FAIRCHILD SEMICONDUCTOR INTERNATIONAL INC, S-1/A, 1999-07-02

FAIRCHILD SEMICONDUCTOR INTERNATIONAL INC
S-1/A, 1999-07-02
SEMICONDUCTORS & RELATED DEVICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1999

REGISTRATION NO. 333-78557
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 3674 04-3363001
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

333 WESTERN AVENUE, MAIL STOP 01-00
SOUTH PORTLAND, MAINE 04106
(207) 775-8100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
DANIEL E. BOXER, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
333 WESTERN AVENUE, MAIL STOP 01-00
SOUTH PORTLAND, MAINE 04106
(207) 775-8100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------------
WITH COPIES TO:

<TABLE>
<S> <C>
NINA P. GRAYSON, ESQ. KRIS F. HEINZELMAN, ESQ.
DECHERT PRICE & RHOADS CRAVATH, SWAINE & MOORE
30 ROCKEFELLER PLAZA WORLDWIDE PLAZA
NEW YORK, NEW YORK 10112 825 EIGHTH AVENUE
(212) 698-3500 NEW YORK, NEW YORK 10019
(212) 474-1000
</TABLE>

-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------.

If this form is a post-effective amendment filed pursuant to Rule 462 (c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------.

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------.

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
-------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Class A Common Stock, $0.01 par value per share............. $480,000,000 $133,440
- ------------------------------------------------------------------------------------------------------------
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</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933. The proposed
maximum aggregate offering price includes amounts attributable to shares
that may be purchased by the Underwriters to cover over-allotments, if any.

(2) $97,300 has been previously paid.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED JULY 2, 1999

20,000,000 Shares

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

Class A Common Stock

------------------

We are selling 20,000,000 shares of our Class A Common Stock. National
Semiconductor Corporation, one of our principal stockholders, has granted the
underwriters an option to purchase a maximum of 3,000,000 additional shares to
cover over-allotments of shares.

Prior to this offering, there has been no public market for our Class A
Common Stock. The initial public offering price is expected to be between $17.00
and $20.00 per share. We have applied to list our Class A Common Stock on The
New York Stock Exchange under the symbol "FCS."

INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
STARTING ON PAGE 10.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND FAIRCHILD
PUBLIC COMMISSIONS INTERNATIONAL
------------ ------------- -------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total......................................... $ $ $
</TABLE>

Delivery of the shares of Class A Common Stock will be made on or about
, 1999.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

CREDIT SUISSE FIRST BOSTON

The date of this prospectus is , 1999.
<PAGE> 3

TABLE OF CONTENTS

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PAGE
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<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 10
Forward-Looking Statements............ 19
Debt Repayment and Preferred Stock
Conversion Transactions............. 20
Use of Proceeds....................... 21
Dividend Policy....................... 21
Capitalization........................ 22
Dilution.............................. 23
Unaudited Pro Forma Combined Condensed
Financial Statements and Unaudited
Supplemental Data................... 25
Selected Consolidated Financial Data
of Fairchild International.......... 39
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Fairchild
International....................... 41
Selected Historical Financial Data of
the Power Device Business........... 55
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of the Power Device
Business............................ 56
</TABLE>

<TABLE>
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PAGE
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<S> <C>
Industry Overview..................... 62
Business.............................. 66
The Acquisition....................... 82
Management............................ 86
Affiliates' Interests in this
Offering............................ 94
Certain Relationships and Related
Transactions........................ 95
Principal and Selling Stockholders.... 98
Description of Capital Stock.......... 100
Description of Certain Indebtedness... 103
Shares Eligible for Future Sale....... 107
United States Tax Consequences to
Non-United States Holders........... 110
Underwriting.......................... 113
Notice to Canadian Residents.......... 116
Legal Matters......................... 117
Experts............................... 117
Where You Can Find More Information... 117
Glossary.............................. 119
Index to Financial Statements......... F-1
</TABLE>

------------------------------------

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY BE USED ONLY WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE
ACCURATE ON THE DATE OF THIS PROSPECTUS.

------------------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION

UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN OUR CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

------------------------------------

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<PAGE> 4

PROSPECTUS SUMMARY

This summary may not contain all of the information that may be important
to you. You should read the entire prospectus, including the financial data and
related notes, before making an investment decision. Fairchild International's
fiscal year is comprised of a twelve-month period ending on the Sunday on or
immediately preceding May 31 of each year. The power device business of Samsung
Electronics Co., Ltd. reports on a calendar year basis. On June 28, 1999, FSC
Semiconductor Corporation changed its name to Fairchild Semiconductor
International, Inc. See "Glossary" for a description of other terms.

FAIRCHILD INTERNATIONAL

Fairchild International is the largest independent semiconductor company
focused solely on multi-market products, which are building block components
that can be used in a wide range of applications and are found in virtually all
electronic devices. We design, develop and market analog, discrete and logic
semiconductors, which move, condition or shape electrical signals in electrical
devices, and non-volatile memory semiconductors, which retain data after an
electrical device has been turned off. We supply customers in a diverse range of
end markets, including the computer, industrial, communications, consumer
electronics and automotive industries. We are particularly strong in providing
discrete and analog power management solutions, which address the growing
requirement for portability and long battery life for computing and
communication devices. Our business strategy is designed to maintain our
multi-market product leadership and to focus on value-added solutions for our
customers that leverage our core competencies. Those core competencies include
managing power in electrical devices, converting or conditioning electricity in
electrical devices and converting real world data to digital format through
mixed signal technologies for consumer applications, input-output interfaces and
ultra-small packaging technologies. We believe that we are well positioned for
growth as a result of the new products that we are developing or that we have
recently introduced, our strength in analog and discrete products, which has
recently grown with our acquisition of Samsung Electronic's power device
business, and the increasing semiconductor content of electronic products. We
have wafer fabrication plants in California, Maine, Utah and South Korea, and
assembly facilities in Malaysia and the Philippines. For Fiscal 1998, we
generated pro forma total revenues of $1.3 billion and net income before
cumulative effect of change in accounting principle of $50.2 million.

Worldwide semiconductor market revenues were approximately $125.6 billion
during 1998 according to the reports of Worldwide Semiconductor Trade Statistics
published by the Semiconductor Industry Association. Since 1990, the global
semiconductor market has expanded at a compounded annual growth rate of
approximately 12.0%. We operate primarily in the approximately $55.3 billion
moving and shaping segment of the semiconductor market. We believe that the
markets we operate in provide us with attractive growth opportunities. The
analog and discrete markets are expected to grow over the next three years at
compounded annual growth rates of 13% and 8%, respectively, according to
Worldwide Semiconductor Trade Statistics. Additionally, we focus on one of the
fastest growing segments of the logic industry, low voltage CMOS, which is
expected by Insight/Onsite to grow over the next five years at a compounded
annual growth rate of 11%. We do not compete in the microprocessor,
microcontroller, volatile memory or complex system-on-a-chip markets.

THE ACQUISITION OF THE POWER DEVICE BUSINESS

serving the personal computer, industrial, telecommunications and consumer
electronics markets. The power device business product portfolio includes a
number of new product designs with industry leading performance characteristics.
The acquisition of the power device business not only enhances our analog and
power discrete product offerings, but also provides us with a greater market
presence in South Korea. The acquisition of the power device business also
provides us with additional revenue opportunities through our relationship with
Samsung Electronics, which requires Samsung Electronics to purchase minimum
quantities of our products and to use us for contract manufacturing at
guaranteed profit levels. Additionally, we expect to generate incremental
revenues by offering the newly acquired power device business products to our
existing customers and by offering our existing products to the power device
business customers who currently do not purchase from us. In connection with the
acquisition of the power device business, we have obtained a full income tax
holiday for a period of seven years in South Korea. In 1998, the power device
business had revenues of $386.5 million.

COMPANY STRENGTHS

We believe our core strengths are the following:

BREADTH OF PRODUCT PORTFOLIO. We provide our customers with one of the
largest product offerings in the industry for analog, discrete, logic and
non-volatile memory devices. Our analog device portfolio comprises over 2,300
products, including offerings in 92 of the top 100 best-selling analog product
types by volume. Our discrete device portfolio comprises over 4,000 products and
we believe it is one of the most comprehensive power device portfolios in the
industry. We develop products for a wide range of market applications, reducing
our dependence on any single product, application or market. In addition, we
believe that our ability to provide our customers with multiple products meets a
growing need for a single source of supply among our end users.

LEADERSHIP IN POWER SOLUTIONS. We believe there is an increasing demand
for a combination of sophisticated computing and communication capabilities,
frequently in the form of portable devices. We are a leader in providing
solutions for managing the power required to operate such devices. Our combined
analog and discrete offering provides a complete solution for power management:

Analog: We provide specific solutions for power conversion, temperature
sensing, management functions, battery chargers and motor controls.

Power Discrete: We provide comprehensive solutions for managing power from
the original power source to end products such as computers, cellular
phones and network devices.

HIGH QUALITY CUSTOMER SERVICE. Our customers recognize us for our high
quality of service. They require a reliable source of supply, often in high
volumes and with short lead times, demand quick responses to technical questions
and seek support in designing new applications which use our products. Because
we are an independent company focused solely on multi-market products, all of
our service and support efforts are tailored to meet these customer needs. As a
result of our efforts, we have received numerous customer and industry awards,
including supplier awards from Compaq Computer Corp., Siemens AG and Acer Inc.
and the European Mid-Size Vendor of the Year award from Dataquest.

HISTORY OF PRODUCT INNOVATION. Our success in introducing new products has
been an important source of our growth and profitability. We have been a
significant innovator in the multi-market segment of the semiconductor industry
with several leading edge technologies and industry firsts, including our
introduction of many new power management solutions over the past three decades
which set new standards for speed and efficiency. Since June 1997, we have
introduced approximately 300 new products.
2
<PAGE> 6

DIVERSE AND BLUE-CHIP CUSTOMER BASE. Our diverse customer base, which
spans a wide spectrum of end user markets, enables us to avoid some of the
volatility that may be encountered in specific semiconductor markets. We serve
more than 50,000 customers worldwide, with no single customer, other than
National Semiconductor and Samsung Electronics, providing more than 5% of our
pro forma Fiscal 1998 total revenue. Customers in our end user markets include
industry leaders such as Compaq, Ericsson, Lucent, Nortel Networks, Samsung
Electronics and Siemens.

EXPERIENCED MANAGEMENT. Our senior management team consists of seven
individuals who have on average approximately 25 years of experience in the
semiconductor industry. Our chief executive officer, Kirk P. Pond, has over 30
years of experience in the industry and has held senior management positions at
Texas Instruments and National Semiconductor. At National Semiconductor, Mr.
Pond was executive vice president and chief operating officer prior to his
current position at Fairchild International.
------------------

Our principal executive offices are located at 333 Western Avenue, Mail
Stop 01-00, South Portland, Maine 04106, and our telephone number is (207)
775-8100.
3
<PAGE> 7

THE OFFERING

Class A Common Stock offered
(1)........................... 20,000,000 shares offered by Fairchild
International

Common Stock to be outstanding
after this offering(2)...... 54,594,437 shares of Class A Common Stock
33,376,000 shares of Class B Common Stock

----------

Total....................... 87,970,437 shares of common stock

----------
----------

Voting Rights................. Holders of Class A Common Stock are entitled to
one vote per share on all matters submitted to
a vote of the stockholders other than in
elections of directors. Our Restated
Certificate of Incorporation will provide for
cumulative voting in elections of directors.
Holders of Class B Common Stock have no voting
rights.

Other Rights.................. Except as to voting and conversion rights, each
class of common stock has the same rights.
Shares of each class of common stock are
convertible on a one-to-one basis into shares
of the other class of common stock at the
option of the holder.

Use of Proceeds............... We intend to use the net proceeds of this
offering to:

- repay amounts under our senior credit
facilities;

- repay all outstanding amounts under our
11.74% Subordinated Note Due 2008 and our
12.5% Subordinated Note Due 2008; and

- pay fees and expenses of this offering.
- -------------------------

(1) Excludes 3,000,000 shares of Class A Common Stock that the underwriters may
purchase from National Semiconductor to cover over-allotment of shares.

(2) Excludes 4,288,020 shares of Class A Common Stock issuable upon exercise of
outstanding stock options. Includes 5,034,517 shares of Class A Common Stock
that we will issue in connection with the conversion of 12% Series A
Cumulative Compounding Preferred Stock for Class A Common Stock. See "Debt
Repayment and Preferred Stock Conversion Transactions."

4
<PAGE> 8

SUMMARY HISTORICAL, PRO FORMA AND SUPPLEMENTAL DATA

In the tables below, we present unaudited pro forma financial data for
informational purposes only. Since the information in the tables is a summary,
you should read the following tables in conjunction with other information
contained under the caption "Unaudited Pro Forma Combined Condensed Financial
Statements and Unaudited Supplemental Data," and with the financial statements
and related notes and the other financial information contained elsewhere in
this prospectus.

We present below summary historical, pro forma as adjusted and supplemental
data of Fairchild International and the power device business. We derived the
historical financial data as of and for the years ended May 26, 1996, May 25,
1997 and May 31, 1998, from Fairchild International's audited consolidated
financial statements and related notes, which are included elsewhere in this
prospectus. We derived the historical financial data as of and for the nine
months ended February 28, 1999 from Fairchild International's unaudited
consolidated financial statements and related notes which are included elsewhere
in this prospectus. We derived the historical financial data as of and for the
years ended May 29, 1994 and May 28, 1995 from Fairchild International's
unaudited consolidated financial statements that we prepared on the same basis
as Fairchild International's audited consolidated financial statements. In our
opinion, the unaudited financial data include all adjustments (consisting of
normal recurring adjustments) that we consider necessary for a fair presentation
of the data.

The Fairchild International unaudited pro forma as adjusted statement of
operations data presented below are based upon unaudited pro forma financial
statements for the nine months ended February 28, 1999 for Fairchild
International after giving effect to the acquisition of the power device
business and the related transactions described below as if they had occurred on
May 26, 1997, this offering and the application of the proceeds of this offering
as described in "Use of Proceeds." The unaudited pro forma as adjusted balance
sheet data presented are based on assumptions that we believe accurately
represent the effect of the transactions described below, this offering and the
application of the proceeds of this offering as described in "Use of Proceeds"
as if they had occurred on February 28, 1999.

We derived the historical financial data of the power device business for
the years ended December 31, 1996, 1997 and 1998 from the power device business'
audited financial statements and related notes, which are included elsewhere in
this prospectus. We derived the historical financial data of the power device
business for the nine months ended December 31, 1998 from the power device
business' unaudited financial statements and related notes, which are not
included in this prospectus. The unaudited pro forma data of the power device
business presented below are based upon unaudited financial statements for the
nine months ended December 31, 1998 for the power device business and are
adjusted to give pro forma effect to the contracts we entered into with Samsung
Electronics in connection with the acquisition of the power device business, and
to eliminate certain liabilities that we did not assume, the historical expenses
related to those liabilities, and the related income tax effect of all pro forma
adjustments. The financial statements of the power device business for the three
years ended December 31, 1998 have been translated from South Korean Won into
U.S. Dollars, and are presented in accordance with U.S. GAAP as described in
"Selected Historical Financial Data of the Power Device Business."

FINANCING TRANSACTIONS FOR THE ACQUISITION

In order to finance the acquisition of the power device business, we
completed the following financings. We used the gross proceeds from these
financings to pay the purchase price of the
5
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acquisition, to repay our existing senior credit facilities, to pay related fees
and expenses and to fund our working capital needs.

- We entered into the senior credit facilities, which provided us up to
$410.0 million in financing, consisting of a $100.0 million revolving
credit facility and $310.0 million of senior term facilities.

- Citicorp Mezzanine Partners, L.P. contributed $50.0 million in cash to us
in exchange for a pay-in-kind promissory note (which means that all
interest due and not paid in cash is added to the then outstanding
principal amount of the note) (the "12.5% Subordinated Note Due 2008"),
and a warrant to purchase 3,538,228 shares of our common stock. The
warrant is currently not exercisable and, assuming prepayment in full of
the note in connection with this offering, the warrant will never become
exercisable.

- Fairchild Semiconductor Corporation issued the $300.0 million 10 3/8%
Senior Subordinated Notes Due 2007.
6
<PAGE> 10

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28, 1999
FISCAL YEAR ENDED MAY ------------------------
---------------------------------------------- PRO FORMA
1994 1995 1996 1997 1998 HISTORICAL AS ADJUSTED
------ ------- ------- ------- ------- ---------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Revenue:
Analog............................ $ -- $ -- $ -- $ -- $ 32.0 $ 49.7 $172.1
Discrete.......................... 80.0 116.4 175.0 164.5 187.3 131.6 317.7
Logic............................. 393.8 327.7 339.5 285.3 303.0 194.2 194.2
Memory............................ 185.1 185.5 174.2 138.0 113.5 58.6 58.6
Contract manufacturing services... 57.7 50.7 87.6 104.2 153.4 54.5 78.7
------ ------- ------- ------- ------- ------- ------
Total revenue....................... $716.6 $ 680.3 $ 776.3 $692.0 $ 789.2 $ 488.6 $821.3
====== ======= ======= ======= ======= ======= ======
Gross profit........................ $248.3 $ 203.8 $ 216.8 $152.5 $ 230.5 $ 107.0 $218.8
Research and development............ 27.4 31.0 30.3 18.9 35.7 27.9 39.4
Selling, general and
administrative.................... 97.3 100.3 114.4 96.4 92.0 68.5 119.5
Litigation settlement expense(2).... -- -- -- -- -- -- 58.0
Restructuring and other
non-recurring charges(3).......... -- -- -- 5.3 15.5 7.2 7.2
------ ------- ------- ------- ------- ------- ------
Operating income (loss)........... 123.6 72.5 72.1 31.9 87.3 3.4 (5.3)
Interest, net....................... -- -- -- 11.2 54.5 44.7 56.0
Other expense (income), net......... (1.9) (1.8) (0.2) 1.4 -- -- (0.3)
Provision (benefit) for income
taxes............................. -- -- -- 3.8 10.7 (4.1) (7.5)
------ ------- ------- ------- ------- ------- ------
Income (loss) before cumulative
effect of change in accounting
principle(4).................... $125.5 $ 74.3 $ 72.3 $ 15.5 $ 22.1 $ (37.2) $(53.5)
====== ======= ======= ======= ======= ======= ======
Net income (loss) applicable to
common stockholders before
cumulative effect of change in
accounting principle.................................................. $ 13.4 $ (44.4) $(53.5)
======= ======= ======
EARNINGS PER COMMON SHARE(5):
Basic................................................................... $ 0.21 $ (0.71) $(0.61)
Diluted................................................................. $ 0.20 $ (0.71) $(0.61)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (IN MILLIONS):
Basic................................................................... 62.8 62.9 87.9
Diluted................................................................. 65.0 62.9 87.9
OTHER FINANCIAL DATA:
Amortization of intangibles(6)...... $ -- $ -- $ -- $ -- $ 1.4 $ 2.6 $ 22.3
Depreciation and other
amortization...................... 38.7 44.7 64.2 77.1 83.2 69.5 90.0
Capital expenditures................ 88.2 112.9 153.9 47.1 78.0 31.5 37.8
SUPPLEMENTAL DATA:
Adjusted EBITDA(7).................. $162.3 $ 117.2 $ 136.3 $128.4 $ 187.4 $ 82.7 $172.2
Cash flows provided from (used in):
Operating activities.............. 94.3 118.1 162.5 19.1 136.1 20.0
Investing activities.............. (94.3) (118.1) (162.5) (54.3) (200.5) (33.4)
Financing activities.............. -- -- -- 75.9 30.2 12.3
</TABLE>

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<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1999
-------------------------
PRO FORMA
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................... $ 5.4 $ 64.6
Accounts receivable, net.................................... 101.5 128.1
Inventories................................................. 105.6 145.0
Total assets................................................ 623.5 1,101.4
Long-term debt, including current portion................... 560.0 711.4
Total stockholders' equity (deficit)........................ (161.0) 223.3(8)(9)
</TABLE>

POWER DEVICE BUSINESS

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, 1998
-------------------------- --------------------------
1996 1997 1998 HISTORICAL PRO FORMA(10)
------ ------ ------ ---------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................................... $471.8 $478.1 $386.5 $294.9 $332.7

Gross profit.................................... $ 56.5 $131.0 $137.3 $ 92.1 $114.8
Research and development........................ 18.6 19.2 15.2 11.5 11.5
Selling, general and administrative............. 29.0 34.3 33.8 27.9 31.3
Litigation settlement expense(2)................ -- -- 58.0 58.0 58.0
------ ------ ------ ------ ------
Operating income (loss)......................... $ 8.9 $ 77.5 $ 30.3 $ (5.3) $ 14.0
====== ====== ====== ====== ======
OTHER FINANCIAL DATA:
Adjusted EBITDA(7).............................. $ 57.9 $116.3 $110.6 $ 70.2 $ 89.5
Cash flows provided from (used in):
Operating activities........................ 39.4 74.3 128.1
Investing activities........................ (88.5) (0.1) (5.7)
Financing activities........................ 28.0 (157.1) (106.8)
Capital expenditures............................ 118.1 10.9 8.6 6.3 6.3
</TABLE>

- -------------------------

(1) For the fiscal years ended May 1997 and prior, statement of operations data
includes the direct and allocated expense of the Fairchild Semiconductor
business of National Semiconductor. Such amounts may not be comparable to
data for Fiscal 1998 and the historical and pro forma nine months ended
February 28, 1999.

(2) Represents a one-time charge for settlement by Samsung Electronics of a
patent infringement lawsuit attributable to the power device business. The
associated liability is being retained by Samsung Electronics.

(3) In Fiscal 1997, restructuring and other non-recurring charges consisted of
severance and other costs related to lay-offs that occurred in the first
quarter of Fiscal 1997. In Fiscal 1998, such charges consisted of
in-process research and development associated with the acquisition of
Raytheon. For the historical and pro forma nine months ended February 28,
1999, such charges consisted of $7.2 million related to severance and other
costs that occurred in the first and third quarters of Fiscal 1999.

(4) Excludes a charge for the cumulative effect of change in accounting
principle of $1.5 million, net of a related tax benefit of $0.8 million, in
Fiscal 1998.

(5) Earnings per common share is calculated using net income (loss) applicable
to common stockholders and excludes the effect of a $1.5 million cumulative
effect of change in accounting principle in Fiscal 1998, which amount would
reduce both basic and diluted earnings per common share by $0.02.

(6) Amortization of intangibles primarily represents the amortization of
indentifiable acquisition-related intangible assets.
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<PAGE> 12

(7) Adjusted EBITDA is defined as operating income before other (income)
expense, interest expense, taxes, depreciation, amortization and, in the
case of Fairchild International, (a) restructuring and other non-recurring
charges and (b) $14.1 million of one-time retention bonuses in 1997
associated with the recapitalization of National Semiconductor and, a
one-time charge of $58.0 million for litigation settlement expense
associated with the power device business. Adjusted EBITDA is presented
because we believe that EBITDA it is a widely accepted financial indicator
of an entity's ability to incur and service debt. Adjusted EBITDA should
not be considered by an investor as an alternative to net income or income
from operations, as an indicator of our operating performance or other
combined operations or cash flow data prepared in accordance with generally
accepted accounting principles, or as an alternative to cash flows as a
measure of liquidity. Our computation of Adjusted EBITDA may differ from
similarly titled computations of other companies.

(8) The excess of the aggregate purchase price over the historical net book
value of the power device business' assets acquired and liabilities assumed
as of December 31, 1998 has been allocated to inventory, property, plant
and equipment, and various intangible assets for illustrative purposes in
the pro forma financial statements only. Actual allocations will be based
on fair values as of the acquisition date (April 13, 1999). Included in the
allocation to intangible assets is an estimated allocation to in-process
research and development of $31.2 million, which amount was immediately
expensed on consummation of the acquisition of the power device business.
This expense has been deducted from stockholders' equity in the pro forma
balance sheet data as of February 28, 1999.

(9) Pro forma stockholders' equity as adjusted for the offering will be reduced
by $7.6 million for a one-time write-off, net of tax benefit, of a
receivable from the management investors to pay their federal and state
individual income tax liabilities resulting from the lapse of risks of
forfeiture with respect to their stock ownership. Such receivables will be
cancelled as a result of a public offering of our common stock.
Additionally, we will expense amounts to discharge their individual tax
liabilities associated with the cancellation. Pro forma stockholders' equity
as adjusted for the offering has also been reduced by $5.6 million for the
one-time write-off, net of tax benefit, of unamortized debt issuance costs
associated with the debt being repaid. The expenses will reduce
stockholders' equity, but will not have any effect on Adjusted EBITDA.

(10) Pro forma data for the nine months ended December 31, 1998 has been
presented to be consistent with the pro forma nine months ended February
28, 1999 data presented for Fairchild International.
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RISK FACTORS

You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of our Class A Common
Stock.

