operations, net of tax		1,056		3,650
Stock-based compensation from discontinued operations, net of tax		9		628
Total stock-based compensation, net of tax	$	1,065	$	4,278

Prior to October 1, 2005, the Company accounted for the Plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related Interpretations, as permitted by Financial Accounting Standards Board Statement No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (SFAS 148). No stock-based employee compensation cost was recognized in the condensed consolidated statements of operations for the three and nine month periods ended June 30, 2005, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

8

As a result of adopting SFAS 123R on October 1, 2005, the Company’s income from continuing operations before income taxes and net income for the three and nine month periods ended July 1, 2006 are lower by $1.1 million and $1.1 million, and $3.7 million and $4.2 million, respectively, than if the Company had continued to account for share-based compensation under APB No. 25. Basic and diluted earnings per share from continuing operations for the three and nine month periods ended July 1, 2006 would have increased by $0.02 and $0.02, and $0.07 and $0.05, respectively, if the Company had not adopted SFAS 123R, compared to reported basic and diluted earnings per share from continuing operations of $0.29 and $0.24, and $1.18 and $0.95, respectively. The impact of capitalizing share-based compensation would not be significant for the three and nine months ended July 1, 2006.

The following tables illustrate the effects on net loss and the net loss per share for the three and nine months ended June 30, 2005, as if the Company had applied the fair value recognition provisions of SFAS 123 to options granted under the Company’s stock option plans. For purposes of this pro forma disclosure, the value of the options is estimated using the Black-Scholes option pricing model and amortized to expense over the options’ vesting periods:

(In thousands, except per share data)	Three Months Ended June 30, 2005			Nine Months Ended June 30, 2005
Net loss (including discontinued operations), as reported	$	(101,841	)	$	(116,705	)
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(2,480	)		(9,926	)
Pro forma net loss	$	(104,321	)	$	(126,631	)
Net loss per share:
Basic-as reported	$	(1.97	)	$	(2.27	)
Basic-pro forma	$	(2.01	)	$	(2.46	)
Diluted - as reported	$	(1.50	)	$	(1.71	)
Diluted - pro forma	$	(1.54	)	$	(1.86	)

The fair value of stock options granted to employees was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Three Months Ended						Nine Months Ended
	June 30, 2005			July 1, 2006			June 30, 2005			July 1, 2006
Expected dividend yield		—			—			—			—
Expected stock price volatility		86.92	%		51.35	%		83.66	%		51.35	%
Risk-free interest rate		3.90	%		4.91	%		3.31	%		4.50	%
Expected life (in years)		4.89			4.62			4.89			4.62
Weighted-average fair value at grant date	$	3.93		$	4.06		$	4.80		$	4.04

Expected volatility for the three and nine months ended July 1, 2006 is based upon historical volatility, implied volatility of the Company’s market traded options, and the implied volatility of the convertible feature of the Company’s convertible debt securities. In prior periods, volatility was calculated based solely on the historical volatility of the Company’s common stock. Expected life is based upon historical exercise patterns. The risk-free interest rate is calculated using the U.S. Treasury yield curves in effect at the time of grant, for the periods within the contractual life of the options.

9

The following table summarizes employee stock option activity for the nine month period ended July 1, 2006:

	Options		Weighted Average Exercise Price		Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at October 1, 2005	10,273		$	9.82
Granted (1)	244			7.73
Exercised	(1,068	)		5.83
Forfeited, cancelled or expired	(1,707	)		11.20
Outstanding at July 1, 2006	7,742		$	10.00	6.03	$	4,714
Exercisable at July 1, 2006	5,265		$	11.01	4.48	$	3,256

(1) Shares granted consists entirely of grants to new employees.

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value that would have been received by the option holders had all option holders exercised their options on July 1, 2006. Intrinsic value is determined by calculating the difference between the Company’s closing stock price on the last trading day of the third quarter of fiscal 2006 and the exercise price, multiplied by the number of shares. The total intrinsic value of employee options exercised during the three and nine month periods ending July 1, 2006 was $1.0 million and $4.4 million, respectively. The total number of in-the-money employee options exercisable as of July 1, 2006 was 2.0 million. As of July 1, 2006, total unrecognized compensation cost related to unvested employee stock options was $5.9 million, which will be amortized over the weighted average remaining service period of approximately 2.2 years.

At July 1, 2006, 5.6 million shares were available for grant in connection with four employee Plans and 300 thousand shares were available for grant in connection with a director Plan.

NOTE 4 – GOODWILL AND INTANGIBLE ASSETS

The Company’s goodwill of $29.7 million as of September 30, 2005, and July 1, 2006 is included in its bonding wire business unit, which is included in the Packaging Materials Segment.

Intangible assets classified as goodwill and those with indefinite lives are not amortized. Intangible assets with determinable lives are amortized over their estimated useful life. The Company performs an annual impairment test of its goodwill and indefinite-lived intangible assets at the end of the fourth quarter of each fiscal year, which coincides with the completion of its annual forecasting process. The Company also tests for impairment between annual tests if a “triggering” event occurs that may have the effect of reducing the fair value of a reporting unit or its intangible assets below their respective carrying values. No triggering events occurred during the nine months ended July 1, 2006 that would have the effect of reducing the fair value of the bonding wire business unit’s goodwill below its carrying value. When conducting its goodwill impairment analysis, the Company calculates its potential impairment charges based on the two-step test identified in SFAS 142 and using the estimated fair value of the respective reporting units. The Company uses the present value of future cash flows from the respective reporting units to determine the estimated fair value of the reporting unit and the implied fair value of goodwill.

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NOTE 5 – INVENTORIES

Inventories consist of the following:

	(in thousands)
	September 30, 2005			July 1, 2006
Raw materials and supplies	$	32,337		$	39,917
Work in process		11,771			8,664
Finished goods		11,396			11,479
		55,504			60,060
Inventory reserves		(9,389	)		(8,713	)
	$	46,115		$	51,347

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	(in thousands)
	September 30, 2005			July 1, 2006
Land	$	1,431		$	117
Buildings and building improvements		20,991			5,120
Machinery and equipment		100,653			104,372
Leasehold improvements		9,636			10,004
		132,711			119,613
Accumulated depreciation		(100,796	)		(91,370	)
	$	31,915		$	28,243

During fiscal 2005, the Company entered into a direct financing arrangement involving the sale and leaseback of land and a building housing its corporate headquarters in Willow Grove, Pennsylvania. In accordance with SFAS 98, “Accounting for Leases”, the Company kept the land and building on its financial statements and recorded the cash received of $10.6 million as debt (See Note 7 – Debt for additional information). In the three months ended July 1, 2006, the Company exited this Facility and has no continuing involvement in the Facility, accordingly, it recognized a gain of approximately $4.5 million on the sale of the land and building, and the land, building and remaining debt outstanding were removed from the Company’s financial statements.

NOTE 7 – DEBT

The Company’s debt consists of the following:

						(in thousands)
Type	Fiscal Year of Maturity	Conversion Price		Rate		September 30, 2005		July 1, 2006
Convertible Subordinated Notes	2009	$	20.33	0.50	%	$	205,000	$	130,000
Convertible Subordinated Notes	2010	$	12.84	1.00	%		65,000		65,000
						$	270,000	$	195,000

The $130.0 million of 0.5% Convertible Subordinated Notes mature on November 30, 2008, are general obligations of the Company and are subordinated to all senior debt. The notes rank equally with the Company’s 1.0% Convertible Subordinated Notes (described below). There are no financial covenants associated with the notes and there are no restrictions on incurring additional debt or issuing or repurchasing our securities. Interest on the notes is payable on May 30 and November 30 of each year.

The $65.0 million of 1.0% Convertible Subordinated Notes mature on June 30, 2010. The conversion rights of these notes may be terminated on or after June 30, 2006 if the closing price of our common stock has exceeded 140% of the conversion price then in effect for at least 20 trading days within a period of 30 consecutive trading days. The notes are

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general obligations of the Company and are subordinated to all senior debt. The notes rank equally with our 0.5% Convertible Subordinated Notes. There are no financial covenants associated with the notes and there are no restrictions on incurring additional debt or issuing or repurchasing our securities. Interest on the notes is payable on June 30 and December 30 of each year.

On February 14, 2006, the Company purchased a portion of its outstanding 0.5% Convertible Subordinated Notes having an aggregate principal outstanding amount of $52.2 million for consideration consisting of 2.5 million shares of common stock with an aggregate fair value of $29.5 million and $18.7 million in cash. On February 16, 2006, the Company purchased an additional portion of its outstanding 0.5% Convertible Subordinated Notes having an aggregate principal outstanding amount of $22.8 million for consideration consisting of 1.1 million shares of common stock with an aggregate fair value of $13.2 million and $8.0 million in cash. In accordance with Accounting Principles Board Opinion APB 26 “Early Extinguishment of Debt” (“APB 26”), the Company recorded a net gain on the transactions of $4.0 million, net of deferred financing cost write-offs of $1.3 million and transaction costs of $0.4 million.

In accordance with SFAS No. 98, “Accounting for Leases”, during fiscal 2005, the Company recorded debt of $10.6 million, as part of accounting for a sale-leaseback transaction as a direct financing arrangement. Monthly lease payments of $100 thousand, which are allocated by the Company to interest expense and amortization of the debt, were paid through May 2006 at which time a gain of approximately $4.5 million on the sale of the land and building was recognized, and the land, building and remaining debt outstanding were removed from the Company’s financial statements. Interest expense was calculated using the Company’s incremental borrowing rate, which is estimated to be 6.0%.

NOTE 8 - EARNINGS PER SHARE

Basic net income (loss) per share is calculated using the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net income (loss) per share assumes the exercise of stock options and the conversion of convertible securities to common shares unless the inclusion of these will have an anti-dilutive impact on net income (loss) from continuing operations per share. In addition, in computing diluted net income (loss) per share, if convertible securities are assumed to be converted to common shares, the after-tax amount of interest expense recognized in the period associated with the convertible securities is added back to net income. For the three and nine months ended June 30, 2005, the exercise of stock options and conversion of the 1.0% and 0.5% Convertible Subordinated Notes were assumed and $0.4 million and $1.3 million, respectively, of interest expense related to our Convertible Subordinated Notes was added to the Company’s net income to determine diluted earnings per share. For the three and nine months ended July 1, 2006, the exercise of stock options and conversion of the 1.0% and 0.5% Convertible Subordinated Notes were assumed and $0.3 million and $1.1 million, respectively, of interest expense related to our Convertible Subordinated Notes was added to the Company’s net income to determine diluted earnings per share.

A reconciliation between the weighted average number of basic shares outstanding and the weighted average number of fully diluted shares outstanding appears below:

	(In thousands)
	Three months ended		Nine months ended
	June 30, 2005	July 1, 2006	June 30, 2005	July 1, 2006
Weighted average shares outstanding - Basic	51,813	56,735	51,512	54,422
Potentially dilutive securities:
Employee stock options	625	827	788	1,008
1.0 % Convertible subordinated notes	5,062	5,062	5,062	5,062
0.5 % Convertible subordinated notes	10,084	6,394	10,084	8,247
Total potentially dilutive securities	15,771	12,283	15,934	14,317
Weighted average shares outstanding - Diluted	67,584	69,018	67,446	68,739

Diluted earnings per share for the three and nine months ended July 1, 2006, excludes approximately 4.7 million and 4.9 million potential common shares, respectively, related to certain options granted under our stock option plans because the option exercise price was greater than the average market price of our common stock.

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NOTE 9 – RESIZING

The semiconductor industry experienced excess capacity and a severe contraction in demand for semiconductor manufacturing equipment during fiscal 2001, 2002 and most of 2003. In response to these changes in the semiconductor industry, the Company developed formal resizing plans to align its cost structure with anticipated revenue levels. Accounting for resizing activities requires an evaluation of formally agreed upon and approved plans. The Company documented and committed to these plans to reduce spending, which included facility closings and reductions in workforce. The Company recorded the expense associated with these plans in the period the Company committed to carry out the plans. Although the Company attempted to consolidate all known resizing activities into one plan, the extreme cycles and rapidly changing forecasting environment placed limitations on achieving this objective. The recognition of a resizing event does not necessarily preclude similar but unrelated actions in future periods.

In summary, provisions for resizing plans were recorded during the second, third and fourth quarters of fiscal 2002. These charges were for:

• Closure of substrate operations;

• Reduction in headcount and consolidation of manufacturing operations in the Company’s former test business segment; and

• Functional realignment of business management and the consolidation and closure of certain facilities. The severance and benefits obligation related to the resizing plans discussed above has been satisfied. A summary of the charges, reversals and payments related to the lease and related facility commitments of the resizing activities during the first three quarters of fiscal 2006, and fiscal 2005, 2004, 2003 and 2002 are as follows:

	(in thousands)
	Commitments
Provision for resizing plans in fiscal 2002 continuing operations	$	9,282
Payment of obligations		(300	)
Balance, September 30, 2002		8,982
Payment of obligations		(3,192	)
Balance, September 30, 2003		5,790
Payment of obligations		(2,619	)
Balance, September 30, 2004		3,171
Payment of obligations		(2,064	)
Balance, September 30, 2005		1,107
Payment of obligations		(944	)
Balance, July 1, 2006	$	163

The remaining commitments, which are primarily for lease and related facility obligations, are expected to be paid out through September 2006.

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NOTE 10 – COMPREHENSIVE INCOME (LOSS)

The components of total comprehensive income (loss) are as follows:

	(in thousands)						(in thousands)
	Three months ended						Nine months ended
	June 30, 2005			July 1, 2006			June 30, 2005			July 1, 2006
Net income (loss) (including discontinued operations)	$	(101,841	)	$	14,765		$	(116,705	)	$	39,343
Foreign currency translation adjustment		(1,223	)		264			1,088			655
Unrealized gain on investments, net of taxes		20			(13	)		31			(8	)
Other comprehensive income (loss)		(1,203	)		251			1,119			647
Total comprehensive income (loss)	$	(103,044	)	$	15,016		$	(115,586	)	$	39,990

NOTE 11 - OPERATING RESULTS BY BUSINESS SEGMENT FOR CONTINUING OPERATIONS

As noted in Note 14 – Discontinued Operations, the Company sold its test business segment during the three months ended April 1, 2006 and has eliminated its Test Segment from the following analyses. In addition, beginning with the three months ended December 31, 2005, to align its external reporting with management’s internal reporting, the Company is no longer including “Corporate and Other” as a business segment. Costs previously presented separately for this segment, which primarily consisted of general corporate expenses, have been allocated to the Company’s two remaining business segments. The business segments information for the year ago periods have been retroactively adjusted to reflect this change.

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Operating results by business segment were as follows (in thousands):

	Equipment Segment			Packaging Materials Segment		Consolidated
Quarter ended July 1, 2006:
Net revenue	$	71,054		$	98,881	$	169,935
Cost of sales		40,215			86,116		126,331
Gross profit		30,839			12,765		43,604
Operating costs		22,016			8,769		30,785
Segment operation income	$	8,823		$	3,996		12,819
Gain on sale of assets							4,544
Income from continuing operations						$	17,363
	Equipment Segment			Packaging Materials Segment		Consolidated
Nine months ended July 1, 2006:
Net revenue	$	264,888		$	270,008	$	534,896
Cost of sales		150,717			230,172		380,889
Gross profit		114,171			39,836		154,007
Operating costs		65,633			24,548		90,181
Segment operation income	$	48,538		$	15,288		63,826
Gain on sale of assets					—		4,544
Income from continuing operations						$	68,370
Segment Assets at July 1, 2006	$	208,430		$	189,343	$	397,773
	Equipment Segment			Packaging Materials Segment		Consolidated
Quarter ended June 30, 2005:
Net revenue	$	48,382		$	69,219	$	117,601
Cost of sales		28,042			57,062		85,104
Gross profit		20,340			12,157		32,497
Operating costs		16,977			7,657		24,634
Gain on sale of assets		(1,563	)		—		(1,563	)
Income from continuing operations	$	4,926		$	4,500	$	9,426
	Equipment Segment			Packaging Materials Segment		Consolidated
Nine months ended June 30, 2005:
Net revenue	$	116,716		$	196,853	$	313,569
Cost of sales		67,926			160,341		228,267
Gross profit		48,790			36,512		85,302
Operating costs		47,951			23,267		71,218
Gain on sale of assets		(1,563	)		—		(1,563	)
Income from continuing operations	$	2,402		$	13,245	$	15,647
Segment Assets at June 30, 2005	$	131,167		$	188,787	$	319,954

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NOTE 12 – GUARANTOR OBLIGATIONS, COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS

Guarantor Obligations

The Company has issued standby letters of credit for employee benefit programs, a facility lease, and a customs bond, and its wire manufacturing subsidiaries have issued a guarantee for payment under its gold supply financing arrangement. In the three months ended July 1, 2006, the Company renewed its gold supply agreement for a two year term. This gold supply agreement requires the Company to maintain a credit facility to secure its obligations to the supplier. Accordingly, in the three months ended July 1, 2006 the Company entered into a credit facility with a bank in an amount up to $20 million. The term of the credit facility is two years, but it is granted on an uncommitted basis and is repayable on demand. In connection with this credit facility the Company granted the bank a security interest in its assets related to the manufacture and sale of gold wire, including all gold inventory and all accounts receivable arising from the sale of gold wire and the proceeds thereof. The credit facility contains financial and non-financial covenants, all of which the Company is in compliance. The financial covenants contain restrictions on the Company’s gold wire manufacturing subsidiaries’ net worth, ratio of total liabilities to EBITDA, and that subsidiary’s ability to pay dividends.

The table below identifies the guarantees under the standby letters of credit.

		(in thousands)
Nature of guarantee	Term of guarantee	Maximum obligation under guarantee
Security for the Company’s gold financing arrangement	Expires June 2008	$	20,000
Security deposit for employee health benefit payments	Expires June 2007		1,170
Security deposit for payment of employee worker compensation benefits	Expires October 2006		926
Security deposit for customs bond	Expires July 2006		100
		$	22,196

The Company’s products are generally shipped with a one- or two-year warranty against manufacturing defects, and the Company does not offer extended warranties in the normal course of its business. The Company reserves for estimated warranty expense when revenue for the related product is recognized. The reserve for estimated warranty expense is based upon historical experience and management estimates of future expenses.

The table below details the activity related to the Company’s reserve for product warranties which is included in accrued expenses in the balance sheet:

	(in thousands)						(in thousands)
	Three months ended						Nine months ended
	June 30, 2005			July 1, 2006			June 30, 2005			July 1, 2006
Reserve for product warranty at beginning of period	$	508		$	1,037		$	956		$	853
Provision for product warranty expense		498			344			996			1,578
Product warranty costs incurred		(449	)		(459	)		(1,395	)		(1,509	)
Reserve for product warranty at end of period	$	557		$	922		$	557		$	922

Commitments and Contingencies

The Company orders inventory components in the normal course of its business. A portion of these orders are non-cancelable and a portion have varying penalties and charges in the event of cancellation. The total amount of the Company’s inventory purchase commitments, which do not appear on its balance sheet as of July 1, 2006, was $30.0 million.

In September 2004, the tax authority in Singapore notified the Company that it believes Goods and Services Tax (“GST”) in the amount of $3.3 million is owed on the return of gold scrap to the Company’s former gold supplier over the period

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from 1998 to 2004. The Company does not agree with this assessment and has filed an objection. In the event the Company is unsuccessful in its objection and subsequent appeal, if necessary, the Company believes it will recover the cost from its former gold supplier. For these reasons, no accrual for this contingency has been included in the Company’s financial statements. The Company believes that resolution of this matter may take two to three years.

Concentrations

Sales to a relatively small number of customers account for a significant percentage of the Company’s net sales. Sales to Advanced Semiconductor Engineering and ST Microelectronics accounted for 18% and 12%, respectively, of the Company’s net sales for the nine months ended July 1, 2006. During the nine months ended June 30, 2005, sales to Advanced Semiconductor Engineering, ST Microelectronics and Intel accounted for 13%, 10% and 10%, respectively, of the Company’s net sales. No other customer accounted for 10% or more of total net sales during the nine months ended July 1, 2006 or June 30, 2005. The Company expects that sales of its products to a limited number of customers will continue to account for a high percentage of net sales for the foreseeable future. At September 30, 2005, Advanced Semiconductor Engineering and Siliconware Precision Industries each accounted for 14% of total accounts receivable. At July 1, 2006, Advanced Semiconductor Engineering accounted for 22.9% of total accounts receivable. No other customer accounted for more than 10% of total accounts receivable at September 30, 2005 or July 1, 2006.

The Company relies on subcontractors to manufacture to the Company’s specifications many of the components and subassemblies used in its products. Certain of the Company’s products require components or parts of an exceptionally high degree of reliability, accuracy and performance for which there are only a limited number of suppliers or for which only a single supplier has been accepted by the Company as a qualified supplier.

NOTE 13 – EMPLOYEE BENEFIT PLANS

The Company has a non-contributory defined benefit pension plan covering substantially all U.S. employees who were employed on September 30, 1995. The benefits for this plan were based on the employees’ years of service and the employees’ compensation during the earlier of the three years before retirement or the three years before December 31, 1995. Effective December 31, 1995, the benefits under the Company’s pension plan were frozen. As a consequence, accrued benefits no longer change as a result of an employee’s length of service or compensation. The Company’s funding policy complies with the funding requirements of Federal law and regulations.

Net periodic pension cost for the nine months ended July 1, 2006 for this plan was approximately $335 thousand and included interest costs of approximately $804 thousand and a net actuarial loss of approximately $511 thousand, offset by an expected return on plan assets of $977 thousand. During the nine months ended July 1, 2006, the Company funded this plan by contributing 200,000 shares of Company stock valued at $1.8 million using the market price of the Company’s stock on the date of the contribution to value the funding.

