TRANSACTIONS WITH THIRD PARTY:

The Company's strategic relationship with SemiSouth is evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of SemiSouth related assets may not be recoverable. In evaluating impairment, the Company compares the carrying value of the assets to its estimate of undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. An impairment loss is recognized when estimated future cash flows are less than the carrying amount. Estimates of future cash flows may be internally developed or based on independent appraisals and significant judgment is applied to make the estimates. Changes in the Company's strategy, assumptions and/or market conditions could significantly impact these judgments and require adjustments to its SemiSouth related assets.

Based on SemiSouth's current financial situation and its likely closure, the Company believes its SemiSouth-related assets are impaired as of September 30, 2012. The Company's third-quarter results include an impairment charge of $33.9 million, comprising the write-off of $6.9 million of lease receivables, $7.0 million of preferred stock, a promissory note (net of imputed interest) in the amount of $13.2 million, $6.2 million for the Purchase Option, and other assets of $0.6 million. The Company has also expensed the prepaid royalty of $10.0 million as it no longer expects to incorporate SemiSouth's technology in the Company's products.

In addition, the Company believes it is probable that the financing company that currently owns SemiSouth's intellectual property will exercise its contractual rights to put SemiSouth's intellectual property to the Company under the terms of the contingent purchase agreement between the Company and the financing company, refer to Note 11, Commitments, for further information. Based on SemiSouth's current financial situation and likely closure, the Company estimates that this intellectual property has no value, and has therefore accrued a charge of $15.3 million related to this contingent obligation.

On October 22, 2010, the Company purchased SemiSouth preferred stock for $7.0 million. Also in October 2010, the Company paid $10.0 million as a prepaid royalty in exchange for the right to use SemiSouth's technology. The Company had intended to amortize the royalty to cost of revenues based on the Company's sales of products incorporating the licensed technology. The Company had classified its strategic relationship with SemiSouth, with a carrying value of $7.0 million and prepaid royalty of $10.0 million within Other Assets in the Company's condensed consolidated balance sheet as of December 31, 2011. At September 30, 2012, the Company recorded the above-mentioned impairment charge, which is reflected in the Company's condensed consolidated statements of income (loss), under the operating expenses, charge related to SemiSouth caption.

In February 2011, the Company entered into an agreement with SemiSouth to provide a lease line for the financing of capital equipment. Under the terms of the agreement, SemiSouth could borrow up to $8.6 million through January 2013, of which a total of $8.6 million had been funded through September 30, 2012. At September 30, 2012, the Company recorded the above-mentioned impairment charge, and wrote off $6.9 million which reflected the remaining receivable balance net of the estimated fair value of the underlying equipment of $0.3 million, and is reflected in the Company's condensed consolidated statements of income (loss), under the other income (expense), charge related to SemiSouth caption.

The Call Option can be exercised by the Company at a multiple of SemiSouth's annualized net operating profits after tax (“NOPAT”) (based on the average of this measure over a period of several months), as defined in the agreement. The multiple is intended to result in an acquisition price equal to the estimated fair value of SemiSouth. The minimum acquisition price would be $36.0 million, subject to certain adjustments. Pursuant to an amended agreement entered into in March 2012, the maximum purchase price shall not exceed $80.0 million.

The Put Option can only be exercised by SemiSouth once certain revenue and profit metrics have been reached. At that time, SemiSouth could obligate the Company to acquire SemiSouth at a multiple of SemiSouth's NOPAT. The multiple is intended to result in an acquisition price equal to the estimated fair value of SemiSouth limited to a maximum of $80.0 million pursuant to the March 2012 amendment.

In July 2011, SemiSouth obtained $15.0 million of financing through the sale, and concurrent licensing back, of its intellectual property ("IP") with a financing company. In connection with this arrangement, the Company entered into a contingent purchase commitment with the financing company for SemiSouth's IP, refer to Note 11, Commitments, for further information. The contingent purchase commitment requires the Company to purchase the IP previously owned by SemiSouth from its new owner for $15.0 million (plus reimbursement of certain expenses) under certain conditions generally relating to SemiSouth's failure to make certain payments or SemiSouth's insolvency. In this event, the agreement sets forth a process to be followed before the Company's purchase commitment matures. First, the agreement allows the Company to exercise its Call Option for a certain period of time and under certain conditions. If the Company does not initially exercise its Call Option, then SemiSouth can be sold to a third party during a period of time of up to approximately half a year (which period of time may be shortened by the new SemiSouth IP owner). After that period of time elapses, the Company is obligated to purchase the SemiSouth IP for $15.0 million (plus reimbursement of certain expenses). The Company currently provides a $15.0 million letter of credit to the financing company to secure the contingent purchase commitment. As of September 30, 2012, based on SemiSouth's current financial situation and likely closure, the Company estimates that this intellectual property has no value, and has therefore accrued an additional charge of $15.3 million related to this contingent obligation. The charge is reflected in the Company's condensed consolidated statements of income (loss), under the operating expenses, charge related to SemiSouth caption.

In March 2012, the Company loaned SemiSouth $18.0 million, and in exchange the Company was issued a promissory note. In consideration for the loan the Company obtained an amendment to its 2010 agreement with SemiSouth to establish a maximum purchase price related to both the Company's option to acquire SemiSouth ("Purchase Option") and its potential obligation to acquire SemiSouth (as discussed above). The Company used Level 3 inputs in its fair-market valuation utilizing the income-approach valuation technique. The Company prepared a discounted cash flow analysis using the following unobservable inputs: weighted average cost of capital, long-term revenue growth, control premium, and discount for lack of marketability. The Company then used a Black-Scholes option pricing model to determine the fair value of the Company's purchase option to be approximately $6.2 million. The Company's valuation technique derived inputs principally from market data (i.e., correlation values). At September 30, 2012, the Company recorded the above-mentioned impairment charge, and wrote off the promissory note (net of imputed interest) in the amount of $13.2 million, which is reflected in the Company's condensed consolidated statements of income (loss), under the other income (expense), charge related to SemiSouth caption.

The following table reflects the Company's interest income related to its SemiSouth agreements (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Interest income on note from SemiSouth	$	90	$	—	$	204	$	—
Non-cash interest income on note from SemiSouth	665		—		1,445		—
Interest income from SemiSouth lease line	79		21		243		60
Total interest income from SemiSouth	$	834	$	21	$	1,892	$	60