FOLLOWING THIS OFFERING, WE WILL HAVE $711.4 MILLION OF TOTAL INDEBTEDNESS AND A
DEBT TO EQUITY RATIO OF 3.2 TO 1.0, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL
HEALTH AND LIMIT OUR ABILITY TO GROW AND COMPETE.

Our substantial indebtedness:

- requires us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;

- increases our vulnerability to general adverse economic and industry
conditions;

- limits our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;

- restricts us from making strategic acquisitions, introducing new
technologies or exploiting business opportunities; and

- places us at a competitive disadvantage compared to our competitors that
have less debt.

See "Capitalization," "Unaudited Pro Forma Combined Condensed Financial
Statements and Unaudited Supplemental Data" and "Description of Certain
Indebtedness."

WE MAY NOT BE ABLE TO GENERATE THE NECESSARY AMOUNT OF CASH TO SERVICE OUR
EXISTING DEBT, WHICH MAY REQUIRE US TO REFINANCE OUR DEBT OR DEFAULT ON OUR
SCHEDULED DEBT PAYMENTS.

On a pro forma basis after giving effect to the acquisition of the power
device business, the financings in connection with the acquisition, the
application of the proceeds of such financings, this offering and the
application of the proceeds of this offering as described in "Use of Proceeds,"
interest expense for Fiscal 1998 and for the nine months ended February 28, 1999
would have been $77.9 million and $57.2 million, respectively. On a pro forma
basis after giving effect to the acquisition of the power device business, the
financings in connection with the acquisition, the application of the proceeds
of such financings, this offering and the application of the proceeds of this
offering as described in "Use of Proceeds," our ratio of earnings to fixed
charges would have been 1.7x for Fiscal 1998, and for the nine months ended
February 28, 1999, our fixed charges would have exceeded our earnings by $61.0
million. On a historical basis, our ratio of earnings to fixed charges would
have been 1.6x for Fiscal 1998, while our fixed charges would have exceeded our
earnings by $41.3 million for the nine months ended February 28, 1999. Our
historical financial results have been, and we expect our future financial
results will be, subject to substantial fluctuations.

We cannot assure you that our business will generate sufficient cash flow
from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under the senior credit facilities in an amount sufficient to
enable us to pay our indebtedness or to fund our other liquidity needs. In
addition, because some of

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our borrowings have variable interest rates, the cost of those borrowings will
increase if market interest rates increase. If we are unable to service our
indebtedness, we may need to refinance all or a portion of our indebtedness on
or before maturity. We cannot assure you that we would be able to refinance any
of our indebtedness on commercially reasonable terms or at all, which could
cause us to default on our obligations and impair our liquidity.

See "-- Cyclical Industry," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Fairchild International" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Power Device Business."

OUR DEBT INSTRUMENTS RESTRICT OR PROHIBIT OUR ABILITY TO ENGAGE IN OR ENTER INTO
CERTAIN BUSINESS, OPERATING AND FINANCING ARRANGEMENTS, WHICH COULD ADVERSELY
AFFECT OUR ABILITY TO TAKE ADVANTAGE OF POTENTIALLY PROFITABLE BUSINESS
OPPORTUNITIES.

The operating and financial restrictions and covenants in our debt
instruments may limit our ability to finance our future operations or capital
needs or engage in other business activities that may be in our interest. Our
debt instruments impose significant operating and financial restrictions on us,
affecting our ability to incur additional indebtedness or create liens on our
assets, pay dividends, sell assets, engage in mergers or acquisitions, make
investments or engage in other business activities, which could place us at a
disadvantage relative to competitors not subject to such limitations. Failure to
comply with any such restrictions could result in a default under the terms of
our debt instruments. In the event of any such default, our debtholders could
demand payment of all borrowings outstanding, including accrued interest and
other fees. In addition, if we were unable to repay any borrowings under our
senior credit facilities when due, the lenders could proceed against their
collateral, which consists of substantially all of the assets of our company,
Fairchild Semiconductor Corporation and its subsidiary guarantors. If the
indebtedness under our debt instruments were to be accelerated, the value of our
common stock would likely decrease significantly.

See "Description of Certain Indebtedness."

AS A HOLDING COMPANY, WE ARE TOTALLY DEPENDENT ON DIVIDENDS FROM OUR OPERATING
SUBSIDIARIES TO MEET OUR DEBT OBLIGATIONS OR, SHOULD WE SO CHOOSE, PAY
DIVIDENDS.

We expect our subsidiaries to retain substantially all of their earnings to
meet their own obligations. As a result, and because certain of our subsidiaries
are prohibited by terms in their debt instruments from making payments to us, we
may have difficulty meeting our obligations, and it is therefore unlikely that
we will be able to make dividend payments in the near future. We are a holding
company with no business operations, and our only significant asset is the
outstanding capital stock of our subsidiaries. As we intend to use substantially
all the net proceeds from this offering to repay indebtedness, we will rely on
payments from our subsidiaries to meet our future obligations. Absent such
payments, we will not be able to pay cash dividends on our Class A Common Stock.
We currently expect that the earnings and cash flow of our subsidiaries will be
retained and used by them in their operations, including by Fairchild
Semiconductor Corporation to service its debt obligations. Even if we determined
to pay a dividend on or make a distribution in respect of our Class A Common
Stock, we cannot assure you that our subsidiaries will generate sufficient cash
flow to pay a dividend or distribute funds to us or that applicable state law
and contractual restrictions, including restrictions in Fairchild Semiconductor
Corporation's debt instruments, will permit such dividends or distributions. See
"-- Substantial Leverage," "-- Restrictions and Covenants in Our Debt
Instruments" and "Description of Certain Indebtedness."

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<PAGE> 15

DOWNTURNS IN THE HIGHLY CYCLICAL SEMICONDUCTOR INDUSTRY OR CHANGES IN END USER
MARKET DEMANDS COULD REDUCE THE VALUE OF OUR BUSINESS.

The semiconductor industry is highly cyclical and the value of our business
may decline during the "down" portion of these cycles. During the latter half of
Fiscal 1998 and the beginning of Fiscal 1999, we, as well as many others in our
industry, experienced significant declines in the pricing of our products as
customers reduced demand forecasts and manufacturers reduced prices to keep
capacity utilization high. We believe these trends were due primarily to the
Asian financial crisis and excess personal computer inventories. We cannot
assure you that the market for semiconductors will improve or that our markets
will not experience additional, possibly more severe and prolonged, downturns in
the future. In addition, we may experience significant changes in our
profitability as a result of variations in sales, changes in product mix, price
competition for orders and the costs associated with the introduction of new
products. The markets for our products depend on continued demand for personal
computer, industrial, telecommunications, consumer electronics and automotive
goods, and these end user markets may experience changes in demand that will
adversely affect our prospects.

NEW TECHNOLOGIES COULD RESULT IN THE DEVELOPMENT OF NEW PRODUCTS AND A DECREASE
IN DEMAND FOR OUR PRODUCTS, AND WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS TO
SATISFY CHANGES IN CONSUMER DEMANDS.

Our failure to develop new technologies, or react to changes in existing
technologies, could materially delay our development of new products, which
could result in decreased revenues and a loss of market share to our
competitors. Rapidly changing technologies and industry standards, along with
frequent new product introductions, characterize the semiconductor industry. Our
financial performance depends on our ability to design, develop, manufacture,
assemble, test, market and support new products and enhancements on a timely and
cost-effective basis. We cannot assure you that we will successfully identify
new product opportunities and develop and bring new products to market in a
timely and cost-effective manner, or that products or technologies developed by
others will not render our products or technologies obsolete or noncompetitive.
A fundamental shift in technologies in our product markets could have a material
adverse effect on our competitive position within the industry.

THE SEMICONDUCTOR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD
REDUCE THE VALUE OF AN INVESTMENT IN OUR COMPANY.

The semiconductor industry, and the multi-market semiconductor product
markets in particular, is highly competitive. Competition is based on price,
product performance, quality, reliability and customer service. In addition,
even in strong markets, price pressures may emerge as competitors attempt to
gain a greater market share by lowering prices. Competition in the various
markets in which we participate comes from companies of various sizes, many of
which are larger and have greater financial and other resources than we have and
thus can better withstand adverse economic or market conditions. In addition,
companies not currently in direct competition with us may introduce competing
products in the future.

BECAUSE THE POWER DEVICE BUSINESS PREVIOUSLY OPERATED AS A DIVISION OF SAMSUNG
ELECTRONICS, THE COSTS OF OPERATING THIS BUSINESS AS AN INDEPENDENT ENTITY MAY
BE SIGNIFICANTLY GREATER THAN INITIALLY ESTIMATED.

The operation of the power device business as an independent entity may
result in our incurring operating costs and expenses significantly greater than
we anticipated prior to the acquisition of the power device business. Prior to
our purchase of it, the power device business was operated as a division of
Samsung Electronics. During 1998, the power device business incurred costs for
research and development, sales and marketing and general and administrative
activities. These costs represent expenses incurred directly by the power device
business and charges allocated to it by Samsung
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Electronics. The power device business now obtains many of these services on an
arm's length basis. However, to provide certain of these services for a
transition period after the acquisition of the power device business, we entered
into a Transitional Services Agreement with Samsung Electronics under which the
power device business continues to obtain a number of these services. We cannot
assure you that upon termination of the Transitional Services Agreement, we will
be able to obtain similar services on comparable terms.

The power device business has historically provided manufacturing services
to Samsung Electronics at cost. The power device business will provide contract
manufacturing services to Samsung Electronics for a period of three years under
various agreements at rates designed to generate levels of profitability
totaling W53,700 million over three years. The pro forma data contained in this
prospectus are based on our estimates as to expenses on a stand-alone basis,
including the effect of the Transitional Services Agreement with Samsung
Electronics, and contract manufacturing revenue under the manufacturing
agreements with Samsung Electronics. We cannot assure you that such estimates
are accurate or will reflect the actual expenses or revenues of the power device
business.

See "The Acquisition" and "-- Dependence on Samsung Electronics."

WE ENTERED INTO A NUMBER OF LONG-TERM SUPPLY AND SUPPORT CONTRACTS WITH SAMSUNG
ELECTRONICS IN CONNECTION WITH THE ACQUISITION OF THE POWER DEVICE BUSINESS, AND
ANY DECREASE IN THE PURCHASE REQUIREMENTS OF SAMSUNG ELECTRONICS OR INABILITY OF
SAMSUNG ELECTRONICS TO MEET ITS CONTRACTUAL OBLIGATIONS COULD SUBSTANTIALLY
REDUCE THE FINANCIAL PERFORMANCE OF OUR KOREAN SUBSIDIARY.

As a result of the acquisition of the power device business, we have
numerous arrangements with Samsung Electronics including arrangements relating
to product sales, designation as a vendor to affiliated Samsung companies and
other services. Any material adverse change in the purchase requirements of
Samsung Electronics, in its ability to supply the agreed-upon services or in its
ability to fulfill its other obligations could have a material adverse effect on
our Korean subsidiary. Although historically the power device business generated
significant revenues from the sale of products to affiliated Samsung companies,
we cannot assure you that we will be able to sell any products to affiliated
Samsung companies or that the designation of the power device business as a
vendor to those affiliated Samsung companies will generate any revenues for our
company. Furthermore, under the Korean Fair Trade Law, the Fair Trade Commission
may issue an order requiring change of terms and conditions of the agreements
between us and Samsung Electronics if it concludes that Samsung Electronics has
provided us with undue support or discriminated against our competitors.

See "The Acquisition."

OUR POWER DEVICE BUSINESS SUBJECTS OUR COMPANY TO RISKS INHERENT IN DOING
BUSINESS IN KOREA.

As a result of the acquisition of the power device business, we have
operations in South Korea and are subject to risks associated with doing
business in that country.

- In addition to other risks disclosed relating to international
operations, some businesses in South Korea are presently subject to labor
unrest. Also, relations between South Korea and North Korea have been
tense over most of South Korea's history. Recent events involving, among
other things, North Korea's refusal to comply with the Nuclear
Non-Proliferation Treaty and several naval confrontations, have caused
the level of tension between the two countries to increase. No assurance
can be given as to whether or when this situation will be resolved or
change abruptly as a result of current or future events. An adverse
change in economic or political conditions in South Korea or in its
relations with North Korea could have a material adverse effect on our
Korean subsidiary.

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- The power device business' sales are denominated primarily in U.S.
Dollars while a significant portion of its costs of goods sold and its
operating expenses are denominated in Won. Although we have taken steps
to fix the costs subject to currency fluctuations and to balance U.S.
Dollar vs. Won costs, a significant decrease in the value of the U.S.
Dollar relative to the Won could have a material adverse effect on our
financial performance and results of operations.

A CHANGE IN CERTAIN FOREIGN TAX LAWS OR A DIFFERENCE IN THE CONSTRUCTION OF
CERTAIN CURRENT FOREIGN TAX LAWS BY RELEVANT FOREIGN AUTHORITIES COULD RESULT IN
OUR NOT RECOGNIZING THE BENEFITS WE ANTICIPATED IN CONNECTION WITH THE
TRANSACTION STRUCTURE USED TO CONSUMMATE THE ACQUISITION OF THE POWER DEVICE
BUSINESS.

The transaction structure we utilized for the acquisition of the power
device business is based on assumptions about the various tax laws, including
withholding tax, and other relevant laws of foreign jurisdictions. If our
assumptions are incorrect, or if foreign taxing jurisdictions were to change or
modify the relevant laws, we could suffer adverse tax and other financial
consequences or lose the benefits anticipated from our transaction structure.
For a discussion of the transaction structure, see "The Acquisition -- General"
and "Description of Certain Indebtedness -- Senior Credit Facilities."

OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISKS NOT FACED BY DOMESTIC
COMPETITORS.

We cannot assure you that we will be successful in overcoming the risks
related to or arising from operating in international markets. We maintain
significant operations in Cebu, the Philippines, Penang, Malaysia, and, through
the power device business, in South Korea. The following are risks inherent in
doing business on an international level:

- changes in import duties;
- trade restrictions;
- transportation delays;
- work stoppages;
- economic and political instability;
- foreign currency fluctuations; and
- the laws, including tax laws, and policies of the United States and of
the countries in which we manufacture our products.

PRODUCTION TIME AND THE OVERALL COST OF OUR PRODUCTS COULD INCREASE IF WE WERE
TO LOSE ONE OF OUR PRIMARY SUPPLIERS OR IF A PRIMARY SUPPLIER INCREASED THE
PRICES OF RAW MATERIALS.

Our manufacturing operations depend upon obtaining adequate supplies of raw
materials on a timely basis, and our results of operations could be adversely
affected if we were unable to obtain adequate supplies of raw materials in a
timely manner or if the costs of raw materials increased significantly. We
purchase raw materials such as silicon wafers, lead frames, mold compound,
ceramic packages and chemicals and gases from a limited number of suppliers on a
just-in-time basis. From time to time, suppliers may extend lead times, limit
supplies or increase prices due to capacity constraints or other factors. In
addition, we subcontract a minority of our wafer fabrication and assembly and
test operations to other manufacturers, including Torex, NS Electronics Ltd.,
Samsung Electronics and National Semiconductor. Our operations and ability to
satisfy customer obligations could be adversely affected if our relationships
with these subcontractors were disrupted or terminated.

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DELAYS IN BEGINNING PRODUCTION AT NEW FACILITIES, IMPLEMENTING NEW PRODUCTION
TECHNIQUES, OR IN CURING PROBLEMS ASSOCIATED WITH TECHNICAL EQUIPMENT
MALFUNCTIONS ALL COULD ADVERSELY AFFECT OUR MANUFACTURING EFFICIENCIES.

Our manufacturing efficiency will be an important factor in our future
profitability, and we cannot assure you that we will be able to maintain our
manufacturing efficiency or increase manufacturing efficiency to the same extent
as our competitors. Our manufacturing processes are highly complex, require
advanced and costly equipment and are continuously being modified in an effort
to improve yields and product performance. Impurities or other difficulties in
the manufacturing process can lower yields.

In addition, as is common in the semiconductor industry, we have from time
to time experienced difficulty in beginning production at new facilities or in
effecting transitions to new manufacturing processes. As a consequence, we have
suffered delays in product deliveries or reduced yields. We may experience
manufacturing problems in achieving acceptable yields or experience product
delivery delays in the future as a result of, among other things, capacity
constraints, construction delays, upgrading or expanding existing facilities or
changing our process technologies, any of which could result in a loss of future
revenues. Our operating results could also be adversely affected by the increase
in fixed costs and operating expenses related to increases in production
capacity if revenues do not increase proportionately.

THE FAILURE OF NATIONAL SEMICONDUCTOR TO MAINTAIN ITS PURCHASE REQUIREMENTS OR
MEET ITS CONTRACTUAL OBLIGATIONS COULD ADVERSELY AFFECT OUR CAPACITY UTILIZATION
AND PROFITABILITY.

We have several arrangements with National Semiconductor relating to the
provision of our services and the sale of our products. Any material adverse
change in the arrangements, such as National Semiconductor's ability to provide
the agreed-upon services, its ability to fulfill its intellectual property
indemnity obligations or its ability to fulfill its other obligations, could
have a material adverse effect on us. In addition, any material adverse change
in the purchase requirements of National Semiconductor under the foundry
services agreement, or failure to continue making purchases after expiration of
the agreement on June 11, 2000, could adversely affect our factory utilization
and profitability.

National Semiconductor is currently required to purchase a certain amount
of our products pursuant to a foundry sales agreement which expires in June,
2000. However, in the fourth quarter of Fiscal 1998, National Semiconductor
informed us that its demand would be significantly lower in Fiscal 1999 than in
Fiscal 1998. This has resulted in significantly lower contract manufacturing
revenues in the first nine months of Fiscal 1999 as compared to the first nine
months of Fiscal 1998 and will result in substantially lower contract
manufacturing revenues throughout Fiscal 1999 as compared to Fiscal 1998. Such
reduced demand has and will continue to negatively impact our factory
utilization and profitability.

BECAUSE A LIMITED NUMBER OF PERSONS, INCLUDING MEMBERS OF OUR MANAGEMENT TEAM,
OWN A MAJORITY OF OUR SHARES AND THEREFORE CONTROL OUR COMPANY, CERTAIN
DECISIONS MAY BE MADE BY THEM THAT MAY BE DETRIMENTAL TO YOUR INTERESTS.

Upon completion of this offering, Sterling Holding Company, LLC and some of
the key employees of our company will own 21,083,317 shares, or approximately
38.6%, of the outstanding Class A Common Stock, our only class of voting stock,
and 28,396,000 shares of Class B Common Stock which are convertible into shares
of Class A Common Stock on a one-to-one basis. By virtue of such stock
ownership, such persons have the power to direct our affairs and are able to
determine the outcome of matters required to be submitted to stockholders for
approval, including the election

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of a majority of our directors and amendment of our Certificate of
Incorporation. We cannot assure you that such persons will not exercise their
control over us in a manner detrimental to your interests.

See "Principal Stockholders."

BECAUSE MUCH OF OUR SUCCESS AND VALUE LIES IN OUR OWNERSHIP AND USE OF
INTELLECTUAL PROPERTY, OUR FAILURE TO PROTECT OUR PROPERTY AND DEVELOP VALUABLE
NEW TECHNOLOGIES MAY NEGATIVELY AFFECT OUR FINANCIAL RESULTS.

Failure to protect our existing intellectual property or to develop new
technologies may result in our inability to increase sales and our losing some
of our market share to our competitors. Our future success and competitive
position depend in part upon our ability to obtain and maintain certain
proprietary technologies used in our principal products. We rely on patent,
trade secret, trademark and copyright law to protect such technologies. Some of
our technologies are not covered by any patent or patent application, and we
cannot assure you that:

- any of the more than 250 U.S. patents owned by us or numerous other
patents which third parties license to us will not be invalidated,
circumvented, challenged or licensed to others; or

- any of our pending or future patent applications will be issued within
the scope of the claims sought by us, if at all.

In addition, effective patent, trademark, copyright and trade secret
protection may be unavailable, limited or not applied for in certain foreign
countries.

The future success of many of our competitors is also based on their
ability to protect and develop intellectual property. Our competitors may
develop technologies that are similar or superior to our technologies, duplicate
our technologies or design around our patents. We also seek to protect our
proprietary technologies, including technologies that may not be patented or
patentable, in part by confidentiality agreements and, if applicable, inventors'
rights agreements with our collaborators, advisors, employees and consultants.
We cannot assure you that these agreements will not be breached, that we will
have adequate remedies for any breach or that such persons or institutions will
not assert rights to intellectual property arising out of such research. Certain
of our technologies have been licensed on a non-exclusive basis from National
Semiconductor which may, after a five-year period, license such technologies to
others, including our competitors. In addition, under a technology licensing and
transfer agreement, National Semiconductor has limited royalty-free, worldwide
license rights (without right to sublicense) to some of our technologies. If
necessary or desirable, we may seek licenses under patents or intellectual
property rights claimed by others. However, we cannot assure you that we will
obtain such licenses or that the terms of any offered licenses will be
acceptable to us. The failure to obtain a license from a third party for
technologies we use could cause us to incur substantial liabilities and to
suspend the manufacture or shipment of products or our use of processes
requiring the technologies.

While we are not currently engaged in any material intellectual property
litigation, we could become subject to lawsuits in which it is alleged that we
have infringed upon the intellectual property rights of others. Our involvement
in intellectual property litigation could result in significant expense to us,
adversely affecting sales of the challenged product or technologies and
diverting the efforts of our technical and management personnel, whether or not
such litigation is resolved in our favor. In the event of an adverse outcome as
a defendant in any such litigation, we may be required to:

- pay substantial damages;

- cease the manufacture, use, sale or importation of infringing products;

- expend significant resources to develop or acquire non-infringing
technologies;

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- discontinue the use of certain processes; or

- obtain licenses to the infringing technologies.

We cannot assure you that we would be successful in such development or
acquisition or that such licenses would be available under reasonable terms. Any
such development, acquisition or license could require the expenditure of
substantial time and other resources.

WE MAY NOT BE ABLE TO CONSUMMATE FUTURE ACQUISITIONS, AND CERTAIN CONSEQUENCES
OF THOSE ACQUISITIONS WHICH WE DO COMPLETE MAY ADVERSELY AFFECT US.

We plan to continue to pursue additional acquisitions of related
businesses. The expense incurred in consummating the future acquisition of
related businesses, or our failure or inability to integrate such businesses
successfully into our existing business, could result in our incurring
unanticipated expenses and losses. We plan to continue to pursue additional
acquisitions of related businesses in the future. We cannot assure you, however,
that we will be able to identify or finance additional acquisitions or that, if
consummated, we will realize any anticipated benefits from such acquisitions.

The success of some of our competitors has also been due in part to their
ability to identify, acquire and successfully integrate related businesses. Some
of these competitors are larger, have greater cash reserves, or the ability to
incur more debt to finance the acquisition of such businesses. As the number of
attractive acquisition targets is limited, we cannot assure you that we could
successfully outbid these competitors for these businesses.

Should we successfully acquire another business, the process of integrating
acquired operations into our existing operations may result in unforeseen
operating difficulties and may require significant financial resources that
would otherwise be available for the ongoing development or expansion of our
existing operations. In addition, although Samsung Electronics assists us in
integrating the operations of the power device business into our operations
pursuant to the Transitional Services Agreement, we may encounter unforeseen
obstacles or costs in such integration. Possible future acquisitions could
result in the incurrence of additional debt, contingent liabilities and
amortization expenses related to goodwill and other intangible assets, all of
which could have a material adverse effect on our financial condition and
operating results.

67,970,437 MILLION, OR 77.3%, OF OUR TOTAL OUTSTANDING SHARES MAY BE SOLD INTO
THE MARKET IN THE NEAR FUTURE; FUTURE SALES OF THOSE SHARES COULD DEPRESS THE
MARKET PRICE OF THE CLASS A COMMON STOCK.

Immediately after this offering, the public market for the Class A Common
Stock will include only the 20,000,000 shares that we are selling in this
offering, assuming the over-allotment option is not exercised. At that time,
there will be an additional 34,594,437 shares of Class A Common Stock
outstanding, including the shares of Class A Common Stock issued in connection
with the 12% Series A Cumulative Compounding Preferred Stock conversion, and
33,376,000 shares of Class B Common Stock outstanding, which are convertible on
a one-to-one basis into Class A Common Stock. Certain shares held by our
existing stockholders are subject to "lock-up" agreements that prohibit existing
stockholders from selling their shares of Class A Common Stock in the public
market for 180 days after the date of this prospectus. When the 180-day
"lock-up" period expires, or if Credit Suisse First Boston consents, in its sole
discretion, to an earlier sale, our existing stockholders will be able to sell
their shares in the public market, subject to certain legal restrictions. If our
existing stockholders sell a large number of shares, the market price of shares
of Class A Common Stock could decline, as such sales may be viewed by the public
as an indication of an upcoming or recently occurring shortfall in the financial
performance of our company. Moreover, the perception in the public market that
these stockholders might sell shares of Class A Common Stock could depress the
market price of the Class A Common Stock. Furthermore, our existing

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stockholders have the right to require us to register their shares, which may
facilitate their sale of shares in the public market.