Net periodic pension costs for the nine months ended June 30, 2005, were approximately $365 thousand and included interest costs of $835 thousand and amortization of net loss of $477 thousand, offset by expected return on plan assets of $947 thousand. During the nine months ended June 30, 2005, the Company funded this plan by contributing 215,000 shares of Company stock valued at $1.5 million using the market price of the Company’s stock on the date of the contribution to value the funding.

The Company has a 401(k) Employee Incentive Savings Plan. This plan allows for employee contributions and matching Company contributions in varying percentages, depending on employee age and years of service, ranging from 50% to 175% of the employees’ contributions. The Company’s contributions under this plan in the nine months ended July 1, 2006 was $1.2 million and in the nine months ended June 30, 2005 was $1.0 million and were satisfied by contributions of shares of Company common stock, valued at the market price on the date of the matching contribution.

NOTE 14 – DISCONTINUED OPERATIONS

During the three months ended April 1, 2006, the Company committed to a plan of disposal and sold its test business in two separate transactions as follows:

1. On March 3, 2006, the Company completed the sale of substantially all of the assets and certain of the liabilities of our wafer test business to SV Probe, PTE. Ltd. (“SV Probe”) for initial proceeds of $10.0 million in cash plus the assumption of accounts payable and certain other liabilities, subject to a post-closing working capital adjustment that was settled in the three months ended July 1, 2006. Certain accounts receivable were excluded from the assets sold.

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2. On March 31, 2006, the Company completed the sale of substantially all of the assets and certain of the liabilities of our package test business to Antares conTech, Inc., an entity formed by Investcorp Technology Ventures II, L.P. and its affiliates (collectively “Investcorp”) for initial proceeds of $17.0 million in cash plus the assumption of accounts payable and certain other liabilities, subject to a post-closing working capital adjustment that was settled in the three months ended July 1, 2006.

The Company sold the test business to allow management to strengthen its focus on its core businesses – semiconductor assembly equipment and materials – and explore growth opportunities in these markets.

As part of the terms of each sale noted above, the associated China-based assets were not transferred to the buyers on the above referenced closing dates, as neither buyer had a legal entity in China that could accept the transfer of the China-based assets as of the closing date. The net book values of the China-based assets sold (and liabilities assumed) are included in the balance sheets (classified as assets and liabilities held for sale) as of July 1, 2006 and September 30, 2005. The closings related solely to the China-based assets are expected to occur within six months of each of the March closings, without additional consideration. In addition, we are providing manufacturing and other transition services to SV Probe and Investcorp for periods not expected to exceed six months from the respective closing dates noted above. As part of the terms of each sale noted above the Company may be required to adjust the purchase price to reflect certain accounts receivable that are not collected within specified time limits.

In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the financial results of the test business have been presented as discontinued operations in the condensed consolidated financial statements for all periods presented.

The test segment was sold prior to the three months ended July 1, 2006, but had revenue of $42.7 million for the period beginning October 1, 2005 through March 31, 2006. This former segment reported revenue of $20.6 million and $65.8 million for the three and nine month periods ended June 30, 2005, respectively. The loss from the test segment’s operations from October 1, 2005 through July 1, 2006 was $24.7 million, including a loss on disposal of $773 thousand, net of a benefit from income taxes of $1.0 million. Included in the loss are the loss from discontinued operations of $10.6 million, and accrued severance and facilities costs of approximately $6.1 million and $6.1 million, respectively. The facilities costs of $6.1 million are based on estimates of sublease income from the affected facilities. These estimates of sublease income are subject to change, and such changes could result in an increase or decrease to the estimated facilities charges previously recorded. These payments are expected to be paid out through September 2012. The loss from the test segment’s operations for the three and nine month periods ended June 30, 2005 was $112.6 million and $129.5 million, respectively.

	(in thousands)
	Severance and related benefits			Facilities			Total
Provisions recorded during three months ended April 1, 2006	$	6,000		$	6,138		$	12,138
Provisions recorded during three months ended July 1, 2006		161			—			161
Payment of obligations		(3,329	)		(375	)		(3,704	)
Balance, July 1, 2006	$	2,832		$	5,763		$	8,595

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

In addition to historical information, this report contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor provisions created by statute. Such forward-looking statements include, but are not limited to, statements that relate to the business cycle of the semiconductor assembly equipment industry, our future revenue, operating expenses, cost structure, costs, amortization expenses, restructuring charges, research and development expenses, gross margins, working capital needs, liquidity and capital requirements, cash flows and cash reserves, and to our product development, product quality, demand forecasts, competitiveness, and the benefits expected as a result of:

• the projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment market and the market for semiconductor packaging materials;

• the successful operation of our existing businesses, development and introduction of new products and our business’ expected growth rate;

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• cost reduction initiatives; and

• the projected continuing demand for wire bonders.

Generally words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “goal,” “continue,” and “believe,” or the negative of or other variations on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this report. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements are based on current expectations and involve risks and uncertainties and our future results could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described below under the heading “Risk Factors” within this section and in our reports and registration statements filed from time to time with the Securities and Exchange Commission. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes of this Form 10-Q and the Audited Financial Statements and Notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended September 30, 2005 for a more complete understanding of our financial position and results of operations.

INTRODUCTION

We design, manufacture and market capital equipment and packaging materials as well as service, maintain, repair and upgrade equipment, all used to assemble semiconductor devices. We are currently the world’s leading supplier of semiconductor wire bonding assembly equipment, according to VLSI Research, Inc.’s 2005 Market Share Data Report. Our business is currently divided into two product segments:

• Equipment;

• Packaging materials

We believe we are the only major supplier to the semiconductor assembly industry that can provide customers with semiconductor wire bonding equipment along with the complementary packaging materials. We believe that the ability to control these assembly related products provides us with a significant competitive advantage and should allow us to develop system solutions to the new technology challenges inherent in assembling and packaging next-generation semiconductor devices.

During the three months ended April 1, 2006, we committed to a plan of disposal and sold our test business in two separate transactions as follows:

1. On March 3, 2006, we completed the sale of substantially all of the assets and certain of the liabilities of our wafer test business to SV Probe, PTE. Ltd. (“SV Probe”) for initial proceeds of $10.0 million in cash plus the assumption of accounts payable and certain other liabilities, subject to a post-closing working capital adjustment that was settled in the three months ended July 1, 2006. Certain accounts receivable were excluded from the assets sold.

2. On March 31, 2006, we completed the sale of substantially all of the assets and certain of the liabilities of our package test business to Antares conTech, Inc., an entity formed by Investcorp Technology Ventures II, L.P. and its affiliates (collectively “Investcorp”) for initial proceeds of $17.0 million in cash plus the assumption of accounts payable and certain other liabilities, subject to a post-closing working capital adjustment that was settled in the three months ended July 1, 2006.

We sold the test business to allow management to strengthen our focus on our core businesses – semiconductor assembly equipment and materials – and explore growth opportunities in these markets.

As part of the terms of each sale noted above, the associated China-based assets were not transferred to the buyers on the above referenced closing dates, as neither buyer had a legal entity in China that could accept the transfer of the China-based assets as of the closing date. The net book values of the China-based assets sold (and liabilities assumed) are included in the balance sheets (classified as assets and liabilities held for sale) as of July 1, 2006 and September 30, 2005. The closings related solely to the China-based assets are expected to occur within six months of each of the March closings, without additional consideration. In addition, we are providing manufacturing and other transition services to SV Probe and Investcorp for periods not expected to exceed six months from the respective closing dates noted above. Also, as part of the terms of each sale noted above we may be required to adjust the purchase price to reflect certain accounts receivable that are not collected within specified time limits.

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In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the financial results of the test business have been presented as discontinued operations in the condensed consolidated financial statements for all periods presented. See Note 14 in Notes to Condensed Consolidated Financial Statements for further discussion of the divestiture of our test business.

Unless otherwise indicated, amounts provided throughout this Form 10-Q relate to continuing operations only.

The semiconductor industry historically has been volatile, with periods of rapid growth followed by downturns. One such upturn began in the second quarter of fiscal 2005 and continued through the first quarter of fiscal 2006. We then experienced lower quarterly revenues during both the second and third quarters of fiscal 2006 from $204.6 million in the first fiscal quarter of 2006, as industry-wide demand for automatic ball bonders decreased. As we look ahead, we expect net revenue to be in the $135 to $145 million range, excluding any impact from fluctuations in gold pricing, for the fourth fiscal quarter ending September 30, 2006. There can be no assurances regarding levels of demand for our products, and in any case, we believe the historical volatility – both upward and downward – will persist.

We have continued to lower our cost structure by consolidating operations, moving certain of our manufacturing capacity to China, moving a portion of our supply chain to lower cost suppliers and designing better but lower cost equipment. Cost reduction efforts have become an important part of our normal ongoing operations and we believe this will drive down our cost structure below current levels, while not diminishing our product quality. In doing so, we expect to incur additional quarterly expenses as a result of these cost reduction programs. Our goal is to be both the technology leader and the lowest cost supplier in each of our major lines of business.

Products and Services

We offer a range of wire bonding equipment and packaging materials. Set forth below is a table listing the percentage of our total net revenues for each business segment for the three and nine months ended June 30, 2005 and July 1, 2006, respectively:

	Three months ended				Nine months ended
	June 30, 2005		July 1, 2006		June 30 2005		July 1, 2006
Equipment	41.1	%	41.8	%	37.2	%	49.5	%
Packaging materials	58.9	%	58.2	%	62.8	%	50.5	%
	100.0	%	100.0	%	100.0	%	100.0	%

Our equipment sales can be highly volatile, based on the semiconductor industry’s need for new capability and capacity, whereas sales at our packaging materials business segment tend to follow the trend of total semiconductor unit production.

Equipment

We manufacture and market a line of wire bonders, which are used to connect very fine wires, typically made of gold, aluminum or copper, between the bond pads of a semiconductor die and the leads on the integrated circuit (IC) package to which the die has been attached. We believe that our wire bonders offer competitive advantages by providing customers with high productivity/throughput and superior package quality/process control. In particular, our machines are capable of performing very fine pitch bonding as well as creating the sophisticated wire loop shapes that are needed in the assembly of advanced semiconductor packages. Our principal products are:

Ball Bonders. Automatic IC ball bonders represent a large majority of our semiconductor equipment business. As part of our competitive strategy, we have been introducing new models of IC ball bonders every 15 to 24 months, with each new model designed to increase both productivity and process capability compared to its predecessor. In 2005, we extended the life of the successful Maxum product line, introducing the Maxum Ultra to succeed the Maxum Plus and the Maxum Elite to succeed the Nu-Tek. Each of these machines provides approximately a 10% productivity improvement over its predecessor and offers various other performance improvements.

Specialty Wire Bonders. We also produce other models of wire bonders, targeted at specific market niches, including: the Model 8098, a large area ball bonder designed for wire bonding hybrid applications, chip on board applications, and other large area applications; and the Model 8090, a large area wedge bonder. We also introduced a new model wafer stud bumper during the fourth quarter of 2005, the AT Premier^™. The AT Premier^™ is targeted for gold-to-gold interconnect in the flip chip

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market. With industry-leading speed and technology, the machine lowers the cost of ownership for stud bumping, enabling a wider range of applications than previously served. We also manufacture and market a line of manual wire bonders.

Packaging Materials

We manufacture and market a range of semiconductor packaging materials and expendable tools for the semiconductor assembly market, including gold, aluminum and copper wire, capillaries, wedges, die collets and saw blades, all of which are used in packaging and assembly processes. Our packaging materials are designed for use on both our own and our competitors’ assembly equipment. A wire bonder uses a capillary or wedge tool and bonding wire much like a sewing machine uses a needle and thread. Our principal products are:

Bonding Wire. We manufacture gold, aluminum and copper wire used in the wire bonding process. This wire is bonded to the chip surface and package substrate by the wire bonder and becomes a permanent part of the customer’s semiconductor package. We produce wire to a wide range of specifications, which can satisfy most wire bonding applications across the spectrum of semiconductor packages.

Expendable Tools. Our expendable tools include a wide variety of capillaries, wedges, die collets and wafer saw blades. The capillaries and wedges actually attach the wire to the semiconductor chip, allow a precise amount of wire to be fed out to form a permanent wire loop, and then attach the wire to the package substrate, and finally cut the wire so that the bonding process can be repeated again. Die collets are used to pick up and place die into packages before the wire bonding process begins. Our hub blades are used to cut silicon wafers into individual semiconductor die.

RESULTS OF OPERATIONS

Bookings and Backlog

During the three months ended July 1, 2006, we recorded bookings of $169.0 million, compared to $136.8 million in the quarter ended June 30, 2005 and $154.4 million in the quarter ended April 1, 2006. The increase in bookings during the three months ended July 1, 2006 compared to the same period a year ago was caused by an increase in bookings within both our Equipment and Packaging Materials segments caused by increased industry-wide demand for our products. A booking is recorded when a customer order is reviewed and a determination is made that all specifications can be met, production (or service) can be scheduled, a delivery date can be set, and the customer meets our credit requirements. As of July 1, 2006, we had a backlog of customer orders totaling $59.0 million, compared to $75.0 million at June 30, 2005, $60.0 million at April 1, 2006, and $66.0 million at December 31, 2005. Our bookings and backlog as of any date may not be indicative of net revenues for any succeeding period, since the timing of deliveries may vary and orders generally are subject to delay or cancellation.

Net Revenue

Business segment net revenues during the three and nine months ended June 30, 2005 and July l, 2006, respectively, were as follows:

	(dollar amounts in thousands)						(dollar amounts in thousands)
	Three months ended						Nine months ended
	June 30, 2005		July 1, 2006		% Change		June 30 2005		July 1, 2006		% Change
Equipment	$	48,382	$	71,054	46.9	%	$	116,716	$	264,888	127.0	%
Packaging materials		69,219		98,881	42.9	%		196,853		270,008	37.2	%
	$	117,601	$	169,935	44.5	%	$	313,569	$	534,896	70.6	%

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Included in the revenue for the package material segment is gold metal value that is generally passed through to the customer. The amount of gold metal value included in revenue in the third quarter of 2006 is $75.3 million compared to $47.3 million in the three month period ending June 30, 2005. The amount in the nine month period ending July 1, 2006 is $198.5 million compared to $131.6 million for the nine month period ending June 30, 2005. These same amounts are included in the cost of sales.

Overall, net revenue for the three months ended July 1, 2006 increased $52.3 million, or 44.5% from the same period in the prior year. For the nine months ended July 1, 2006 net revenue increased $221.3 million or 70.6% compared to the nine months ended June 30, 2005. Sequentially, quarterly net revenue increased $9.6 million, or 6.0%, to $169.9 million during the three months ended July 1, 2006 from $160.3 million in the three months ended April 1, 2006, primarily due to higher gold wire volume and higher gold prices. Following is a review of net revenue by business segment.

For the three months ended July 1, 2006, net revenue for our Equipment segment increased 46.9% to $71.1 million from $48.4 million in the same period a year ago. This increase in revenue was due to a 65.6% increase in unit sales of our automatic ball bonders, caused by increased industry-wide demand for automatic ball bonders. Average selling prices decreased 2.2% during the three months ended July 1, 2006, compared to the year ago quarter due to market conditions and customer mix. Sequentially, quarterly net revenue for our Equipment segment decreased $2.1 million, or 2.9%, to $71.1 million during the three months ended July 1, 2006 from $73.2 million in the three months ended April 1, 2006, as industry-wide demand for automatic ball bonders decreased.

For the nine months ended July l, 2006, net revenue for the Equipment segment increased 127.0% to $264.9 million from $116.7 million in the same period a year ago. The increase in revenue was due to a 172.7% increase in unit sales of our automatic ball bonders, caused by increased industry-wide demand for automatic ball bonders. Average selling prices decreased 3.3% during the nine months ended July 1, 2006, compared to the year ago period.

Our packaging materials segment net revenue increased 42.9% to $98.9 million during the three months ended July 1, 2006, from $69.2 million during the same period a year ago. The $29.7 million increase in packaging materials revenue primarily resulted from a $6.5 million increase in volume of wire sold (measured in Kft) and a $22.5 million increase in gold wire average selling prices caused by an increase in the price of gold. Gold wire selling prices are heavily dependent upon the price of gold and can fluctuate significantly from period to period. The remaining $0.7 million increase in package materials revenue was primarily due to a 11.5% increase in capillary unit sales that was partially offset by an 6.0% reduction in average selling prices caused by competitive pricing pressures.

For the nine months ended July 1, 2006, our packaging materials segment net revenue increased 37.2% to $270.0 million from $196.9 million during the same period a year ago. The $73.2 million increase in packaging materials revenue primarily resulted from a $69.8 million increase in wire revenue. Of the $69.8 million increase in wire revenue, $29.8 million was due to increased volumes of wire sold (measured in Kft) and $40.0 million was due to an increase in gold wire average selling prices caused by an increase in the price of gold. The remaining $3.4 million increase in package materials revenue was due to a 13.9% increase in capillary unit sales that was partially offset by a 8.7% reduction in average selling prices caused by competitive pricing pressures.

The majority of our revenues are from customers that are located outside of the United States or that have manufacturing facilities outside of the United States. Shipments of our products with ultimate foreign destinations comprised 95% of our total sales in the first nine months of fiscal 2006 compared to 86% in the first nine months of the prior fiscal year. The majority of these foreign sales were destined for customer locations in the Asia/Pacific region, including Taiwan, Malaysia, China, Korea, Singapore, and Japan. Taiwan accounted for the largest single destination for our product shipments with 25% of our shipments in the first nine months of fiscal 2006 compared to 21% of our shipments in the year ago period.

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Gross Profit

Business segment gross profit and gross margin percentage during the three and nine months ended June 30, 2005 and July 1, 2006 were as follows:

	(dollar amounts in thousands)								(dollar amounts in thousands)
	Three Months Ended								Nine Months Ended
	June 30, 2005		% Sales		July 1, 2006		% Sales		June 30, 2005		% Sales		July 1, 2006		% Sales
Equipment	$	20,340	42.0	%	$	30,839	43.4	%	$	48,790	41.8	%	$	114,171	43.1	%
Packaging materials		12,157	17.6	%		12,765	12.9	%		36,512	18.5	%		39,836	14.8	%
	$	32,497	27.6	%	$	43,604	25.7	%	$	85,302	27.2	%	$	154,007	28.8	%

Overall, gross profit increased $11.1 million during the three months ended July 1, 2006 and $68.7 million during the nine months ended July 1, 2006, compared to the same periods in the prior year. The higher gross profit during these periods was primarily due to stronger sales driven by increased industry-wide demand, particularly for automatic ball bonders sold within our equipment segment. Gross margin (which represents gross profit divided by revenue) decreased to 25.7% during the three months ended July 1, 2006, from 27.6% in the year-ago period. For the nine months ended July 1, 2006 gross margin increased to 28.8% from 27.2% during the same period a year ago. The increase in gross margin for the nine month periods was primarily due to a product mix shift to higher margin equipment sales from lower margin packaging materials segment sales.

For the three months ended July 1, 2006, our equipment segment gross profit increased $10.5 million to $30.8 million from $20.3 million in the same period a year ago, as industry-wide demand for automatic ball bonders increased sharply. Gross margin during the three months ended July 1, 2006 increased to 43.4%, from 42.0% in the same period a year ago. The increase in gross margin was primarily due to an overall reduction in the unit cost of the Company’s latest generation of automatic ball bonders recently introduced, and to a lesser extent manufacturing efficiencies resulting from the increased production volumes during the three months ended July 1, 2006, compared to the same period a year ago.

For the nine months ended July 1, 2006, our equipment segment gross profit increased $65.4 million, compared to the same period a year ago, as industry-wide demand for automatic ball bonders increased sharply. Gross margin increased to 43.1% from 41.8% for the same period a year ago. The increase was primarily due to an overall reduction in the unit cost of our latest generation of automatic ball bonders, and to a lesser extent manufacturing efficiencies resulting from the increased production volumes during the nine months ended July 1, 2006 compared to the same period a year ago. A decline in average selling prices due to market conditions and customer mix during the nine months ended July 1, 2006 partially offset the overall increase in gross margin during this same period a year ago.

Our packaging materials segment gross profit increased $0.6 million to $12.8 million during the quarter ended July l, 2006, from $12.2 million during the same period a year ago. This increase was primarily due to increased sales of gold wire and expendable tools. Our packaging materials segment gross margin declined to 12.9% during the three months ended July 1, 2006 from 17.6% in the same period a year ago. The 42.9% increase in packaging materials revenue driven primarily by a 43.2% increase in gold metal pricing contributed to the decline in gross margin during the three months ended July 1, 2006, compared to the same period a year ago, as wire sales have a lower gross margin than the rest of our package materials products. The wire sales increase was influenced by the increase in the gold metal price.

Our packaging materials segment gross profit increased $3.3 million to $39.9 million during the nine months ended July 1, 2006, from $36.5 million during the same period a year ago. This increase was primarily due to increased sales of gold wire and expendable tools. Our packaging materials gross margin declined to 14.8% from 18.6% for the year ago period. A 45.0% increase in bonding wire revenue contributed to the decline in gross margins during the nine months ended July 1, 2006, compared to the same period a year ago driven primarily by a 26.7% increase in gold metal pricing.

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Operating Expenses

Operating expenses during the three and nine months ended June 30, 2005 and July 1, 2006 were as follows:

	(dollar amounts in thousands)										(dollar amounts in thousands)
	Three Months Ended										Nine Months Ended
	June 30, 2005			% Sales		July 1, 2006			% Sales		June 30, 2005			% Sales		July 1, 2006			% Sales
Selling, general and administrative	$	17,299		14.7	%	$	20,742		12.2	%	$	50,198		16.0	%	$	62,076		11.6	%
Research and development		7,335		6.2	%		10,043		5.9	%		21,020		6.7	%		28,105		5.3	%
Sales of assets		(1,563	)	-1.3	%		(4,544	)	-2.7	%		(1,563	)	-0.5	%		(4,544	)	-0.8	%
	$	23,071		19.6	%	$	26,241		15.4	%	$	69,655		22.2	%	$	85,637		16.0	%

Selling, General and Administrative

Selling, General and Administrative (“SG&A”) expenses for the three and nine months ended July 1, 2006 increased $3.4 million and $11.9 million, respectively, from the same year ago periods. This increase of $3.4 million was primarily due to an increase in incentive compensation of $2.0 million, sales commissions of $0.5 million and stock-based compensation of $0.8 million. The increase of $11.9 million was due to an increase in incentive compensation of $7.7 million, sales commissions of $1.2 million and stock-based compensation of $2.2 million. Incentive compensation expense is recorded when net income and certain other performance targets are achieved. No incentive compensation expense was recorded during the three or nine months ended June 30, 2005.