INVESTORS WILL PAY A PRICE FOR SHARES OF CLASS A COMMON STOCK THAT WAS NOT
ESTABLISHED IN A COMPETITIVE MARKET AND THE PRICE THAT PREVAILS IN THE MARKET
MAY BE LOWER.

Prior to this offering, there has been no public market for the Class A
Common Stock. We have applied to list the Class A Common Stock for trading on
The New York Stock Exchange. After this offering, an active trading market might
not develop or continue. If you purchase shares of Class A Common Stock in this
offering, you will pay a price that was not established in a competitive market.
Rather, you will pay a price that we negotiated with our underwriters and
National Semiconductor, which is substantially greater than the price paid by
our existing stockholders. The price of the Class A Common Stock that will
prevail in the market after this offering may be higher or lower than the price
you pay. For a description of the factors we will consider in negotiating the
public offering price, see "Underwriting."

THE VALUE OF YOUR INVESTMENT IN OUR CLASS A COMMON STOCK WILL BE DILUTED.

If you purchase Class A Common Stock in this offering, you will pay more
for your shares than the amount paid by existing stockholders or individuals or
companies which acquired shares by exercising options granted before this
offering. As a result, the value of your investment based on the value of our
net tangible assets, as recorded on our books, will be less than the amount you
pay for shares of Class A Common Stock in this offering. In addition, the total
amount of our capital will be less than what it would have been had you and all
of the existing stockholders and optionees paid the same amount per share of
Class A Common Stock as you will pay in this offering. See "Dilution" for a more
complete description of how the value of your investment in our Class A Common
Stock will be diluted upon the completion of this offering.

WE FACE A VARIETY OF RISKS WHICH MAY NOT BE UNIQUE TO OUR COMPANY, BUT WHICH WE
BELIEVE ARE MATERIAL TO A DECISION TO INVEST IN OUR COMPANY.

- Dependence on key personnel -- our key executives have been an integral
part of our success, and the experience, knowledge, business
relationships and expertise which we would lose should such an executive
depart could be difficult to replace and may result in a decrease in
operating efficiency and financial performance;

- Environmental liabilities -- our business subjects us to federal, state
and foreign laws and regulations concerning the environment, and we
cannot predict the amounts we may need to spend in order to comply with
new environmental laws or regulations enacted in the future;

- Year 2000 compliance -- our business is dependent on business systems
that may fail at the year 2000, and although we believe that these
systems are currently year 2000 compliant, we cannot assure you that our
systems or those systems used by our major customers, suppliers or other
third parties on whom we depend will remain effective at the year 2000;

- Risks associated with the conversion by certain EU member states to the
Euro -- our business may be exposed to certain risks associated with the
conversion by many European countries of their currencies to the Euro.

18
<PAGE> 22

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. These statements
relate to analyses and other information which are based on forecasts of future
results and estimates of amounts not yet determinable. These statements also
relate to our future prospects, developments and business strategies.

These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Fairchild
International," "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Power Device Business," "Business" and other
sections of this prospectus.

Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. Such factors include, but are not limited to, the following: the
integration of the acquired power device business without disruption to
manufacturing, marketing and distribution activities; changes in general
economic and business conditions; changes in current pricing levels; changes in
political, social and economic conditions and local regulations; foreign
currency fluctuations; reductions in sales to any significant customers; changes
in sales mix; industry capacity; competition; disruptions of established supply
channels; manufacturing capacity constraints; the availability, terms and
deployment of capital; and our ability to accurately estimate the cost of
systems preparation and successfully implement for Year 2000 compliance. Our
risks are more specifically described in the "Risk Factors" section of this
prospectus. If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, our actual results may vary materially
from those expected, estimated or projected.

We do not undertake to update our forward-looking statements or risk
factors to reflect future events or circumstances.

19
<PAGE> 23

DEBT REPAYMENT AND PREFERRED STOCK CONVERSION TRANSACTIONS

DEBT REPAYMENT

A portion of the proceeds of this offering will be used to repay a portion
of amounts due under our senior credit facilities and to repay all outstanding
amounts due under our 12.5% Subordinated Note Due 2008 and our 11.74%
Subordinated Note Due 2008. Our 12.5% Subordinated Note Due 2008 and our 11.74%
Subordinated Note Due 2008 are pay-in-kind promissory notes which means that all
interest due and not paid in cash is added to the then outstanding principal
amount of the notes. The terms of the senior credit facilities require Fairchild
Semiconductor Corporation to apply 50% of the net proceeds of this offering in
excess of $50.0 million to the repayment of loans under the senior credit
facilities. The terms of the 12.5% Subordinated Note Due 2008 require that all
net cash proceeds of this offering be used to repay outstanding amounts due
under that note, except to the extent such proceeds are required to be used to
repay amounts due under the senior credit facilities or are voluntarily used to
repay debt that is senior to that note. In addition, because the 12.5%
Subordinated Note Due 2008 will be repaid prior to 18 months after its issuance,
the warrant to purchase Class A Common Stock issued in connection with the 12.5%
Subordinated Note Due 2008 will not become exercisable according to its terms.
The terms of the 11.74% Subordinated Note Due 2008 require that the first $50.0
million in net cash proceeds from this offering be used to redeem debt senior to
that note, to the extent such debt requires such redemption. In addition, the
11.74% Subordinated Note Due 2008 requires that 50% of the net cash proceeds
from this offering in excess of $50.0 million must be used to redeem amounts due
under that note. After complying with all of the foregoing requirements, and
assuming we completed this offering on February 28, 1999, we would have repaid
$198.6 million under the senior credit facilities, $50.0 million under the 12.5%
Subordinated Note Due 2008 and $96.4 million under the 11.74% Subordinated Note
Due 2008. See "Use of Proceeds."

CONVERSION OF PREFERRED STOCK

Concurrently with the completion of this offering, all of our outstanding
12% Series A Cumulative Compounding Preferred Stock will be converted into
shares of Class A Common Stock. The conversion will be accomplished through an
amendment to our certificate of incorporation. Each participating preferred
stockholder will receive shares of Class A Common Stock equal in aggregate value
to $1,000 per share of preferred stock held by the stockholder at the closing
plus accumulated and unpaid dividends. The number of shares of Class A Common
Stock received by each preferred stockholder will be determined based on the
amount per share received by us for shares of Class A Common Stock sold in this
offering. Assuming we complete this offering on July 31, 1999 at $17.39 per
share (the mid-point of the range shown on the cover of this prospectus, less
assumed underwriting discounts and commissions), a total of 5,034,517 shares of
Class A Common Stock will be exchanged for all outstanding shares of our 12%
Series A Cumulative Compounding Preferred Stock. No shares of preferred stock
will be authorized for issuance following the offering. See "Use of Proceeds."

20
<PAGE> 24

USE OF PROCEEDS

The net proceeds from this offering, after deducting underwriting discounts
and commissions and estimated offering expenses, based on the assumed initial
public offering price of $18.50 per share (the mid-point of the range shown on
the cover of this prospectus), are estimated to be approximately $345.0 million.
The gross proceeds from this offering will be used as set forth below. The
following table assumes that the acquisition of the power device business, the
financings in connection with the acquisition and the application of the
proceeds of such financings were consummated on February 28, 1999 and sets forth
the estimated sources and uses of funds for the transactions described above as
of such date:

<TABLE>
<CAPTION>
AMOUNT
------------
(DOLLARS
IN MILLIONS)
<S> <C>
Sources:
Gross Offering Proceeds............. $370.0
------------
Total Sources........................ $370.0
============
</TABLE>

<TABLE>
<CAPTION>
AMOUNT
------------
(DOLLARS
IN MILLIONS)
<S> <C>
Uses:
Repay Senior Credit Facilities(1)... $198.6
Repay 12.5% Subordinated Note(2).... 50.0
Repay 11.74% Subordinated Note(3)... 96.4
Fees and Expenses................... 25.0
------------
Total Uses........................... $370.0
============
</TABLE>

- ------------------------

(1) The outstanding indebtedness to be repaid with a portion of the proceeds of
this offering consists of the following amounts under our senior credit
facilities: $100.0 million of tranche A term loan that matures on March 31,
2004 and $98.6 million of tranche B term loan that matures on December 15,
2004. At February 28, 1999, the weighted average interest rate with respect
to the tranche A term loan and the tranche B term loan was approximately
8.0%. The actual amount repaid will be reduced by $55,700 per day, the sum
of accrued interest and prepayment premium on the 12.5% Subordinated Note
Due 2008 per day and accrued interest on the 11.74% Subordinated Note Due
2008 per day, until the closing of this offering. The proceeds of our senior
credit facilities were used to fund the acquisition of the power device
business, to refinance our then existing senior credit facilities and to pay
related fees and expenses.

(2) In connection with the acquisition of the power device business from Samsung
Electronics, Fairchild International issued to Citicorp Mezzanine Partners,
L.P. the 12.5% Subordinated Note Due 2008 in the original principal amount
of $50.0 million. The 12.5% Subordinated Note Due 2008 matures on February
1, 2008 and bears interest at an annual rate equal to 12.5%. The proceeds of
the 12.5% Subordinated Note Due 2008 were used to fund the acquisition of
the power device business, to refinance our then existing senior credit
facilities and to pay related fees and expenses. The general partner of
Citicorp Mezzanine Partners, L.P. is an affiliate of Citicorp Venture
Capital Ltd. Citicorp Venture Capital owns an interest in Sterling Holding
Company, LLC, one of our principal stockholders.
(3) In connection with the recapitalization of Fairchild Semiconductor
Corporation in 1997, Fairchild International issued to National
Semiconductor the 11.74% Subordinated Note Due 2008 in the original
principal amount of $77.0 million. The 11.74% Subordinated Note Due 2008
matures on March 14, 2008 and bears interest at an annual rate equal to
11.74%. During Fiscal 1998, National Semiconductor sold the 11.74%
Subordinated Note Due 2008 to a number of financial institutions.

We will not receive any proceeds from the sale of the shares of Class A
Common Stock, if any, to be sold by National Semiconductor upon the exercise of
the underwriters' over-allotment option.

DIVIDEND POLICY

We have never paid a cash dividend and do not anticipate declaring or
paying any cash dividends on shares of our common stock in the foreseeable
future. In addition, any determination to declare and pay dividends will be made
by our board of directors in light of our earnings, financial position, capital
requirements, contractual limitations contained in our debt instruments and such
other factors as the board of directors deems relevant. See "Description of
Indebtedness" and "Description of Capital Stock."

21
<PAGE> 25

CAPITALIZATION
The following table sets forth the capitalization of our company as of
February 28, 1999 (i) on an actual basis, (ii) pro forma to give effect to the
acquisition of the power device business, the financings in connection with the
acquisition and the application of the proceeds of such financings and (iii) as
adjusted to give pro forma effect to this offering, the conversion of the 12%
Series A Cumulative Compounding Preferred Stock in exchange for shares of Class
A Common Stock and application of the proceeds of such offering and repurchase
as described under "Use of Proceeds." This table should be read in conjunction
with "Unaudited Pro Forma Combined Condensed Financial Statements and Unaudited
Supplemental Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Fairchild International," "Management's Discussion
and Analysis of Financial Condition and Results of Operations of the Power
Device Business" and the financial statements of Fairchild International and the
power device business included elsewhere in this prospectus.

<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1999
---------------------------------
PRO FORMA
PRO AS ADJUSTED
ACTUAL FORMA FOR OFFERING
------ --------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 5.4 $ 64.6 $ 64.6
====== ======== ======
Long-term debt, including current portion:
Former Senior Credit Facilities :......................... $163.6 $ -- $ --
Senior Credit Facilities:
Revolving Credit Facility(1)............................ -- -- --
Tranche A Facility...................................... -- 100.0 --
Tranche B Facility...................................... -- 210.0 111.4
10 1/8% Senior Subordinated Notes Due 2007................ 300.0 300.0 300.0
10 3/8% Senior Subordinated Notes Due 2007................ -- 300.0 300.0
12.5% Subordinated Note Due 2008.......................... -- 50.0 --
11.74% Subordinated Note Due 2008......................... 96.4 96.4 --
------ -------- ------
Total long-term debt, including current portion...... 560.0 1,056.4 711.4
------ -------- ------
12% Series A Cumulative Compounding Redeemable Preferred
Stock(2).................................................. 87.7 87.7 --
Stockholders' Equity:
Class A Common Stock $.01 par value: 80,000,000 shares
authorized; 29,559,920 shares issued and outstanding,
actual; 29,559,920 shares issued and outstanding, pro
forma; 54,594,437 shares issued and outstanding, pro
forma as adjusted for this offering................... 0.3 0.3 0.5
Class B Common Stock $.01 par value: 80,000,000 shares
authorized; 33,376,000 shares issued and outstanding,
actual, pro forma and pro forma as adjusted for this
offering.............................................. 0.3 0.3 0.3
Additional paid-in capital.............................. 9.5 9.5 442.0
Accumulated deficit..................................... (171.1) (206.3) (219.5)
------ -------- ------
Total stockholders' equity (deficit)(3)(4)........... (161.0) (196.2) 223.3
------ -------- ------
Total capitalization............................... $486.7 $ 947.9 $934.7
====== ======== ======
</TABLE>

- -------------------------
(1) Borrowings of up to $100.0 million under the revolving credit facility are
available for working capital and general corporate purposes.
(2) Assumes all of the outstanding shares of the 12% Series A Cumulative
Compounding Preferred Stock will be converted into common stock at $1,000
per share plus accumulated and unpaid dividends, based on the per share
amount we will receive in this offering. See "Debt Repayment and Preferred
Stock Conversion Transaction."
(3) The excess of the aggregate purchase price over the historical net book
value of the power device business' assets acquired and liabilities assumed
as of December 31, 1998 has been allocated to inventory, property, plant and
equipment, and various intangible assets, for illustrative purposes in the
pro forma financial statements only. Actual allocations will be based on
fair values as of the date of the acquisition of the power device business
(April 13, 1999). Included in the allocation to intangible assets is an
estimated allocation to in-process research and development of $31.2
million, which amount was expensed on consummation of the acquisition of the
power device business. This expense amount has been deducted from
stockholders' equity in the pro forma balance sheet as of February 28, 1999.

(4) Pro forma stockholders' equity as adjusted for the offering has been reduced
by $7.6 million for a one-time write-off, net of tax benefit, of a
receivable from the management investors to pay their federal and state
individual income tax liabilities resulting from the lapse of risks of
forfeiture with respect to their stock ownership. Such receivables will be
cancelled as a result of this offering. Additionally, we will expense
amounts to discharge their individual tax liabilities associated with the
cancellation. Pro forma stockholders' equity as adjusted for the offering
has also been reduced by $5.6 million for the one-time write-off, net of tax
benefit, of unamortized debt issuance costs associated with the debt being
repaid. These expenses will reduce stockholders' equity, but will not have
any effect on Adjusted EBITDA.

22
<PAGE> 26

DILUTION

Purchasers of the Class A Common Stock offered by this prospectus will
suffer an immediate and substantial dilution in the net tangible book value per
share. Dilution is the amount by which the initial public offering price paid by
the purchasers of the shares of Class A Common Stock will exceed the net
tangible book value per share of common stock after the offering. The net
tangible book value per share of common stock is determined by subtracting total
liabilities from the total book value of the tangible assets and dividing the
difference by the number of shares of common stock deemed to be outstanding on
the date the book value is determined. As of February 28, 1999, Fairchild
International had a negative pro forma tangible book value of $362.1 million or
$5.75 per share after giving effect to the acquisition of the power device
business, the financings in connection with the acquisition and the application
of the proceeds of such financings. Assuming the sale of 20,000,000 shares at an
initial public offering price of $18.50 per share (the mid-point of the range
shown on the cover of this prospectus) and the conversion of the 12% Series A
Cumulative Compounding Preferred Stock in exchange for shares of Class A Common
Stock, and after deducting the underwriters' discounts and commissions and
estimated offering expenses, Fairchild International's negative pro forma
tangible book value as of February 28, 1999 would have been $30.3 million or
$0.34 per share. This represents an immediate increase in pro forma net tangible
book value to existing stockholders of $5.41 per share and an immediate dilution
to new investors of $18.84 per share. The following table illustrates this per
share dilution:

<TABLE>
<CAPTION>
PER
SHARE
------
<S> <C> <C>
Assumed initial public offering price....................... $18.50
Pro forma net tangible book value before this offering.... $ (5.75)
Increase in net tangible book value per share attributable
to this offering....................................... 5.41
-------
Pro forma net tangible book value after this offering....... (0.34)
------
Dilution to new investors................................... $18.84
======
</TABLE>

The following table summarizes, on a pro forma as adjusted basis as of
February 28, 1999, the number of shares of common stock purchased from Fairchild
International, the estimated value of the total consideration paid for or
attributed to such common stock, and the average price per share paid by or
attributable to (i) existing stockholders, (ii) stockholders exchanging the 12%
Series A Cumulative Compounding Preferred Stock for shares of Class A Common
Stock and (iii) new investors purchasing shares in this offering at an assumed
initial offering price of $18.50 per share (the mid-point of the range shown on
the cover of this prospectus).

<TABLE>
<CAPTION>
TOTAL CASH
CONSIDERATION
SHARES OF COMMON STOCK ----------------------
PURCHASED OR CONVERTED AVERAGE
----------------------- (DOLLARS IN MILLIONS) PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 62,935,920 71.5% $ 7.8 1.7% $ 0.12
Converting preferred stockholders...... 5,034,517 5.7 87.7 18.8 17.39
New investors.......................... 20,000,000 22.8 370.0 79.5 18.50
---------- ----- ------- -----
Total............................. 87,970,437 100.0% $ 465.5 100.0%
========== ===== ======= =====
</TABLE>

The existing stockholders will hold 62,935,920 shares, or 71.5% of the
total number of shares outstanding after this offering and the stockholders
converting the 12% Series A Cumulative Compounding Preferred Stock into shares
of Class A Common Stock will hold 5,034,517 shares, or 5.7% of the total number
of shares outstanding after this offering.

23
<PAGE> 27

If the underwriters exercise their over-allotment option in full, the
following will occur:

- the number of shares of common stock held by existing stockholders will
decrease to 59,935,920, or approximately 68.1% of the total number of
shares of common stock outstanding; and

- the number of shares of common stock held by new public investors will be
increased to 23,000,000, or approximately 26.1% of the total number of
shares of our common stock outstanding after this offering.

The foregoing tables assume no exercise of any outstanding stock options to
purchase Class A Common Stock under our 1997 Stock Option Plan. As of February
28, 1999, there were outstanding options to purchase an additional 4,288,020
shares of Class A Common Stock at an average exercise price of $3.69 per share.
To the extent these options or purchase rights are exercised, there may be
further dilution to new investors.

24
<PAGE> 28

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS AND UNAUDITED SUPPLEMENTAL DATA

The following unaudited pro forma combined condensed financial statements
are based on the historical financial statements of Fairchild International, the
power device business and Raytheon which are included elsewhere in this
prospectus. The acquisition of Raytheon was consummated on December 31, 1997,
and, accordingly, Fairchild International's historical consolidated statements
of operations include the results of operations of Raytheon beginning January 1,
1998.

The Unaudited Pro Forma Combined Condensed Statements of Operations give
effect to the Raytheon acquisition, the acquisition of the power device
business, the financings in connection with the acquisition, the application of
the proceeds of such financings, this offering and the application of the
proceeds of this offering as described in "Use of Proceeds" as if they were
consummated on May 26, 1997. The Unaudited Pro Forma Combined Condensed Balance
Sheet gives effect to the acquisition of the power device business, the
financings in connection with the acquisition, the application of the proceeds
of such financings, this offering and the application of the proceeds of this
offering as described in "Use of Proceeds," as if they were consummated on
February 28, 1999. All of the pro forma adjustments are described more fully in
the accompanying notes. The pro forma adjustments are based upon preliminary
estimates and assumptions that we believe are reasonable in the circumstances.
In our opinion, all adjustments have been made that are necessary to present
fairly the pro forma data. Final amounts could differ from those set forth
below.

The Unaudited Pro Forma Combined Condensed Statements of Operations for the
fiscal year ended May 31, 1998 and the nine months ended February 28, 1999
include the historical statements of operations of the power device business for
the twelve months ended June 30, 1998 and the nine months ended December 31,
1998, respectively. The Unaudited Pro Forma Combined Condensed Balance Sheet as
of February 28, 1999 includes the historical balance sheet of the power device
business as of December 31, 1998. The results of operations of the power device
business for the period from April 1, 1998 through June 30, 1998 have been
included in both the Unaudited Pro Forma Combined Condensed Statements of
Operations for the fiscal year ended May 31, 1998 and the nine months ended
February 29, 1999. Power device business revenue and loss for this period was
$101.5 million and $34.1 million, respectively.

The power device business' historical financial information reflected in
the pro forma financial statements represents the accounts and operations of
Samsung Electronics with respect to the power device business. During the period
covered by the power device business' financial statements, the power device
business was conducted as a part of Samsung Electronics' overall operations, and
separate financial statements were not prepared. Fairchild International has
been advised by Samsung Electronics that the power device business' financial
statements were prepared from the historical accounting records of Samsung
Electronics and include various allocations for costs and expenses. Therefore,
the statements of operations of the power device business may not be indicative
of the results of operations that would have resulted if the power device
business had operated on a stand-alone basis. Fairchild International has been
advised by Samsung Electronics that all of the allocations and estimates
reflected in the power device business' financial statements are based on
assumptions that Samsung Electronics believes are reasonable under the
circumstances.

The pro forma financial statements are presented for informational purposes
only and do not purport to be indicative of the results of operations that
actually would have been achieved had such transactions been consummated on the
dates or for the periods indicated and do not purport to be indicative of the
balance sheet data or results of operations as of any future date or for any
future period. The pro forma financial statements should be read in conjunction
with the accompanying notes, the financial statements and notes thereto of
Fairchild International, the power device business and Raytheon which are
included elsewhere in this prospectus, "Management's Discussion and

25
<PAGE> 29

Analysis of Financial Condition and Results of Operations of Fairchild
International" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Power Device Business."

The acquisition of Raytheon and the acquisition of the power device
business were accounted for using the purchase method of accounting. The
purchase method of accounting allocates the aggregate purchase price to the
assets acquired and liabilities assumed based upon their respective fair values.
For purposes of the pro forma financial statements, the excess of the aggregate
purchase price over the historical net book value of the power device business'
assets acquired and liabilities assumed as of December 31, 1998 has been
allocated to inventory, property, plant and equipment, and various intangible
assets, and is for illustrative purposes in the pro forma financial statements
only. Actual allocations will be based on fair values as of the date of the
acquisition of the power device business (April 13, 1999).

26
<PAGE> 30

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31, 1998
-------------------------------------------
POWER
POWER DEVICE
DEVICE BUSINESS FAIRCHILD
BUSINESS PRO FORMA INTERNATIONAL
HISTORICAL ADJUSTMENTS HISTORICAL(4)
---------- ----------- ----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue

Net sales-trade........ $400.2 $ 7.51a $635.8
6.11b
Contract
manufacturing........ 27.6 22.81c 153.4
------ ------ ------
427.8 36.4 789.2
Cost of sales
Cost of sales-trade.... 240.6 (2.7)1a 441.6
9.91d
1.41e
1.31f
(0.7)1g
Cost of contract
manufacturing........ 27.6 -- 117.1
------ ------ ------
268.2 9.2 558.7
------ ------ ------
Gross profit............. 159.6 27.2 230.5
Research and
development............ 15.4 -- 35.7
Selling, general and
administrative......... 32.5 15.51a 92.0
(8.7)1d
(5.4)1h
Litigation settlement
expense................ 58.0 -- --
Restructuring and other
non-recurring
charges................ -- -- 15.5
------ ------ ------
Operating income......... 53.7 25.8 87.3
Non-cash interest
expense................ -- -- 2.8
Cash interest expense,
net.................... 9.9 (9.9)1i 51.7
Foreign currency losses,
net.................... 7.5 -- --
------ ------ ------
Income before income
taxes.................. 36.3 35.7 32.8
Income taxes............. 11.1 (11.1)1j 10.7
------ ------ ------
Net income before
cumulative effect of
change in accounting
principle.............. $ 25.2 $ 46.8 $ 22.1
====== ====== ======
Net income before cumulative effect of change in
accounting principle applicable to common
stockholders..................................... $ 13.4
======
EARNINGS PER COMMON SHARE:
Basic............................................ $ 0.21
======
Diluted.......................................... $ 0.20
======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (IN
MILLIONS):
Basic............................................ 62.8
======
Diluted.......................................... 65.0
======

<CAPTION>
FISCAL YEAR ENDED MAY 31, 1998
-----------------------------------------------------------------------

FAIRCHILD
RAYTHEON PRO FORMA INTERNATIONAL OFFERING PRO FORMA
HISTORICAL(4) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- ------------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue
Net sales-trade........ $47.3 $ -- $1,096.9 $ $1,096.9
Contract
manufacturing........ -- -- 203.8 203.8
----- ------ -------- ------ --------
47.3 -- 1,300.7 1,300.7
Cost of sales
Cost of sales-trade.... 26.7 3.92a 722.0 722.0
Cost of contract
manufacturing........ -- -- 144.7 144.7
----- ------ -------- ------ --------
26.7 3.9 866.7 866.7
----- ------ -------- ------ --------
Gross profit............. 20.6 (3.9) 434.0 434.0
Research and
development............ 6.9 -- 58.0 58.0
Selling, general and
administrative......... 6.4 28.42a 160.7 160.7
Litigation settlement
expense................ -- -- 58.0 58.0
Restructuring and other
non-recurring
charges................ -- -- 15.5 15.5
----- ------ -------- ------ --------
Operating income......... 7.3 (32.3) 141.8 141.8
Non-cash interest
expense................ -- 2.22b 5.0 (1.1)3a 3.9
Cash interest expense,
net.................... -- 52.42c 104.1 (31.8)3b 72.3
Foreign currency losses,
net.................... -- -- 7.5 -- 7.5
----- ------ -------- ------ --------
Income before income
taxes.................. 7.3 86.9 25.2 32.9 58.1
Income taxes............. 2.6 (8.7)2d 4.6 3.33c 7.9
----- ------ -------- ------ --------
Net income before
cumulative effect of
change in accounting
principle.............. $ 4.7 $(78.2) $ 20.6 $ 29.6 $ 50.2
===== ====== ======== ====== ========
Net income before cumulat
accounting principle ap
stockholders........... $ 11.9 $ 50.2
======== ========
EARNINGS PER COMMON SHARE
Basic.................. $ 0.19 $ 0.57
======== ========
Diluted................ $ 0.18 $ 0.56
======== ========
WEIGHTED AVERAGE COMMON S
MILLIONS):
Basic.................. 62.8 87.8
======== ========
Diluted................ 65.0 90.0
======== ========
</TABLE>

See accompanying notes to unaudited pro forma combined condensed statements of
operations.

27
<PAGE> 31

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED FEBRUARY 28, 1999
----------------------------------------------------------------------------------------------------
POWER
POWER DEVICE
DEVICE BUSINESS FAIRCHILD FAIRCHILD
BUSINESS PRO FORMA INTERNATIONAL PRO FORMA INTERNATIONAL OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ----------- ------------- ------------ ------------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Net sales-trade.......... $282.4 $18.41a $434.1 $ -- $742.6 $ -- $742.6
7.71b
Contract manufacturing... 12.5 11.71c 54.5 -- 78.7 -- 78.7
------ ----- ------ ------ ------ ------ ------
294.9 37.8 488.6 -- 821.3 -- 821.3
Cost of sales
Cost of sales-trade...... 190.3 6.91a 336.2 3.02a 544.6 -- 544.6
5.11d
1.41e
0.91f
0.81g
Cost of contract
manufacturing.......... 12.5 -- 45.4 -- 57.9 -- 57.9
------ ----- ------ ------ ------ ------ ------
202.8 15.1 381.6 3.0 602.5 -- 602.5
------ ----- ------ ------ ------ ------ ------
Gross profit............... 92.1 22.7 107.0 (3.0) 218.8 -- 218.8
Research and development... 11.5 -- 27.9 -- 39.4 -- 39.4
Selling, general and
administrative........... 27.9 10.21a 68.5 19.72a 119.5 -- 119.5
(2.7)1d
0.41e
(4.5)1h
Litigation settlement
expense.................. 58.0 -- -- -- 58.0 -- 58.0
Restructuring and other
non-recurring
charges.................. -- -- 7.2 -- 7.2 -- 7.2
------ ----- ------ ------ ------ ------ ------
Operating income (loss).... (5.3) 19.3 3.4 (22.7) (5.3) -- (5.3)
Non-cash interest
expense.................. -- -- 2.3 1.52b 3.8 (0.8)3a 3.0
Cash interest expense,
net...................... 2.6 (2.6)1i 42.4 34.82c 77.2 (24.2)3b 53.0
Foreign currency gains,
net...................... (0.3) -- -- -- (0.3) -- (0.3)
------ ----- ------ ------ ------ ------ ------
Income (loss) before income
taxes.................... (7.6) 21.9 (41.3) (59.0) (86.0) 25.0 (61.0)
Income taxes............... 8.6 (8.6)1j (4.1) (5.9)2d (10.0) 2.53c (7.5)
------ ----- ------ ------ ------ ------ ------
Net income (loss).......... $(16.2) $30.5 $(37.2) $(53.1) $(76.0) $ 22.5 $(53.5)
====== ===== ====== ====== ====== ====== ======
Net income (loss) applicable to common
stockholders....................................... $(44.4) $(83.2) $(53.5)
====== ====== ======
EARNINGS PER COMMON SHARE:
Basic.............................................. $(0.71) $(1.32) $(0.61)
====== ====== ======
Diluted............................................ $(0.71) $(1.32) $(0.61)
====== ====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (IN
MILLIONS):
Basic.............................................. 62.9 62.9 87.9
====== ====== ======
Diluted............................................ 62.9 62.9 87.9
====== ====== ======
</TABLE>

See accompanying notes to unaudited pro forma combined condensed statements of
operations.

28
<PAGE> 32

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS

THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS GIVE
EFFECT TO THE FOLLOWING PRO FORMA ADJUSTMENTS:

1. PRO FORMA ADJUSTMENTS TO THE HISTORICAL RESULTS OF THE POWER DEVICE
BUSINESS.

(a) Historically, the power device business has recognized revenue for sales to
Samsung Electronics' foreign sales subsidiaries at the time of shipment to
such subsidiaries. The pro forma adjustment to net sales eliminates the
sales to the foreign sales subsidiaries of Samsung Electronics from the
revenue of the power device business and replaces them with the sales of
such subsidiaries to the ultimate third parties. Cost of sales is also
adjusted to reflect the change in the inventory held by the foreign sales
subsidiaries of Samsung Electronics. Historically, the selling expenses
incurred by the foreign sales subsidiaries of Samsung Electronics in
connection with their sales to third parties have been recorded by such
subsidiaries. The power device business' selling, general and
administrative expenses have been adjusted to give effect to the provisions
of the Overseas Sales Support Agreement, which provides for commissions to
be paid to the foreign sales subsidiaries of Samsung Electronics to provide
sales services to the power device business.

The pro forma increases (decreases) to net sales, cost of sales and SG&A
expenses are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, 1998 FEBRUARY 28, 1999
------------ -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net sales -- trade................................... $ 7.5 $18.4
Cost of sales -- trade............................... (2.7) 6.9
SG&A................................................. 15.5 10.2
</TABLE>

(b) Historically, the power device business has sold its products to Samsung
Electronics at intercompany transfer prices. Under the terms of the Product
Supply Agreement, the power device business will sell its products to
Samsung Electronics at guaranteed minimum annual levels based on historical
volumes and at prices designed to reflect market prices, subject to
adjustments to reflect changes in market prices as published by Worldwide
Semiconductor Trade Statistics. In order to give effect to the minimum
contractual volumes over historical levels and the pricing structure under
the Product Supply Agreement, the pro forma net sales are increased by $6.1
million and $7.7 million for the fiscal year ended May 31, 1998 and the
nine months ended February 28, 1999, respectively.

(c) The pro forma adjustment to contract manufacturing revenue is $22.8 million
and $11.7 million for the fiscal year ended May 31, 1998 and the nine
months ended February 28, 1999, respectively. These amounts reflect the
increase in contract manufacturing revenue that will be required to
generate the minimum profit level guaranteed by Samsung Electronics under
the Foundry Sale Agreement of W53,700 million during the first three years
following consummation of the acquisition of the power device business
(W27,700 million, W17,300 million and W8,700 million for the first, second
and third years, respectively). Historically, the power device business has
provided these contract manufacturing services, consisting of wafer
fabrication services, to Samsung Electronics at cost. The U.S.
Dollar-denominated pro forma adjustments have been recorded using weighted
average exchange rates of 1,260 Won and 1,334

29
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)

Won to one U.S. Dollar for the fiscal year ended May 31, 1998 and the nine
months ended February 28, 1999, respectively.

(d) Historically, the power device business has been charged at cost for
epitaxial fabrication services, assembly and test services and photo mask
supply services provided by Samsung Electronics' plants located in Onyang
and Kiheung, South Korea. Under the terms of the EPI Services Agreement,
the Onyang Assembly and Test Services Agreement and the Photo Mask Supply
Agreement, Samsung Electronics has agreed to provide the power device
business with these services for a three-year period following consummation
of the acquisition of the power device business at agreed-upon prices
denominated in U.S. Dollars in accordance with the terms of the above
agreements. In the case of the Onyang Assembly and Test Services Agreement,
the agreement provides for a 5% annual price decrease. The pro forma
adjustments reflect the effects of (i) replacing the actual historical
costs of these services with the negotiated costs of these services, which
negotiated costs include recovery of general and administrative and
interest costs attributable to these plants recorded in SG&A for the power
device business, based on historical product volumes and (ii) eliminating
the portion of historically allocated SG&A expenses to be included in such
negotiated costs.

The pro forma increases (decreases) to cost of sales and SG&A expenses are
as follows:

<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, 1998 FEBRUARY 28, 1999
------------ -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cost of sales -- trade............................... $ 9.9 $ 5.1
SG&A................................................. (8.7) (2.7)
</TABLE>

(e) Historically, the power device business has been allocated charges for
information technology services, logistics and other general and
administrative services which were provided by Samsung Electronics. Under
the terms of the Transitional Services Agreement, Samsung Electronics has
agreed to provide to the power device business logistics and other general
and administrative services for a three-year period, at the fixed annual
price of $5.3 million. Information technology services are provided under a
separate agreement with Samsung SDS Co., Ltd. at the fixed annual price of
$3.8 million. The pro forma adjustments to cost of sales and SG&A expenses
reflect the effects of replacing the historical charges for such services
with the fixed prices included in the Transitional Services Agreement and
the agreement with Samsung SDS Co., Ltd. In addition, the pro forma
adjustment includes the effect of a fixed 1,200 Won to one U.S. Dollar
exchange rate used to translate the fixed charges included in the
Transitional Services Agreement and the agreement with Samsung SDS Co.,
Ltd.

The pro forma increases to cost of sales relating to information technology
services and SG&A expenses relating to logistics and other general and
administrative services are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, 1998 FEBRUARY 28, 1999
------------ -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cost of sales -- trade............................... $1.4 $1.4
SG&A................................................. -- 0.4
</TABLE>

30
<PAGE> 34
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)

(f) Sales of particular MOSFET products, which are produced by the power
device business, will be subject to royalties arising from Fairchild
International's existing license agreement with another semiconductor
corporation. The pro forma increases to cost of sales to give effect to
such royalties are $1.3 million and $0.9 million for the fiscal year ended
May 31, 1998 and the nine months ended February 28, 1999, respectively.

(g) Historically, the power device business has been charged at cost for
assembly and test services provided by Samsung Electronics' plant located
in Suzhou, China. Under the terms of the Suzhou Assembly and Test Services
Agreement, Samsung Electronics has agreed to provide the power device
business with assembly and test services for a three-year period following
consummation of the acquisition of the power device business at agreed-upon
prices denominated in U.S. Dollars. The pro forma adjustments reflect the
effects of replacing the actual historical costs of these services with the
negotiated costs of these services based on historical product volumes.
Although the Suzhou Assembly and Test Services Agreement provides for
annual price adjustments based upon the percentage change in the U.S.
Consumer Price Index, the pro forma adjustments do not give effect to such
price adjustments. The pro forma increases (decreases) to cost of sales are
$(0.7) million and $0.8 million for the fiscal year ended May 31, 1998 and
the nine months ended February 28, 1999, respectively.

(h) Represents the elimination of royalty expense incurred by Samsung
Electronics attributable to the power device business which arises from
license agreements that were not transferred to Fairchild International.
This results in a decrease to SG&A expenses of $5.4 million and $4.5
million for the fiscal year ended May 31, 1998 and the nine months ended
February 28, 1999, respectively.

(i) The pro forma adjustment to cash interest expense is $9.9 million and $2.6
million for the fiscal year ended May 31, 1998 and the nine months ended
February 28, 1999, respectively. These amounts represent the elimination
of interest expense on bank borrowings, capital lease obligations and
corporate borrowings of Samsung Electronics allocated to the power device
business that were not transferred to Fairchild International.

(j) The pro forma adjustment for the elimination of income taxes is $11.1
million and $8.6 million for the fiscal year ended May 31, 1998 and the
nine months ended February 28, 1999, respectively. As a result of the
acquisition of the power device business, the power device business is
100% exempt from Korean income taxes for seven years beginning with the
first year in which taxable Korean income is generated.

2. PRO FORMA ADJUSTMENTS TO THE COMBINED RESULTS OF FAIRCHILD INTERNATIONAL,
THE POWER DEVICE BUSINESS AND RAYTHEON.

(a) On April 13, 1999, Fairchild International completed the acquisition of the
power device business for approximately $406.8 million, net of post-closing
adjustments for working capital and an income payment aggregating $48.2
million. The purchase includes all of the worldwide operations and assets
of the power device business, which are comprised in part of a high volume
wafer fabrication plant in Bucheon, South Korea, design and development
operations in Bucheon, South Korea, secured services for high volume
assembly and test operations and worldwide sales and marketing operations.
The transaction is being accounted for as a purchase.

The following table represents the estimated allocation of the purchase
price over the historical net book value of the power device business'
assets acquired and liabilities assumed as of December 31, 1998, and is for
illustrative purposes in the pro forma financial statements only.
31
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)

Actual allocations will be based on fair values as of the acquisition date
(April 13, 1999). Also presented are the estimated periods of amortization
for each of the identifiable intangible assets for purposes of calculating
the pro forma adjustments to amortization expense in the accompanying pro
forma condensed consolidated statements of operations. All intangible
assets will be amortized on a straight-line basis. The amount allocated to
in-process research and development will be charged to expense in our
fourth fiscal quarter ended May 30, 1999. This expense has been excluded
from the accompanying pro forma combined condensed statements of
operations. Assuming the acquisition of the power device business, the
financings in connection with the acquisition and the application of the
proceeds of such financings occurred on February 28, 1999, the allocation
would have included the following intangible assets (in millions):

<TABLE>
<CAPTION>
PERIOD OF
INTANGIBLE ASSETS AMOUNT AMORTIZATION
----------------- ------ ------------
<S> <C> <C>
Developed technology........................................ $124.1 15 years
Customer base............................................... 47.0 8 years
In-process research and development......................... 31.2 --
Covenant not to compete..................................... 26.9 5 years
Trademarks and tradenames................................... 21.9 4 years
Assembled workforce......................................... 3.8 3 years
------
Total.................................................. $254.9
======
</TABLE>

In connection with Fairchild International's acquisition of Raytheon on
December 31, 1997, intangible assets were recorded for developed
technologies and an assembled workforce. These assets are being amortized
on a straight line basis over periods of 3 to 15 years.

Pro forma adjustments for depreciation and amortization of fixed assets and
other intangible assets are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, 1998 FEBRUARY 28, 1999
------------ -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Intangibles -- Power Device Business................. $26.3 $19.7
Intangibles -- Raytheon.............................. 2.1 --
----- -----
Total recorded in SG&A.......................... $28.4 $19.7
===== =====
Fixed assets -- Power Device Business recorded in
cost of sales-trade................................ $ 3.9 $ 3.0
</TABLE>

(b) In connection with the acquisition of the power device business, the
financings in connection with the acquisition and the application of the
proceeds of such financings, we incurred debt issuance costs of
approximately $22.3 million associated with the senior credit facilities
and the 10 3/8% Senior Subordinated Notes. These costs are comprised
primarily of financing costs and other professional fees that will be
deferred and amortized over the term of the related debt, which ranges from
5 to 8 1/2 years. The pro forma adjustments to non-cash interest expense
represent the incremental amortization of these debt issuance costs in the
amount of

32
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)

$2.2 million and $1.5 million for the fiscal year ended May 31, 1998 and
the nine months ended February 28, 1999, respectively. Unamortized debt
issuance costs of $4.0 million, net of the related tax benefit of $0.4
million, associated with the existing senior credit facilities was charged
to interest expense concurrent with the acquisition of the power device
business, the financings in connection with the acquisition and the
application of the proceeds of such financings. The non-recurring charge
has been excluded from the pro forma combined condensed statements of
operations.

(c) In connection with the acquisition of the power device business, we entered
into the senior credit facilities, which provided up to $410.0 million in
financing, consisting of a $100.0 million revolving credit facility (under
which no amounts were drawn at closing of the acquisition of the power
device business) and $310.0 million of senior term facilities. We also
issued $300.0 million of 10 3/8% Senior Subordinated Notes and a $50.0
million 12.5% Subordinated Note. Since a portion of the purchase price for
the acquisition of Raytheon was paid from existing cash, interest income
that corresponds to the interest on such cash and which would not have been
earned during the period from May 26, 1997 through the date of the
acquisition has been eliminated.

The pro forma increases (decreases) to cash interest expense are as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, 1998 FEBRUARY 28, 1999
------------ -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Senior Term Facilities -- Tranche A Facility
(7.75%)............................................ $ 7.5 $ 4.9
Senior Term Facilities -- Tranche B Facility
(8.25%)............................................ 17.3 12.8
Notes (10.375%)...................................... 31.1 23.4
12.5% Subordinated Note (12.5%)...................... 6.4 5.4
Income lost -- Raytheon.............................. 1.6 --
Interest expense on debt refinanced.................. (11.5) (11.7)
------ ------
Total........................................... $ 52.4 $ 34.8
====== ======
</TABLE>

The senior term facilities bear interest at adjustable rates based on a
spread over LIBOR. An increase of 0.125% in the rate applicable to the
senior term facilities will increase interest expense and reduce net income
as follows:

<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MAY 31, 1998 FEBRUARY 28, 1999
------------ -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Interest expense..................................... $ 0.4 $ 0.3
===== =====
Net income........................................... $(0.3) $(0.2)
===== =====
</TABLE>

(d) The pro forma adjustment for income tax benefit is $8.7 million and $5.9
million for the fiscal year ended May 31, 1998 and the nine months ended
February 28, 1999, respectively. These amounts represent the benefit for
income taxes on the loss before income tax resulting from the

33
<PAGE> 37
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)

pro forma adjustments made to our combined results. The benefit for income
taxes was calculated using a rate of 10%, our current effective tax rate.

3. PRO FORMA ADJUSTMENTS MADE TO THE COMBINED RESULTS OF FAIRCHILD
INTERNATIONAL AND THE POWER DEVICE BUSINESS TO GIVE EFFECT TO THE OFFERING.

(a) Represents the elimination of the amortization of deferred financing costs
associated with the debt being repaid. Such amounts were $1.1 million and
$0.8 million for the fiscal year ended May 31, 1998 and the nine months
ended February 28, 1999, respectively. In connection with the offering, we
are required to write-off unamortized debt issuance costs associated with
debt being repaid. Approximately $5.6 million, net of the related tax
benefit of $0.6 million, will be written off concurrent with the offering.
This non-recurring charge has been excluded from the pro forma combined
condensed statements operations.

(b) Represents the elimination of interest expense associated with debt to be
repaid with the proceeds of the offering. Such amounts were $31.8 million
and $24.2 million for the fiscal year ended May 31, 1998 and the nine months
ended February 28, 1999, respectively.

(c) Represents the pro forma adjustment for income tax expense related to the
pro forma adjustments made to give effect to the offering. Such amounts were
$3.3 million and $2.5 million for the fiscal year ended May 31, 1998 and the
nine months ended February 28, 1999, respectively.

4. For the fiscal year ended May 31, 1998, historical Fairchild International
amounts include the results of operations of Raytheon after December 31,
1997, the date of its acquisition, and historical Raytheon amounts include
the results of operations of Raytheon from June 1, 1997 to December 31,
1997.

34
<PAGE> 38

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
AT FEBRUARY 28, 1999
-----------------------------------------------------------------------------------
POWER
POWER DEVICE POWER
DEVICE BUSINESS DEVICE FAIRCHILD FAIRCHILD
BUSINESS PRO FORMA BUSINESS INTERNATIONAL PRO FORMA INTERNATIONAL
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ------------- ----------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ -- $ -- $ -- $ 5.4 $ 59.22a $ 64.6
Receivables, net....... 26.6 -- 26.6 101.5 -- 128.1
Inventories............ 44.0 -- 44.0 105.6 (4.6)2b 145.0
Deferred income
taxes................ 1.2 (1.2)1a -- -- -- --
Other current assets... 3.8 (1.4)1b 2.4 19.7 -- 22.1
------ ------- ------ ------ ------ --------
Total current
assets............. 75.6 (2.6) 73.0 232.2 54.6 359.8
Property, plant and
equipment, net......... 91.0 -- 91.0 305.9 24.22b 421.1
Deferred income taxes.... -- -- -- 25.3 -- 25.3
Goodwill, net............ -- -- -- -- -- --
Intangible assets, net... 0.9 -- 0.9 29.0 223.72b 253.6
Other assets............. 2.8 -- 2.8 31.1 18.32c 52.2
------ ------- ------ ------ ------ --------
Total assets......... $170.3 $ (2.6) $167.7 $623.5 $320.8 $1,112.0
====== ======= ====== ====== ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings
and current portion
of long-term debt.... $ 20.7 $ (20.7)1c $ -- $ 35.5 $(21.4)2d $ 14.1
Income tax payable..... 13.0 (13.0)1a -- -- -- --
Accounts payable....... 13.7 -- 13.7 79.1 -- 92.8
Accrued expenses and
other current
liabilities.......... 70.6 (5.5)1b 7.1 56.0 -- 63.1
(58.0)1d
------ ------- ------ ------ ------ --------
Total current
liabilities........ 118.0 (97.2) 20.8 170.6 (21.4) 170.0
Long term debt, less
current portion........ 55.7 (55.7)1c -- 524.5 517.82e 1,042.3
Deferred income taxes.... 1.9 (1.9)1a -- -- -- --
Other liabilities........ 6.5 -- 6.5 1.7 -- 8.2
------ ------- ------ ------ ------ --------
Total liabilities.... 182.1 (154.8) 27.3 696.8 496.4 1,220.5
------ ------- ------ ------ ------ --------
Redeemable preferred
stock.................. -- -- -- 87.7 -- 87.7
Commitments and
contingencies
Stockholders' equity
(deficit):
Class A common stock... -- -- -- 0.3 -- 0.3
Class B common stock... -- -- -- 0.3 -- 0.3
Additional paid-in
capital.............. -- -- -- 9.5 -- 9.5
Business equity........ 0.3 152.2 152.5 -- (152.5)2f --
Cumulative translation
adjustment........... (12.1) -- (12.1) -- 12.12f --
Accumulated deficit.... -- -- -- (171.1) (31.2)2b (206.3)
(4.0)2c
------ ------- ------ ------ ------ --------
Total stockholders'
equity (deficit)... (11.8) 152.2 140.4 (161.0) (175.6) (196.2)
------ ------- ------ ------ ------ --------
Total liabilities and
stockholders'
equity (deficit)... $170.3 $ (2.6) $167.7 $623.5 $320.8 $1,112.0
====== ======= ====== ====== ====== ========

<CAPTION>
AT FEBRUARY 28, 1999
-------------------------

PRO FORMA
OFFERING AS
ADJUSTMENTS ADJUSTED
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ -- $ 64.6
Receivables, net....... -- 128.1
Inventories............ -- 145.0
Deferred income
taxes................ -- --
Other current assets... (0.7)3a 21.4
------ --------
Total current
assets............. -- 359.1
Property, plant and
equipment, net......... -- 421.1
Deferred income taxes.... -- 25.3
Goodwill, net............ --
Intangible assets, net... -- 253.6
Other assets............. (4.3)3a 42.3
(5.6)3b
------ --------
Total assets......... $(10.6) $1,101.4
====== ========
LIABILITIES AND STOCKHOLD
Current liabilities:
Short-term borrowings
and current portion
of long-term debt.... $(12.0)3c $ 2.1
Income tax payable..... -- --
Accounts payable....... -- 92.8
Accrued expenses and
other current
liabilities.......... 2.63a 65.7
------ --------
Total current
liabilities........ (9.4) 160.6
Long term debt, less
current portion........ (333.0)3d 709.3
Deferred income taxes.... -- --
Other liabilities........ -- 8.2
------ --------
Total liabilities.... (342.4) 878.1
------ --------
Redeemable preferred
stock.................. (87.7)3e
Commitments and
contingencies
Stockholders' equity
(deficit):
Class A common stock... 0.23f 0.5
Class B common stock... -- 0.3
Additional paid-in
capital.............. 87.73e 442.0
344.83f
Business equity........
Cumulative translation
adjustment...........
Accumulated deficit.... (7.6)3a (219.5)
(5.6)3b
------ --------
Total stockholders'
equity (deficit)... 419.5 223.3
------ --------
Total liabilities and
stockholders'
equity (deficit)... $(10.6) $1,101.4
====== ========
</TABLE>

See accompanying notes to unaudited pro forma combined condensed balance sheet.