Research and Development

Research and Development expense for the three and nine months ended July 1, 2006 increased $2.7 million and $7.1 million, respectively, from the same periods in the prior year. Approximately three quarters of each of the increases was caused by higher compensation costs associated with an increased headcount, as we increased our investment in the research and development of next-generation products for the ball bonder product lines, and stock-based compensation expense that was not recorded as an expense in the prior year periods. The remaining one quarter was due to increased prototype material.

Gain on Sale of Assets

During fiscal 2005, the Company entered into a direct financing arrangement involving the sale and leaseback of land and a building housing its corporate headquarters in Willow Grove, Pennsylvania. In accordance with SFAS 98, “Accounting for Leases”, the Company kept the land and building on its financial statements and recorded the cash received of $10.6 million as debt (See Note 7 – Debt for additional information). In May 2006, we exited this Facility and have no continuing involvement in the Facility, accordingly, we recognized a gain of approximately $4.5 million on the sale of the land and building, and the land, building and remaining debt outstanding were removed from our financial statements.

Interest Income and Expense

Interest income was $0.6 million and $1.1 million higher during the three and nine months ended July 1, 2006, respectively, compared to the same periods a year ago. This increase was due to higher rates of return on invested cash balances and higher invested cash balances. Interest expense in the three and nine months ended July 1, 2006 was $0.7 million and $2.5 million, compared to $1.0 million and $2.8 million in the same periods of the prior fiscal year. The respective reductions during the current year periods are due to the early extinguishment of $75.0 million of our Convertible Subordinated Notes that occurred during the three months ended April 1, 2006.

Gain on Early Extinguishment of Convertible Subordinated Notes

During the three months ended April 1, 2006, we exchanged a total of 3.6 million shares of our common stock and $26.4 million of cash for $75.0 million (face value) of our Convertible Subordinated Notes outstanding. In accordance with APB 26, “Early Extinguishment of Debt”, we recorded a gain on early extinguishment of debt of $4.0 million, net of deferred amortization costs written off of $1.3 million and transaction costs of $0.4 million, as the exchanges included a number of shares that was less than the number of shares issuable under the original conversion terms.

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Provision for Income Taxes

The provision for income taxes related to continuing operations for the three months ended July 1, 2006 of $1.4 million consists of $0.3 million for U.S. federal Alternative Minimum Taxes (AMT), $0.4 million for Pennsylvania state income taxes, and $0.7 million for accruals and interest on the earnings which are expected to be repatriated. We recorded a tax benefit of $0.1 million in discontinued operations due primarily to a reduction of U.S. federal AMT liability resulting from the divestiture of our test business.

The provision for income taxes related to continuing operations for the nine months ended July 1, 2006 of $8.5 million consists of $2.4 million for Pennsylvania state income taxes, $1.9 million for income taxes in foreign jurisdictions, $1.1 million for potential repatriation of foreign earnings, $1.8 million for accruals and interest on the earnings which are expected to be repatriated and $1.3 million of U.S. federal AMT liability which was generated primarily from the sale of certain intellectual property and distribution rights to a foreign subsidiary. For the nine months ended July 1, 2006, we reversed approximately $6.1 million of our valuation allowances on U.S. net operating loss carryforwards. This reversal reflects a decrease in the valuation allowance that primarily results from our ability to utilize federal and state net operating losses based on our taxable income through July 1, 2006. We recorded a tax benefit of $1.0 million in discontinued operations due primarily to a reduction of U.S. federal AMT liability resulting from the divestiture of our test business.

The effective tax rate from continuing operations for the three months ended July 1, 2006 and the nine months ending July 1, 2006 was 8.1% and 11.7% respectively. The effective income tax rate related to continuing operations differed from the federal statutory rate due to decreases in the valuation allowance related to tax attributes expected to be utilized in the current year to offset current earnings, state income taxes, differences in foreign tax rates from the US statutory rate, various permanent items and increases in tax reserves.

The company records a valuation allowance against deferred tax assets for which it determines that realization is not more likely than not to occur. The decrease in this valuation allowance of $3.6 million for the three months ended July 1, 2006 and $13 million for the nine months ended July 1, 2006 is due primarily to the utilization of tax attributes, for which a valuation allowance had been provided, to offset current earnings generated in those periods.

The tax benefit from continuing operations of $1.8 million in the three months ended June 30, 2005 reflects income taxes of $1.3 million on income from foreign jurisdictions, $1.5 million for additional tax contingency reserves and related interest expense and $0.7 million for the potential repatriation of foreign earnings offset by a credit of $5.3 million associated with a reduction of the valuation allowance on U.S. net operating loss carryforwards due to the planned repatriation of foreign earnings in fiscal 2006. Tax expense from continuing operations of $1.3 million in the nine months ended June 30, 2005 reflects income taxes of $2.5 million on income from foreign jurisdictions, $1.5 million for the potential repatriation of foreign earnings and $2.6 million for additional tax contingency reserves and related interest expense partially offset by a credit of $5.3 million associated with a reduction of the valuation allowance on U.S. net operating loss carryforwards due to the planned repatriation of foreign earnings in fiscal 2006.

Income From Continuing Operations

Beginning with the three months ended December 31, 2005, to align its external segment reporting with managements’ internal reporting, we are no longer including “Corporate and Other” as a business segment. Costs presented separately for this segment, which primarily consisted of general corporate expenses, have been allocated to our two remaining business segments. The business segments information for the three and nine months ended June 30, 2005 has also been retroactively adjusted to reflect this change.

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Business segment operating income from continuing operations (1) during the three and nine months ended June 30, 2005 and July 1, 2006 was as follows:

	(dollar amounts in thousands)								(dollar amounts in thousands)
	Three months ended								Nine months ended
	June 30, 2005		% Sales		July 1, 2006		% Sales		June 30, 2005		% Sales		July 1, 2006		% Sales
Equipment	$	4,926	10.2	%	$	8,823	12.4	%	$	2,402	2.1	%	$	48,538	18.3	%
Packaging materials		4,500	6.5	%		3,996	4.0	%		13,245	6.7	%		15,288	5.7	%
	$	9,426	8.0	%	$	12,819	7.5	%	$	15,647	5.0	%	$	63,826	11.9	%

(1) Business segment operating income does not reflect a $4.5 million gain recognized in the three and nine months ended July 1, 2006 on the sale of assets in income from continuing operations, as the sold assets did not relate specifically to either business segment.

The income from business segment operations for the three months ended July 1, 2006 was $12.8 million, compared to income from business segment operations of $9.4 million in the same period of the prior year. The income from business segment operations for the nine months ended July 1, 2006 was $63.8 million, compared to an income from business segment operations of $15.6 million in the same period of the prior year. The $3.4 million increase for the three months ended July 1, 2006 and $48.2 million for the nine months ended July 1, 2006 was primarily due to increased industry-wide demand for automatic ball bonders.

Discontinued Operations

During the three months ended April 1, 2006, we committed to a plan of disposal and sold our test business in two separate transactions as follows:

1. On March 3, 2006, we completed the sale of substantially all of the assets and certain of the liabilities of our wafer test business to SV Probe, PTE. Ltd. (“SV Probe”) for initial proceeds of $10.0 million in cash plus the assumption of accounts payable and certain other liabilities, subject to a post-closing working capital adjustment that was settled in the three months ended July 1, 2006. Certain accounts receivable were excluded from the assets sold.

2. On March 31, 2006, we completed the sale of substantially all of the assets and certain of the liabilities of our package test business to Antares conTech, Inc., an entity formed by Investcorp Technology Ventures II, L.P. and its affiliates (collectively “Investcorp”) for initial proceeds of $17.0 million in cash plus the assumption of accounts payable and certain other liabilities, subject to a post-closing working capital adjustment that was settled in the three months ended July 1, 2006.

We sold the test business to allow management to strengthen our focus on our core businesses – semiconductor assembly equipment and materials – and explore growth opportunities in these markets.

As part of the terms of each sale noted above, the associated China-based assets were not transferred to the buyers on the above referenced closing dates, as neither buyer had a legal entity in China that could accept the transfer of the China-based assets as of the closing date. The net book values of the China-based assets sold (and liabilities assumed) are included in the balance sheets (classified as assets and liabilities held for sale) as of July 1, 2006 and September 30, 2005. The closings related solely to the China-based assets are expected to occur within six months of each of the March closings, without additional consideration. In addition, we are providing manufacturing and other transition services to SV Probe and Investcorp for periods not expected to exceed six months from the respective closing dates noted above. Also, as part of the terms of each sale noted above we may be required to adjust the purchase price to reflect certain accounts receivable that are not collected within specified time limits.

In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the financial results of the test business have been presented as discontinued operations in the condensed consolidated financial statements for all periods presented. See Note 14 in Notes to Condensed Consolidated Financial Statements for further discussion of the divestiture of our test business.

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The test segment was sold prior to the three months ended July 1, 2006, but had revenue of $42.7 million for the period beginning October 1, 2005 through March 31, 2006. This former segment reported revenue of $20.6 million and $65.8 million for the three and nine month periods ended June 30, 2005, respectively. The loss from the test segment’s operations from October 1, 2005 through July 1, 2006 was $24.7 million, including a loss on disposal of $773 thousand, net of a benefit from income taxes of $1.0 million. Included in the loss are the loss from discontinued operations of $10.6 million, and accrued severance and facilities costs of approximately $6.1 million and $6.1 million, respectively. The facilities costs of $6.1 million are based on estimates of sublease income from the affected facilities. These estimates of sublease income are subject to change, and such changes could result in an increase or decrease to the estimated facilities charges previously recorded. These payments are expected to be paid out through September 2012. The loss from the test segment’s operations for the three and nine month periods ended June 30, 2005 was $112.6 million and $129.5 million, respectively.

	(in thousands)
	Severance and related benefits			Facilities			Total
Provisions recorded during three months ended April 1, 2006	$	6,000		$	6,138		$	12,138
Provisions recorded during three months ended July 1, 2006		161			—			161
Payment of obligations		(3,329	)		(375	)		(3,704	)
Balance, July 1, 2006	$	2,832		$	5,763		$	8,595

LIQUIDITY AND CAPITAL RESOURCES

As of July 1, 2006, total cash and investments were $109.5 million compared to $95.4 million at September 30, 2005, an increase of $14.1 million. The net cash provided by operating activities (from continuing operations) during the nine months ended July 1, 2006 of $32.1 million was primarily attributable to cash from operations of $68.2 million that was partially offset by net changes in operating assets and liabilities of $36.1 million. The net outflow of cash from operating assets and liabilities of $36.1 million was primarily due to an increase in accounts receivable and inventory resulting from increased sales levels during the nine months ended July 1, 2006. Including the net cash used in discontinued operations of $17.9 million, net cash provided by operating activities was $14.2 million during the nine months ended July 1, 2006.

The net cash used in investing activities (from continuing operations) of $7.8 million consists of purchases of short-term investments totaling $21.4 million and capital expenditures of $8.1 million offset in part by the net proceeds from the sale of marketable securities of $22.3 million. Including the net cash provided by discontinued operations of $28.9 million, which represents primarily the proceeds from the sale of the test business, net cash provided by investing activities was $21.1 million during the nine months ended July 1, 2006.

The net cash used in financing activities of $21.1 million includes $26.6 million of cash used in the early extinguishment of $75.0 million (face value) of our Convertible Subordinated Notes that is partially offset by proceeds from the exercise of employee stock options of $5.6 million.

We expect that our primary need for cash for the next twelve months will be to provide the working capital necessary to meet our expected production and sales levels and to make the necessary capital expenditures to enhance our production and operating activities. We expect our fiscal 2006 capital expenditure needs to be approximately $10.0 million, as compared with $12.5 million in fiscal 2005. We expect fiscal 2006 capital expenditures to be primarily for our operations infrastructure at our Asia/Pacific locations and our new corporate headquarters in Fort Washington, Pennsylvania. We financed our working capital needs and capital expenditure needs in fiscal 2005 through internally generated funds from our equipment and packaging materials businesses and expect to continue to generate cash from operating activities in fiscal 2006 or use cash and investments on hand to meet our cash needs. We may use the excess cash generated from our equipment and packaging materials businesses and cash and investments on hand to fund strategic business opportunities, including possible acquisitions, or to repurchase a portion of our convertible subordinated notes.

Under generally accepted accounting principles, certain obligations and commitments are not required to be included in the consolidated balance sheets and statements of operations. These obligations and commitments, while entered into in the normal course of business, may have a material impact on our liquidity. Certain of the following commitments as of July 1, 2006 have not been included in the consolidated balance sheet and statements of operations included in this Form 10-Q. However, they have been disclosed in the following table in order to provide a more complete picture of our financial position and liquidity. The most significant of these is our inventory purchase obligations, which reflect our expectations of future demand for our bonding equipment.

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The following table identifies obligations and contingent payments under various arrangements at July 1, 2006 including those not included in our consolidated balance sheet:

					(in thousands)
	Total		Amounts due in less than 1 year		Amounts due in 2-3 years		Amounts due in 4-5 years		Amounts due in more than 5 years
Contractual Obligations:
Long-term debt	$	195,000	$	—	$	130,000	$	65,000	$	—
Operating lease obligations*
Continuing operations		33,838		4,390		7,490		4,719		17,239
Discontinued operations		12,177		2,484		3,890		3,135		2,668
Inventory purchase obligations*		30,037		30,037		—		—		—
Interest payments*		4,171		1,300		2,221		650		—
Commercial Commitments:
Gold supply agreement		10,954		10,954		—		—		—
Standby letters of credit*		2,196		2,196		—		—		—
Total contractual obligations and commercial commitments	$	288,373	$	51,361	$	143,601	$	73,504	$	19,907

* Represents contractual amounts not reflected in the consolidated balance sheet at July 1, 2006.

Long-term debt includes the amounts due under our 0.5% Convertible Subordinated Notes due 2008 and our 1.0% Convertible Subordinated Notes due 2010. The operating lease obligations at July 1, 2006 represent obligations due under various facility and equipment leases with terms up to fifteen years in duration, including the obligations associated with our new property lease in Fort Washington, Pennsylvania that now houses our corporate headquarters. Debt associated with direct financing arrangement represents the proceeds received on the land and building transaction, as described in Note 6, Property, Plant and Equipment contained herein in Part I, Item 1 – Financial Statements. Inventory purchase obligations represent outstanding purchase commitments for inventory components ordered in the normal course of business. The Gold Supply Agreement includes gold inventory purchases we are obligated to pay for upon shipment of the fabricated gold to our customers.

The standby letters of credit represent obligations in lieu of security deposits for employee benefit programs and a customs bond.

At July 1, 2006, the fair value of our $130.0 million 0.5% Convertible Subordinated Notes was $109.2 million, and the fair value of our $65.0 million 1.0% Convertible Subordinated Notes was $50.5 million. The fair values were determined using quoted market prices at the balance sheet date. The fair value of our other assets and liabilities approximate the book value of those assets and liabilities. At July 1, 2006 the Standard & Poor’s rating for the 0.5 % and the 1.0% Convertible Subordinated Notes was CCC+ but was subsequently raised to B- on July 31, 2006.

In the three months ended July 1, 2006, we renewed our gold supply agreement for a two year term. This gold supply agreement requires us to maintain a credit facility to secure our obligations to the supplier. Accordingly, in the three months ended July 1, 2006 we entered into a credit facility with a bank in an amount up to $20 million. The term of the credit facility is two years, but it is granted on an uncommitted basis and is repayable on demand. In connection with this credit facility we granted the bank a security interest in our assets related to the manufacture and sale of gold wire, including all gold inventory and all accounts receivable arising from the sale of gold wire and the proceeds thereof. The credit facility contains financial and non-financial covenants, all of which we are in compliance. The financial covenants contain restrictions on our gold wire manufacturing subsidiaries’ net worth, ratio of total liabilities to EBITDA, and that subsidiary’s ability to pay dividends.

We believe that our existing cash reserves and anticipated cash flows from operations will be sufficient to meet our liquidity and capital requirements for at least the next 12 months. However, our liquidity is affected by many factors, some of which are based on normal operations of the business and others that are related to uncertainties of the industry and global economies. We may seek, as we believe appropriate, additional debt or equity financing to provide capital for

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corporate purposes. We may also use existing cash or seek additional debt or equity financing for the refinancing, repurchase or redemption of our outstanding convertible subordinated notes and/or to fund strategic business opportunities, including possible acquisitions, joint ventures, alliances or other business arrangements that could require substantial capital outlays. The timing and amount of such potential capital requirements cannot be determined at this time and will depend on a number of factors, including demand for our products, semiconductor and semiconductor capital equipment industry conditions, competitive factors, the condition of financial markets and the nature and size of strategic business opportunities which we may elect to pursue. Any additional equity financings, including for the purpose of repurchasing or redeeming our convertible subordinated notes, would likely result in dilution of existing stockholders’ interests in the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards 123 (revised 2004), “Share-Based Payment” (SFAS 123R) which requires measurement of all employee stock-based compensation awards using a fair-value method and the recording of such expense in the consolidated financial statements. In addition, the adoption of SFAS 123R requires additional accounting changes related to the income tax effects and disclosure regarding the cash flow effects resulting from share-based payment arrangements. In January 2005, the SEC issued Staff Accounting Bulletin No. 107, which provides supplemental implementation guidance for SFAS 123R. We selected the Black-Scholes option pricing model as the method to estimate the fair value for our awards and will recognize compensation expense on a straight-line basis over the requisite service period. We adopted SFAS 123R in the first quarter of fiscal 2006. (See Note 3).

In November 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards” (FSP 123R-3). We elected to adopt the alternative transition method provided in FSP 123R-3 for calculating the tax effects of stock-based compensation under FAS 123R. The alternative transition method provides a “short-cut” method to determine the beginning balance of the additional paid-in-capital pool related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that were outstanding upon adoption of SFAS 123R.

We also adopted the following accounting pronouncements in the first quarter of fiscal 2006:

• SFAS No. 151, “Inventory Costs – An Amendment of ARB No. 43, Chapter 4” (SFAS 151), and

• SFAS No. 153, “Exchanges of Non-Monetary Assets – An Amendment of APB Opinion No. 29” (SFAS 153)

The adoption of SFAS 151 and SFAS 153 did not have a material impact on our results of operations and financial condition.

In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections” (SFAS 154), which replaces Accounting Principles Board Opinion No. 20 “Accounting Changes” and SFAS 3 “Reporting Accounting Changes in Interim Financial Statements – An Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the earliest practicable date, as the required method for reporting a change in accounting principle and restatement with respect to the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS 154 is required to be adopted by us in the first quarter of fiscal 2007.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140 (“SFAS 155”). SFAS 155 simplifies the accounting for certain hybrid financial instruments that contain an embedded derivative that otherwise would have required bifurcation. SFAS 155 also eliminates the interim guidance in SFAS 133, which provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS 133. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. SFAS 155 is required to be adopted by the Company in the first quarter of fiscal 2007. We do not expect the adoption of SFAS 155 to have a material impact on our results of operations and financial condition.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140 (“SFAS 156”). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. SFAS 156 is required to be adopted by us in the first quarter of fiscal 2007. We do not expect the adoption of SFAS 156 to have a material impact on our results of operations and financial condition.

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In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN 47”) “Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143.” This Interpretation clarifies that a conditional retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The liability should be recognized when incurred, generally upon acquisition, construction or development of the asset. FIN 47 is effective no later than the end of the fiscal years ending after December 15, 2005. We are in the process of evaluating the impact of FIN 47 on our financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, (“FIN 48”) “Accounting for Uncertainty in Income Taxes”, an interpretation of FASB Statement No. 109 (“SFAS 109”).” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We are required to adopt FIN 48 in fiscal 2008. We are currently evaluating the potential impact of FIN 48 on our financial position and results of operations.

RISK FACTORS

The semiconductor industry is volatile with sharp periodic downturns and slowdowns

Our operating results are significantly affected by the capital expenditures of large semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems. Expenditures by semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems depend on the current and anticipated market demand for semiconductors and products that use semiconductors, including personal computers, telecommunications equipment, consumer electronics, and automotive goods. Significant downturns in the market for semiconductor devices or in general economic conditions reduce demand for our products and materially and adversely affect our business, financial condition and operating results.

Historically, the semiconductor industry has been volatile, with periods of rapid growth followed by industry-wide retrenchment. These periodic downturns and slowdowns have adversely affected our business, financial condition and operating results. They have been characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling prices. These downturns historically have severely and negatively affected the industry’s demand for capital equipment, including the assembly equipment and the packaging materials that we sell. There can be no assurances regarding the levels of demand for our products, and in any case, we believe the historical volatility – both upward and downward – will persist.

We may experience increasing price pressure

Our historical business strategy for many of our products has focused on product performance and customer service rather than on price. The length and severity of the fiscal 2001 – fiscal 2003 economic downturn increased cost pressure on our customers and we have observed increasing price sensitivity on their part. In response, we are actively seeking to reduce our cost structure by moving operations to lower cost areas and by reducing other operating costs. If we are unable to realize prices that allow us to continue to compete on the basis of performance and service, our financial condition and operating results may be materially and adversely affected.

Our quarterly operating results fluctuate significantly and may continue to do so in the future

In the past, our quarterly operating results have fluctuated significantly; we expect that they will continue to fluctuate. Although these fluctuations are partly due to the volatile nature of the semiconductor industry, they also reflect other factors, many of which are outside of our control.