35
<PAGE> 39

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

THE UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET GIVES EFFECT TO THE
FOLLOWING PRO FORMA ADJUSTMENTS:

1. PRO FORMA ADJUSTMENTS TO THE HISTORICAL RESULTS OF THE POWER DEVICE
BUSINESS.

(a) Reflects the elimination of deferred income tax assets of $1.2 million,
deferred income tax liabilities of $1.9 million and income taxes payable of
$13.0 million that were not transferred to Fairchild International.

(b) Reflects the elimination of prepaid royalties of $1.4 million and accrued
royalties of $5.5 million arising from license agreements that were not
transferred to Fairchild International.

(c) Reflects the elimination of bank borrowings, capital lease obligations and
corporate borrowings of Samsung Electronics allocated to the power device
business in an aggregate amount of $76.4 million that were not transferred
to Fairchild International.

(d) Reflects the elimination of accrued expense of $58.0 million for patent
litigation settlement costs that will be paid by Samsung Electronics.

2. PRO FORMA ADJUSTMENTS TO THE COMBINED RESULTS OF FAIRCHILD INTERNATIONAL AND
THE POWER DEVICE BUSINESS.

(a) Represents the amount of excess cash that was provided in connection with
the acquisition of the power device business, the financings in connection
with the acquisition and the application of the proceeds of such
financings. We obtained a total of $660.0 million of proceeds from entering
into the senior term facilities and from issuance of the 10 3/8% Senior
Subordinated Notes and the 12.5% Subordinated Note Due 2008. Of this
amount, we used approximately $406.8 million to pay for the purchase price
of the power device business, approximately $163.6 million to repay the
existing senior credit facilities, approximately $30.4 million to pay
related fees and expenses and approximately $59.2 million to fund our
working capital needs.

(b) The following table represents the estimated allocation of the purchase
price over the historical net book value of the power device business'
assets acquired and liabilities assumed as of December 31, 1998, and is for
illustrative purposes in the pro forma financial statements only. Actual
allocations will be based on fair values as of the acquisition date (April
13, 1999). The amount allocated to in-process research and development will
be charged to expense in our fourth fiscal quarter ended May 30, 1999. This
expense has been excluded from the accompanying pro forma condensed
consolidated statements of operations. Assuming the acquisition of the
power device business, the financings in connection with the acquisition
and the application of the proceeds of such financings occurred on February
28, 1999, the purchase

36
<PAGE> 40

price allocation, including acquisition related expenses of $8.1 million,
would have been as follows (in millions):

<TABLE>
<CAPTION>
POWER DEVICE PURCHASE PURCHASE
BUSINESS HISTORICAL PRICE PRICE
AS ADJUSTED ADJUSTMENTS ALLOCATION
------------------- ----------- ----------
<S> <C> <C> <C>
Receivables, net................................. $ 26.6 $ -- $ 26.6
Inventories...................................... 44.0 (4.6) 39.4
Other current assets............................. 2.4 -- 2.4
Property plant and equipment, net................ 91.0 24.2 115.2

Developed technology............................. -- 124.1 124.1
Customer base.................................... -- 47.0 47.0
In-process research
and development................................ -- 31.2 31.2
Covenant not to compete.......................... -- 26.9 26.9
Trademarks and tradenames........................ -- 21.9 21.9
Assembled workforce.............................. -- 3.8 3.8
Other intangible assets.......................... 0.9 -- 0.9
------ ------
Total intangible assets..................... 0.9 254.9
Less: in-process research and development... -- 31.2
------
Net intangible assets after in-process
research and development
write-off........................... 0.9 223.7
------ ------

Other assets..................................... 2.8 -- 2.8
Accounts payable................................. (13.7) -- (13.7)
Accrued expenses and other current liabilities... (7.1) -- (7.1)
Other liabilities................................ (6.5) -- (6.5)
------ ------
Net assets............................. $140.4
======
Total purchase price allocation........ $414.9
======
</TABLE>

In-process research and development of $31.2 million will be charged to
operations in our fourth fiscal quarter ending May 30, 1999. This
non-recurring charge has been excluded from the unaudited pro forma
statement of operations data presented in this prospectus. For pro forma
balance sheet purposes, intangible assets have been reduced by $31.2
million with a corresponding charge to accumulated deficit.

(c) Represents deferred debt issuance costs primarily comprised of financing
costs and professional fees of $22.3 million associated with the 10 3/8%
Senior Subordinated Notes and the senior credit facilities offset by the
write-off of $4.0 million, net of the related tax benefit of $0.4 million,
of unamortized debt issuance costs associated with the existing senior
credit facilities being repaid.

(d) Represents the repayment of the short-term portion of the existing senior
credit facilities in an aggregate amount of $35.5 million, offset by the
current portion of the term loan facilities in an aggregate amount of $14.1
million.

37
<PAGE> 41

(e) Represents the repayment of the long-term portion of the existing senior
credit facilities in an aggregate amount of $128.1 million offset by the
term loan facilities, the 12.5% Subordinated Note and the 10 3/8% Senior
Subordinated Notes in an aggregate amount of $645.9 million.

(f) Represents the elimination of the equity of the power device business at
the acquisition date in an aggregate amount of $140.4 million.

3. PRO FORMA ADJUSTMENTS MADE TO THE COMBINED RESULTS OF FAIRCHILD
INTERNATIONAL AND THE POWER DEVICE BUSINESS TO GIVE EFFECT TO THE OFFERING.

(a) Loans aggregating $5.0 million were made by us to management investors to
pay their federal and state individual income tax liabilities resulting
from the lapse of risks of forfeiture with respect to their stock
ownership. These loans will be cancelled as a result of the public
offering of our common stock, and we will pay to such management investors
amounts sufficient to enable them to discharge all tax liabilities arising
out of such cancellation. The net effect of the above transaction is a
charge to retained earnings of $7.6 million.

(b) Represents the write-off of approximately $5.6 million, net of the related
tax benefit of $0.6 million, of unamortized debt issuance costs associated
with debt being repaid.

(d) Represents the repayment of the following components of long-term debt (in
millions):

<TABLE>
<S> <C>
Long-term portion of tranche A facility..................... $ 88.0
Long-term portion of tranche B facility..................... 98.6
11.74% Subordinated Note Due 2008........................... 96.4
12.5% Subordinated Note Due 2008............................ 50.0
------
$333.0
======
</TABLE>

(e) Represents the conversion of the 12% Series A Cumulative Compounding
Preferred Stock.

(f) Represents the estimated net proceeds of this offering. Of the net
proceeds, $0.2 million has been allocated to Class A Common Stock to
reflect the increase in the aggregate par value for the total number of
shares outstanding after the offering. The remaining net proceeds of
$344.8 million have been applied to additional paid-in capital.

38
<PAGE> 42

SELECTED CONSOLIDATED FINANCIAL DATA OF FAIRCHILD INTERNATIONAL

The following table sets forth selected historical consolidated financial
data of Fairchild International. The historical consolidated financial data as
of and for the fiscal years ended May 26, 1996, May 25, 1997 and May 31, 1998
are derived directly from the audited consolidated financial statements of
Fairchild International included elsewhere in this prospectus. The historical
consolidated financial data as of February 28, 1999 and for the nine months
ended March 1, 1998 and February 28, 1999 are derived directly from the
unaudited consolidated financial statements of Fairchild International included
elsewhere in this prospectus. The historical consolidated financial data as of
and for the fiscal years ended May 29, 1994 and May 28, 1995, and the historical
balance sheet data as of March 1, 1998, are derived from unaudited consolidated
financial statements of Fairchild International that are not included in this
prospectus. We believe that such unaudited consolidated financial statements
include all adjustments necessary for the fair presentation of the financial
condition and the results of operations of Fairchild International for such
periods and as of such dates. Operating results for the nine months ended
February 28, 1999 are not necessarily indicative of the results of operations
that may be expected for Fiscal 1999. This information should be read in
conjunction with the consolidated financial statements of Fairchild
International included elsewhere in this prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Fairchild
International."

Gross profit......................................... $248.3 $203.8 $216.8 $152.5 $230.5 $180.2 $107.0
Research and development............................. 27.4 31.0 30.3 18.9 35.7 24.7 27.9
Selling, general and administrative.................. 97.3 100.3 114.4 96.4 92.0 66.6 68.5
Restructuring and other non-recurring charges(2)..... -- -- -- 5.3 15.5 15.5 7.2
------ ------ ------ ------ ------ ------ ------
Operating income................................... 123.6 72.5 72.1 31.9 87.3 73.4 3.4
Interest, net........................................ -- -- -- 11.2 54.5 41.1 44.7
Other expense (income) net........................... (1.9) (1.8) (0.2) 1.4 -- -- --
------ ------ ------ ------ ------ ------ ------
Income before income taxes......................... 125.5 74.3 72.3 19.3 32.8 32.3 (41.3)
Provision (benefit) for income taxes................. -- -- -- 3.8 10.7 10.4 (4.1)
------ ------ ------ ------ ------ ------ ------
Income (loss) before cumulative effect of change in
accounting principle............................. 125.5 74.3 72.3 15.5 22.1 21.9 (37.2)
Cumulative effect of change in accounting
principle.......................................... -- -- -- -- (1.5) (1.5) --
------ ------ ------ ------ ------ ------ ------
Net income (loss).................................. $125.5 $ 74.3 $ 72.3 $ 15.5 20.6 20.4 (37.2)
====== ====== ====== ======
Dividends on preferred stock............................................................... (8.7) (6.5) (7.2)
------ ------ ------
Net income (loss) applicable to common stockholders...................................... $ 11.9 $ 13.9 $(44.4)
====== ====== ======
Basic earnings (loss) per common share:
Income before cumulative effect of change in accounting principle........................ $ 0.21 $ 0.24 $(0.71)
------ ------ ------
Cumulative effect of change in accounting principle...................................... (0.02) (0.02) --
------ ------ ------
$ 0.19 $ 0.22 $(0.71)
====== ====== ======
Diluted earnings (loss) per common share:
Income before cumulative effect of change in accounting principle........................ $ 0.20 $ 0.23 $(0.71)
Cumulative effect of change in accounting principle...................................... (0.02) (0.02) --
------ ------ ------
$ 0.18 $ 0.21 $(0.71)
====== ====== ======
Weighted average common shares outstanding (in
millions):
Basic.................................................................................... 62.8 62.8 62.9
====== ====== ======
Diluted.................................................................................. 65.0 65.2 62.9
====== ====== ======
</TABLE>

39
<PAGE> 43

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MAY ------------------------
---------------------------------------------- MARCH 1, FEBRUARY 28,
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ -------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Revenue:
Analog............................................. $ -- $ -- $ -- $ -- $ 32.0 $ 11.9 $ 49.7
Discrete........................................... 80.0 116.4 175.0 164.5 187.3 144.8 131.6
Logic.............................................. 393.8 327.7 339.5 285.3 303.0 234.3 194.2
Memory............................................. 185.1 185.5 174.2 138.0 113.5 88.1 58.6
Contract manufacturing services.................... 57.7 50.7 87.6 104.2 153.4 122.8 54.5
------ ------ ------ ------ ------ ------ ------
Total revenue........................................ $716.6 $680.3 $776.3 $692.0 $789.2 $601.9 $488.6
====== ====== ====== ====== ====== ====== ======
Adjusted EBITDA(3)................................... $162.3 $117.2 $136.3 $128.4 $187.4 $151.4 $ 82.7
Cash flows provided from (used in):
Operating activities............................. 94.3 118.1 162.5 19.1 136.1 108.7 20.0
Investing activities............................. (94.3) (118.1) (162.5) (54.3) (200.5) (170.3) (33.4)
Financing activities............................. -- -- -- 75.9 30.2 33.3 12.3
Depreciation and amortization........................ 38.7 44.7 64.2 77.1 84.6 62.5 72.1
Amortization of intangibles(4)....................... -- -- -- -- 1.4 2.6 22.3
Capital expenditures................................. 88.2 112.9 153.9 47.1 78.0 49.3 31.5

HISTORICAL BALANCE SHEET DATA (END OF PERIOD):
Inventories.......................................... $ 60.9 $ 68.8 $ 93.1 $ 73.1 $108.0 $ 99.6 $105.6
Total assets......................................... 233.0 323.2 432.7 555.0 635.7 632.4 623.5
Long-term debt, excluding current portion............ -- -- -- 487.9 526.7 528.2 524.5
Total stockholders' equity (deficit)................. 161.1 233.2 349.2 (133.3) (116.6) (117.0) (161.0)
</TABLE>

- -------------------------

(1) For the fiscal years ended May 1997 and prior, statement of operations data
includes the direct and allocated expense of the Fairchild Semiconductor
Business of National Semiconductor. Such amounts may not be comparable to
data for Fiscal 1998 and the historical and pro forma nine months ended
February 28, 1999.

(2) In Fiscal 1997, restructuring and other non-recurring charges consisted of
severance and other costs related to lay-offs that occurred in the first
quarter of Fiscal 1997. In Fiscal 1998, such charges consisted of $15.5
million for in-process research and development associated with the
acquisition of Raytheon. For the nine months ended February 28, 1999, such
charges consisted of severance and other costs related to lay-offs in the
first and third quarters of Fiscal 1999.

(3) Adjusted EBITDA is defined as operating income before other (income)
expense, interest expense, taxes, depreciation, amortization, restructuring
and other non-recurring charges and $14.1 million of one-time retention
bonuses in 1997 associated with the recapitalization of National
Semiconductor. Adjusted EBITDA is presented because we believe that EBITDA
is a widely accepted financial indicator of an entity's ability to incur and
service debt. Adjusted EBITDA should not be considered by an investor as an
alternative to net income or income from operations, as an indicator or our
operating performance or other combined operations or cash flow data
prepared in accordance with generally accepted accounting principles or as
an alternative to cash flows as a measure of liquidity. Our computation of
Adjusted EBITDA may differ from similarly titled computations of other
companies.

(4) Amortization of intangibles primarily represents the amortization of
identifiable acquisition-related intangible assets.

40
<PAGE> 44

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF FAIRCHILD INTERNATIONAL

The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto of Fairchild International
included elsewhere in this prospectus.

OVERVIEW

Fairchild International is a leading designer, manufacturer and supplier of
high-performance logic, non-volatile memory, discrete power and signal
technology and analog and mixed signal semiconductors, serving the personal
computer, industrial, telecommunications, consumer electronics and automotive
markets. The predecessor to Fairchild Semiconductor Corporation was renowned as
one of the pioneering companies of the semiconductor industry. Fairchild
Semiconductor Corporation invented the planar process of manufacturing
semiconductors, regarded as one of the most significant achievements in the
semiconductor industry since the invention of the transistor. These early
innovations form the base of a rich company history. Acquired in 1979 by
Schlumberger, Fairchild Semiconductor Corporation continued to innovate,
introducing logic products such as FAST(R) (Fairchild Advanced Schottky
Technology) and FACT(TM) (Fairchild Advanced CMOS Technology), which remain
industry standard products today. In 1987, Fairchild Semiconductor Corporation
was acquired by National Semiconductor and integrated into its operations. The
assets of Fairchild Semiconductor Corporation were spun-off from National
Semiconductor on March 11, 1997 pursuant to an Agreement and Plan of
Recapitalization and began operating as a stand-alone entity. At that time,
Fairchild Semiconductor Corporation's business consisted of the Logic Products
Group, historically a core business of Fairchild Semiconductor Corporation, and
the Discrete Products Group and the Non-Volatile Memory Products Group,
historically multi-market businesses of National Semiconductor. On December 31,
1997, Fairchild Semiconductor Corporation acquired all of the outstanding common
stock of Raytheon for approximately $117.0 million in cash. Raytheon designs,
manufactures and markets high-performance analog and mixed signal semiconductors
with long product lives for the personal computer, communications, broadcast
video and industrial markets. Similar to Fairchild Semiconductor Corporation's
business, Raytheon operates in the moving and shaping segment of the
semiconductor market. Immediately prior to the closing of the transaction,
Raytheon was renamed Fairchild Semiconductor Corporation of California and, upon
closing, became a wholly-owned subsidiary of Fairchild Semiconductor
Corporation. Fairchild Semiconductor Corporation of California was combined with
the Non-Volatile Memory Products Group and is being operated as the Analog,
Mixed Signal and Non-Volatile Memory Products Group. The transaction was
accounted for as a purchase. Accordingly, Fairchild International's operating
results in Fiscal 1998 include the operating results of Fairchild Semiconductor
Corporation of California as of the date of the acquisition. The results of
operations in Fiscal 1997 for the period prior to March 11, 1997 reflect the
operating results of the Fairchild Semiconductor Business of National
Semiconductor, and are not necessarily indicative of the results that would have
been obtained as a stand-alone company during that time. This is due in part to
the fact that National Semiconductor allocated to the Fairchild Semiconductor
Business corporate and other overhead costs at levels higher than those
experienced as a stand-alone company. In addition, the Fairchild Semiconductor
Business, prior to the establishment of Fairchild International, provided
contract manufacturing services to National Semiconductor at cost and now
provides such services at higher prices. Under manufacturing agreements with
National Semiconductor, National Semiconductor is required to purchase not less
than $330.0 million of contract manufacturing services from Fairchild
International during the first 39 months after consummation of the
recapitalization of Fairchild Semiconductor Corporation.

41
<PAGE> 45

The following table sets forth the composition of revenue by product group
and contract manufacturing services, as a percentage of total revenues:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Logic................................................... 43.7% 41.2% 38.4%
Discrete................................................ 22.6 23.8 23.7
Memory.................................................. 22.5 19.9 14.4
Analog.................................................. -- -- 4.1
Contract Manufacturing Services......................... 11.2 15.1 19.4
----- ----- -----
Total.............................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>

QUARTERLY RESULTS

The following table sets forth the unaudited historical quarterly trade
sales and trade gross profits (losses) of Fairchild International's product
groups:

<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998 FISCAL 1999
--------------------------------- --------------------------------- ------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TRADE SALES:
Logic......................... $ 66.8 $ 74.7 $ 69.2 $ 74.6 $ 78.9 $ 79.8 $ 75.6 $ 68.7 $ 60.9 $ 67.7 $ 65.6
Discrete...................... 35.9 39.7 42.7 46.2 48.2 47.0 49.6 42.5 38.9 45.7 47.0
Memory........................ 30.2 39.6 35.6 32.6 31.6 28.5 28.0 25.4 18.4 20.9 19.3
Analog........................ -- -- -- -- -- -- 11.9 20.1 16.9 17.7 15.1
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total..................... $132.9 $154.0 $147.5 $153.4 $158.7 $155.3 $165.1 $156.7 $135.1 $152.0 $147.0
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
GROSS PROFIT (LOSS):
Logic......................... $ 12.2 $ 18.7 $ 15.7 $ 21.0 $ 25.9 $ 29.7 $ 25.6 $ 21.3 $ 14.8 $ 17.7 $ 20.4
Discrete...................... 10.7 11.2 13.4 15.8 18.9 17.9 17.3 12.8 8.9 10.5 10.7
Memory........................ 7.1 6.6 6.8 6.5 5.9 2.3 1.3 3.2 (0.8) (2.0) (0.8)
Analog........................ -- -- -- -- -- -- 4.9 7.2 5.9 7.4 5.2
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total..................... $ 30.0 $ 36.5 $ 35.9 $ 43.3 $ 50.7 $ 49.9 $ 49.1 $ 44.5 $ 28.8 $ 33.6 $ 35.5
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
GROSS PROFIT (LOSS) PERCENTAGE:
Logic......................... 18.3% 25.0% 22.7% 28.2% 32.8% 37.2% 33.9% 31.0% 24.3% 26.1% 31.1%
Discrete...................... 29.8 28.2 31.4 34.2 39.2 38.1 34.9 30.1 22.9 23.0 22.8
Memory........................ 23.5 16.7 19.1 19.9 18.7 8.1 4.6 12.6 (4.3) (9.6) (4.1)
Analog........................ -- -- -- -- -- -- 41.2 35.8 34.9 41.8 34.4
Total..................... 22.6 23.7 24.3 28.2 31.9 32.1 29.7 28.4 21.3 22.1 24.1
</TABLE>

NINE MONTHS ENDED FEBRUARY 28, 1999 COMPARED TO NINE MONTHS ENDED MARCH 1, 1998

RESULTS OF OPERATIONS. Fairchild International incurred net losses of
$37.2 million for the first nine months of Fiscal 1999, compared to net income
of $20.4 million in the corresponding period last year. Net losses for the first
nine months of Fiscal 1999 include pre-tax restructuring charges of $7.2
million. The corresponding period in Fiscal 1998 includes both a non-recurring
pre-tax charge of $15.5 million for the write-off of purchased in-process
research and development associated with the acquisition of Raytheon
Semiconductor, Inc. ("Analog") in December 1997 and an after-tax charge of $1.5
million for the cumulative effect of a change in accounting principle.

42
<PAGE> 46

Operating income was $3.4 million in the first nine months of Fiscal 1999,
compared to $73.4 million in the first nine months of Fiscal 1998. Excluding
restructuring and other non-recurring charges, Fairchild International had
operating income of $10.6 million and $88.9 million for the first nine months of
Fiscal 1999 and 1998, respectively. Operating income for the first nine months
of Fiscal 1999 includes operating losses of $0.3 million for Analog. The
decrease in profitability in the first nine months of Fiscal 1999 over the
comparable period last year is primarily attributable to lower trade revenues
and corresponding deterioration in margins resulting from soft market conditions
worldwide in the industry, due to excess personal computer inventories in the
sales channels and adverse effects on semiconductor demand driven by economic
uncertainty in Southeast Asia, and lower contract manufacturing profits due to
significantly reduced demand from National Semiconductor.

Excluding depreciation and amortization of $72.1 million in the first nine
months of Fiscal 1999 and $62.5 million in the comparable period of Fiscal 1998,
and restructuring and other non-recurring charges, earnings before interest,
taxes and depreciation and amortization, which we refer to as EBITDA, were $82.7
million in the first nine months of Fiscal 1999 compared to $151.4 million in
the comparable period of Fiscal 1998. EBITDA is presented because Fairchild
International believes that it is a widely accepted financial indicator of an
entity's ability to incur and service debt. EBITDA should not be considered as
an alternative to net income, operating income, or other consolidated operations
and cash flow data prepared in accordance with generally accepted accounting
principles, as an indicator of the operating performance of Fairchild
International, or as an alternative to cash flows as a measure of liquidity.

Revenues. Fairchild International's revenues consist of trade sales to
unaffiliated customers (88.8% of total revenues in the first nine months of
Fiscal 1999 and 79.6% in the comparable period of Fiscal 1998) and revenues from
contract manufacturing services provided to National Semiconductor (11.2% of
total revenues in the first nine months of Fiscal 1999, and 20.4% in the
comparable period of Fiscal 1998). Trade sales decreased 9.4% to $434.1 million
compared to $479.1 million for the comparable period of Fiscal 1998. Trade sales
for the first nine months of Fiscal 1999 include those of Analog, while the
comparable period in Fiscal 1998 includes only two months. Excluding Analog's
trade sales for the non-comparable periods, trade sales decreased 17.5% for the
nine month period ending February 28, 1999 over the same period a year ago.
Sales declines impacted all product groups. For the first nine months of Fiscal
1999, Logic, Discrete and Memory trade sales decreased by 17.2%, 9.1% and 33.3%,
respectively, over the comparable period a year ago.

Geographically, 35%, 20% and 45% of trade sales were derived from North
America, Europe and Asia/Pacific, respectively, in the first nine months of
Fiscal 1999, compared to 36%, 21% and 43% in the first nine months of Fiscal
1998. Trade sales were down in all regions in the first nine months of Fiscal
1999 compared to a year ago. Trade sales decreased by 17.4%, 25.1% and 11.6% in
North America, Europe and Asia/Pacific, respectively.

Contract manufacturing revenues decreased to $54.5 million, from $122.8
million for the comparable period in Fiscal 1998. Contract manufacturing revenue
includes $15.8 million of billings, recorded in the first nine months of Fiscal
1999, under the fixed cost recovery and guaranteed annual revenue provisions of
Fairchild International's manufacturing agreements with National Semiconductor.
The aforementioned decrease is reflective of greatly reduced demand from
National Semiconductor.