Some of the factors that may cause our revenues and/or operating margins to fluctuate significantly from period to period are:

• market downturns;

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• the mix of products that we sell because, for example:

• some lines of equipment within our business segments are more profitable than others; and

• some sales arrangements have higher margins than others;

• the volume and timing of orders for our products and any order postponements;

• virtually all of our orders are subject to cancellation, deferral or rescheduling by the customer without prior notice and with limited or no penalties;

• changes in our pricing, or that of our competitors;

• higher than anticipated costs of development or production of new equipment models;

• the availability and cost of the components for our products;

• unanticipated delays in the development and manufacture of our new products and upgraded versions of our products and market acceptance of these products when introduced;

• customers’ delay in purchasing our products due to customer anticipation that we or our competitors may introduce new or upgraded products; and

• our competitors’ introduction of new products.

Many of our expenses, such as research and development, selling, general and administrative expenses and interest expense, do not vary directly with our net sales. Our research and development efforts include long-term projects lasting a year or more, which require significant investments. In order to realize the benefits of these projects, we believe that we must continue to fund them during periods when our net sales have declined. As a result, a decline in our net sales would adversely affect our operating results. In addition, if we were to incur additional expenses in a quarter in which we did not experience comparable increased net sales, our operating results would decline. In a downturn, we may have excess inventory, which is required to be written off. Some of the other factors that may cause our expenses to fluctuate from period-to-period include:

• the timing and extent of our research and development efforts;

• severance, resizing and other costs of relocating facilities;

• inventory write-offs due to obsolescence; and

• inflationary increases in the cost of labor or materials.

Because our revenues and operating results are volatile and difficult to predict, we believe that consecutive period-to-period comparisons of our operating results may not be a good indication of our future performance.

We may not be able to rapidly develop, manufacture and gain market acceptance of new and enhanced products required to maintain or expand our business

We believe that our continued success depends on our ability to continuously develop and manufacture new products and product enhancements on a timely and cost-effective basis. We must timely introduce these products and product enhancements into the market in response to customers’ demands for higher performance assembly equipment and leading-edge materials. Our competitors may develop new products or enhancements to their products that offer performance, features and lower prices that may render our products less competitive. The development and commercialization of new products requires significant capital expenditures over an extended period of time, and some products that we seek to develop may never become profitable. In addition, we may not be able to develop and introduce products incorporating new technologies in a timely manner that will satisfy our customers’ future needs or achieve market acceptance.

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Substantially all of our sales and our manufacturing operations are located outside of the United States, and we rely on independent foreign distribution channels for certain product lines; all of which subject us to risks, including risks from changes in trade regulations, currency fluctuations, political instability and war

Approximately 95% of our net sales for the nine months ending July 1, 2006, 88% of our net sales for fiscal 2005 and 86% of our net sales for fiscal 2004 were to customers with ultimate foreign destinations, in particular to customers located in the Asia/Pacific region. We expect this trend to continue. Thus, our future performance will depend, in significant part, on our ability to continue to compete in foreign markets, particularly in the Asia/Pacific region. These economies have been highly volatile, resulting in significant fluctuation in local currencies, and political and economic instability. These conditions may continue or worsen, which may materially and adversely affect our business, financial condition and operating results.

We also rely on non-United States suppliers for materials and components used in our products, and most of our manufacturing operations are located in countries other than the United States. We manufacture our automatic ball bonders and bonding wire in Singapore, we manufacture capillaries in Israel and China, and bonding wire in Switzerland, and we have sales, service and support personnel in China, Hong Kong, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan and Europe. We also rely on independent foreign distribution channels for certain of our product lines. As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as:

• risks of war and civil disturbances or other events that may limit or disrupt manufacturing and markets;

• seizure of our foreign assets, including cash;

• longer payment cycles in foreign markets;

• international exchange restrictions;

• restrictions on the repatriation of our assets, including cash;

• significant foreign and United States taxes on repatriated cash;

• the difficulties of staffing and managing dispersed international operations;

• possible disagreements with tax authorities regarding transfer pricing regulations;

• episodic events outside our control such as, for example, the outbreak of Severe Acute Respiratory Syndrome or influenza;

• tariff and currency fluctuations;

• changing political conditions;

• labor conditions and costs;

• foreign governments’ monetary policies and regulatory requirements;

• less protective intellectual property laws outside of the United States; and

• legal systems which are less developed and which may be less predictable than those in the United States.

Because most of our foreign sales are denominated in United States dollars, an increase in value of the United States dollar against foreign currencies, particularly the Japanese yen, will make our products more expensive than those offered by some of our foreign competitors. Our ability to compete overseas in the future may be materially and adversely affected by a strengthening of the United States dollar against foreign currencies.

Our international operations also depend upon favorable trade relations between the United States and those foreign countries in which our customers, subcontractors, and materials suppliers have operations. A protectionist trade

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environment in either the United States or those foreign countries in which we do business, such as a change in the current tariff structures, export compliance or other trade policies, may materially and adversely affect our ability to sell our products in foreign markets.

Military conflict in Northern Israel and Southern Lebanon may disrupt our ability to manufacture capillaries

We own a factory in Yokneam, Israel, which is approximately fifteen miles from Haifa, Israel, where we manufacture capillaries. Although we manufacture capillaries in both Israel and China, China capillary manufacturing is dependent upon base material that is processed in our Israel facility. As a consequence, if our facility in Yokneam, Israel suffers significant damage, is destroyed or if our employees cannot report to work at the facility, our ability to manufacture capillaries, both in Israel and China, will be interrupted and our customer relationships, financial condition and operating results may be materially and adversely affected.

We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows

Because substantially all of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures could have a material adverse impact on our financial results and cash flows. Historically, our primary exposures have related to (net) receivables denominated in currencies other than a foreign subsidiaries’ functional currency, and remeasurement of our foreign subsidiaries’ net monetary assets from the subsidiaries’ local currency into the subsidiaries’ functional currency (the U.S. dollar). In general, an increase in the value of the U.S. dollar could require certain of our foreign subsidiaries to record translation and remeasurement gains. Conversely, a decrease in the value of the U.S. dollar could require certain of our foreign subsidiaries to record losses on translation and remeasurement. An increase in the value of the dollar could increase the cost to our customers of our products in those markets outside the United States where we sell in dollars, and a weakened dollar could increase the cost of local operating expenses and procurement of raw materials. An increase in the value of China’s yuan could increase our material, labor, and other operating expenses in China. Our board has granted management limited authority to enter into foreign exchange forward contracts and other instruments designed to minimize the short term impact currency fluctuations have on our business. We have entered into foreign exchange forward contracts and we expect to enter into additional foreign exchange forward contracts and other instruments in the future. Our attempts to hedge against these risks may not be successful and may result in a material adverse impact on our financial results and cash flows.

We may not be able to consolidate manufacturing facilities without incurring unanticipated costs and disruptions to our business

In an effort to further reduce our cost structure, we closed some of our manufacturing facilities and expanded others. We may incur significant and unexpected costs and disruptions to our business as a result of this consolidation process. Because of unanticipated events, including the actions of governments, employees or customers, we may not realize the synergies, cost reductions and other benefits of any consolidation to the extent or within the timeframe that we currently expect.

Our business depends on attracting and retaining management, marketing and technical employees

Our future success depends on our ability to hire and retain qualified management, marketing and technical employees. In particular, we periodically experience shortages of technical personnel. If we are unable to continue to attract and retain the managerial, marketing and technical personnel we require, our business, financial condition and operating results could be materially and adversely affected.

Difficulties in forecasting demand for our product lines may lead to periodic inventory shortages or excesses

We typically operate our business with a relatively short backlog. As a result, we sometimes experience inventory shortages or excesses. We generally order supplies and otherwise plan our production based on internal forecasts of demand. We have in the past, and may again in the future, fail to forecast accurately demand for our products, in terms of both volume and configuration for either our current or next-generation wire bonders. This has led to and may in the future lead to delays in product shipments or, alternatively, an increased risk of inventory obsolescence. If we fail to forecast accurately demand for our products, our business, financial condition and operating results may be materially and adversely affected.

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Advanced packaging technologies other than wire bonding may render some of our products obsolete

Advanced packaging technologies have emerged that may improve device performance, reduce the size of an integrated circuit package or be more cost effective, as compared to traditional die and wire bonding. These technologies include flip chip and chip scale packaging. Some of these advanced technologies eliminate the need for wires to establish the electrical connection between a die and its package. The semiconductor industry may, in the future, shift a significant part of its volume into advanced packaging technologies, such as those discussed above, which do not employ our products. If a significant shift to advanced packaging technologies were to occur, demand for our wire bonders and related packaging materials may be materially and adversely affected.

Because a small number of customers account for most of our sales, our revenues could decline if we lose a significant customer

The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems purchasing a substantial portion of our semiconductor assembly equipment and packaging materials. Sales to a relatively small number of customers account for a significant percentage of our net sales. In the nine months ended July 1, 2006, and for fiscal 2005 and fiscal 2004, sales to Advanced Semiconductor Engineering, our largest customer, accounted for 18% 13% and 17%, respectively, of our net sales.

We expect that sales of our products to a small number of customers will continue to account for a high percentage of our net sales for the foreseeable future. Thus, our business success depends on our ability to maintain strong relationships with our important customers. Any one of a number of factors could adversely affect these relationships. If, for example, during periods of escalating demand for our equipment, we were unable to add inventory and production capacity quickly enough to meet the needs of our customers, they may turn to other suppliers making it more difficult for us to retain their business. Similarly, if we are unable for any other reason to meet production or delivery schedules, particularly during a period of escalating demand, our relationships with our key customers could be adversely affected. If we lose orders from a significant customer, or if a significant customer reduces its orders substantially, these losses or reductions may materially and adversely affect our business, financial condition and operating results.

We depend on a small number of suppliers for raw materials, components, subassemblies and certain services. If our suppliers do not deliver their products or services to us, we would be unable to deliver our products to our customers

Our products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy and performance. We rely on subcontractors to manufacture many of these components and subassemblies and we rely on sole source suppliers for some important components, services and raw materials, including gold. As a result, we are exposed to a number of significant risks, including:

• lack of control over the manufacturing process for components and subassemblies;

• changes in our manufacturing processes, in response to changes in the market, which may delay our shipments;

• our inadvertent use of defective or contaminated raw materials;

• the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or parts in the volumes we require and at acceptable quality levels and prices;

• reliability or quality problems with certain key service providers or subassemblies provided by single source suppliers as to which we may not have any short term alternative;

• shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters;

• delays in the delivery of raw materials or subassemblies, which, in turn, may delay our shipments; and

• the loss of suppliers as a result of consolidation of suppliers in the industry.

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If we are unable to deliver products to our customers on time for these or any other reasons; if we are unable to meet customer expectations as to cycle time; or if we do not maintain acceptable product quality or reliability, our business, financial condition and operating results may be materially and adversely affected.

Diversification into multiple businesses increases demands on our management and systems

We may from time to time in the future seek to expand through acquisition. Any significant acquisition would increase demands on our management, financial resources and information and internal control systems. Our success will depend, in part, on our ability to manage and integrate any acquired business with our existing businesses and to successfully implement, improve and expand our systems, procedures and controls. If we fail to integrate businesses successfully or to develop the necessary internal procedures to manage diversified businesses, our business, financial condition and operating results may be materially and adversely affected.

We may be unable to continue to compete successfully in the highly competitive semiconductor equipment and packaging materials industries

The semiconductor equipment and packaging materials industries are very competitive. In the semiconductor equipment market, significant competitive factors include performance, quality, customer support and price. In the semiconductor packaging materials industry, competitive factors include price, delivery and quality.

In each of our markets, we face competition and the threat of competition from established competitors and potential new entrants. In addition, established competitors may combine to form larger, better capitalized companies. Some of our competitors have or may have significantly greater financial, engineering, manufacturing and marketing resources than we have. Some of these competitors are Asian and European companies that have had and may continue to have an advantage over us in supplying products to local customers who appear to prefer to purchase from local suppliers, without regard to other considerations.

We expect our competitors to improve their current products’ performance, and to introduce new products and materials with improved price and performance characteristics. Our competitors may independently develop technology that is similar to or better than ours. New product and materials introductions by our competitors or by new market entrants could hurt our sales. If a particular semiconductor manufacturer or subcontract assembler selects a competitor’s product or materials for a particular assembly operation, we may not be able to sell products or materials to that manufacturer or assembler for a significant period of time because manufacturers and assemblers sometimes develop lasting relations with suppliers, and assembly equipment in our industry often goes years without requiring replacement. In addition, we may have to lower our prices in response to price cuts by our competitors, which may materially and adversely affect our business, financial condition and operating results. We cannot assure you that we will be able to continue to compete in these or other areas in the future on a profitable basis. If we cannot compete successfully, we could be forced to reduce prices, and could lose customers and market share and experience reduced margins and profitability.

Our success depends in part on our intellectual property, which we may be unable to protect

Our success depends in part on our proprietary technology. To protect this technology, we rely principally on contractual restrictions (such as nondisclosure and confidentiality provisions) in our agreements with employees, subcontractors, vendors, consultants and customers and on the common law of trade secrets and proprietary “know-how.” We also rely, in some cases, on patent and copyright protection. We may not be successful in protecting our technology for a number of reasons, including the following:

• employees, subcontractors, vendors, consultants and customers may violate their contractual agreements, and the cost of enforcing those agreements may be prohibitive, or those agreements may be unenforceable or more limited than we anticipate;

• foreign intellectual property laws may not adequately protect our intellectual property rights;

• our patent and copyright claims may not be sufficiently broad to effectively protect our technology; our patents or copyrights may be challenged, invalidated or circumvented; or we may otherwise be unable to obtain adequate protection for our technology.

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In addition, our partners and alliances may also have rights to technology that we develop. We may incur significant expense to protect or enforce our intellectual property rights. If we are unable to protect our intellectual property rights, our competitive position may be weakened.

Third parties may claim we are infringing on their intellectual property, which could cause us to incur significant litigation costs or other expenses, or prevent us from selling some of our products

The semiconductor industry is characterized by rapid technological change, with frequent introductions of new products and technologies. Industry participants often develop products and features similar to those introduced by others, creating a risk that their products and processes may give rise to claims that they infringe on the intellectual property of others. We may unknowingly infringe on the intellectual property rights of others and incur significant liability for that infringement. If we are found to have infringed on the intellectual property rights of others, we could be enjoined from continuing to manufacture, market or use the affected product, or be required to obtain a license to continue manufacturing or using the affected product. A license could be very expensive to obtain or may not be available at all. Similarly, changing or re-engineering our products or processes to avoid infringing the rights of others may be costly, impractical or time consuming.

Occasionally, third parties assert that we are, or may be, infringing on or misappropriating their intellectual property rights. In these cases, we will defend against claims or negotiate licenses where we consider these actions appropriate. Intellectual property cases are uncertain and involve complex legal and factual questions. If we become involved in this type of litigation, it could consume significant resources and divert our attention from our business.

We may be materially and adversely affected by environmental and safety laws and regulations

We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation, storage, use, emission, discharge, transportation and disposal of hazardous material, investigation and remediation of contaminated sites and the health and safety of our employees. Increasingly, public attention has focused on the environmental impact of manufacturing operations and the risk to neighbors of chemical releases from such operations.

Proper waste disposal plays an important role in the operation of our manufacturing plants. In certain of our facilities we maintain wastewater treatment systems that remove metals and other contaminants from process wastewater. These facilities operate under permits that must be renewed periodically. A violation of those permits may lead to revocation of the permits, fines, penalties or the incurrence of capital or other costs to comply with the permits, including potential shutdown of operations.

In the future, existing or new land use and environmental regulations may: (1) impose upon us the need for additional capital equipment or other process requirements, (2) restrict our ability to expand our operations, (3) subject us to liability for, among other matters, remediation, and/or (4) cause us to curtail our operations. We cannot assure you that any costs or liabilities associated with complying with these environmental laws will not materially and adversely affect our business, financial condition and operating results.

Anti-takeover provisions in our articles of incorporation and bylaws, and under Pennsylvania law may discourage other companies from attempting to acquire us

Some provisions of our articles of incorporation and bylaws of Pennsylvania law may discourage some transactions where we would otherwise experience a fundamental change. For example, our articles of incorporation and bylaws contain provisions that:

• classify our board of directors into four classes, with one class being elected each year;

• permit our board to issue “blank check” preferred stock without stockholder approval; and

• prohibit us from engaging in some types of business combinations with a holder of 20% or more of our voting securities without super-majority board or stockholder approval.

Further, under the Pennsylvania Business Corporation Law, because our bylaws provide for a classified board of directors, stockholders may remove directors only for cause. These provisions and some other provisions of the Pennsylvania Business Corporation Law could delay, defer or prevent us from experiencing a fundamental change and may adversely affect our common stockholders’ voting and other rights.

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Terrorist attacks, or other acts of violence or war may affect the markets in which we operate and our profitability

Terrorist attacks may negatively affect our operations. There can be no assurance that there will not be further terrorist attacks against the United States or United States businesses. Terrorist attacks or armed conflicts may directly impact our physical facilities or those of our suppliers or customers. Our primary facilities include administrative, sales and R&D facilities in the United States and manufacturing facilities in Singapore, China and Israel. Additional terrorist attacks may disrupt the global insurance and reinsurance industries with the result that we may not be able to obtain insurance at historical terms and levels for all of our facilities. Furthermore, additional attacks may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately affect the sales of our products overseas and in the United States. Additional attacks or any broader conflict, could negatively impact on our domestic and international sales, our supply chain, our production capability and our ability to deliver products to our customers. Political and economic instability in some regions of the world could negatively impact our business. The consequences of terrorist attacks or armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business.

We may be unable to generate enough cash to repay our debt

Our ability to make payments on our indebtedness and to fund planned capital expenditures and other activities will depend on our ability to generate cash in the future. If our convertible debt is not converted to our common shares, we will be required to make annual cash interest payments of $1.3 million in fiscal years 2006 and 2007, $0.8 million in fiscal year 2008, $0.7 million in fiscal 2009 and $0.5 million in fiscal 2010 on our aggregate $195 million of convertible subordinated debt. Principal payments of $130.0 million and $65.0 million on the convertible subordinated debt are due in fiscal 2009 and 2010, respectively. Our ability to make payments on our indebtedness is affected by the volatile nature of our business, and general economic, competitive and other factors that are beyond our control. Our indebtedness poses risks to our business, including that:

• insufficient cash flow from operations to repay our outstanding indebtedness when it becomes due may force us to sell assets, or seek additional capital, which we may be unable to do at all or on terms favorable to us; and

• our level of indebtedness may make us more vulnerable to economic or industry downturns.

We cannot assure you that our business will generate cash in an amount sufficient to enable us to service interest, principal and other payments on our debt, including the notes, or to fund our other liquidity needs.

We are not restricted under the agreements governing our existing indebtedness from incurring additional debt in the future. If new debt is added to our current levels, our leverage and our debt service obligations would increase and the related risks described above could intensify.

We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common stock

The issuance of additional equity securities or securities convertible into equity securities will result in dilution of existing stockholders’ equity interests in us. Our board of directors has the authority to issue, without vote or action of stockholders, shares of preferred stock in one or more series, and has the ability to fix the rights, preferences, privileges and restrictions of any such series. Any such series of preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of our common stock. In addition, we are authorized to issue, without stockholder approval, up to an aggregate of 200 million shares of common stock, of which approximately 57.1 million shares were outstanding as of August 1, 2006. We are also authorized to issue, without stockholder approval, securities convertible into either shares of common stock or preferred stock.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

We are exposed to changes in interest rates primarily from our investments in certain available-for-sale securities. Our available-for-sale securities consist primarily of fixed income investments (corporate bonds, commercial paper and U.S. Treasury and Agency securities). We continually monitor our exposure to changes in interest rates and credit ratings of issuers with respect to our available-for-sale securities and target an average life to maturity of less than eighteen months. Accordingly, we believe that the effects on the Company of changes in interest rates and credit ratings of issuers are limited and would not have a material impact on our financial condition or results of operations. As of July 1, 2006, we

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had a non-trading investment portfolio of fixed income securities, excluding those classified as cash and cash equivalents, of $13.7 million. If market interest rates were to increase immediately and uniformly by 10% from levels as of July 1, 2006, the fair market value of the portfolio would decline by approximately $68 thousand.

Foreign Currency Risk

Our international operations are exposed to changes in foreign currency exchange rates due to transactions denominated in currencies other than the location’s functional currency. We are also exposed to foreign currency fluctuations due to remeasurement of the net monetary assets of our Israel and Singapore operations’ local currencies into the location’s functional currency, the U.S. dollar. Based on our overall currency rate exposure as of July 1, 2006, we do not believe that a near term 10% appreciation or depreciation in the foreign currency portfolio to the U.S. dollar would have a material impact on our financial position, results of operations or cash flows. Our board has granted management limited authority to enter into foreign exchange forward contracts and other instruments designed to minimize the short term impact currency fluctuations have on our business. We may enter into additional foreign exchange forward contracts and other instruments in the future. Our attempts to hedge against these risks may not be successful and may result in a material adverse impact on our financial results and cash flows.

Item 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Based on our management’s evaluation (with the participation of our Chief Executive Officer and Chief Financial Officer), as of July 1, 2006, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that the information we are required to disclose in our Exchange Act reports is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in internal controls

Management completed a review of its internal controls over financial reporting during the quarter ended July 1, 2006. As part of this review, we considered the impact of the sale of the test business on our internal controls over financial reporting. Based upon the results of our review, we have concluded that there was no change in our internal controls over financial reporting during the quarter ended July 1, 2006 that has materially impacted the effectiveness, or is reasonably likely to materially impact the effectiveness, of our internal controls over financial reporting.

PART II Other information

Item 1A. We have added a risk factor discussing the military conflict in Northern Israel and Southern Lebanon and how this may affect our ability to manufacture capillaries.

Item 6. Exhibits

(a) Exhibits.

Exhibit No.	Description
10.1	Facility Letter Agreement with Citibank N.A., Singapore Branch, dated June 7, 2006
10.2	(*)Sale and Leaseback of Fine Metal Agreement with AGR Matthey ABN, dated June 12, 2006
31.1	Certification of C. Scott Kulicke, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31.2	Certification of Maurice E. Carson, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant to Rule 13a-14(a) or Rule 15d-14(a).

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32.1	Certification of C. Scott Kulicke, Chief Executive Officer of Kulicke and Soffa Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Maurice E. Carson, Chief Financial Officer of Kulicke and Soffa Industries, Inc., pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(*)	Portions of this exhibit have been omitted based on a request for confidential treatment submitted to the U. S. Securities and Exchange Commission. The omitted portions have been filed separately with the Commission.

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SIGNATURES

Pursuant to the requirements 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.

	KULICKE AND SOFFA INDUSTRIES, INC.
Date: August 9, 2006	By:	/s/ MAURICE E. CARSON
		Maurice E. Carson
		Vice President and Chief Financial Officer
		(Principal Financial Officer)

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EX-10.1

Exhibit 10.1

	Robinson Road P. O. Box 2388 Singapore 904388
corporate and investment banking

Citibank, N.A., Singapore Branch

Commercial Banking Group

3 Temasek Avenue

#17-00 Centennial Tower

Singapore 039190

Tel (65) 6328-5862

Fax (65) 6328-5887

7 June 2006

Kulicke & Soffa Global Holding Corporation

Unit Level 13(E), Main Office Tower

Financial Park Labuan, Jalan Merdeka

87000, Federal Territory of Labuan

Malaysia

c/o 6 Serangoon North Avenue 5

#03-16

Singapore 554910

Attention: Mr Darren Crompton

Kulicke & Soffa (S.E.A.) Pte. Ltd.

6 Serangoon North Avenue 5

#03-16

Singapore 554910

Attention: Ms Ho Siew Foong

Dear Ms Ho

CREDIT FACILITIES

Citibank, N.A., Singapore Branch (“Bank”) is pleased to advise that it is willing to make available the following Credit Facilities (as defined below) to Kulicke & Soffa Global Holding Corporation (“GHC”) and Kulicke & Soffa (S.E.A.) Pte. Ltd. (“K&S”) (collectively the “Customers” or “you” and individually a “Customer”), subject to the terms and conditions set out below. This letter of offer (the “Facility Letter”) supersedes and replaces in its entirety the original offer letter dated 5 May 2006 from the Bank to the Customers and countersigned and returned to the Bank by the Customers.

1. CREDIT FACILITIES – TYPE AND LIMITS

Banker’s Guarantee/Standby Letter of Credit: For issuing customs and other non-shipping guarantees and/or standby letters of credit with a tenor/validity period not exceeding 2 years (including claim period), and with a maximum aggregate face value of up to US$20,000,000 (the “Credit Facilities”). The Customers shall execute the Bank’s standard forms and the terms thereof shall apply to the Credit Facilities.

2. PURPOSE OF THE CREDIT FACILITIES

For issuance of Banker’s Guarantee and/or Standby Letter of Credit in favour of AGR and/or The Bank of Nova Scotia covering the sale and supply of gold metal in any of its physical forms to be used for the Customers’ business operations.

Organised under the laws of U.S.A. with Limited Liability Citibank N.A., Singapore Branch

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3. INTEREST AND COMMISSIONS

Commission is payable by the Customers on the issuance date of the Banker’s Guarantee/Standby Letter of Credit in immediately available funds and calculated at 0.9% per annum on the face value of the issued Banker’s Guarantee/Standby Letter of Credit.

4. SECURITY AND/OR SUPPORT

The Credit Facilities and all other liabilities of the Customers under the Finance Documents shall be secured and/or supported by the following:

(a) a debenture to be executed by K&S in favour of the Bank (the “K&S Debenture”) incorporating fixed charges and floating charges and assignment over all the assets and undertakings of K&S, including, without limitation, its:

(i) real property;

(ii) chattels and inventory;

(iii) all items of plant, equipment and machinery;

(iv) securities;

(v) intellectual property;

(vi) contractual rights under agreements where K&S is a party thereto;

(vii) bank accounts; and

(viii) receivables (including, without limitation, those arising from any of K&S’s contracts for the sale of Gold Wire Products governed by Pennsylvania law);

(b) an assignment of those of K&S’s Gold Contracts and Gold Receivables governed by Pennsylvania law, executed by K&S in favour of the Bank, and in form and substance satisfactory to the Bank (the “K&S Assignment of Gold Contracts and Gold Receivables”);

(c) a charge over the assets of GHC in respect of its Gold Wire Business, executed by GHC in favour of the Bank, and in form and substance satisfactory to the Bank (the “GHC Charge over Gold Wire Assets”);

(d) an assignment of the GHC Gold Contracts and Gold Receivables governed by Pennsylvanian law, executed by GHC in favour of the Bank, and in form and substance satisfactory to the Bank (the “GHC Assignment of Gold Contracts and Gold Receivables (I)”), and the Customers shall ensure that the governing law of the terms and conditions of sale of Gold Wire Products, as posted on the website of KSI/the Customers, shall be changed to Malaysian law, and that thereafter all sales by the Customers of Gold Wire Products, except as provided otherwise in this Facility Letter, shall be governed by Malaysian law;

(e) an assignment of those of GHC’s Gold Contracts and Gold Receivables governed by Malaysian law, executed by GHC in favour of the Bank, and in form and substance satisfactory to the Bank (the “GHC Assignment of Gold Contracts and Gold Receivables (II)”);

(f) an assignment of those of GHC’s Gold Contracts and Gold Receivables not otherwise assigned under the GHC Assignment of Gold Contracts and Gold Receivables (I) and the GHC Assignment of Gold Contracts and Gold Receivables (II), executed by GHC in favour of the Bank, and in form and substance satisfactory to the Bank (the “GHC Assignment of Gold Contracts and Gold Receivables (III)”);

(g) a charge over certain bank accounts of GHC with the Bank executed by GHC in favour of the Bank, and in form and substance satisfactory to the Bank (the “GHC Charge over Accounts”);

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(h) an assignment of insurances taken or to be taken up by GHC in respect of its Gold Wire Business, executed by GHC in favour of the Bank, and in form and substance satisfactory to the Bank (the “GHC Assignment of Insurances”);

(i) an assignment of the AGR Contract executed by the Customers in favour of the Bank, and in form and substance satisfactory to the Bank (the “Assignment of AGR Contract”);

(j) an assignment of certain receivables of KSI executed by KSI in favour of favour of the Bank, and in form and substance satisfactory to the Bank (the “KSI Assignment of Receivables”); and

(k) a charge over certain bank account(s) of KSI with the Bank, executed by KSI in favour of the Bank, and in form and substance satisfactory to the Bank (the “KSI Charge over Accounts”).

The above documents shall be collectively referred to as the “Security Documents”.

Foreign Exchange

The above security shall also secure any exposure under any foreign exchange facility which may be made available to the Customers by the Bank under the Foreign Exchange Documents.

5. CONDITIONS PRECEDENT

The Credit Facilities shall be made available to the Customers after the Customers have delivered to the Bank the following documents, all to be in form and substance satisfactory to the Bank:

(a) a copy of the Certificate of Incorporation and Memorandum and Articles of Association of each Customer, as amended up to the date hereof, certified true by a Director or the Secretary;

(b) from each Customer, a certified true copy of its Board of Directors’ resolutions and its Shareholders’ resolution authorising the acceptance and execution of this Facility Letter, the AGR Contract and the relevant Finance Documents by the signatories thereto;

(c) from each Customer, a certified true copy of a list of its directors and shareholders (and their respective shareholdings) and a certified true copy of the specimen signatures of the person(s) authorised by such Customer in the resolutions referred to in paragraph (b) above to execute the Facility Letter, the AGR Contract and the relevant Finance Documents;

(d) in relation to KSI, each of the documents referred to in paragraphs 5(a) to (c) above;

(e) an original counterpart of this Facility Letter and the Bank’s standard forms in relation to the Credit Facilities duly executed by the Customers;

(f) a certified true copy of the AGR Contract, duly executed by all the parties thereto;

(g) the Security Documents executed in form and substance satisfactory to the Bank, together with all consents, notices, acknowledgements and other documents or evidence required thereunder, including without limitation, the notice to, and acknowledgement from KSI pursuant to the GHC Assignment of Gold Contracts and Gold Receivables (I);

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(h) the account opening forms duly completed by the Customers and KSI;

(i) evidence that each of the Customers has taken out insurance contracts with reputable insurance companies acceptable to the Bank to insure and keep insured the assets charged or assigned to the Bank by way of security against loss or damage and such other risks and contingencies as the Bank may reasonably request and the Bank has been named loss payee under each of such insurance contracts;

(j) payment of stamp duties (if required) to the tax authorities of the relevant jurisdictions in respect of the execution of the Finance Documents;

(k) in relation to GHC only, certified true copies of:

(i) its return of allotment of shares; and

(ii) its return giving particulars of directors and secretaries and changes of particulars;

(l) evidence that all authorisations have been obtained and that all necessary filing, registrations and other formalities have been or will be completed in order to ensure that the Security Documents are valid and enforceable and to preserve the Bank’s priority under the Security Documents;

(m) release of security granted by Natexis Banques Populaires, Singapore Branch (in its capacity as security agent for the lenders) in favour of K&S pursuant to a guarantee issuance facility agreement dated 21 June 2004 entered into by K&S, in form and substance satisfactory to the Bank;

(n) evidence of payment of all fees and expenses then due and payable to the Bank including (without limitation) payment of all legal fees and expenses;

(o) written confirmation of the appointment of process agent by GHC and KSI in relation to those Finance Documents under which they are required to appoint process agent;

(p) a certified true copy of the terms and conditions governing the sale of Gold Wire Products made by GHC, KSI and K&S respectively;

(q) satisfactory legal opinions covering matters of Singapore law, Malaysian law, Australian law, the laws of the State of New York, USA, the laws of the State of Pennsylvania, USA and such other laws relating to this transaction as the Bank may request, confirming, amongst others, the following, in relation to each of the Customers and KSI, that:

(i) it is properly incorporated;

(ii) (where relevant) it has the capacity to borrow money/accept the Credit Facilities (and to pledge, charge or give the relevant security);

(iii) the authorized signatories have the authority to execute, where relevant, this Facility Letter and the relevant Finance Documents to which it is a party;

(iv) the directors’ resolution/power of attorney or other forms of mandate provided to the Bank properly authorise the directors to, where relevant, borrow money/accept the Credit Facilities and to execute the Finance Documents are valid;

(v) the Finance Documents are valid and enforceable by the Bank; and

(vi) all necessary steps have been taken to ensure that the security created under the Security Documents is perfected at law and to secure the priority of the pledge, charge, security over other creditors;

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(r) a written undertaking, in form and substance satisfactory to the Bank, from each of K&S and Mufler Feindranht AG, to segregate and keep segregated in an identified location notified to the Bank, the gold which GHC provides to them for processing under the contract manufacturing services agreements (the “GHC Gold”) from gold owned by other parties such that the GHC Gold is clearly identifiable as falling within the terms of the GHC Charge over Gold Wire Assets, and to confirm to the Bank that each of K&S and Muller Feindranht AG have not acquired and will not acquire any interest or other rights in the GHC Gold;

(s) evidence that each of K&S, GHC and KSI has given written notices to all of its purchasers/ customers instructing them to make all payments in respect of all Gold Contracts entered into or to be entered into with them into the respective account of K&S, GHC and KSI (as the case may be) with the Bank which are charged to the Bank pursuant to the Debenture, the GHC Charge over Accounts and KSI Charge over Accounts (as the case may be);

(t) a certified true copy of the formal purchase agreement entered into between KSI and GHC in relation to their arrangement with respect to the sale of Gold Wire Products;

(u) evidence that the governing law of the terms and conditions of sale of the Gold Wire Products by the Customers, as posted on the website of KSI/the Customers has been changed from Pennsylvanian law to Malaysian law;

(v) certified true copies of the contract manufacturing services agreements entered into between (i) GHC and K&S and (ii) GHC and Muller Feindranht AG;

(w) a certified true copy of the written confirmation from Zaid Ibrahim & Co. to the Customers, confirming that the change in the governing law of the terms and conditions of sale of Gold Wire Products by the Customers, as posted on the website of KSI/the Customers from Pennsylvanian law to Malaysian law, and the terms and conditions of such sale under Malaysian law, are appropriate under Malaysian law; and

(x) such other documents as may be required by the Bank.

6. OTHER TERMS AND CONDITIONS

(a) General Terms and Conditions Incorporated by Reference

A copy of the General Terms and Conditions is enclosed for your reference and retention.

This Facility Letter shall be read together with, and be subject to, the terms and conditions set out in the General Terms and Conditions, as the same may be amended, modified or supplemented from time to time, which terms and conditions shall be incorporated herein by reference. Save as provided in paragraph 6(e), in the event of any conflict or inconsistency between the terms of this Facility Letter and the General Terms and Conditions, the terms of this Facility Letter shall prevail to the extent of such conflict or inconsistency.

(b) Review and Repayment on Demand and Provision of Cash Collateral

The Credit Facilities are granted to the Customers on an uncommitted basis and are repayable on demand. Accordingly, these Credit Facilities are subject to the Bank’s periodic review and the terms thereof may be modified, or the Credit Facilities terminated (in whole or in part), at the Bank’s sole discretion without prior notice. In the event any demand for repayment is made or the Bank notifies you that the Credit Facilities are terminated, you shall forthwith:

(i) repay all amounts outstanding to the Bank under the Finance Documents, including all interest accrued thereon and any broken funding costs and other costs and expenses incurred by the Bank; and

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(ii) pay to the Bank, to the credit of an account to be opened for that purpose by the Bank, cash collateral in an amount equal to the full face value of any undrawn or contingent liability of the Bank in respect of any Standby Letter of Credit, Banker’s Guarantee or any other instruments issued or purchased or drafts accepted by the Bank under the Credit Facilities, as at the date of such demand, but not yet matured or presented.

The Bank also has a right to enforce any and all the security created under and pursuant to the Security Documents. Any undrawn or unutilized portion of the Credit Facilities may be cancelled by the Bank at any time at its sole discretion.

(c) Lending of Singapore Dollar to non-resident financial institutions – MAS 757

Where the borrower is a non-resident financial institution (as defined in MAS 757): in connection with the Bank extending Singapore Dollar credit facilities to the Customers under this Facility Letter, each Customer understands the Singapore Dollar lending restrictions under the MAS 757 guidelines and each Customer hereby represents, warrants and undertakes to the Bank that (a) the Singapore Dollar proceeds will not be used for speculation against the Singapore Dollar exchange rate, and (b) where the Singapore Dollar proceeds are to be used outside Singapore, the Customer will convert or swap the Singapore Dollar proceeds into foreign currency upon draw-down unless the exception in MAS 757 applies.

(d) Negative Pledge

Each of the Customers undertakes that so long as the Credit Facilities (or any part thereof) remain available or any monies or obligations are outstanding under the Facility Letter, each of the Customers will not at any time, create or permit to subsist any debenture, equitable or legal mortgage, fixed or floating charge, pledge, encumbrance or other security interest on or over any of its assets nor assign by way of sale or otherwise the Customer’s book or other debts or securities whatsoever and wheresoever both present and future in favour of any person, firm or company other than the Bank without obtaining the Bank’s prior written consent (such consent not to be unreasonably withheld), save for any debenture, equitable or legal mortgage, fixed or floating charge, pledge, encumbrance or other security interest existing at the date of this Facility Letter and which have been notified to the Bank in writing, and liens arising by operation of law or in the ordinary course of business.

(e) Ownership of Customer

Clause 14 of the General Terms and Conditions is hereby amended by inserting a new paragraph (q) as follows:

“; or

(q) any existing shareholder (as at the date of this Facility Letter) of the Customer divests of all or any part of its/his shareholding (other than a divestment to another Subsidiary of KSI or to KSI with the prior written consent of the Bank), direct or indirect, in any Customer.”

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(f) Matters Relating to Gold Contracts

Each of the Customers undertakes that so long as the Credit Facilities (or any part thereof) remain available or any monies or obligations are outstanding under the Facility Letter, it will:

(i) ensure that all the Gold Contracts entered into by it after the date of this Facility Letter and all the terms and conditions of sale of the Gold Wire Products thereunder will be governed by Malaysian law (other than those Gold Contracts entered into by GHC with STMicroelectronics N.V. and its group of companies and Advanced Semiconductor Engineering, Inc. and its group of companies, which will be governed by Pennsylvanian law) and no changes whatsoever will be made to such governing law, except with the prior written consent of the Bank; and

(ii) ensure that KSI will not change the governing law of any of its Gold Contracts and the terms and conditions of sale of the Gold Wire Products from Pennsylvanian law, except with the prior written consent of the Bank.

(g) Joint and Several Liability

The liability of each Customer shall be joint and several and all covenants, agreements, undertakings, indemnities, stipulations, terms, conditions, instructions, and other provisions made, given or represented in this Facility Letter and other related transaction documents by any Customer shall be deemed to be made, given or represented by and be binding on all the Customers jointly and severally.

7. SPECIAL CONDITIONS

(a) A penalty fee of 0.5% of the Credit Facilities amount will be levied in the event the said facilities are accepted but not drawn or utilised by July 31, 2006.

(b) Under the laws of each of the Customers’ jurisdiction of incorporation in force at the date hereof, the claims of the Bank against each of the Customers under this Facility Letter will rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors save those whose claims are preferred solely by any bankruptcy, insolvency, liquidation or other similar laws of general application.

(c) The format and beneficiary of each Banker’s Guarantee/Standby Letter of Credit issuance must be approved by the Bank.

(d) No dividend payments may be declared by the Customers without the prior written consent of the Bank.

(e) The Tangible Net Worth of K&S shall be not less than US$36,000,000 at all times. For this purpose, “Tangible Net Worth” shall mean all equity, including preferred stock, common stock, paid-in capital, retained earnings, cumulative translation adjustment and treasury stock less goodwill, intangible assets and loans extended to subsidiaries, related and/or third parties. The Tangible Net Worth of K&S shall be tested every six months by reference to K&S’s financial statements required to be delivered to the Bank under paragraph 7(i) below.

(f) Each Customer shall ensure that its Debt/EBITDA ratio, on an unconsolidated and a consolidated basis, shall not exceed 4:1 at all times. The Debt/EBITDA ratio shall be tested on a half-yearly basis by reference to the relevant financial statements and information required to be delivered to the Bank under paragraph 7(i) below.

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(g) All payments to and receipts from all of Customers’ suppliers and purchasers are to be withdrawn from and deposited into the relevant Charged Accounts.

(h) K&S and Muller Feindranht AG are to be the exclusive contract manufacturers for GHC. All sales of the Gold Wire Products processed/manufactured by K&S and Muller Feindranht AG on behalf of GHC must be carried out by GHC.

(i) Each Customer shall submit its audited accounts to the Bank within 6 months of each financial year closing and management accounts on a semi-annual basis within 3 months of close of period. In the event of any material adverse change from the management accounts submitted, the Bank reserves the right to cancel, reduce, modify or restructure the Credit Facilities at its sole discretion.

(j) Customers shall submit the audited accounts of Muller Feindranht AG within 6 months of each financial year end of Muller Feindranht AG.

(k) Each Customer shall submit to the Bank, by no later than 5 Business Days after the beginning of each month, a monthly report on the Gold delivered from AGR to it during the previous month under the AGR Contract.

(l) Each Customer shall submit its inventory report to the Bank on a daily basis, setting out, amongst others, the total amount of its inventory, the breakdown of those inventories held by Muller Feindranht AG and K&S respectively and the details of those sales on a consignment and non-consignment basis.

(m) GHC shall submit to the Bank, by no later than 5 Business Days after the beginning of each month, a report of the outgoing shipments of Gold during the previous month to each of Muller Feindranht AG and K&S for the Gold to be processed pursuant to the contract manufacturing services agreements.

(n) GHC shall submit to the Bank, no later than 5 Business Days after the beginning of each month, reports from each of Muller Feindranht and K&S, in form and substance satisfactory to the Bank, setting out in reasonable detail the Gold Wire Products it has processed/manufactured for GHC and the value of such Gold Wire Products sold.

(o) Each Customer shall provide to the Bank, by no later than the last business day of each of its and KSl’s calendar quarter, an updated list of its and KSI’s purchasers for the Gold Wire Products, and if requested by the Bank, such other information in relation to such purchasers.

(p) Each Customer shall conduct a stock-take on a semi-annual basis, and submit to the Bank its stock-take report, from an auditor acceptable to the Bank, no later than 1 month after the completion of each such stock-take.

(q) Each Customer shall, no later than 5 Business Days after the beginning of each month, submit its receivables aging list to the Bank.

(r) No sale of the fixed assets of any of the Customers or change in management control over the operations of any of the Customers may be carried out without the prior written consent of the Bank.

(s) The Customers must ensure that all their receivables and all of KSI’s receivables, in each case, arising from the sale of Gold Wire Products and under or in connection with the Gold Contracts, are to be credited into the respective accounts maintained by the Customers and KSI with, and charged to, the Bank (together, the “Charged Accounts”). The Bank is irrevocably and unconditionally authorised to operate the Charged Accounts and to utilize the credit balances towards repayment of the loan

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principal, interest, fees, commission, related expenses and all out-of-pocket expenses incurred by the Bank. The Customers shall at all times maintain (without double counting) a trade receivables level of not less than 150% of the aggregate face value of all the Standby Letters of Credit and Banker’s Guarantees issued under the Credit Facilities (the “Receivables Coverage Ratio”). Withdrawals may be made from the Charged Accounts provided that (i) the Receivables Coverage Ratio is maintained; and (ii) no Termination Event has occurred or would occur as a result of such withdrawal.