Gross Profit. Gross profit decreased 40.6% to $107.0 million, compared to
$180.2 million in the first nine months of Fiscal 1998. As a percentage of trade
sales, gross trade profit for the first nine months of Fiscal 1999 was 22.6%
compared to 31.2% in the same period of Fiscal 1998. The decrease in the first
nine months of Fiscal 1999 over the comparable period of Fiscal 1998 is due to
lower average selling prices and decreased factory utilization, particularly in
the first half of Fiscal 1999,

43
<PAGE> 47

resulting from soft market conditions. Fairchild International also experienced
inefficiencies, particularly in the second quarter of Fiscal 1999, due to the
start-up of its own shipping and logistics systems (independent of National
Semiconductor's), part of its ongoing enterprise system implementation.

Contract manufacturing gross profit decreased 70.2% in the first nine
months of Fiscal 1999, over the corresponding period in the prior year. As a
percentage of contract manufacturing revenue, gross contract manufacturing
profits were 16.7% in the first nine months of Fiscal 1999 compared to 24.8% in
the comparable period of Fiscal 1998. The decreases in contract manufacturing
gross profits as a percent of contract manufacturing revenues result from
factory under-utilization driven by reduced demand from National Semiconductor.

Research and Development. Research and development expenses were $27.9
million, or 6.4% of trade sales, compared to $24.7 million, or 5.2% of trade
sales, for the comparable period of Fiscal 1998. The increase in year-to-date
R&D expenditures is driven by R&D costs incurred by Analog in Fiscal 1999. Only
two months of R&D for Analog were recorded in the first nine months of Fiscal
1998. R&D efforts are focused on Fairchild International's growth products: CMOS
Logic, DMOS, EEPROM and Analog. In the first nine months of Fiscal 1999, R&D
expenditures were 9.0% of trade sales, for these growth products. R&D
expenditures for Fairchild International's mature products (Bipolar Logic,
Bipolar Discretes and EPROM) were less than 1% of trade sales for the first nine
months of Fiscal 1999.

Selling, General and Administrative. Selling, general and administrative
expenses were $68.5 million, or 15.8% of trade sales, compared to $66.6 million,
or 13.9% of trade sales for the comparable period of Fiscal 1998. The increase
in year-to-date SG&A expenses is primarily the result of the incremental SG&A
expenses of Analog. Only two months of SG&A expenses for Analog were recorded in
the comparable period of Fiscal 1998.

Restructuring. The nine months ended February 28, 1999 included a pre-tax
restructuring charge of approximately $4.5 million in the first quarter of
Fiscal 1999 in connection with management's plan to reduce costs and improve
operating efficiencies. The charge consisted of $0.8 million related to non-cash
asset impairments and $3.7 million of employee separation costs. The nine months
ended February 28, 1999 also included a charge of $2.7 million in the third
quarter of Fiscal 1999 in connection with the transfer of all assembly and test
activities related to its Analog and Mixed Signal product lines from its
Mountain View, California facility to its Penang, Malaysia facility or to
subcontractors. The charge consisted of $1.9 million of non-cash asset
write-offs and $0.8 million of employee separation costs that were substantially
paid during the third quarter of Fiscal 1999.

Interest, Net. Interest, net was $44.7 million in the first nine months of
Fiscal 1999 compared to $41.1 million in the comparable period of Fiscal 1998.
The increase is principally the result of indebtedness incurred to fund the
Raytheon acquisition, which occurred in the third quarter of Fiscal 1998.

Income Taxes. Income tax expense (benefit) was $(4.1) million for the
first nine months of Fiscal 1999, compared to $10.4 million in the first nine
months of Fiscal 1998. The effective tax rate for the first nine months of
Fiscal 1999 was 10% compared to 32% in the comparable period last year. The
reduction in Fairchild International's effective tax rate primarily results from
Fairchild International's year-to-date loss and its inability to carry-back
current year net operating losses due to the short time Fairchild International
has operated as a stand-alone entity.

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YEAR ENDED MAY 31, 1998 COMPARED TO YEAR ENDED MAY 25, 1997

RESULTS OF OPERATIONS. Net income increased 32.9% to $20.6 million in
Fiscal 1998, as compared to $15.5 million in Fiscal 1997. Net income in Fiscal
1998 includes a one-time pre-tax charge for in-process research and development
associated with the acquisition of Raytheon ($15.5 million) and an after-tax
charge for the cumulative effect of a change in accounting principle pertaining
to business process reengineering costs associated with Fairchild
International's enterprise software system implementation ($1.5 million) which
had been previously capitalized. Net income in Fiscal 1997 includes one-time
pre-tax charges related to payment of retention bonuses ($14.1 million) and a
restructuring charge ($5.3 million) related to workforce reductions. In
addition, Fiscal 1998 net income includes a full year of interest expense and
income taxes, while Fiscal 1997 includes these charges only for the period
subsequent to the recapitalization of Fairchild Semiconductor Corporation. Prior
to the recapitalization, the Fairchild Semiconductor Business did not incur
these costs. Excluding one-time charges and amortization of acquisition-related
intangibles of $1.4 million in Fiscal 1998, net of tax effect, net income was
$33.5 million and $34.9 million in Fiscal 1998 and Fiscal 1997, respectively.

Operating income, excluding one-time charges, increased 100.4% to $102.8
million in Fiscal 1998 from $51.3 million in Fiscal 1997. Included in operating
income is $36.3 million and $6.8 million of gross profit on contract
manufacturing services in Fiscal 1998 and 1997, respectively, under
manufacturing agreements with National Semiconductor. Gross profit on contract
manufacturing services in Fiscal 1997 was generated subsequent to the
recapitalization of Fairchild Semiconductor Corporation. Prior to the
recapitalization, contract manufacturing revenues were recorded at cost. In
addition, operating income in Fiscal 1998 increased over Fiscal 1997 due to
higher trade revenues as a result of the acquisition of Raytheon and improved
market conditions, particularly in the first half of the year, higher trade
gross profit due to improved factory utilization, and the favorable effect of
currency devaluations in Southeast Asia on manufacturing costs. Excluding
one-time charges, depreciation and amortization of $84.6 million and $77.1
million in Fiscal 1998 and 1997, respectively, and other expense of $1.4 million
in Fiscal 1997, EBITDA increased 46.0% to $187.4 million in Fiscal 1998 from
$128.4 million in Fiscal 1997.

Fairchild International's results for the fiscal year ended May 31, 1998
consist of 53 weeks of activity, compared to 52 weeks for the fiscal years ended
May 25, 1997 and May 26, 1996.

Revenues. Fairchild International's revenues consist of trade sales to
unaffiliated customers (80.6% and 84.9% of total revenues in Fiscal 1998 and
1997, respectively) and revenues from contract manufacturing services provided
to National Semiconductor (19.4% and 15.1% of total revenues in Fiscal 1998 and
1997, respectively).

Trade sales increased 8.2% to $635.8 million in Fiscal 1998 compared to
$587.8 million in Fiscal 1997. Trade sales for Fiscal 1998 include those of
Raytheon since the acquisition. Excluding Raytheon, trade sales increased 2.7%
in Fiscal 1998 over Fiscal 1997. The increase in trade sales was driven
primarily by increased unit volume, as average selling prices were flat. Average
selling prices increased year over year for the first three quarters in Fiscal
1998, but decreased significantly in the fourth quarter as industry-wide market
conditions softened.

Logic trade sales increased 6.2% in Fiscal 1998 over Fiscal 1997. The
increase was driven by higher unit volume, which offset a decrease in average
selling prices. In Fiscal 1998, CMOS trade sales increased 14.3% over Fiscal
1997, offsetting a decrease of 2.8% in Bipolar trade sales. The increase in CMOS
trade sales was across all product lines, including VHC, LCX, FACT(TM) and
HCMOS. The decrease in Bipolar trade sales is reflective of the general market
trend toward lower power consuming CMOS products.

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<PAGE> 49

Discrete trade sales increased 13.9% in Fiscal 1998 over Fiscal 1997. The
increase was due to higher average selling prices, driven by new product
introductions and a favorable sales mix, and slightly higher unit volume. DMOS
trade sales increased 39.9% in Fiscal 1998 over Fiscal 1997, offsetting a
decrease of 7.6% in Bipolar trade sales. The increase in DMOS trade sales was
due to higher sales volume of new products featuring Fairchild International's
Trench technology, which offset price erosion in some of the more mature DMOS
products. The decrease in Bipolar trade sales was driven by a combination of
lower sales volume and slightly lower average selling prices. Reflective of
Fairchild International's growth strategy, trade sales of DMOS products in
Fiscal 1998 exceeded trade sales in Bipolar products for the first time.

Analog, Mixed Signal and Non-Volatile Memory trade sales increased 5.4% in
Fiscal 1998 over Fiscal 1997. The increase was due entirely to the acquisition
of Raytheon. Excluding Analog and Mixed Signal Products, Non-volatile Memory
trade sales decreased 17.7% in Fiscal 1998 over Fiscal 1997. The decrease was
driven by lower prices impacting all memory product lines due to competitive
pressures, partially offset by higher volume, particularly in EEPROM. EEPROM,
which is Fairchild International's long-term focus in the non-volatile memory
market, had increased trade sales of 4.7% in Fiscal 1998 over Fiscal 1997. In a
declining market, EPROM trade sales decreased 46.2% in Fiscal 1998 over Fiscal
1997, as EPROMs are being rapidly phased out by FLASH memory products in the
marketplace.

Geographically, 38%, 21% and 41% of trade sales were derived in North
America, Europe and Asia/ Pacific, respectively, in Fiscal 1998, compared to
38%, 20% and 42% in Fiscal 1997. Trade sales in all regions grew over Fiscal
1997 levels. Europe increased 12.7%, North America increased 8.8% and
Asia/Pacific increased 5.4%, despite soft economic conditions in the region.
Asia/Pacific trade sales were influenced by strong growth in Southeast Asia,
which offset a year over year decline in Japan.

Contract manufacturing revenues increased 47.2% to $153.4 million in Fiscal
1998 compared to $104.2 million in Fiscal 1997. This increase, when normalized
for higher prices to include a markup for all of Fiscal 1998, reflects greater
demand from National Semiconductor, particularly in the first nine months of
Fiscal 1998. During the fourth quarter, foundry revenues decreased 26.1% from
the third quarter as National Semiconductor sharply cut back its demand in
response to its own publicly-announced restructuring created by soft market
conditions in the industry.

Gross Profit. Gross profit increased 51.2% to $230.5 million in Fiscal
1998, compared to $152.5 million in Fiscal 1997. Included in gross profit in
Fiscal 1998 and 1997 is $36.3 million and $6.8 million, respectively,
attributable to contract manufacturing services provided to National
Semiconductor. Prior to the recapitalization of Fairchild Semiconductor
Corporation in Fiscal 1997, these revenues were recorded at cost. Gross trade
profit excluding contract manufacturing increased 33.3% in Fiscal 1998 over
Fiscal 1997. As a percentage of trade sales, gross trade profits were 30.5% and
24.8% in Fiscal 1998 and 1997, respectively. The increase in gross trade profit
as a percentage of trade sales was due to increased factory utilization due to
improved market conditions and the favorable effect on fixed cost absorption of
increased demand from National Semiconductor in the first nine months of Fiscal
1998, the favorable effects of currency devaluations in Southeast Asia on
Fairchild International's manufacturing costs and the acquisition of Raytheon,
which increased Fairchild International's portfolio of higher-margin products.

Research and Development. R&D expenses were $35.7 million, excluding a
$15.5 million pre-tax charge for purchased in-process R&D expenses associated
with the acquisition of Raytheon, or 5.6% of trade sales in Fiscal 1998,
compared to $18.9 million, or 3.2% of trade sales in Fiscal 1997. The increase
in R&D expenses is driven by higher spending to support new product development,
reflecting Fairchild International's renewed emphasis on R&D efforts as a
stand-alone company following the recapitalization of Fairchild Semiconductor
Corporation. Prior to the recapitalization,

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R&D expenditures of the business primarily consisted of allocations from
National Semiconductor. Reflective of increased R&D efforts, Fairchild
International approximately doubled the number of new products introduced in
Fiscal 1998 from Fiscal 1997. In addition, Fairchild International is spending
higher levels of R&D expenses for its Analog and Mixed Signal products,
reflecting its strategy to focus on and grow this segment of its business. R&D
efforts are focused on Fairchild International's growth products: CMOS Logic,
DMOS, EEPROM and Analog. In Fiscal 1998, R&D expenditures were 8.9% of trade
sales for these growth products, and 0.5% of trade sales for Fairchild
International's mature products (Bipolar Logic, Bipolar Discretes and EPROM).
Comparison of the above to Fiscal 1997 is not meaningful as Fairchild
International was not a stand-alone entity for the entire year.

Selling, General and Administrative. SG&A expenses were $92.0 million, or
14.5% of trade sales, in Fiscal 1998, compared to $96.4 million, or 16.4% of
trade sales, in Fiscal 1997. Excluding one-time retention bonuses of $14.1
million charged in Fiscal 1997, SG&A expenses were $82.3 million, or 14.0% of
trade sales in Fiscal 1997. The increase in SG&A expenses as a percent of trade
sales after elimination of retention bonuses is due to higher selling and
marketing expenses driven by inefficiencies experienced in the first half of
Fiscal 1998 while operating under transition service agreements with National
Semiconductor, and in the second half of Fiscal 1998 due to the integration of
the Raytheon sales force into Fairchild International. The increase in selling
and marketing expenses was partially offset by a decrease in general and
administrative expenses due to lower expenses incurred as a stand-alone entity
in Fiscal 1998 compared to Fiscal 1997, which reflects nine months of direct and
allocated expenses of the Fairchild Semiconductor Business while operated by
National Semiconductor.

Restructuring. Fiscal 1997 included a one-time restructuring charge of
$5.3 million, incurred in the first quarter, for severance and other costs
directly attributable to a workforce reduction.

Interest, Net. Interest, net was $54.5 million and $11.2 million in Fiscal
1998 and 1997, respectively. Fiscal 1998 includes a full year of interest
expense on indebtedness incurred to finance the recapitalization of Fairchild
Semiconductor Corporation, while Fiscal 1997 contains approximately one quarter
of such interest expense. In addition, Fairchild International incurred
additional indebtedness due to the purchase of Raytheon in the third quarter of
Fiscal 1998. Prior to the recapitalization in Fiscal 1997 of Fairchild
Semiconductor Corporation, the Fairchild Semiconductor Business was allocated
net interest expense from National Semiconductor. This amount is included in
other expense.

Other Expenses. Other expense was $1.4 million in Fiscal 1997, consisting
primarily of net interest expense allocated to the Fairchild Semiconductor
Business by National Semiconductor. There were no comparable amounts incurred in
Fiscal 1998.

In the third quarter of Fiscal 1998, Fairchild International took a pre-tax
charge of $15.5 million for purchased in-process research and development in
conjunction with the acquisition of Raytheon and an after-tax charge of $1.5
million for the cumulative effect of an accounting charge pertaining to
treatment of business process reengineering costs associated with Fairchild
International's enterprise software system implementation. The enterprise
software system implementation costs, relating to activities to assess the
system's capabilities in light of Fairchild International's current business
processes, were previously capitalized as part of the cost of the software.
Emerging Issues Task Force Issue 97-13, dated November 20, 1997, requires
companies to expense such costs as incurred.

Income Taxes. Income taxes were $10.7 million and $3.8 million in Fiscal
1998 and 1997, respectively. In Fiscal 1998, income taxes were recorded at an
effective tax rate of 32.6%. In Fiscal 1997, income taxes were recorded only for
the period subsequent to the recapitalization of Fairchild Semiconductor
Corporation, at an effective rate of 39.1%. The lower tax rate in Fiscal 1998 is
due to

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<PAGE> 51

a higher proportion of taxable income in lower tax countries as compared to
Fiscal 1997. Prior to the recapitalization of Fairchild Semiconductor
Corporation, the Fairchild Semiconductor Business did not record a tax provision
or pay income taxes as it operated as a division of National Semiconductor.

YEAR ENDED MAY 25, 1997 COMPARED TO YEAR ENDED MAY 26, 1996

RESULTS OF OPERATIONS. Net income decreased 78.6% to $15.5 million in
Fiscal 1997 from $72.3 million in Fiscal 1996. Fiscal 1997 includes interest
expense and income taxes of $11.2 million and $3.8 million, respectively,
incurred subsequent to the recapitalization of Fairchild Semiconductor
Corporation. No such amounts were incurred in Fiscal 1996. Operating income was
$31.9 million in Fiscal 1997, a 55.8% decrease from the prior year. This
decrease was attributable to a combination of lower trade sales driven by
industry-wide adverse market conditions that impacted much of Fiscal 1997, lower
gross profits as a result of factory underutilization caused by an inventory
reduction initiative in Fiscal 1997, one-time retention bonuses of $14.1 million
and a one-time restructuring charge of $5.3 million in Fiscal 1997 related to
Fairchild International's workforce reductions in the first quarter of Fiscal
1997, partially offset by gross profit on contract manufacturing services in
Fiscal 1997 subsequent to the recapitalization of Fairchild Semiconductor
Corporation. Prior to the recapitalization, these revenues were recorded at
cost. Excluding interest expense and one-time charges in Fiscal 1997 and other
(income) expense of $1.4 million and $(0.2) million in Fiscal 1997 and 1996,
respectively, EBITDA was $128.4 million in Fiscal 1997, compared to $136.3
million in Fiscal 1996.

Revenues. Fairchild International's revenues consist of trade sales to
unaffiliated customers (84.9% and 88.7% of total revenues in Fiscal 1997 and
1996, respectively) and revenues from contract manufacturing services provided
to National Semiconductor (15.1% and 11.3% of total revenues in Fiscal 1997 and
1996, respectively).

Trade sales decreased 14.7% to $587.8 million in Fiscal 1997 from $688.7
million in Fiscal 1996. The decrease in trade sales impacted all product groups
and was due primarily to industry-wide adverse market conditions which impacted
order rates starting in the second half of Fiscal 1996 and continued through the
first half of Fiscal 1997, after which order rates recovered moderately. Trade
sales were down 23.7% in the first half of Fiscal 1997 over the first half of
Fiscal 1996, but were down only 3.7% in the second half of Fiscal 1997 over the
second half of Fiscal 1996, reflecting improvement in orders as market
conditions improved.

Logic trade sales decreased 16.0% in Fiscal 1997 over Fiscal 1996. The
decline in Logic trade sales was almost entirely unit price driven, as volumes
were flat year over year. The majority of Logic's trade sales decline was in the
mature Bipolar products, which declined 22.1% in Fiscal 1997 over Fiscal 1996.
CMOS trade sales declined 9.5% in Fiscal 1997 over Fiscal 1996. Reflective of
Fairchild International's growth strategy, CMOS trade sales in Fiscal 1997
exceeded Bipolar trade sales for the first time.

Discrete trade sales decreased 6.0% in Fiscal 1997 over Fiscal 1996. The
decline in Discrete trade sales was due to lower volume in Bipolar products,
whose trade sales decreased 27.7% in Fiscal 1997 over Fiscal 1996, offset by
strong growth in higher-priced DMOS products, the focus of the Discrete Products
Group's growth strategy, whose trade sales increased 54.2% in Fiscal 1997 over
Fiscal 1996.

Non-Volatile Memory trade sales decreased 20.8% in Fiscal 1997 over Fiscal
1996. The decline in Non-Volatile Memory trade sales was driven by a significant
decline in EPROM sales volume, whose trade sales decreased 40.8% year over year,
offset by continued growth in EEPROM trade sales, which increased 6.2% in Fiscal
1997 over Fiscal 1996. Additionally, EEPROM trade sales exceeded EPROM trade
sales in Fiscal 1997 for the first time.

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Geographically, 38%, 20% and 42% of trade sales were derived in North
America, Europe and Asia/Pacific, respectively, in Fiscal 1997, as compared to
38%, 23% and 39% in Fiscal 1996. All regions experienced declines in trade sales
in Fiscal 1997 as compared to Fiscal 1996. Trade sales in North America declined
14%, Europe 27% and Asia/Pacific 7%. Overall, exchange rates had a minimal
effect on trade sales as the majority of Fairchild International's sales are
U.S. Dollar-denominated.

Contract manufacturing revenues increased 19.0% to $104.2 million in Fiscal
1997 from $87.6 million in Fiscal 1996. This increase, when normalized for
higher prices to include a markup in Fiscal 1997 subsequent to the
recapitalization of Fairchild Semiconductor Corporation, was due to greater
demand in Fiscal 1997 from National Semiconductor, particularly for products
manufactured in Fairchild International's 6-inch wafer fabrication plant in
South Portland, Maine.

Gross Profit. Gross profit decreased 29.7% to $152.5 million in Fiscal
1997 from $216.8 million in Fiscal 1996. Included in the Fiscal 1997 amount is
$6.8 million of gross profit attributable to contract manufacturing services
provided to National Semiconductor subsequent to the recapitalization of
Fairchild Semiconductor Corporation. Prior to the recapitalization, these
revenues were recorded at cost. Under the manufacturing agreements with National
Semiconductor, prices for contract manufacturing services were designed to
generate a 20% gross profit for Fairchild International. For the period
subsequent to the recapitalization of Fairchild Semiconductor Corporation,
Fairchild International was achieving this level of gross profit with respect to
contract manufacturing revenues. As a percentage of trade sales, gross trade
profits were 24.8% and 31.5% in Fiscal 1997 and 1996, respectively. The decline
in gross trade profit as a percentage of trade sales was due to lower prices,
particularly in Logic, and lower factory utilization, particularly in the first
half of Fiscal 1997, due to adverse market conditions and an inventory reduction
initiative. Fairchild International reduced inventories by $20.0 million, or
21.5%, in Fiscal 1997 over Fiscal 1996. In response to declining gross profit,
we enacted cost reduction programs, which included headcount reductions, in the
first quarter of Fiscal 1997. Gross trade profit as a percent of trade sales was
23.2% in the first half of Fiscal 1997, reflecting slow order rates and low
factory utilization. Gross trade profit as a percent of trade sales increased to
26.3% in the second half of Fiscal 1997, reflecting increased order rates,
improved factory utilization and the beneficial effects of the cost reduction
programs enacted in the first half of Fiscal 1997.

Research and Development. R&D expenses were $18.9 million, or 3.2% of
trade sales in Fiscal 1997, compared to $30.3 million, or 4.4% of trade sales,
in Fiscal 1996. The decrease in R&D expenses relates primarily to reduced
allocations from National Semiconductor in Fiscal 1997 prior to the
recapitalization of Fairchild Semiconductor Corporation as a result of the
refocus of its strategic direction away from Fairchild International's markets,
as well as the elimination of allocations from National Semiconductor subsequent
to the recapitalization.

Selling, General and Administrative. SG&A expenses were $96.4 million, or
16.4% of trade sales, in Fiscal 1997, compared to $114.4 million, or 16.6% of
trade sales, in Fiscal 1996. The decrease in SG&A expenses is attributable to
reduced allocations from National Semiconductor in Fiscal 1997 prior to the
recapitalization of Fairchild Semiconductor Corporation, reflecting the reduced
consumption of corporate services, and the favorable effect of lower charges
under the Transition Services Agreement with National Semiconductor subsequent
to the recapitalization as compared to the allocations for those same services
for the comparable period in Fiscal 1996, offset by one-time retention and
incentive bonuses ($14.1 million) paid in Fiscal 1997 concurrently with the
recapitalization.

Restructuring. Fiscal 1997 included a restructuring charge of $5.3 million
for severance and other costs directly attributable to a workforce reduction
undertaken in the first quarter of Fiscal 1997.

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<PAGE> 53

Interest, Net. Interest, net was $11.2 million in Fiscal 1997, as a result
of indebtedness incurred concurrently with the recapitalization of Fairchild
Semiconductor Corporation. In Fiscal 1997 prior to the recapitalization, and in
Fiscal 1996, Fairchild International was allocated net interest income from
National Semiconductor. This amount is included in other (income) expense.

Other (Income) Expense. Other expense was $1.4 million in Fiscal 1997,
compared to other income of $0.2 million in Fiscal 1996. The increase in other
expense was primarily due to higher net interest expense allocated from National
Semiconductor in Fiscal 1997.

Income Taxes. Income taxes were $3.8 million in Fiscal 1997. The provision
for income taxes was recorded only for the period subsequent to the
recapitalization of Fairchild Semiconductor Corporation. Prior to the
recapitalization, Fairchild International did not pay income taxes or file
income tax returns as it operated as a division of National Semiconductor. The
effective tax rate on income generated subsequent to the recapitalization is
39.1%.

ACQUISITION OF RAYTHEON

In connection with the acquisition of Raytheon, Fairchild International
allocated $15.5 million of the purchase price to in-process research and
development projects. This allocation represents the estimated fair value based
on risk-adjusted cash flows related to the incomplete products. At the date of
acquisition, the development of these projects had not yet reached technological
feasibility and the R&D in progress had no alternative future uses. Accordingly,
these costs were expensed as of the acquisition date.