(t) If the Bank determines that the trade receivables level falls below 150% of the aggregate face value of all the Standby Letters of Credit and Banker’s Guarantees issued under the Credit Facilities, the Bank will notify the Customers of this and the Customers shall immediately after receiving such notification from the Bank, deposit, or procure the deposit, of an amount in US Dollars equal to the shortfall amount calculated based on the formula below, into the relevant Charged Accounts as directed by the Bank to ensure that the Receivables Coverage Ratio is maintained to the satisfaction of the Bank. For the avoidance of doubt, any failure by the Customers to so comply will constitute a Termination Event.

X = A - (B / 1.5)

where,

X = shortfall amount

A = US$20,000,000

B = total amount of receivables (in US Dollars) as shown the receivables aging list submitted to the Bank pursuant to paragraph 7(q) above (but for the avoidance of doubt shall exclude any receivables which have been received and paid into the relevant Charged Accounts).

The Bank shall place the shortfall amount into a fixed deposit and no withdrawal shall be made in respect of such shortfall amount unless the Bank determines based on the receivables aging list submitted to the Bank pursuant to paragraph 7(q) above in the immediately succeeding month, that the Receivables Coverage Ratio is maintained, whereupon, the Bank shall release the shortfall amount into the relevant Charged Accounts for the same to be dealt with in accordance with paragraph 7(s).

(u) The Customers undertake to ensure that their invoicing and the invoicing of KSI in respect of the sale of Gold Wire Products to their respective clients must be separate from the invoicing for the sale of other products or services. If any sale is effected on consignment terms, the sales contract must contain appropriate clauses to reserve the title of the Gold Wire Product consigned to such client until full payment of the Gold Wire Product is made.

(v) K&S is required to insure all of its fixed assets and inventory under an All Risks Insurance Policy. GHC is required to insure all of its fixed assets and inventory in relation to or in connection with its Gold Wire Business under an All Risks Insurance Policy. The insurance policies must be from an insurer acceptable to the Bank and shall be taken in the joint name of the owner(s) of the assets and the Bank, with the Bank as the chargee and loss payee for not less than US$20,000,000.

(w) The Customers shall provide to the Bank certified true copies of all existing and future agreements and/or contracts in relation to the processing, refining, or manufacturing services in respect of Gold provided to GHC and/or K&S.

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(x) If K&S and/or GHC enters into a gold supply contract with The Bank of Nova Scotia in similar form and substance to the AGR Contract and the obligations of K&S and/or GHC under such contract are supported by a Banker’s Guarantee and/or Standby Letter of Credit issued pursuant to the Credit Facilities, the Customers) shall assign to the Bank by way of first legal assignment all of its rights under such contract. The Bank shall not be obliged to issue any Banker’s Guarantee and/or Standby Letter of Credit in favour of The Bank of Nova Scotia, unless the Customers shall have provided and/or delivered to the Bank (i) the assignment duly executed by all the parties thereto and (ii) such other documents as may be required by the Bank.

8. DOCUMENTATION

We enclose a set of documents which should be duly completed, signed and returned to the Bank.

9. DEFINITIONS

In this Facility Letter and any of the Security Document, the following terms shall have such meaning as given below:

“AGR” means AGR Matthey (ABN 33 824 096 614), being a partnership between WA Mint (ABN 44 590 221 751) (The Perth Mint), Australian Gold Alliance Pty Ltd (ABN 67 095 743 703) and Johnson Matthey (Aust) Ltd (ABN 62 004 146 838), of Horrie Miller Drive, Newburn, Western Australia.

“AGR Contract” means the sale and buyback of fine metal agreements dated on or about the date of this Facility Letter and made between AGR and the Customers.

“Business Days” has the meaning given to it in the General Terms and Conditions.

“Current Maturity of Senior Long Term Debt” means all the items usually broken out on the balance sheet or found in the long-term debt footnote of the balance sheet.

“Debt”, in relation to each Customer, means the sum of its Senior Long Term Debt, Current Maturity of Senior Long Term Debt, Subordinated Debt and Short Term Debt, but excluding Long Term Intra Group Debt.

“Depreciation and Amortisation” includes all non cash charges including depreciation and amortisation.

“EBITDA” means, in respect of any relevant period and in respect of a Customer, the sum of the net income (loss) from continuing operations, Gross Interest Expenses, Income Tax Expenses, Depreciation and Amortisation for such period.

“Finance Documents” means the Facility Letter, any of the Bank’s standard forms, the Foreign Exchange Documents the Security Documents and any other document designated as such by the Customers and the Bank.

“Foreign Exchange Documents” means the Foreign Exchange Agreements and the Foreign Exchange Trading Facility Letter.

“Foreign Exchange Agreements” means the Master Foreign Exchange Agreements and/or 2002 ISDA Master Agreement executed or to be executed between the Bank and each of GHC and K&S respectively pursuant to which the Bank makes available to each of GHC and K&S a foreign exchange facility (“Foreign Exchange Facility”) on the terms thereof, and which agreement shall govern all foreign exchange contracts between the Bank and each of GHC and K&S respectively.

10

corporate and

investment banking

“Foreign Exchange Trading Facility Letter” means the letter of offer issued or to be issued by the Bank to GHC and K&S in relation to the Foreign Exchange Facility.

“General Terms and Conditions” means the standard form of general terms and conditions of the Bank relating to credit or banking facilities and incorporated by reference under this Facility Letter.

“Gold” means any gold metals in any physical form (including, without limitation, in the form of granule, scrap, bar or wire).

“Gold Contracts” means, in relation to each of GHC, K&S and KSI, all agreements, arrangements and contracts (oral or written) (including without limitation, all invoices, purchase orders, debit notes or other documents or instruments) which are entered into or to be entered into by it pursuant to or in connection with its Gold Wire Business, and all enclosures, amendments and supplements to, and all documents which are expressed to be collateral with, any such agreements, and all its rights and benefits thereof including (without limiting) the foregoing:

(i) the right to receive any and all moneys due or to become due under or pursuant to the relevant Gold Contracts;

(ii) all claims in respect of any breach of the relevant Gold Contracts;

(iii) its right (but not the obligation) to perform and to compel performance of the relevant Gold Contracts; and

(iv) any of its right to rescind or otherwise terminate the relevant Gold Contracts.

“Gold Receivables” means, in relation to each of GHC, K&S and KSI, all monies of whatsoever kind payable in connection with the relevant Gold Contracts to it, or for its account, including all claims for damages arising out of any breach of any relevant Gold Contract and all monies which may at any time become payable to it, or for its account, pursuant to any policy of insurance, under any letters of credit or under any negotiable and non-negotiable instruments, guarantees, indemnities, legal and equitable charges, reservation of proprietary rights, rights of tracing and/or liens which in any way relates to any relevant Gold Contract and all forms of remittance of such sums and any bank or other account to which such sums may be paid or credited.

“Gold Wire Business” means, in relation to each of GHC, K&S and KSI, its business of manufacturing, processing and selling Gold Wire Products, wherever carried out, including (without limitation) the process of obtaining Gold and other products and materials (whether in completed form, semi-completed form or otherwise) derived or manufactured from Gold or otherwise having a Gold content.

“Gold Wire Products” means the gold bonding wire used in the semiconductor industry (including, without limitation) in the manufacture of integrated circuits.

“Gross Interest Expenses” in relation to any period, means the total interest expensed during such period.

“Income Tax Expenses” means the sum of all current and deferred tax expenses.

“KSP” means Kulicke & Soffa Industries, Inc., a company incorporated in Pennsylvania, United States of America and having its principal office at 1005 Virginia Drive, Fort Washington, Pennsylvania 19034, United States of America.

“Long Term Intra Group Debt” means the sum of all long term debt owed to parent companies, subsidiaries and/or related companies.

11

corporate and

investment banking

“Senior Long Term Debt” means the sum of all non-current, non-subordinated long-term debt.

“Short Term Debt” means sum of all notes payable and other short-term debt.

“Subordinated Debt” means the sum of all subordinated debt.

“Subsidiary” means any company or corporation the share capital of which is by more than fifty percent held directly and/or indirectly by another person.

“Termination Event” means any of (i) the events of default set out in clause 14 (Default and Termination) and clause 15 (Termination of Facilities Recallable on Demand) of the General Terms and Conditions, (ii) the termination events set out in paragraph 6(b) and paragraph 7(t) of this Facility Letter and (iii) the events of default (howsoever described) set out in any of the Security Documents.

None of the Customers shall have the right to assign and/or transfer any of its rights and/or obligations under this Facility Letter or any other Finance Documents without the prior written consent of the Bank. The Bank may assign and/or transfer to any other person all or any part of, or any of its interest in, its rights, benefits and/or obligations under or in respect of any of the Finance Documents or in connection with any part of the Credit Facilities. The Customers agree that the Bank may sign any such transfer agreement for and on behalf of the Customers. To the extent of such assignment, such assignee or transferee (as the case may be) shall have the same rights and benefits against the Customers as it would have had if it were the Bank hereunder.

Upon acceptance of this Facility Letter, all utilization of the Credit Facilities prior to acceptance shall be governed by and subject to the terms and conditions of this Facility Letter. This offer shall lapse after 20 June 2006 unless extended by the Bank. Upon acceptance, this Facility Letter will constitute an agreement between us. Kindly confirm your acceptance by signing on the duplicate copy of this Facility Letter and returning it to the Bank on or before 20 June 2006. You are required to submit at the same time when this Facility Letter is returned, a certified true copy of each of the Customers’ Board of Directors’ resolution authorising the acceptance, execution and delivery of this Facility Letter by the signatories hereto.

Should you have any query regarding the above terms and conditions, please do not hesitate to contact the undersigned.

Yours sincerely
/s/ Andrew Tan	/s/ Lui Tuck Wing
Andrew Tan	Lui Tuck Wing
Head of Sales	Head of Risks

12

corporate and

investment banking

To: Citibank, N.A., Singapore Branch

We hereby confirm our agreement to the terms and conditions in this Facility Letter dated 7 June 2006 and acknowledge receipt of the General Terms and Conditions. We hereby confirm that we have read and understood and agree to be bound by the terms and conditions contained in the General Terms and Conditions, as the same may be amended, modified and/or supplemented from time to time.

Accepted for and on behalf of

Kulicke & Soffa Global Holding Corporation

/s/ Maurice E. Carson

Authorized Signatory of the Customer

Accepted for and on behalf of

Kulicke & Soffa (S.E.A.) Pte. Ltd.

/s/ Maurice E. Carson

Authorized Signatory of the Customer

13

	Robinson Road P. O. Box 2388 Singapore 904388
corporate and investment banking

Citibank, N.A., Singapore Branch

Commercial Banking Group

3 Temasek Avenue

#17-00 Centennial Tower

Singapore 039190

Tel (65) 6328-5862

Fax (65) 6328-5887

Tel (65) 6328-5862

Fax (65) 6328-5887

7 June 2006

Kulicke & Soffa Global Holding Corporation

Unit Level 13(E), Main Office Tower

Financial Park Labuan, Jalan Merdeka

87000, Federal Territory of Labuan

Malaysia

c/o 6 Serangoon North Avenue 5

#03-16

Singapore 554910

Attention: Mr Darren Crompton

Kulicke & Soffa (S.E.A.) Pte. Ltd.

6 Serangoon North Avenue 5

#03-16

Singapore 554910

Attention: Ms Ho Siew Foong

Dear Ms Ho

FOREIGN EXCHANGE TRADING FACILITY

We are pleased to advise that Citibank, N.A., Singapore Branch (“Bank”) is offering Kulicke & Soffa Global Holding Corporation and Kulicke & Soffa (S.E.A.) Pte. Ltd. (collectively the “Customers” or “you” and individually a “Customer”), an uncommitted foreign exchange trading facility (“Facility”) on the following terms and conditions:

1. You may from time to time request the Bank to enter into foreign exchange spot, forward and option transactions but the Bank shall have the sole discretion as to whether or not to accept any request and as to the rate or price at which it will enter into any transaction.

2. Without prejudice to the above, the aggregate pre-settlement exposure value (as determined by the Bank in its sole discretion) of all transactions entered or to be entered into between you and the Bank must not exceed US$1,000,000 or such other amount as the Bank may from time to time think fit. The Bank shall not be obliged to obtain your consent or to give you prior notice of any such change.

3. Before accepting any request from you, the Bank may impose such terms and conditions as it may deem fit, including without limitation, a condition that you negotiate, execute and deliver an agreement in the form of the Master Foreign Exchange Agreement and/or 2002 ISDA Master Agreement.

Citibank N.A., Singapore Branch

corporate and

investment banking

Note: Any foreign exchange spot, forward and option transactions entered into by the Customer pursuant to the Facility shall be entered into for the purpose of managing its borrowings or investments, hedging its underlying assets or liabilities or in connection with its line of business (including financial intermediation services) and not for the purpose of speculation.

This letter supersedes and replaces in its entirety the original letter dated 5 May 2006 from the Bank to the Customers and countersigned and returned to the Bank by the Customers.

Please acknowledge receipt of this letter by signing and returning the attached copy.

Yours sincerely
/s/ Andrew Tan	/s/ Lui Tuck Wing
Andrew Tan	Lui Tuck Wing
Head of Sales	Head of Risks

We acknowledge receipt.

/s/ Maurice E. Carson

Kulicke & Soffa Global Holding Corporation

Date

We acknowledge receipt.

/s/ Maurice E. Carson

Kulicke & Soffa (S.E.A.) Pte. Ltd.

Date

2

EX-10.2

Exhibit 10.2

“XXXXX” indicates that a portion of the exhibit has been omitted based on a request for confidential treatment submitted to the Security and Exchange Commission. The omitted portions have been filed separately with the commission.

SALE AND BUYBACK OF FINE METAL AGREEMENT

Made on the 12^th day of June 2006

BETWEEN:

(1) AGR MATTHEY ABN 33 824 096 614 (hereinafter called “AGR MATTHEY”) being a partnership between WA Mint ABN 44 590 221 751 (The Perth Mint), Australian Gold Alliance Pty Ltd ABN 67 095 743 703 and Johnson Matthey (Aust) Ltd ABN 62 004 146 838, of Horrie Miller Drive, Newburn, Western Australia and;

(2) KULICKE & SOFFA (SEA) PTE LTD (hereinafter called “K&S SEA”), a company incorporated in Singapore with its principal office at 6, Serangoon North Ave, 5, #03-16 Singapore 554910, and

(3) KULICKE & SOFFA GLOBAL HOLDING CORPORATION, a company incorporated in Malaysia (hereinafter called “K&S GHC”) with its registered address at Unit Level 13(E), Main Office Tower, Financial Park Labuan, Jalan Merdaka, 8700, Federal Territory of Labuan, Malaysia.

WHEREAS:

A. AGR MATTHEY at the request of K&S has agreed to sell Gold in the required quantum of troy ounces as stipulated in Item 1 of the attached Schedule 1.

B. K&S has agreed to purchase from AGR MATTHEY Gold on the terms and conditions herein contained.

C. K&S SEA and K&S GHC have agreed to be jointly and severally liable to AGR MATTHEY for the performance of all their respective obligations under this Agreement.

NOW IT IS AGREED as follows:

1. DEFINITIONS AND INTERPRETATION

1.1 Definitions

In this Agreement including the Schedules, unless there is something in the subject or context inconsistent therewith, the following expressions have the following meanings:

“Agreement” means this Sale and Buyback of Fine Metal Agreement as it may be amended, varied or extended by mutual agreement from time to time;

“Bank Standby Letter of Credit” means a bank guarantee or standby letter of credit issued by a bank acceptable to AGR MATTHEY in favour of AGR MATTHEY as well as in a form and substance acceptable to AGR MATTHEY;

“Business Day” means any day on which banks are open for general banking business in Perth, Sydney, New York, Singapore and Labuan, Malaysia;

“Conditions Precedent” means the conditions specified in Clause 4;

“Delivery” means the physical act of delivery, where custody of the Gold shall pass from one party to the other, as evidenced by the Transportation Agent’s delivery receipt signed by a duly authorised K&S employee. A list of duly authorised K&S employees is annexed herewith as Appendix 1.

“Delivery Point” means K&S’s manufacturing facility as stated in Item 7 of Schedule 1;

“Dispute” means any dispute or disagreement between the Parties in connection with this Agreement;

“Event of Default” means an event of default under this Agreement pursuant to Clause 11.1;

“Fine Metal Delivered” or “Gold Delivered” means the Fine Metal delivered to K&S by AGR MATTHEY not purchased and settled in full by K&S (in accordance with Clause 5) and not bought back by AGR MATTHEY (in accordance with Clause 7), expressed as fine troy ounces of Gold;

“Gold” means Gold metal in any of its physical forms. The physical supply of Gold by AGR MATTHEY to K&S shall conform to technical specifications specified in paragraph 4 of Schedule 2.

“Gold AM Fix” means the USD Gold price as determined by LBMA Fixing Members at 10.30am (London time) daily and displayed as such on Reuters.

“Gold PM Fix” means the USD Gold price as determined by the LBMA Fixing Members at 3 pm (London time) daily and displayed as such on Reuters.

“Guaranteed Sum” means the sum secured under the Bank Standby Letter of Credit from time to time;

“Initial Date” means the date falling 24 months after the date of this Agreement;

“K&S” means K&S SEA and / or K&S GHC as applicable.

“LBMA” means the London Bullion Market Association;

“Margin Payment” means the cash deposit payable, the provision of a further Bank Standby Letter of Credit or the buyback of Gold (in accordance to Clause 7) at such time as the Market Value of Fine Metal Delivered exceeds ninety five percent (95%) of the Guaranteed Sum under the Bank Standby Letter of Credit in accordance with the terms set out in Clause 6;

“Market Value” of the Gold on any day means the price per Troy Ounce of Gold in USD as determined by the latest Gold PM Fix prior to that day;

“Metals Account” means an unallocated Gold metal account denominated in fine troy ounces held in the name of K&S SEA or K&S GHC representing the balance of Fine Metal Delivered;

“Panel” is defined in Clause 16;

1

“Parties” means the parties to this Agreement and “Party” means either AGR MATTHEY, K&S SEA or K&S GHC;

“Period” means the term of this Agreement commencing from the date of this Agreement and terminating in accordance with Clause 2.2;

“Product Fee” means the fee payable by K&S to AGR MATTHEY as specified in Item 5 of the Schedule 1 and detailed in Clause 5;

“Sale and Buyback of Fine Metal Facility” means the facility described and detailed in Clause 2.

“Schedule” means a schedule to this Agreement.

“Security” means the Bank Standby Letter of Credit provided pursuant to Clause 3.1 and (if any) any USD cash deposit provided by K&S as a result of a margin call by AGR MATTHEY in accordance with Clause 6.1 (a);

“Transportation Agent” means Securicor International Valuables Transport Pty Ltd or Brinks Australia Pty Ltd or any other agent as agreed in writing by both AGR MATTHEY and K&S;

“Troy Ounce” or “Toz” means 31.1035 grams.

“USD” and “United States Dollars” means the lawful currency of the United States of America;

1.2 Interpretation

In the interpretation of the Agreement, unless there is something in the subject or context inconsistent therewith:-

(a) Words importing the singular shall be deemed to include the plural and vice versa.

(b) Words importing any gender shall be deemed to include all other genders.

(c) Words importing persons shall be deemed to include all bodies and associations, corporate or unincorporate, and vice versa.

(d) Any reference to a statute or statutory provision shall be deemed to include any statutory provision which amends, extends, consolidates or replaces the same or which has been amended, extended, consolidated or replaced by the same and any orders, regulations, instruments or other subordinate legislation made thereunder.

(e) Headings are included for convenience only and shall not affect the interpretation of the Agreement.

(f) All references to Clauses and Recitals are to clauses of and recitals to this Agreement.

2

(g) Expressions cognate with expressions defined in Clause 1 shall be construed accordingly.

(h) All references to dates and times are to Perth, Western Australia time unless otherwise specified.

(i) All terminology used with respect to Gold in this Agreement which is not expressly defined herein shall have the meanings given to such terminology by the practices and requirements of the LBMA.

1.3 Schedule 1 and Schedule 2

The Schedule 1 and Schedule 2 attached to this Agreement form part of this Agreement.

2. SALE AND BUYBACK OF FINE METAL FACILITY

2.1 This Agreement shall be deemed to continue in operation and effect from the date of this Agreement and subsist until it is terminated in accordance with Clause 2.2

2.2 After the Initial Period, either of the Parties may terminate this Agreement by giving to the other at least six (6) months written notice. In the event of such termination, the amount of Gold Delivered to K&S must be paid for in full (in accordance with Clause 5) or sold back to AGR MATTHEY (in accordance with Clause 7) before the expiration of the six (6) month notice period.

2.3 During the period of this Agreement, the total Market Value of the Gold Delivered to K&S is not to exceed ninety five percent (95%) of the Guaranteed Sum.

2.4 Drawdown

The drawdown of Gold by K&S is subject to the conditions of this Agreement and will be pursuant to Clause 2.5 of this Agreement.

2.5 Usage of Gold

2.5.1  K&S shall be responsible for all costs and charges relating to the processing by K&S of Gold Delivered supplied by AGR MATTHEY to K&S.

2.5.2  K&S may use the Gold Delivered in the conduct of its normal manufacturing operations (as they are from time to time) and may be used and processed in such operations.

2.5.3  For the avoidance of doubt, all Gold Delivered to K&S by AGR MATTHEY shall form part of the total volume of Fine Metal Delivered to K&S even where the Gold Delivered is held in storage in the vaulting facilities of K&S.

2.6 Risk and Title

Risk and Title to the Gold shall pass from AGR MATTHEY to K&S upon Delivery of a shipment of Gold at the Delivery Point at which time AGR MATTHEY’s responsibility and insurance cover terminates.

3

2.7 Delivery of Gold

(a) AGR MATTHEY shall deliver Gold (within the specifications set out in paragraph 4 of Schedule 2) to K&S within 7 days from the date of its receipt of K&S’s order (in accordance with paragraph 1 of Schedule 2). Delivery by AGR MATTHEY to K&S is deemed to have occurred upon physical delivery at the Delivery Point as evidenced by the Transportation Agent’s delivery receipt signed by one of the duly authorised K&S employees as listed in Appendix 1.

(b) The terms on which K&S will deliver Gold to AGR MATTHEY are set out in paragraph 5 of Schedule 2 and the Refining Charges to be paid by K&S are stated in Item 4 of Schedule 1. Delivery by K&S to AGR MATTHEY is deemed to have occurred upon physical delivery at AGR MATTHEY’s refinery in Perth, Western Australia as evidenced by K&S’s Transportation Agent’s delivery receipt signed by one of the duly authorised AGR MATTHEY employees as listed in Appendix 2. Risk for Gold delivered by K&S to AGR MATTHEY shall pass from K&S to AGR MATTHEY upon Delivery. Title to the Gold delivered to AGR MATTHEY by K&S shall pass from K&S to AGR MATTHEY upon the crediting of an equal amount of Gold contained in the Gold delivered by K&S to the Metals Account in accordance with Clause 5 of Schedule 2.

2.8 Joint and several liability

(a) References in this Agreement to K&S means K&S SEA and K&S GHC jointly and severally and their liability under this Agreement shall be joint and several.

(b) Title to Gold sold to, and purchased by K&S SEA or K&S GHC under this Agreement is held by either of K&S SEA or K&S GHC on a several basis and nothing in this Agreement makes K&S SEA and K&S GHC joint owners of any Gold purchased under this Agreement.

(c) Notwithstanding Clause 2.8(b), K&S SEA and K&S GHC shall be jointly and severally liable for all obligations of K&S SEA or K&S GHC under this Agreement to AGR MATTHEY.

(d) All transactions effected under the Sale and Buyback of Fine Metal Agreement between AGR and K&S (SEA) dated 21^st June 2004 shall be deemed to have been effected under this Agreement and all amounts of Gold, Fine Metal Delivered or money owed in respect of any such transactions shall be deemed to be owed under this Agreement.

3. COLLATERAL SECURITY

3.1 Bank Standby Letter of Credit

3.1.1 K&S is to procure or provide AGR MATTHEY with the following security against the Sale and Buyback of Fine Metal Facility:

A Bank Standby Letter of Credit for an amount to be agreed between the Parties (such amount may be varied by the Parties by mutual consent from time to time).

4

3.1.2 The said Bank Standby Letter of Credit must have an expiry date no earlier than 30 (thirty) days after the Initial Date of this Agreement or as mutually agreed in writing.

3.1.3 Where the Bank Standby Letter of Credit is to be renewed, this renewal is to be effected and confirmed by K&S’s banker(s) to AGR MATTHEY’s banker(s) via SWIFT at least 14 (fourteen) days before the expiry date of the existing Bank Standby Letter of Credit. Failure by K&S or their banker(s) to renew the Bank Standby Letter of Credit at least seven (7) days prior to the expiry of the Bank Standby Letter of Credit shall confer upon AGR MATTHEY the right to require K&S to sell back the Fine Metal Delivered in accordance with Clause 7 and drawdown against the Bank Standby Letter of Credit for the value of Gold Delivered inclusive of any other charges stipulated in Clause 5. Any fees and charges resulting due to the drawdown are for the account of K&S.

3.1.4 A Bank Standby Letter of Credit provided by either K&S SEA or K&S GHC shall secure the liability of each of K&S SEA and K&S GHC jointly and severally.

3.2 Calls on Bank Standby Letter of Credit

If at any time K&S SEA or K&S GHC defaults pursuant to Clause 11, in the performance of its obligations under this Agreement, and fails to remedy the default within five (5) Business Days of written notice from AGR MATTHEY requiring it to do so, then AGR MATTHEY may require payment, without notice to K&S, by the relevant bank which has issued a Bank Standby Letter of Credit of the whole or any part of the sum guaranteed under that Bank Standby Letter of Credit.

4(A).  CONDITIONS PRECEDENT

The first drawdown of Gold by K&S will be subject to the satisfaction of the following conditions precedent:

(a) confirmation from K&S SEA and K&S GHC that their respective Memoranda and Articles of Association contain provisions to authorise all necessary corporate actions to perform its obligations under this Agreement and an extract of the minutes of a K&S SEA and K&S GHC board meeting providing authority for the signing of this Agreement;

(b) execution of a Bank Standby Letter of Credit pursuant to Clause 3.1 to secure the obligations of K&S under this Agreement and the delivery of such Bank Standby Letter of Credit to AGR MATTHEY;

(c) due execution of this Agreement by K&S SEA, K&S GHC and AGR MATTHEY; and

(d) delivery of the specimen signatures of K&S’s officers who are authorised to sign advices and documents on behalf of K&S to AGR MATTHEY.

(e) delivery of an opinion in respect of K&S GHC that:

i) is addressed to AGR MATTHEY from a law firm that certified to practice Labuan law and Malaysian law (approved by AGR MATTHEY) together with evidence of such law firm’s professional indemnity insurance in an amount per event in excess of Malaysian Ringgit 20,000,000 (twenty million);

5

ii) advises that this Agreement is enforceable under Labuan law and Malaysian law; and

iii) it is in a form and substance acceptable to AGR MATTHEY.

4(B) STAMPING OF AGREEMENT UNDER MALAYSIAN LAW

Where necessary under Singapore or Malaysian law:

(a) As soon as reasonably practical after the Effective Date, K&S must provide to AGR MATTHEY satisfactory evidence that this Agreement has been duly stamped under Singapore law and Malaysian law.

(b) K&S must pay all stamp duty payable in relation to this Agreement including, but not limited to, any fines and penalties which may be payable in relation to the stamping of this Agreement.

5. PURCHASE

5.1 The consideration payable for the purchase of Gold by K&S shall comprise the following:

(a) AGR MATTHEY’s quoted selling price at the time of the transaction (as determined in the manner set out in paragraph 2 of Schedule 2) or on either the Gold AM or PM Gold Fix (where an additional fix fee of XXXXX per Troy Ounce will be charged) with settlement of proceeds payable to AGR MATTHEY in USD for value within two (2) business days of the transaction date unless alternative terms are agreed upon by AGR MATTHEY;

(b) a Gold Supply Delivery Fee based on the daily balance of the Gold Delivered and calculated in accordance with the formula set out below:

Gold Supply Delivery Fee in relation to a day = Gold Delivered x Gold Price x (Gold Rate ÷ 360)

Where:

Gold Delivered (a term defined in the definitions of this Agreement) as at the close of that calendar day.

Gold Rate (expressed as a rate per annum) for each Fixed Period (as defined in Clause 5.3.2) is the USD LIBOR rate minus GOFO (the Gold Forward Rate) as at the first Business Day of each Fixed Period plus XXXXX.

Gold Price is the Gold PM Fix on the first calendar day of each Fixed Period or when no such price is available, reference shall be made to the spot price (as determined in the manner set out in paragraph 2 of Schedule 2) as at 08.00 AM Perth time on the following day.

(c) Product Fee of USD as stipulated in Item 5 of Schedule 1;

(d) Annual Australian Manufacturing Plant Production Fee as stipulated in Item 5 of Schedule 1.

6

5.2 For the avoidance of doubt, the Parties hereto expressly agree that the consideration payable for the purchase of Gold to K&S shall be one composite price comprising the sum total of the value of the various constituent components set out in Clause 5.1 (a) to (d) It is further expressly agreed that, apart from contributing to the determination of the composite price, none of the items set out in Clause 5.1 (a) to (d) shall be viewed as an independent or separate consideration in itself.

5.3 Gold Supply Delivery Fees

5.3.1 The Gold Supply Delivery Fees payable by K&S to AGR MATTHEY pursuant to this Clause will accrue on a daily basis and as per the formula set out in Clause 5.1(b). It is agreed that K&S shall pay AGR MATTHEY the Gold Supply Delivery Fee no later than 14 days from invoice date (in arrears on a monthly basis) of such Gold Supply Delivery Fees.

5.3.2 K&S may fix the Gold Rate for a specified period of between one month and one year (Fixed Period). The fix date is the first Business Day of a Fixed Period. The Fixed Period is not to exceed the expiry date on the Bank Standby Letter of Credit. AGR MATTHEY is to be notified in writing of any intention to fix no later than the first Business Day after the preceding Fixed Period expires. If K&S fails to notify AGR MATTHEY of its intention to fix the Gold Rate for a specified period by the first Business Day after the expiry of the preceding Fixed Period, K&S shall be deemed to have fixed the Gold Rate for a period of one month.

5.4 Annual Australian Manufacturing Plant Production Fee

This fee shall be paid in equal monthly instalments in advance within 14 fourteen Business Days of the invoice date.

5.5 Product Fee

The Product Fee shall be payable to AGR MATTHEY on the second Business Day following the date that K&S and AGR MATTHEY set the price for the purchase of Gold in accordance with Clause 5.1(a).

Basis:

The Product Fee payable to AGR MATTHEY is for door to door delivery loco K&S Singapore or Labuan subject to shipping availability acceptable to AGR MATTHEY and to a minimum shipment size of 200 Kgs. If the shipment size is less than 200 Kgs, K&S shall pay an additional fee (to be determined by the Parties) in addition to the Product Fee. For shipment size of 400 Kgs or greater, AGR shall make a monthly refund to K&S of XXXXX Troy Ounce.

6. MARGIN PAYMENT

6.1 At any time and from time to time, during the period of this Agreement, if the aggregate Market Value of the Fine Metal Delivered exceeds ninety five percent (95%) of the Guaranteed Sum, K&S shall, at its option, within five (5) Business Days after notice has been served by AGR MATTHEY:

(a) Make a deposit in cash in USD, to AGR MATTHEY’s account at:

J P Morgan Chase Bank, New York
Account Name:	AGR MATTHEY – USD Account
XXXXX	XXXXX
XXXXX	XXXXX

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AND/OR

(b) Provide AGR MATTHEY with a further Bank Standby Letter of Credit for an amount in excess of the Guaranteed Sum

AND/OR

(c) Sell back a quantity of Gold to AGR MATTHEY (or to AGR MATTHEY’s agent as directed by AGR MATTHEY in writing) in accordance with Clause 7

so that after the deposit of cash, provision of the further Bank Standby Letter of Credit and/or sell back of Gold in accordance with Clause 7, the aggregate Market Value of the Fine Metal Delivered does not exceed ninety five percent (95%) of the Guaranteed Sum.

6.2 Where K&S elects to place cash deposits with AGR MATTHEY as opposed to increasing the value of the Bank Standby Letter of Credit (and K&S advises AGR MATTHEY in writing in advance) and such sums are not used on an ongoing basis for the payment of sums due to AGR MATTHEY which as a result allows AGR MATTHEY to place the cash deposits on a term deposit facility with their bank then any USD cash deposit made pursuant to Clause 6.1 to AGR MATTHEY in satisfaction of such Margin Payment shall earn interest based on daily balances of such deposits at a rate equal to the prevailing USD one month LIBOR rate (London Interbank Offer Rate) minus 0.5% per annum (half of one percent per annum). Interest earned on any such deposit shall be paid to K&S in accordance with Clause 8.

6.3 Interest earned pursuant to Clause 6.2 together with any USD cash deposit made pursuant to Clause 6.1 shall be paid to K&S in full by the bank holding the USD cash deposit upon the direction of AGR MATTHEY when the USD cash deposit is returned to K&S.

6.4 At the request of K&S, AGR MATTHEY shall return to K&S the USD cash deposit and/or Further Bank Standby Letter of Credit held as a Margin Payment to K&S, as the case may be, when the aggregate Market Value of the outstanding Gold Delivered has dropped back to or below 95% (ninety five percent) of the Guaranteed Sum and has remained so for five (5) consecutive Business Days.

7. BUYBACK

7.1 K&S shall have the option to sell any quantum of the Gold to AGR MATTHEY, and AGR MATTHEY shall purchase, such quantum of Gold Delivered sold at the option of K&S.

7.2 K&S shall deliver the Gold in the form and state which was delivered to K&S by AGR MATTHEY or in any other form and state acceptable to AGR MATTHEY (currently being in wire, granule, gold scrap or bar form).

7.3 In consideration of the purchase of Gold by AGR MATTHEY, AGR MATTHEY shall cause a credit entry to be made to the Metals Account of K&S to reflect the amount of Gold purchased from K&S in accordance with Clause 2.7(b) and paragraph 5 of Schedule 2.

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7.4 With regard to the delivery and the passing of the risk and title of Gold from K&S to AGR MATTHEY, the provisions of Clause 2.7(b) shall apply.

7.5 In the event that instead of delivering Gold to AGR MATTHEY’s refinery in Perth, Western Australia, K&S in its sole discretion agrees to AGR MATTHEY’s request to deliver Gold to a person within Singapore (hereinafter called “Singapore Recipient”) or to a place within Singapore (hereinafter called “Singapore Place”), it shall be on the conditions that (a) AGR MATTHEY shall at all times indemnify K&S from and against any and all loss and damage, cost and expense whatsoever arising therefrom including without limitation Goods and Services Tax under the Goods and Services Act (Cap. 117A) of Singapore and such other, if any, value added or consumption tax by whatever name called in respect of which K&S will or may be held chargeable to or otherwise held accountable for whether on K&S’s own account or the account of AGR MATTHEY’s or any other person’s by any tax or other relevant authority and (b) for the purposes of delivery of and the passing of the risk and title of Gold by K&S to AGR MATTHEY shall be deemed to have occurred upon physical delivery to the Singapore Recipient or at the Singapore Place.

8. WITHHOLDING

8.1 Payments to be free and clear: All sums payable by either Party under this Agreement shall be paid free of any restriction or condition, and free and clear of and (except to the extent required by law) without any deduction or withholding, whether for or on account of tax, by way of set-off or withholding or otherwise.

8.2 Grossing-up of Payments

(i) If one of the Parties, must at any time deduct or withhold from tax or other amount from any sum paid or payable by, or received or receivable from, it shall pay such additional amount as is necessary to ensure that the other Party receives and retains (free from any liabilities other than tax on its own Overall Net Income) a net sum equal to what it would have received and so retained had no such deduction or withholding been required or made.

(ii) If one of the Parties must at any time pay any tax or other amount on, or calculated by reference to, any sum received or receivable by the other Party (except for payment by the other Party of tax on its Overall Net Income), it shall pay or procure the payment of that tax or other amount before any interest or penalty becomes payable.

(iii) Within 30 days after paying any sum which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any tax or other amount which it is required by sub-Clause (ii) above to pay, the Party making such payment shall deliver to the other Party evidence satisfactory to the other Party of that deduction, withholding or payment and (where remittance is required) of the remittance thereof to the relevant taxing or other authorities.

(iv) In this Clause “Tax on Overall Income” of a Party shall be construed as reference to tax (other than tax deducted or withheld from any payment) imposed on that person by the jurisdiction in which its principal office is located on (1) the net

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income, profits or gains of that person worldwide or (2) such of its net income, profits or gains as arise in or relate to that jurisdiction.

9. OVERDUE AMOUNTS

If K&S fails to make payment when due any sum of money payable to AGR MATTHEY (whether at its stated due date, by acceleration or otherwise) under this Agreement then to the fullest extent permitted by law, K&S shall pay interest to AGR MATTHEY on such unpaid sums for each day during the period from and including its due date but excluding the day such amount is received in full by AGR MATTHEY at the percentage rate per annum which is the sum of:

The one month LIBOR (London Interbank Offer Rate) + three percentage points (3.00%).

10. CLAUSE DELETED

11. K&S DEFAULT

11.1 Events of Default

K&S SEA and K&S GHC shall each be deemed to be in default if any of the following Event(s) of Default occur in respect of either or both of them:

(a) it fails to make any due delivery of all or part of the Gold liable to be delivered to AGR MATTHEY pursuant to Clause 2.2 read with Clause 7.

(b) it fails to pay on the due date any amount (apart from amounts pursuant to Sub-clause (a) of this Clause), fee, or charge payable by it under this Agreement and does not remedy such Default within a period of five (5) Business Days after notice from AGR MATTHEY.

(c) it fails to perform or observe any of the terms and conditions of this Agreement (other than those referred to in sub-Clauses (a) and (b) of this Clause and Clause 6) or under the Security and where such Default is capable of remedy, does not remedy such Default within a period of five (5) Business Days after written notice of such Default had been given by AGR MATTHEY.

(d) an order is made or an effective resolution is passed for the winding up of either K&S SEA, K&S GHC or Kulicke & Soffa Industries, Inc of the USA (“K&S USA”) or if a meeting is convened for the purpose of considering any such resolution and the same is not dismissed or withdrawn within ten (10) Business Days (unless the winding up is for the purpose of amalgamation or reconstruction the terms of which shall previously have been approved by AGR MATTHEY in writing, such approval shall not be unreasonably withheld or delayed).

(e) a provisional liquidator, administrator, receiver or receiver and manager is appointed to any of K&S SEA, K&S GHC or K&S USA in respect of its undertaking, property or assets or any part thereof or if any of them cause a

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meeting of its creditors to be summoned for the purpose of considering any resolution for such appointment.

(f) any distress or execution for an amount of USD 250,000.00 (Two Hundred and Fifty Thousand United States Dollars) or more is levied or enforced upon K&S SEA or K&S GHC or is made against the assets or any part thereof of K&S SEA or K&S GHC and such shall not have been paid out, removed or discharged within twenty one (21) Business Days.

(g) K&S SEA or K&S GHC is unable to pay its debts as they fall due or is unable to certify that it is able to pay its debts as they fall due.

(h) a compromise or arrangement is proposed K&S SEA or K&S GHC and its creditors or any class of them or if an application is made to a court for an order summoning a meeting of creditors of K&S SEA or K&S GHC or any class of them.

(i) any present or future indebtedness due from K&S SEA or K&S GHC becomes due and payable prior to the date of maturity thereof as a result of K&S SEA’s or K&S GHC’s default or any such indebtedness is not paid at the maturity thereof or upon the expiration of applicable grace periods thereof or any guarantee or indebtedness or performance bond given by K&S SEA or K&S GHC is not honoured when due and called upon or any mortgage or charge, present or future, and created or assumed by K&S SEA or K&S GHC becomes enforceable.

(j) any representation, warranty or statement made by K&S SEA or K&S GHC herein or in any document given to AGR MATTHEY by K&S SEA or K&S GHC or by K&S USA in connection with or pursuant to this Agreement is not being complied with or shall prove to be untrue or misleading in any material respect.

(k) K&S SEA or K&S GHC fails to comply with AGR MATTHEY’s margin call requirement within five (5) Business Days as per Clause 6 of this Agreement.

11.2 In the event that K&S SEA, K&S GHC or K&S USA is deemed to be in default pursuant to Clause 11.1:

(i) AGR MATTHEY shall have the absolute irrevocable right to terminate immediately the Sale and Buyback of Fine Metal Facility as well as this entire Agreement, and

(ii) AGR MATTHEY shall have the absolute irrevocable right to charge K&S the price of the Gold Delivered to K&S at that time with reference to the international market spot price for Gold with reference to Reuters as determined by AGR MATTHEY, such price to be payable by K&S within two (2) Business Days from the date of pricing, or AGR MATTHEY is entitled to demand immediate payment by way of calling on the Bank Standby Letter of Credit pursuant to Clause 3.2.

11.3 K&S shall indemnify AGR MATTHEY and keep AGR MATTHEY indemnified against any losses, damages and/or expenses incurred by AGR MATTHEY arising or

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resulting from K&S’s default as set out in Clause 11.1 excluding such losses, damages and expenses to the extent it arises or results from AGR MATTHEY’s negligent act or omission or wilful misconduct. AGR MATTHEY shall furnish documentary evidence to K&S of such loss or damage.

12. SET - OFF

12.1 K&S SEA and K&S GHC hereby authorise AGR MATTHEY at any time after any Event of Default has occurred and so long as it shall be continuing:

(a) to apply any credit balances of metal or currency standing in the Metals Account with AGR MATTHEY, in or towards satisfaction of any sum due to AGR MATTHEY; and

(b) in the names of K&S SEA or K&S GHC and/or AGR MATTHEY to do all such acts and execute all such documents as may be necessary or expedient for any such purpose.

12.2 Nothing in the foregoing shall, however, be implied to mean that AGR MATTHEY shall be compelled to exercise the right of set-off in an Event of Default.

12.3 Upon the occurrence and during the continuance of any Event(s) of Default or non-performance by K&S SEA, K&S GHC or K&S USA, AGR MATTHEY is hereby authorised at any time and from time to time, without notice to K&S (any such right to notice being expressly waived by K&S) to set-off and apply all deposits (general or special term of demand, provisional or final) at any time held and other indebtedness at any time owing by AGR MATTHEY to or for the credit or the account of K&S against any and all of the obligations of K&S now or hereafter existing although such obligations may be unmatured.

In the event of a dispute as to whether an Event of Default or non performance by K&S SEA, K&S GHC or K&S USA has occurred, the Parties shall refer the dispute for resolution in accordance to Clause 18.

12.4 AGR MATTHEY will promptly notify K&S after any set-off and application of proceeds under this Clause 12, provided that the failure to give such notice shall not affect the validity of set-off and application.

12.5 The rights of AGR MATTHEY under this Clause 12 are in addition to other rights and remedies (including without limitation, other rights of set-off) which AGR MATTHEY may have.