Fairchild International used independent third-party appraisers to assess
and allocate values to the in-process research and development. The values
assigned to each purchased R&D project were determined by the income approach,
which includes an analysis of the markets, cash flows, and risks associated with
achieving such cash flows. Significant assumptions that had to be made using
this approach included projected revenues, operating margins and determining an
appropriate discount rate. The forecast for the in-process project related
products relied on sales estimates that were based on targeted market share,
pricing estimates and expected product life cycles. The discount rate utilized
for the acquired in-process technologies was estimated at 22.5% in consideration
of Fairchild International's 15% weighted average cost of capital. The discount
rate utilized for the in-process technology was determined to be higher than
Fairchild International's weighted average cost of capital due to the fact that
the technology had not yet reached technological feasibility as of the date of
valuation. The nature of the efforts necessary to complete the purchased R&D
projects relate to completing beta testing. Fairchild International estimates
that approximately $2.5 million of additional research and development will be
required to complete this product development through early 1999.

As of February 28, 1999, a subsequent review of the assumptions used in the
valuation of the Raytheon in-process R&D indicates that for most of the projects
identified, the actual revenues and profits realized from these projects were
materially less than originally estimated. These shortfalls were primarily a
result of overall weak market conditions during calendar 1998 which were driven
by the unfavorable Asian economic conditions, declines in demand in the PC
market, and overall competitive pricing pressures. The impact to Fairchild
International of these weaker results will not have a material adverse effect on
the overall results of Fairchild International, or its financial position.

LIQUIDITY AND CAPITAL RESOURCES

Fairchild International has a borrowing capacity of $100.0 million for
working capital and general corporate purposes under the revolving credit
facility. Fairchild International did not draw upon the revolving credit
facility in connection with the acquisition of the power device business.

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The senior credit facilities, the 10 1/8% Senior Subordinated Notes and the
10 3/8% Senior Subordinated Notes do, and other debt instruments Fairchild
International may enter into in the future may, impose various restrictions and
covenants on Fairchild International which could potentially limit Fairchild
International's ability to respond to market conditions, to provide for
unanticipated capital investments or to take advantage of business
opportunities. The restrictive covenants include limitations on consolidations,
mergers and acquisitions, restrictions on creating liens, restrictions on paying
dividends or making other similar restricted payments, restrictions on asset
sales, limitations on borrowing money, and limitations on capital expenditures,
among other restrictions. The covenants relating to financial ratios include
minimum fixed charge and interest coverage ratios and a maximum leverage ratio.
The senior credit facilities also limit our ability to modify our certificate of
incorporation, bylaws, shareholder agreements, voting trusts or similar
arrangements. In addition, the senior credit facilities, the 10 1/8% Senior
Subordinated Notes and the 10 3/8% Senior Subordinated Notes contain additional
restrictions limiting the ability of our subsidiaries to make dividends or
advances to our company. However, our subsidiaries are permitted without
material restrictions under our debt instruments to make dividends or advances
to Fairchild Semiconductor Corporation. We believe that those funds permitted to
be transferred to us, together with existing cash, will be sufficient to meet
our cash obligations. Fairchild International expects that its existing cash,
together with available funds from its amended senior credit facilities and
funds generated from operations, will be sufficient to meet its anticipated
operating requirements and to fund its research and development and capital
expenditures for the next twelve months. In the long-term, additional borrowing
or equity investment may be required to fund future acquisitions.

As of February 28, 1999, Fairchild International's cash and cash
equivalents balance was $5.4 million, a decrease of $1.1 million from May 31,
1998. On a pro forma basis, after giving effect to the acquisition of the power
device business, the financings in connection with the acquisition and the
application of the proceeds of such financings, Fairchild International's cash
and cash equivalents as of February 28, 1999 was $64.6 million.

During the nine months ended February 28, 1999, Fairchild International's
operations generated $20.0 million in cash compared to $108.7 million generated
in the first nine months of Fiscal 1998. The decrease in cash provided by
operating activities reflects a decrease in net income adjusted for noncash
items of $64.9 million as well as a decrease in cash flows from changes in
operating assets and liabilities of $23.8 million. Cash used in investing
activities during the first nine months of Fiscal 1999 totaled $33.4 million
compared to $170.3 million in the first nine months of Fiscal 1998. Capital
expenditures in the first nine months of Fiscal 1999 and Fiscal 1998,
respectively, were being made principally to purchase and install Fairchild
International's enterprise-wide information system and to increase capacity in
Fairchild International's assembly and test facilities. Cash provided by
financing activities of $12.3 million for the first nine months of Fiscal 1999
was the result of net proceeds from Fairchild International's revolving credit
facility of $21.6 million and repayments of long-term debt of $9.3 million. Cash
provided by financing activities of $33.3 million for the first nine months of
Fiscal 1998 was primarily the result of borrowings used to fund the acquisition
offset by repayments of long-term debt.

The cash flows of Fairchild International are equal to that of Fairchild
Semiconductor Corporation. Fairchild International has no cash requirements for
the next twelve months, other than to convert its 12% Series A Cumulative
Compounding Preferred Stock in connection with the offering, which had a
carrying amount of $87.7 million as of February 28, 1999.

During Fiscal 1998, Fairchild International generated sufficient cash from
operations to fund its research and development, capital expenditure and debt
service requirements. Fairchild International also used approximately $75.0
million of its existing cash to fund in part the acquisition of Raytheon.
Concurrent with the acquisition of Raytheon, Fairchild International borrowed
$90.0 million under a

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tranche C term loan under its then existing senior credit facilities, the
proceeds from which were used in part to repay the remaining principal on its
tranche B term loan under its then existing senior credit facilities. Research
and development expenditures are made primarily to fund new product development.
Capital expenditures in Fiscal 1998, and those anticipated for the remainder of
Fiscal 1999, are being made primarily to increase assembly and test capacity in
Fairchild International's manufacturing facilities and to purchase and install
an enterprise-wide information system. Capital expenditures for Fiscal 1999 are
expected to be approximately $50.0 million.

Fairchild International utilizes financial instruments to hedge its overall
exposure to the effects of foreign currency and interest rate fluctuations.
Fairchild International may utilize short-term forward and option contracts to
hedge currency exposure when deemed necessary for expenses denominated in
Malaysian ringgit and Philippine peso, as well as revenues denominated in
Japanese yen and the major European currencies. Deferred gains and losses from
hedging transactions were immaterial to Fairchild International's operating
results in all periods presented. Fairchild International does not speculate in
these financial instruments.

On January 1, 1999, 11 of the 15 countries which are members of the
European Monetary Union introduced a new currency called the "Euro." The
conversion rates between the Euro and the participating nations' currencies were
irrevocably fixed on January 1, 1999. Until January 1, 2002, either the Euro or
a participating country's present currency (a "national currency") will be
accepted as legal currency. Fairchild International has incorporated the
necessary changes to its information systems to allow it to conduct business in
Euros, the cost of which was not material. While it is not possible to predict
the impact the Euro will have on Fairchild International's business or on the
economy in general with certainty, we currently do not anticipate that the Euro
conversion will have a material adverse impact on Fairchild International's
results of operations or financial condition.

NATIONAL SEMICONDUCTOR RELATIONSHIP

Fairchild International and National Semiconductor have arrangements
relating to services and sale of Fairchild International's products as follows:
First, National Semiconductor has agreed to purchase products and services from
Fairchild International until June 11, 2000 under a foundry services agreement.
In Fiscal 1998, such sale of products and services to National Semiconductor
accounted for approximately 19% of Fairchild International's revenues. Second,
National Semiconductor has agreed to provide some of our administrative services
to Fairchild International under a transition services agreement. Third,
National Semiconductor has agreed to indemnify Fairchild International against
losses relating to infringement of intellectual property rights of third parties
under a technology licensing and transfer agreement.

In the fourth quarter of Fiscal 1998, National Semiconductor informed
Fairchild International that its demand would be significantly lower in Fiscal
1999 than in Fiscal 1998. This has resulted in significantly lower contract
manufacturing revenues in the first half of Fiscal 1999 as compared to the first
half of Fiscal 1998 and will result in substantially lower contract
manufacturing revenues throughout Fiscal 1999 as compared to Fiscal 1998. Such
reduced demand has and will continue to negatively impact factory utilization,
particularly in the 6-inch wafer fabrication plant in South Portland, Maine.
National Semiconductor, under the terms of the Asset Purchase Agreement with
Fairchild International, is obligated to purchase an aggregate of $330.0 million
of contract manufacturing services during the 39-month period which began March
11, 1997, including a minimum of $90.0 million and $80.0 million of contract
manufacturing services in Fiscal 1999 and Fiscal 2000, respectively. In
addition, National Semiconductor is obligated to cover a contractually
agreed-upon amount of fixed costs in Fairchild International's 6-inch wafer
fabrication plant in South Portland, Maine in Fiscal 1999. For the six-months
ended November 29, 1998, Fairchild International has billed National
Semiconductor $11.6 million for committed fixed cost absorption under the Asset

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<PAGE> 56

Purchase Agreement. Despite recent indications that demand from National
Semiconductor will increase in the second half of Fiscal 1999, Fairchild
International does not believe National Semiconductor will meet its revenue
commitment in Fiscal 1999. In this event, the Asset Purchase Agreement requires
National Semiconductor to reimburse Fairchild International for unabsorbed fixed
costs and lost profit on the revenue shortfall. National Semiconductor has
reaffirmed its commitment to remain in compliance with the terms of the Asset
Purchase Agreement.

YEAR 2000 COMPLIANCE

In the fourth quarter of Fiscal 1997, Fairchild International commenced its
enterprise software system implementation project for the purpose of separating
from National Semiconductor's business systems. The system, which became
operational for several of Fairchild International's critical business processes
in the first half of Fiscal 1999, is year 2000 compliant. Additional modules of
the system are scheduled to be implemented through Fiscal 2000. For those legacy
systems that will not be connected by December 31, 1999, year end remediation
projects are underway, and are expected to be completed by September 30, 1999.
Fairchild International's business is dependent upon its information systems as
an integral part of all major business processes. Additionally, internal
resources have been redeployed to identify, test and correct year 2000 problems
in other systems throughout Fairchild International, including those systems
embedded in Fairchild International's machinery and equipment. Identification of
systems and equipment that are not year 2000 compliant has been completed.
Fairchild International is also reviewing the year 2000 readiness and compliance
of its principal suppliers of products and services, in order to identify and
assess any negative impacts that such non-compliances could have on Fairchild
International. In addition, Fairchild International is working with its
customers to identify potential year 2000 issues with its products. The Company
has completed its assessments. Fairchild International does not believe there
are any year 2000 problems with its products. No year 2000 issues were noted
with its key suppliers which in Fairchild International's opinion would cause a
major disruption to its operations. During the first nine months of Fiscal 1999,
incremental amounts incurred and charged to expense to identify, test and
correct such other year 2000 problems were immaterial to the financial
statements. Future incremental expenditures are currently estimated to be
approximately $1.0 million, the majority of which should be incurred before the
end of the second quarter of Fiscal 2000. Although we believe Fairchild
International's systems will be year 2000 compliant, the failure of Fairchild
International's suppliers and customers to address the year 2000 issue could
result in disruption to Fairchild International's operations and have a
significant adverse impact on its results of operations, the extent of which
Fairchild International has not yet estimated. Fairchild International is
actively engaged in preparing contingency plans in the event that key suppliers
fail to become year 2000 compliant. For example, for key materials which are
imported from outside the U.S., arrangements are being made to insure at least
four weeks of available supply. Fairchild International, in the ordinary course
of business, seeks to expand its customer base to lessen dependence on any one
customer for a significant portion of its revenues, and seeks second sources of
supply for its key products and services where appropriate.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

During and subsequent to Fiscal 1998, the Financial Accounting Standards
Board issued several new statements. SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, establishes standards for reporting
information about operating segments in annual and interim financial statements.
This statement also establishes standards for related disclosures about products
and services, geographic areas and major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997, but is not required in
interim periods in the first year of adoption. SFAS No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits,

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<PAGE> 57

amends provisions of SFAS Nos. 87, 88 and 106. It revises employers' disclosures
about pension and other postretirement benefit plans. This statement is
effective for fiscal years beginning after December 15, 1997. SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, establishes
accounting and reporting standards for derivatives and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.

The AICPA issued two new Statements of Position ("SOP") in Fiscal 1998. SOP
98-1, Accounting for Costs of Computer Software Developed or Obtained for
Internal Use, requires that companies capitalize certain internal-use software
costs upon meeting of certain criteria. This SOP is effective for fiscal years
beginning after December 15, 1998. SOP 98-5, Reporting on the Costs of Start-up
Activities, requires companies to expense start-up costs and organization costs
as they are incurred. This SOP is effective for fiscal years beginning after
December 15, 1998.

Fairchild International intends to adopt SFAS No. 131 and SFAS No. 132
effective for its consolidated financial statements for the fiscal year ending
May 30, 1999 and will retroactively adopt the provisions of SFAS No. 131 for the
year ended May 31, 1998. Fairchild International intends to adopt SOP 98-1 and
SOP 98-5 in Fiscal 2000 and SFAS No. 133 in Fiscal 2001. Adoption of SFAS No.
131 will only result in added disclosure and adoption of SOP 98-1 and SOP 98-5
is not expected to have a material effect on the consolidated financial
statements. Adoption of SFAS No. 132 is not expected to have any impact on the
Company's disclosures. Fairchild International is presently analyzing SFAS No.
133, and has not yet determined its impact on Fairchild International's
consolidated financial statements.

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SELECTED HISTORICAL FINANCIAL DATA OF THE POWER DEVICE BUSINESS

The following table sets forth selected historical financial data of the
power device business. The historical financial data as of and for the years
ended December 31, 1996, 1997 and 1998 are derived directly from the audited
financial statements of the power device business included elsewhere in this
prospectus. The financial statements for the three years ended December 31, 1998
have been translated from South Korean Won into U.S. Dollars based on the
provisions of Statement of Financial Accounting Standards (SFAS) No. 52, Foreign
Currency Translation, and are presented in accordance with U.S. GAAP. For
historical financial information, assets and liabilities have been translated at
the exchange rate on the balance sheet date, and income statement amounts have
been translated using the weighted average of the exchange rates in effect
during the period. The income statement of the power device business has been
translated from Won into U.S. Dollars at the weighted average exchange rates of
805 Won, 951 Won and 1,399 Won to one U.S. Dollar for 1996, 1997 and 1998,
respectively. On June 29, 1999, the noon buying rate as reported by the Federal
Reserve Board of New York was 1,157.5 Won to one U.S. Dollar. This information
should be read in conjunction with the financial statements of the power device
business included elsewhere in this prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Power Device
Business."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $471.8 $478.1 $386.5

Gross profit................................................ $ 56.5 $131.0 $137.3
Research and development.................................... 18.6 19.2 15.2
Selling, general and administrative......................... 29.0 34.3 33.8
Litigation settlement expense............................... -- -- 58.0
------ ------ ------
Operating income............................................ $ 8.9 $ 77.5 $ 30.3
====== ====== ======
OTHER FINANCIAL DATA:
Revenue:
Discrete.................................................. $300.7 $286.4 $224.6
Analog.................................................... 117.4 154.3 145.3
Contract manufacturing services........................... 53.7 37.4 16.6
------ ------ ------
Total revenue............................................... $471.8 $478.1 $386.5
====== ====== ======
Depreciation and amortization............................... $ 49.0 $ 38.8 $ 22.3
Capital expenditures........................................ 118.1 10.9 8.6

HISTORICAL BALANCE SHEET DATA (END OF PERIOD):
Inventories................................................. $ 79.2 $ 50.5 $ 44.0
Total assets................................................ 340.1 188.6 170.3
Business equity............................................. 51.9 37.3 0.3
Cumulative translation adjustments.......................... (4.1) (18.6) (12.1)
</TABLE>

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE POWER DEVICE BUSINESS

The following discussion should be read in conjunction with the financial
statements and notes thereto of the power device business included elsewhere in
this prospectus.

OVERVIEW

The power device business designs, manufactures and markets power discrete
semiconductors and standard analog integrated circuits serving the personal
computer, industrial, telecommunications and consumer electronics markets. On
April 13, 1999, Samsung Electronics sold the power device business to Fairchild
International for approximately $406.8 million in cash, net of purchase price
adjustments. The power device business is headquartered in Bucheon, South Korea.
For all periods presented, the power device business has been operated as part
of the System LSI Division of Samsung Electronics. The operating results of the
power device business are not necessarily indicative of the results that would
have been obtained on a stand-alone basis. See Notes to Unaudited Pro Forma
Combined Condensed Financial Statements and Unaudited Supplemental Data.

The functional currency of the power device business is the Won. The
financial statements for the three years ended December 31, 1998, have been
translated into U.S. Dollars based on the provisions of SFAS No. 52, and are
presented in accordance with U.S. GAAP. The income statement of the power device
business has been translated into U.S. Dollars at the weighted average rates of
805 Won, 951 Won, and 1,399 Won to one U.S. Dollar for 1996, 1997 and 1998,
respectively.

The following table summarizes the composition of the revenues of the power
device business as a percentage of total revenues:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Trade sales to unaffiliated customers....................... 38.1% 40.9% 48.0%
Trade sales to Samsung Electronics and affiliated Samsung
companies................................................. 19.9 19.7 25.3
Trade sales to Foreign Sales Subsidiaries of Samsung
Electronics............................................... 30.6 31.6 22.4
----- ----- -----
Total product sales......................................... 88.6 92.2 95.7
Contract manufacturing revenues -- Samsung Electronics...... 11.4 7.8 4.3
----- ----- -----
Total.................................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>

As part of the acquisition of the power device business, Fairchild
International negotiated a Product Supply Agreement with Samsung Electronics,
which provides for guaranteed annual minimum levels of product purchases at
historical volumes and at current market-adjusted prices for three years. In
addition, the Product Supply Agreement stipulates that Samsung Electronics will
undertake its best efforts to assure that Fairchild International is established
as a preferred vendor of affiliated Samsung companies to the extent permissible
under applicable laws and regulations. The foreign sales subsidiaries of Samsung
Electronics re-sell products of the power device business to third party
customers in Asia, North America, Europe and Japan. As part of the acquisition
of the power device business, Fairchild International negotiated continued sales
support by the foreign sales subsidiaries of Samsung Electronics under a
Transitional Services Agreement for a period of three years. The power device
business provides wafer fabrication services to Samsung Electronics.
Historically, contract manufacturing revenues have been recorded at cost. As
part of the acquisition of the power device business, Fairchild International
negotiated a Foundry Sale Agreement with

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Samsung Electronics which is designed to generate Won-denominated profits
equivalent to $44.8 million over the next three years (assuming an exchange rate
of 1,200 Won to one U.S. Dollar).

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

RESULTS OF OPERATIONS. Net income was $15.7 million for 1998, compared to
$42.9 million for 1997. Net income for 1998 includes a one-time charge for a
settlement of a patent infringement lawsuit of $58.0 million which did not occur
in 1997. Excluding this one-time charge which will remain with Samsung
Electronics, net income was $73.7 million, an increase of 71.8% from 1997.
Operating income, excluding the one-time charge, was $88.3 million in 1998,
compared to $77.5 million in 1997, an increase of 13.9%. The increase in
operating income is due primarily to increased gross profit as a result of the
devaluation of the Won, lower depreciation and a full year's benefit of the
impact of cost reduction actions in 1998, which were undertaken during 1997.
Excluding the one-time charge, foreign currency gains and losses and
depreciation and amortization of $22.3 million and $38.8 million in 1998 and
1997, respectively, EBITDA was $110.6 million in 1998 as compared to $116.3
million in 1997. EBITDA is presented because we believe that it is a widely
accepted indicator of an entity's ability to incur and service debt. EBITDA
should not be considered as an alternative to net income, operating income, or
other consolidated operations and cash flow data prepared in accordance with
generally accepted accounting principles, as an indicator of the operating
performance of the Power Device Business, or as an alternative to cash flows as
a measure of liquidity.

Revenues. The revenues of the power device business are comprised of
product sales to third parties, Samsung Electronics and affiliated Samsung
companies and foreign sales subsidiaries of Samsung Electronics (95.7% and 92.2%
of total revenues in 1998 and 1997, respectively) and revenues from contract
manufacturing services provided to Samsung Electronics (4.3% and 7.8% of total
revenues in 1998 and 1997, respectively). Product sales decreased 16.1% to
$369.9 million in 1998 from $440.7 million in 1997, driven by soft market
conditions in the semiconductor industry and the devaluation of the Won. The
decrease in product sales was driven by falling average selling prices, offset
by an increase in unit sales volume of 3.0% year over year. The decrease in
average selling prices is the result of price competition driven by excess
capacity in the semiconductor industry.

Sales of discrete products, representing 60.7% and 65.0% of 1998 and 1997
product sales, respectively, decreased 21.6% in 1998 from 1997. The decrease was
due entirely to lower average selling prices, which declined approximately 24%
in 1998 due in part to the devaluation of the Won, offset by slightly higher
volumes. Sales of analog products, representing 39.3% and 35.0% of 1998 and 1997
product sales, respectively, decreased 5.8% in 1998 from 1997. The decrease was
entirely due to lower average selling prices, which declined approximately 11%
in 1998 due in part to the devaluation of the Won, offset by higher volumes.

Geographically, 87.5%, 6.6% and 5.9% of product sales were derived in Asia,
North America and Europe in 1998, respectively, compared to 85.9%, 8.1% and 6.0%
in 1997. Product sales fell in all regions in 1998 from 1997. Product sales
decreased 14.5%, 31.8% and 17.4% in Asia, North America and Europe,
respectively, in 1998 as compared to 1997. The power device business' product
sales are primarily denominated in U.S. Dollars.

Contract manufacturing revenues decreased 55.6% to $16.6 million in 1998
from $37.4 million in 1997. Contract manufacturing revenues are recorded at
cost. The decrease in 1998 from 1997 was driven by lower demand from Samsung
Electronics.

Gross Profit. Despite lower revenues, gross profit increased 4.8% to
$137.3 million in 1998 from $131.0 million in 1997. As a percentage of product
sales, gross profits were 37.1% in 1998, compared to 29.7% in 1997. The increase
in gross profit as a percentage of product sales was driven by the

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<PAGE> 61

devaluation of the Won against the U.S. Dollar, as the power device business'
manufacturing cost structure is primarily Won-based, while revenues are
predominately U.S. Dollar-denominated. The Won devalued 47.1% against the U.S.
Dollar in 1998. As a result of the acquisition of the power device business,
Fairchild International is seeking to minimize its exposure to fluctuations in
the Won to U.S. Dollar exchange rate. Actions to reduce such exposure include
increasing revenues denominated in Won and decreasing costs denominated in Won
per the terms of agreements with Samsung Electronics. Other actions include
negotiating U.S. Dollar prices and payment terms with subcontractors and hedging
activities. In addition, gross profit as a percentage of product sales was
enhanced by a full-year's benefit of cost reduction actions, including
efficiencies realized from the transfer of wafer fabrication processes relating
to epitaxial fabrication, which is an intermediate step in wafer fabrication,
and assembly and test activities to other Samsung Electronics' facilities, which
was completed during 1997, offset by the negative effect of falling average
selling prices and reduced factory utilization in the second half of 1998 as the
power device business slowed production in an effort to reduce inventories.

Research and Development. R&D expenses decreased 20.8% to $15.2 million or
4.1% of product sales in 1998, compared to $19.2 million or 4.4% of product
sales in 1997. The decrease in R&D expenses is due primarily to the devaluation
of the Won against the U.S. Dollar, as R&D expenses are primarily denominated in
Won. In Won, R&D expenses increased approximately 16% in 1998 from 1997 due to
increased headcount and expenses related to the operation of a pilot assembly
line for package development in 1998 which the power device business did not
incur in 1997.

Selling, General and Administrative. SG&A expenses decreased 1.5% to $33.8
million or 9.1% of product sales in 1998, from $34.3 million or 7.8% of product
sales in 1997. The decrease in SG&A expenses is due to the devaluation of the
Won, offset by higher Won-based allocations.

Litigation Settlement. The power device business incurred litigation
settlement costs, payable by Samsung Electronics, of $58.0 million in 1998
resulting from the settlement of a patent infringement lawsuit. No such amounts
were incurred in 1997.

Interest Expense, Net. Interest expense, net was $4.2 million and $10.1
million in 1998 and 1997, respectively. Interest is recorded on the allocated
portion of corporate borrowings by Samsung Electronics and on the amortization
of capital lease obligations on assets held by the power device business. The
reduction in interest in 1998 from 1997 is due primarily to lower corporate
borrowings allocated to the power device business in 1998. Both the allocated
corporate borrowings and the capital lease obligations were retained by Samsung
Electronics as part of the acquisition of the power device business.