13. AGR MATTHEY

13.1 AGR MATTHEY Covenants

AGR MATTHEY covenants that:

(1) it shall deliver Gold within the specifications as stipulated in paragraph 4 of Schedule 2;

(2) it shall take all possible actions to avoid supply delays;

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(3) it shall hold in stock Gold conforming to the technical specifications as specified in paragraph 4 of Schedule 2. AGR will maintain a level of stock equal to twice the average weekly consumption of the 4 preceding weeks except when K&S deviate from the agreed procedure set out in Schedule 2, Clause 1 and increase their stock requirement. In which case the rate at which AGR will replenish stock supplied to K&S will be calculated as follows:

Production Rate x Pass Rate – Orders = Stock Replenishment

Where;

“Production Rate” means the rate at which AGR produces Gold of 99.999% purity represented as Kilograms per calendar week;

“Pass Rate” means the rate at which AGR produces Gold conforming to the technical specifications as specified in paragraph 4 of Schedule 2 represented as a percentage;

“Orders” means the orders made by K&S to AGR in accordance with Item 1 of Schedule 2 Working Methodology;

(4) in addition to the primary production process, namely Aqua Regia Digest (ARD) it shall maintain a second production process in a separate area of the refinery, namely the Electrolytic Gold Room (EGR). Gold manufactured through the EGR process has previously been tested and qualified by K&S. Provided that the specification of the Gold meets with the K&S specifications AGR MATTHEY may supply from either process. K&S may inspect the AGR MATTHEY facility from time to time to ensure that AGR MATTHEY is maintaining the second production process;

(5) it shall give K&S 90 days notice of any change to the process location, a change to the process or a major equipment change;

(6) in the event that AGR MATTHEY is not able to supply Gold within the specifications and in the time-frame as stipulated in this Agreement, then K&S may source from an alternative supplier. In the event that the cost of Gold sourced from the alternative supplier is of a greater cost to K&S than the cost under the terms of this Agreement, then AGR MATTHEY shall pay to K&S such additional costs within fourteen (14) Business Days of notification from K&S. Prior to any commitment by K&S to purchase Gold from an alternative supplier, K&S must notify AGR MATTHEY in writing of their proposed course of action;

(7) it shall meet the delivery requirements as set out in paragraph 1 (a) and (b) of Schedule 2;

(8) it shall not subcontract the manufacture of Gold supplied to K&S without the prior written consent of K&S, such consent not being unreasonably withheld;

(9) should AGR MATTHEY find itself in a position such that it is unable to meet the supply requirements of K&S, then AGR MATTHEY shall immediately inform K&S. Furthermore, AGR MATTHEY, with the consent of K&S, shall source Gold from an alternative supplier that meets the minimum

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specifications as stated in this Agreement, such consent not to be unreasonably withheld by K&S; and

(10) In the event that there is a dispute over the assay of the Gold supplied, then AGR MATTHEY will arrange for an assay to be carried out by an agreed independent laboratory to determine the correct assay. In the event that the Gold supplied by AGR MATTHEY to K&S is not within the specifications as stipulated in this Agreement as determined by the independent laboratory, then the cost to deliver the Gold to AGR MATTHEY and the cost of the independent laboratory’s assay shall be borne by AGR MATTHEY. If determined by the independent laboratory that the Gold is within specification then K&S will be responsible for the cost to deliver the Gold to AGR MATTHEY and the cost of the independent laboratory’s assay.

13.2 AGR MATTHEY shall indemnify K&S and keep K&S indemnified against any losses, damages and/or expenses incurred by K&S arising or resulting from AGR MATTHEY’s breach of any Covenant(s) set out in Clause 13.1(1) to (10) excluding such losses, damages and expenses to the extent it arises or results from K&S’s negligent act or omission or wilful misconduct. K&S shall furnish documentary evidence to AGR MATTHEY of such loss or damage.

13.3 Termination by K&S

Having followed the process of Dispute Resolution in accordance with Clause 16 and subject to the outcome of the process of Dispute Resolution, K&S may terminate this Agreement with immediate effect by giving notice to AGR MATTHEY if:

(a) the Panel determines that AGR MATTHEY has breached any provision of this Agreement and fails to remedy the breach within 5 Business Days after receiving notice requiring it to do so;

(b) the Panel determines that AGR MATTHEY has breached a material provision of this Agreement where that breach is not capable of remedy. For the avoidance of doubt, clauses 14.1(1) to (10) are material provisions; or

(c) the Panel determines that any event referred to in clause 14.4 happens to AGR MATTHEY.

13.4 Notification of events

AGR MATTHEY must notify K&S immediately if:

(a) there is any change in the direct or indirect beneficial ownership or control of AGR MATTHEY;

(b) it disposes of the whole or any part of its assets, operations or business other than in the ordinary course of business;

(c) it ceases to carry on business;

(d) it ceases to be able to pay its debts as they become due;

(e) any step is taken by a mortgagee to take possession or dispose of the whole or any part of its assets, operations or business;

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(f) any step is taken to enter into any arrangement between AGR MATTHEY and its creditors;

(g) any step is taken to appoint a receiver, a receiver and manager, a trustee in bankruptcy, a liquidator, a provisional liquidator, an administrator or other like person of the whole or any part of its assets or business; or

(h) where AGR MATTHEY is a partnership, any step is taken to dissolve that partnership.

13.5 Accrued rights and remedies

Termination of this Agreement under this clause 14 or under clause 15 does not affect any accrued rights or remedies of any Party.

14 FORCE MAJEURE

14.1 Definition

Force Majeure Event affecting a person means anything outside that Party’s reasonable control including, but not limited to, fire, storm, flood, earthquake, explosion, war, invasion, rebellion, sabotage, epidemic, labour dispute, labour shortage, failure or delay in transportation, and act or omission (including laws, regulations, disapprovals or failures to approve) of any third person (including, but not limited to, subcontractors, customers, governments or government agencies).

14.2 Occurrence of Force Majeure Event

If a Force Majeure Event affecting a Party precludes that Party (Precluded Party) partially or wholly from complying with its obligations (except its Security and payment obligations) under this Agreement then:

(a) as soon as reasonably practicable after that Force Majeure Event arises, the Precluded Party must notify the other Party of:

(i) the Force Majeure Event;

(ii) which obligations the Precluded Party is precluded from performing (Affected Obligations);

(iii) the extent to which the Force Majeure Event precludes the Precluded Party from performing the Affected Obligations (Precluded Extent); and

(iv) the expected duration of the delay arising directly out of the Force Majeure Event;

(b) the Precluded Party’s obligation to perform the Affected Obligations will, to the Precluded Extent, be suspended for the duration of the actual delay arising directly out of the Force Majeure Event (Actual Delay); and

(c) the other Party’s obligations to perform any obligations dependent on the Affected Obligations will be suspended until the Precluded Party resumes performance.

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14.3 Termination

If the Actual Delay continues for more than 30 days, the other Party may terminate this Agreement immediately by giving notice to the Precluded Party.

14.4 Consequences of termination

If a Party terminates this Agreement under clause 15.3:

(a) the rights and obligations of the Parties under this Agreement (including, but not limited to, any licence) cease; and

(b) any accrued rights or remedies of a Party are not affected.

15. K&S

15.1 K&S COVENANTS

K&S covenants that during the period of time that this Agreement is in effect it shall provide notice to AGR MATTHEY in the event that K&S intends to receive supplies of Gold from a party other than AGR MATTHEY, subject to clause 13.1 (6).

16. DISPUTE RESOLUTION

16.1 Reference to a Panel

(a) If any Dispute arises between the Parties, either Party may, by notice in writing to the other Party to the Dispute (the “Referral Notice”), refer the dispute to a panel constituted under clause 16.1(b) (the “Panel”) who will meet to discuss the Dispute (with any appropriate technical experts and/or an independent party) and endeavour to resolve the Dispute, within 10 Business Days of their first meeting (“Resolution Period”).

(b) The Panel will consist of a director or the chief executive officer or chairman (as the relevant Party may decide) of each of the Parties.

16.2 Condition precedent to litigation

A Party must not commence any proceedings in any court in respect of any other Dispute which is referable to a Panel under clause 16.1 unless the Dispute has first been referred to a Panel and the Panel does not meet or resolve the dispute under clause 16.1 before the expiry of the relevant Resolution Period.

16.3 Interlocutory

Nothing in clause 16.2 prevents a party from commencing proceedings in any court where the proceedings are required to obtain urgent interlocutory relief.

16.4 Performance of obligations pending resolution of Dispute

Prior to the resolution of a Dispute, the Parties must continue to perform their obligations under this Agreement insofar as those obligations are not the subject matter of the Dispute.

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16.5 Extension of time

In the case of a Dispute which is referable to a Panel under clause 16.1, any time periods specified in this Agreement in relation to the subject matter of the Dispute will be extended by the time between the date on which the Referral Notice is delivered (or deemed to be delivered) and the sooner of the date the Panel determines the Dispute; and the date the Resolution Period expires.

17. MISCELLANEOUS

17.1 Entire Agreement

This Agreement constitutes the entire Agreement between AGR MATTHEY and K&S with respect to the subject matter hereof and supersedes and extinguishes all prior agreements and understandings between AGR MATTHEY and K&S with respect to the matters covered herein.

17.2 Amendments

This Agreement may not be amended, modified or supplemented except by a written instrument executed by persons duly authorised on behalf of AGR MATTHEY and K&S.

17.3 Waivers and Remedies Cumulative

(a) No failure to exercise and no delay in exercising any right, power or remedy under this Agreement or any Bank Standby Letter of Credit by AGR MATTHEY or K&S shall operate as a waiver, nor shall any single or partial exercise of any right, power or remedy preclude any other or further exercise of that or any other right, power or remedy.

(b) The rights, powers and remedies provided to AGR MATTHEY or K&S under this Agreement are cumulative and are not exclusive of any rights, powers or remedies provided by law.

17.4 Assignment

17.4.1  Upon providing AGR MATTHEY with evidence that the assignee has the financial ability to honour the obligations contained within this Agreement, K&S may assign, transfer or charge all or any of its rights or obligations under this Agreement subject to K&S first obtaining AGR MATTHEY’s prior written consent which shall not be unreasonably withheld or delayed. Not withstanding the above, AGR MATTHEY expressly consents to the assignment by K&S SEA and K&S GHC of all or any of their respective rights under the Agreement to any financier providing Security to AGR MATTHEY.

17.4.2  Upon providing K&S with evidence that the assignee has the financial ability to honour the obligations contained within this Agreement AGR MATTHEY may assign, transfer or charge all or any of its rights or obligations under this Agreement subject to AGR MATTHEY first obtaining K&S’s prior written consent which shall not be unreasonably withheld or delayed.

17.4.3  This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective successors and assigns.

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17.5 Notices

All notices, requests, demands, consents, approvals, agreements or other communications to or by a party to this Agreement shall:

(a) be in writing addressed to the address of the recipient shown in Item 6 of Schedule 1 or such other address as it may have notified the senders;

(b) be signed by the sender;

(c) be deemed to be duly given or made (in the case of delivery in person or by post or by facsimile transmission) when delivered to the recipient at such address, but if such delivery or receipt is later than 5.00pm (local time) on a day which business is generally carried on in the place to which such communication is sent, it shall be deemed to have been duly given or made at the commencement of business on the next such day in that place.

17.5A Deemed notice

Any notice under this Agreement to be given to K&S shall be deemed to have been duly given if provided to K&S GHC in accordance with the requirements of Clause 17.5.

17.6 Maintenance of Records

(a) K&S hereby request that AGR MATTHEY establishes/maintains a Metals Account.

(b) AGR MATTHEY shall record all transactions relating to the Delivered Gold in the Metals Account. The balance of the Metals Account (Supply Balance) shall reflect the quantum of Gold Delivered.

(c) AGR MATTHEY shall provide a statement detailing all debits and credits to the Metals Account on a monthly basis or upon the request of K&S.

17.7 Governing Law and Jurisdiction

This Agreement is governed by the laws of Western Australia and K&S submits to the non-exclusive jurisdiction of the courts of Western Australia.

17.8 Counterparts

This Agreement may be executed in any number of counterparts. All such counterparts, when signed by the respective Parties, taken together shall be deemed to constitute one instrument.

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IN WITNESS WHEROF the Parties have duly executed this Agreement on the date of first above mentioned.

	}
AGR MATTHEY	}
	}
	Director	/s/ Brian Bath
	Director / Secretary	/s/ John Shepard

THE COMMON SEAL of	}
KULICKE & SOFFA (SEA) PTE LTD	}
was hereunto affixed in	}
accordance with its Articles of	}
Association in the presence of	}
	Director	/s/ Ho Siew Foong
	Secretary	/s/ Keloth Raj Kumar

THE COMMON SEAL of	}
KULICKE & SOFFA GLOBAL HOLDING	}
CORPORATION	}	[SEAL]
was hereunto affixed in	}
accordance with its Articles of	}
Association in the presence of	}
	Authorised officer	/s/ Ho Siew Foong
	Secretary	/s/ Rita Sharif

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SCHEDULE 1

This schedule is supplemental to the Sale and Buyback of Fine Metal Agreement dated 12^th of June 2006 between AGR MATTHEY and KULICKE & SOFFA (SEA) PTE LTD and KULICKE & SOFFA GLOBAL HOLDING CORPORATION and constitutes a part of that Agreement and constitutes a Contract between them.

Date of signature of Schedule:

Item 1	Gold Delivered	95% of the value of the Guaranteed Sum.
		Current value of Security being USD20 million.
Item 2	Period of Agreement
	Commencement Date:	As per date of execution of the Agreement.
	Initial Date:	The date falling 24 months after the date of this Agreement. The Agreement may not be terminated by notice within the period from the Commencement Date to the Initial Date. After the Initial Date, the prices and terms of this Agreement may be varied by mutual agreement and the Agreement may be terminated by either party by giving six- months’ written notice to the other party.
Item 3	Gold Supply Delivery Fee:	Gold Rate to be determined by AGR MATTHEY on the basis set out in clause 5.1(b). At the election of K&S and with the consent of AGR MATTHEY, K&S may fix the Gold Rate for a pre-elected period.
Item 4	Refining Charges	For Gold of up to 99.99% Assay: XXXXX XXXXX For Gold of 99.99% and over 99.99% Assay: XXXXX XXXXX
Item 5	Other Fees
	Annual Australian Manufacturing Plant Production Fee: XXXXX per Troy Ounce (minimum shipment size 200 kgs). For shipment size of 400 Kgs or greater, AGR shall make a monthly refund to XXXXX per Troy Ounce.

(All fees and charges excludes any Singapore taxes, levies or imposts payable by K&S)

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Item 6	Address for Service:	AGR MATTHEY
		Horrie Miller Drive Newburn WESTERN AUSTRALIA 6104 AUSTRALIA
		Facsimile: (618) 9479 9919
		AND
		Kulicke & Soffa Global Holding Corporation and Kulicke & Soffa (SEA) Pte Ltd: Block 5002, Ang Mo Kio Avenue 5 #05-06, TECHPlace II Singapore 569871
		Facsimile: 65 6880 9662
Item 7	Delivery Point:	Kulicke & Soffa Global Holding Corporation and Kulicke & Soffa (SEA) Pte Ltd Block 5002, Ang Mo Kio Avenue 5 #05-06, TECHPlace II Singapore 569871

Signed for and on behalf of
AGR MATTHEY
By	Brian Bath, CEO	/s/ Brian Bath
	(Name & Position)	(Signature)
Signed for and on behalf of
KULICKE & SOFFA (SEA) PTE LTD
By	Ho Siew Foong, Director	/s/ Ho Siew Foong
	(Name & Position)	(Signature)
Signed for and on behalf of
KULICKE & SOFFA GLOBAL HOLDING CORPORATION
By	Ho Siew Foong, Authorised Officer	/s/ Ho Siew Foong
	(Name & Position)	(Signature)

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SCHEDULE 2

WORKING METHODOLOGY

1. Gold Supply

K&S shall supply to AGR MATTHEY:

(a) On a weekly basis, an estimate for the quantity of Gold that K&S will require to be dispatched in fourteen calendar days, and

(b) Three Business Days prior to the required dispatch date, an order for the quantity of Gold that K&S will require to be dispatched and K&S shall ensure that this order is within a 20% tolerance of the estimate provided in point (a) above. Where orders are placed by K&S outside of the 20% tolerance of the estimate provided in point (a) above then AGR shall utilise Gold held in stock to meet the order and the stock used shall be replenished at the rate as specified in Clause 13.1 (3)

2. Gold Pricing

Spot Pricing

During normal business hours, an authorised representative of K&S (as listed in Appendix 1) may contact the Treasury department of AGR MATTHEY by telephone and request the current USD Gold selling price. AGR MATTHEY will provide K&S with their current selling price (being based on the Reuters Gold offer price at that time) and if acceptable to K&S the Parties will confirm the transaction. AGR MATTHEY will send a fax copy of the deal confirmation (setting out the selling price and the quantity of Gold Delivered to be purchased by K&S ) to K&S and K&S shall immediately sign and return the deal confirmation to AGR MATTHEY. K&S shall settle the amount due to AGR MATTHEY on the following second Business Day.

LBMA Fix Pricing

Prior to the end of the Business Day in Perth, an authorised representative of K&S (as listed in Appendix 1) may contact the Treasury department of AGR MATTHEY by telephone and place an order to buy Gold on either the Gold AM or PM Fix for that day. Transactions conducted on the Gold AM or PM Fix shall attract a premium of USD 0.25 per Troy Ounce. At the commencement of business on the following Business Day AGR MATTHEY will send a fax copy of the deal confirmation (setting out the selling price and the quantity of Gold Delivered to be purchased by K&S) to K&S and K&S shall immediately sign and return the deal confirmation to AGR MATTHEY. K&S shall settle the amount due to AGR MATTHEY on the second Business Day following the date of the Gold AM or PM Fix.

3. Record keeping

At the end of each month, K&S will provide AGR MATTHEY with a confirmation detailing the volume of Gold Delivered to K&S at the close of business on the last Business Day of the month (in Toz)

AGR MATTHEY shall maintain a Metals Account in the name of K&S with separate sub accounts for K&S SEA and K&S GHC.

At the end of each month, AGR MATTHEY will provide K&S with:

(a) a statement showing the daily balance of Gold Delivered to K&S (in Toz)

22

(b) an invoice and statement detailing the Annual Australian Manufacturing Plant Production Supply Fees due, such charges to be paid by K&S within fourteen Business Days of the invoice date

(c) a summary of transactions conducted during the month

4. Specification of Gold supplied by AGR MATTHEY to K&S

Maximum allowable limits of impurities to meet K&S specification are listed below.

XXXXX	XXXXX
XXXXX	XXXXX
XXXXX	XXXXX
XXXXX	XXXXX
XXXXX	XXXXX
XXXXX	XXXXX
XXXXX	XXXXX
XXXXX	XXXXX
XXXXX	XXXXX
XXXXX	XXXXX
XXXXX	XXXXX
XXXXX	XXXXX
XXXXX	XXXXX

XXXXX

Calculate Fine Gold content by difference.

Fine Gold Content = 100.0000% - (Total Impurities mg/kg/10,000)

5. Delivery of Gold by K&S to AGR MATTHEY

At the cost of K&S, K&S may deliver Gold in the form of wire, granule, gold scrap or bar to AGR MATTHEY’s Perth refinery. AGR MATTHEY will charge K&S Refining Charges as stipulated in Item 4 of Schedule 1. Within two Business Days of delivering such Gold to AGR MATTHEY’s Perth refinery, AGR MATTHEY will provide K&S with an Assay of the Gold delivered and simultaneously credit K&S’s Metals Account held with AGR MATTHEY thereby reducing the Gold Delivered to K&S.

23

Appendix 1

LIST OF AUTHORISED K&S EMPLOYEES

XXXXXX

Appendix 2

LIST OF AUTHORISED AGR MATTHEY EMPLOYEES

1. For a change to this Sale and Buyback of Fine Metal Agreement including any change to Security or the coordinates of AGR Matthey’s bank account (currently being with JP Morgan Chase New York XXXXX )

Delegated Persons (both to sign):
XXXXX	XXXXX

XXXXX

TABLE OF CONTENTS

1.	DEFINITIONS AND INTERPRETATION	1
2.	SALE AND BUYBACK OF FINE METAL FACILITY	4
3.	COLLATERAL SECURITY	5
4.	CONDITIONS PRECEDENT	6
5.	PURCHASE	7
6.	MARGIN PAYMENT	8
7.	BUYBACK	9
8.	WITHHOLDING	10
9.	OVERDUE AMOUNTS	11
10.	INSURANCE	10
11.	K&S DEFAULT	11
12.	SET-OFF	13
13.	AGR MATTHEY	13
14.	FORCE MAJEURE	16
15.	K&S	17
16.	DISPUTE RESOLUTION	17
17.	MISCELLANEOUS	18
SCHEDULE 1		21
SCHEDULE 2		23

EX-31.1

Exhibit 31.1

CERTIFICATION

I, C. Scott Kulicke, Chairman of the Board and Chief Executive Officer of Kulicke & Soffa Industries, Inc. certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kulicke and Soffa Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2006

/s/ C. SCOTT KULICKE

C. Scott Kulicke

Chairman of the Board and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Maurice E. Carson, Vice President and Chief Financial Officer of Kulicke & Soffa Industries, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kulicke and Soffa Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2006

/s/ MAURICE E. CARSON

Maurice E. Carson

Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, C. Scott Kulicke, Chief Executive Officer of Kulicke and Soffa Industries, Inc., do hereby 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 Quarterly Report on Form 10-Q of Kulicke and Soffa Industries, Inc. for the three months ended July 1, 2006 (the “July 1, 2006 Form 10-Q”), as filed with the Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. the information contained in the July 1, 2006 Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Kulicke and Soffa Industries, Inc.

Dated: August 9, 2006

/s/ C. SCOTT KULICKE

C. Scott Kulicke

Chairman of the Board and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Maurice E. Carson, Chief Financial Officer of Kulicke and Soffa Industries, Inc., do hereby 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 Quarterly Report on Form 10-Q of Kulicke and Soffa Industries, Inc. for the three months ended July 1, 2006 (the “July 1, 2006 Form 10-Q”), as filed with the Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. the information contained in the July 1, 2006 Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Kulicke and Soffa Industries, Inc.

Dated: August 9, 2006

/s/ MAURICE E. CARSON

Maurice E. Carson

Vice President and Chief Financial Officer