Foreign Currency Losses, Net. The power device business experienced
foreign currency losses of $0.9 million in 1998, compared to $5.9 million in
1997. The decreased loss in 1998 is due to moderating foreign exchange losses in
1998 over 1997. In late 1997, the power device business suffered large foreign
exchange transaction losses on accounts payable denominated in U.S. Dollars,
resulting from the sudden devaluation of the Won. Accounts receivable
denominated in U.S. Dollars are not similarly exposed due to one to two day
settlements under letter of credit arrangements. Such transaction losses
moderated during 1998 as the Won strengthened against the U.S. Dollar during the
year.

Income Taxes. Income tax expense was $9.5 million and $18.5 million in
1998 and 1997, respectively. The effective tax rate was 37.8% in 1998, compared
to 30.2% in 1997. The increase in the effective rate is due to the translation
of the patent infringement settlement at the 1998 year ending exchange rate for
purposes of calculating Won-based income tax expense, as opposed to the weighted
average exchange rate for translating U.S. Dollar income tax expense, in
accordance with SFAS No. 52.

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<PAGE> 62

The effective tax rates on a Won-denominated basis were 28.8% and 30.2% in
1998 and 1997, respectively.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

RESULTS OF OPERATIONS. Net income was $42.9 million for 1997, compared to
$2.8 million for 1996. Operating income was $77.5 million in 1997, compared to
$8.9 million in 1996. The increase in operating income is due primarily to
increased gross profit as a result of the devaluation of the Won, particularly
in the second half of 1997, lower depreciation and the favorable effect of cost
reduction actions undertaken during 1997. Excluding foreign currency gains and
losses and depreciation and amortization of $38.8 million and $49.0 million in
1997 and 1996, respectively, EBITDA was $116.3 million in 1997, compared to
$57.9 million in 1996.

Revenues. The revenues of the power device business are comprised of
product sales to third parties, Samsung Electronics and affiliated Samsung
companies and foreign sales subsidiaries of Samsung Electronics (92.2% and 88.6%
of total revenues in 1997 and 1996, respectively) and revenues from contract
manufacturing services provided to Samsung Electronics (7.8% and 11.4% of total
revenues in 1997 and 1996, respectively). Product sales increased 5.4% to $440.7
million in 1997 from $418.0 million in 1996. The increase in product sales was
driven by a 7.4% increase in unit shipments, offset by a slight decrease in
average selling prices.

Sales of discrete products, representing 65.0% and 71.9% of 1997 and 1996
product sales, respectively, decreased 4.7% in 1997 from 1996. The decrease was
due to lower average selling prices, which offset a 4% increase in sales
volumes. Sales of analog products, representing 35.0% and 28.1% of 1997 and 1996
product sales, respectively, increased 31.4% in 1997 from 1996. The increase was
due to higher sales volume across all product families and the sales ramp for
the proprietary Samsung Power Switch, offset by slightly lower average selling
prices.

Geographically, 85.9%, 8.1% and 6.0% of product sales were derived in Asia,
North America and Europe in 1997, respectively, compared to 86.4%, 7.7% and 5.9%
in 1996. Product sales increased in all regions in 1997 from 1996. Product sales
increased 4.8%, 11.4% and 6.1% in Asia, North America and Europe, respectively,
in 1997 compared to 1996. The power device business' product sales are
denominated primarily in U.S. Dollars.

Contract manufacturing revenues decreased 30.4% to $37.4 million in 1997
from $53.7 million in 1996. Contract manufacturing revenues are recorded at
cost. The decrease in 1997 from 1996 was driven by lower demand from Samsung
Electronics.

Gross Profit. Gross profit increased 132.2% to $131.0 million in 1997 from
$56.5 million in 1996. As a percentage of product sales, gross profits were
29.7% in 1997, compared to 13.5% in 1996. The increase in gross profit as a
percentage of product sales was driven primarily by the effect of a full-year's
benefit of cost reduction actions, including efficiencies realized from the
transfer of wafer fabrication processes relating to epitaxial fabrication, which
is an intermediate step in wafer fabrication, and assembly and test activities
to other Samsung Electronics' facilities, which was completed during 1997. In
addition, gross profit was negatively impacted by the devaluation of the Won
against the U.S. Dollar, particularly in the second half of 1997, as the power
device business' manufacturing cost structure is primarily Won-based. The Won
devalued 18.1% against the U.S. Dollar in 1997.

Research and Development. R&D expenses increased 3.2% to $19.2 million, or
4.4% of product sales in 1997 compared to $18.6 million or 4.4% of product sales
in 1996. The increase in R&D expenses is primarily due to increased headcount to
support new product and process development activities.

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Selling, General and Administrative. SG&A expenses increased 18.4% to
$34.3 million or 7.8% of product sales in 1997, from $29.0 million or 6.9% of
product sales in 1996. The increase in SG&A expenses is due primarily to
increased allocations from Samsung Electronics.

Interest Expense, Net. Interest expense, net was $10.1 million and $10.4
million in 1997 and 1996, respectively. Interest is recorded on the allocated
portion of corporate borrowings by Samsung Electronics and on the amortization
of capital lease obligations on assets held by the power device business. The
reduction in interest in 1997 from 1996 is due primarily to lower corporate
borrowings allocated to the power device business in 1997. Neither the allocated
corporate borrowings nor the capital lease obligations were assumed by Fairchild
International as part of the acquisition of the power device business.

Foreign Currency Losses, Net. The power device business experienced
foreign currency losses of $5.9 million in 1997, compared to $0.5 million in
1996. The increased loss is due to large foreign exchange losses on accounts
payable denominated in U.S. Dollars in late 1997, resulting from the sudden
devaluation of the Won. Accounts receivable denominated in U.S. Dollars are not
similarly exposed due to one to two day settlements under letter of credit
arrangements. Such a devaluation did not occur in 1996.

Income Taxes. Income tax expense was $18.5 million in 1997, as compared to
an income tax benefit of $4.8 million in 1996. The effective tax rate was 30.2%
in 1997. The effective tax rate for 1996 is not meaningful as the power device
business incurred a net loss before income taxes. Income tax benefits incurred
in 1996 represent an increase in deferred tax assets due to net operating losses
and R&D tax credits that will be utilized to offset future taxable income.

LIQUIDITY AND CAPITAL RESOURCES

The power device business' cash flows from operations are used to fund its
working capital, research and development and capital expenditure requirements,
as well as to support the overall cash requirements of Samsung Electronics. As
of December 31, 1998, the power device business had pro forma stockholder's
equity of $140.4 million.

In 1998, the power device business generated cash from operations of $128.1
million compared to $74.3 million in 1997. The increase is due to higher net
income adjusted for non-cash items and increased cash flows from changes in
operating assets and liabilities, principally trade accounts and notes
receivable. Cash used by investing activities was $5.7 million in 1998, compared
to $0.1 million in 1997. The increase was due to less proceeds received in 1998
for sales of property, plant and equipment, offset by lower capital
expenditures. Cash used in financing activities was $106.8 million in 1998,
compared to $157.1 million in 1997. The decrease was due to lower net corporate
borrowings and lower capital lease payments.

Over the past three years, the power device business has spent
approximately $135.9 million, primarily for a new wafer fabrication line.
Capital expenditures are expected to be approximately $20.0 million in 1999. The
power device business' future cash flows from operations may be used by
Fairchild International's subsidiaries for their working capital and financing
requirements.

YEAR 2000 COMPLIANCE

The power device business is dependent upon the information systems of
Samsung Electronics. Under the terms of an agreement with Samsung SDS Co., Ltd.
entered into in connection with the acquisition of the power device business,
Samsung SDS Co., Ltd. has agreed to provide information technology services to
the power device business and to support the use of its information systems by
the power device business for a three-year period following consummation of the
acquisition of the power device business. See "The Acquisition -- Transitional
Services Agreement." The terms of the

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agreement with Samsung SDS Co., Ltd. require them to insure the systems utilized
by the power device business are year 2000 compliant. Samsung Electronics'
systems have been certified by a Korean government agency to be year 2000
compliant.

The power device business has deployed internal resources to identify, test
and correct year 2000 problems in other systems it employs, including those
embedded in its machinery and equipment. Year 2000 issues in its critical
manufacturing equipment and systems have been remedied. With the assistance of
Samsung Electronics, the power device business reviewed the year 2000 readiness
and compliance of its principal suppliers of products and services, in order to
identify and assess any negative impacts that such non-compliances could have on
the power device business. All key suppliers, including raw material suppliers
and subcontractors, have been assessed, with no major issues identified. In
addition, the power device business is working with its customers to identify
potential year 2000 problems with its products. To date, none have been
identified. For 1998, 1997 and 1996, incremental amounts incurred and charged to
expense to identify, test and correct year 2000 problems were immaterial to the
financial statements. Future amounts expected to be incurred are also believed
to be immaterial. Although the power device business expects its other systems
will be year 2000 compliant, either the failure of Samsung Electronics to make
its systems year 2000 compliant or the failure of its key suppliers and
customers to address the year 2000 issue could result in disruption to the
operations of the power device business and have a significant adverse effect on
its results of operations, the extent of which cannot be estimated. The power
device business is in the process of developing contingency plans in the event
that certain or all of Samsung Electronics' systems fail to become year 2000
compliant, or the operations of key suppliers or customers become disrupted.
Such contingency plans are expected to be completed by October 1999.

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INDUSTRY OVERVIEW

Semiconductors are the critical components used to create an increasing
variety of electronic products and systems. Since the invention of the
transistor in 1948, continuous improvements in semiconductor process and design
technologies have led to smaller, more complex and more reliable devices at a
lower cost per function. As performance has increased and size and cost have
decreased, semiconductors have expanded beyond their original primary
applications in computer systems to applications in telecommunications systems,
automotive products, consumer products and industrial automation and control
systems. In addition, system users and designers have demanded systems with
increased functionality, higher levels of performance, greater reliability and
shorter design cycle times, all in smaller packages at lower costs. These
demands have resulted in increased semiconductor content as a percentage of the
system costs of electronic products. The demand for electronic systems has also
expanded geographically with the emergence of new markets, particularly in the
Asia/Pacific region.

Historically, changes in production capacity in the semiconductor industry
and, to a lesser extent, demand for electronic systems have resulted in
pronounced fluctuations in prices and margins. However, we believe that the
following factors may limit the severity of future cyclical variations: the
development of new semiconductor applications, the increased semiconductor
content as a percentage of total system cost, the trend towards consolidation in
the industry, more moderate capital spending on production capacity and the
increased customer use of just-in-time supply systems that have reduced
inventory levels.

Additionally, these trends have helped build demand for multi-market
companies that can provide a wide range of building block semiconductors as a
single-source supplier. Utilizing a single supplier with a sufficiently broad
product portfolio contributes to a manufacturer's overall cost reduction, and
helps to simplify the production of electronic products and systems.

Since 1990, the semiconductor market has expanded at a compounded annual
growth rate of approximately 12.0%, primarily as a result of two factors. The
first is the rapidly expanding end-user demand for faster, smaller and more
efficient electronic devices, with a greater range of functionality and
reliability, at lower costs. The second is the increasing value of
semiconductors as a percentage of the cost of electronic systems. According to
Worldwide Semiconductor Trade Statistics, the worldwide semiconductor total
available market declined to $125.6 billion in 1998 from $137.2 billion in 1997.
The decline was due primarily to an industry-wide drop in average selling prices
due to industry overcapacity. In addition, during the same period, total
available market for the DRAM segment of the semiconductor market declined by
29.3%, compared to a decline of 4.9% for all other segments in the aggregate.

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<PAGE> 66

SEMICONDUCTOR CLASSIFICATIONS

The following table sets forth the worldwide semiconductor total available
market in each of the three product functions of the semiconductor industry:

<TABLE>
<CAPTION>
WORLDWIDE SEMICONDUCTOR TOTAL AVAILABLE MARKET(1)
------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 CAGR(2)
----- ----- ----- ----- ------ ------ ------ ------ ------ -------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Micro components............. $ 9.2 $11.4 $13.9 $19.1 $ 23.8 $ 33.4 $ 39.8 $ 47.8 $ 47.3 22.7%
Memory:
Volatile................... 8.7 9.1 11.4 16.4 27.2 46.9 29.9 23.6 17.9
Non-volatile............... 3.1 3.1 3.4 4.8 5.3 6.6 6.1 5.7 5.1
----- ----- ----- ----- ------ ------ ------ ------ ------
Total memory............. 11.8 12.2 14.8 21.3 32.5 53.5 36.0 29.3 23.0 8.7
Moving/Shaping............... 29.6 31.0 31.1 37.0 45.6 57.5 56.1 60.1 55.3 8.1
----- ----- ----- ----- ------ ------ ------ ------ ------
Total.................... $50.5 $54.6 $59.9 $77.3 $101.9 $144.4 $132.0 $137.2 $125.6 12.0
===== ===== ===== ===== ====== ====== ====== ====== ======
</TABLE>

- -------------------------

(1) According to Worldwide Semiconductor Trade Statistics. Due to rounding, some
totals are not arithmetically correct sums of their component figures.

(2) Compounded annual growth rate. Represents the compounded annual growth rate
for the semiconductor industry since 1990.

The semiconductor industry can be divided into three product functions:
microcomponents, memory and moving and shaping. Microcomponents include
microprocessors and microcontrollers that process data according to instruction
sets embedded within the semiconductors themselves. These are considered the
"brains" of the electronic system and are at the center of the system
architecture. Memory includes two types of memory devices, volatile and
non-volatile, that store data and instructions. Volatile memory devices, which
need continual application of electricity to retain data, can be segmented into
DRAM (dynamic random access memory), SRAM (static random access memory) and VRAM
(video random access memory). Non-volatile devices, which retain data after
power to the device has been shut off, can be segmented into ROM (read-only
memory), EPROM, EEPROM and FLASH (memories that enable high speed electrical
reprogramming). Moving and shaping includes the moving of commands and the
shaping of signals to enable electronic devices to perform intended functions,
including moving information into memory or from one sub-system to another, or
allowing microprocessors to process data.

Semiconductors are either analog/mixed signal, where electronic signals are
not viewed as "one" and "zero," or digital integrated circuits, such as logic
devices, that do rely on ones and zeroes to control the operation of electronic
systems. Furthermore, semiconductors are classified as either standard
components or application-specific components. Multi-market standard components
are used by a large group of systems designers for a broad range of
applications, while application-specific components are designed to perform
specific functions in specific applications.

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<PAGE> 67

FAIRCHILD INTERNATIONAL MARKETS

The following table sets forth information with respect to worldwide
semiconductor sales by product family and process technology in which we
participate:

<TABLE>
<CAPTION>
WORLDWIDE SEMICONDUCTOR SALES(1)
----------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ----- ----- ----- ----- -----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MOVING & SHAPING:
ANALOG
Standard Linear.............. $3.0 $3.0 $3.1 $ 3.8 $ 4.7 $ 5.7 $ 5.5 $ 6.2
Mixed Signal................. 4.8 5.3 5.6 6.9 8.9 10.9 11.5 13.6
---- ---- ---- ----- ----- ----- ----- -----
Total..................... $7.8 $8.3 $8.7 $10.7 $13.6 $17.6 $17.0 $19.8
==== ==== ==== ===== ===== ===== ===== =====
DISCRETE
DMOS Power................... $0.6 $0.7 $0.8 $ 1.1 $ 1.4 $ 2.1 $ 2.2 $ 2.2
Bipolar...................... 4.2 4.2 4.1 4.6 5.5 7.1 6.2 6.1
IGBT......................... -- -- -- -- -- 0.5 0.6 0.6
---- ---- ---- ----- ----- ----- ----- -----
Total..................... $4.8 $4.9 $4.9 $ 5.7 $ 6.9 $ 9.7 $ 9.0 $ 8.9
==== ==== ==== ===== ===== ===== ===== =====
LOGIC
Bipolar...................... $1.5 $1.4 $1.3 $ 1.5 $ 1.3 $ 1.3 $ 0.9 $ 0.9
CMOS/BiCMOS.................. 1.1 1.1 1.0 1.4 1.8 2.3 2.1 2.4
---- ---- ---- ----- ----- ----- ----- -----
Total..................... $2.6 $2.5 $2.3 $ 2.9 $ 3.1 $ 3.6 $ 3.0 $ 3.3
==== ==== ==== ===== ===== ===== ===== =====
MEMORY:
NON-VOLATILE MEMORY
EPROM........................ $1.6 $1.4 $1.2 $ 1.3 $ 1.4 $ 1.4 $ 1.1 $ 0.7
EEPROM(2).................... 0.2 0.2 0.5 0.7 0.7 0.9 0.9 0.9
---- ---- ---- ----- ----- ----- ----- -----
Total..................... $1.8 $1.6 $1.7 $ 2.0 $ 2.1 $ 2.3 $ 2.0 $ 1.6
==== ==== ==== ===== ===== ===== ===== =====
</TABLE>

- -------------------------

(1) All data other than data for EEPROM, according to Worldwide Semiconductor
Trade Statistics. Due to rounding, some totals are not arithmetically
correct sums of their component figures. In addition, 1998 data are not yet
available.

(2) According to ICE Corporation.

MOVING AND SHAPING MARKETS

Analog Market. Analog products are used to shape or condition electrical
signals, to amplify electrical signal strength, to convert electrical signals to
and from digital "one or zero" levels, to regulate voltage levels and to provide
interfaces between other products within an electrical system. The analog market
is split into two major segments: Standard Linear and Mixed Signal. The Standard
Linear market is comprised of building block products such as amplifiers,
voltage regulators, data conversion, interface circuits, and comparators. These
products are used in all end systems, from computers and telecommunications, to
industrial, automotive and consumer applications. The Mixed Signal market
consists of more complex analog products, which also contain some digital
circuitry for timing, information control and data flow. Mixed Signal products
are often developed for specific

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<PAGE> 68

applications, such as video encoding, hard disk drive control, data
transmission, motor control and power supply control. We compete in both the
Standard Linear and Mixed Signal markets.

Discrete Market. The discrete business, unlike logic and memory, is highly
fragmented and composed of dozens of middle market players. Discrete devices
consist of individual diodes or transistors, whereas integrated circuits (such
as memory or logic devices) combine millions of functions into a "single chip"
of silicon to form a more complex circuit. Discrete products are differentiated
almost entirely on the basis of performance, as opposed to on the basis of
function as in the integrated circuit market. We participate in both the power
and small signal discrete markets, manufacturing devices that condition power or
signals for use by other devices. While small signal discrete markets have
generally grown at slower, but more stable, rates than integrated circuit
markets, the power discrete market is rapidly growing due to the increasing
importance of power management, particularly in portable applications (e.g.,
pagers and notebook computers).

Standard Logic Market. Logic devices are integrated circuits that control
the operation of electronic systems and move data. The standard logic market is
fully digital and has five major participants, of which we are one of the
leaders. Standard logic products are fabricated through three primary process
technologies: Bipolar, CMOS and BiCMOS. Bipolar technology is targeted for high
speed applications while CMOS technology allows the manufacturer to create a
denser chip, consuming less power and generating less heat. BiCMOS is a hybrid
of Bipolar and CMOS. While Bipolar semiconductors were once used extensively in
large computer systems, CMOS has become the most prevalent technology,
particularly for devices used in portable personal computer systems. Given the
growing demand for portability, use of CMOS technology is expected to continue
to expand; however, the demand for Bipolar is expected to continue as a result
of its lower cost and suitability for particular applications.

MEMORY MARKET

Non-Volatile Memory Market. The memory market is comprised of volatile
memory devices (DRAM, SRAM and VRAM) and non-volatile memory devices (ROM,
EPROM, EEPROM and FLASH). Volatile memory devices need continual application of
electricity to retain data, while non-volatile memory retains data after the
power to the device has been turned off. Most of the historic economic
cyclicality in the semiconductor industry has been attributable to the volatile
memory market, as evidenced by a 29.3% decline in 1998 market sales versus a
4.9% decrease for the microcomponents, moving & shaping and non-volatile memory
markets.

We produce standard EPROM and EEPROM products, but also fabricate
application-specific EEPROM devices. We have standardized the
application-specific nature of the EEPROM process, having designed it to perform
functions in a specific application, but not be proprietary for any single
customer. EEPROMs are being used extensively due to their ease of
programmability, and the demand for these products is growing rapidly. The
EEPROM market has grown at a compounded annual growth rate of 24.0% from 1990 to
1997, ahead of the overall semiconductor market growth. EEPROMs are somewhat
isolated from FLASH products, as they serve different market needs.
Reprogrammable EEPROMs are used in many products to store frequently used phone
numbers (fax machines), store accumulated phone time (cellular phones) and
change authorization codes (keyless security systems). EPROMs have been losing
market share to FLASH products because FLASH memories are easily programmable
and have higher data densities. However, there is a level of EPROM demand that
is not economically served by FLASH. As a result, EPROMs are still utilized in
virtually all segments of the low-end consumer electronic market (e.g.,
answering machines, garage door openers and washing machines), where storage of
the instruction set for the microcontrollers require less than 2 Mb.

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<PAGE> 69

BUSINESS

GENERAL

Fairchild International is the largest independent semiconductor company
focused solely on multi-market products. We design, develop and market analog,
discrete, logic and non-volatile memory semiconductors. Within our multi-market
products portfolio, we are particularly strong in providing discrete and analog
power management solutions. Multi-market products are the building block
components for virtually all electronic devices, from sophisticated computers
and internet hardware to telecommunications equipment to household appliances.
Because of their basic functionality, our products provide customers with
greater design flexibility than more highly integrated products and improve the
performance of more complex devices or systems. Given such characteristics, our
products have a wide range of applications. Our products are sold to customers
in the personal computer, industrial, telecommunications, consumer electronics
and automotive markets.

With a history dating back more than 35 years, Fairchild Semiconductor
Corporation's predecessors were among the original founders of the semiconductor
industry. The original Fairchild Semiconductor Corporation was established in
1959 as a provider of memory and logic semiconductors. Fairchild Semiconductor
Corporation was acquired by Schlumberger in 1979. National Semiconductor
acquired Fairchild Semiconductor Corporation from Schlumberger in 1987, and
fully integrated it into its operations. Pursuant to the recapitalization of
Fairchild Semiconductor Corporation, National Semiconductor spun-off the assets
of Fairchild Semiconductor Corporation as an independent company on March 11,
1997. At the time of the recapitalization, Fairchild Semiconductor Corporation
consisted of the discrete, logic and non-volatile memory businesses of National
Semiconductor. On December 31, 1997, Fairchild Semiconductor Corporation
acquired Raytheon Semiconductor, Inc., a wholly owned subsidiary of Raytheon
Company, for approximately $117.0 million in cash. Raytheon Semiconductor
designs, manufactures and markets high-performance analog and mixed signal
semiconductors for the personal computer, communications, broadcast video and
industrial markets. Raytheon Semiconductor was combined with the Non-Volatile
Memory Products Group to form the Analog, Mixed Signal and Non-Volatile Memory
Products Group. Fairchild International's other product groups include the
Discrete Power and Signal Technologies Group and the Logic Products Group.

On April 13, 1999, we purchased the power device business from Samsung
Electronics for approximately $406.8 million, net of purchase price adjustments.
The power device business designs, manufactures and markets power discrete
semiconductors and standard analog integrated circuits serving the personal
computer, industrial, telecommunications and consumer electronics markets. The
power device business has developed a number of new product designs with
industry leading performance characteristics, such as its recent process
developments in trench technology and silicon bonding. The acquisition of the
power device business not only enhances our analog and power discrete product
offerings, but also provides us with a greater market presence in South Korea.
The acquisition of the power device business also provides us with additional
revenue opportunities through our relationship with Samsung Electronics:

- Samsung Electronics is required to purchase guaranteed minimum annual
levels of products from the power device business based on historical
volumes and market prices for a three-year period according to terms of a
product supply agreement.

- We are required to provide contract manufacturing services in the form of
wafer foundry services for Samsung Electronics for a three-year period
according to the terms of a foundry sale agreement. The agreement is
designed to provide us levels of profitability totaling W53,700 million
over three years.

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<PAGE> 70

In connection with the acquisition of the power device business, we have
obtained a full income tax holiday for a period of seven years in South Korea.
The power device business added approximately 1,455 employees, most of whom work
at its wafer fabrication facilities in South Korea, to Fairchild International's
existing work force of approximately 6,500.

GROWTH STRATEGY

Our objective is to be the leading supplier of multi-market semiconductors
to the worldwide personal computer, industrial, telecommunications, consumer
electronics and automotive industries. Our business strategy emphasizes the
following key elements:

MAINTAIN HIGH QUALITY SERVICE. We seek to distinguish our service by
providing the industry's best support services, including electronic order
entry, just-in-time delivery and a full range of Internet services that provide
device specifications and order entry for samples. Since 1997, we have invested
in a number of innovative programs in order to deliver superior customer service
including:

- developing and maintaining four customer response centers staffed with
experienced employees to provide a link between customers and our design
engineers, manufacturing operations and sales personnel;

- creating a vice president of customer service position and establishing
customer focus teams and field application engineering teams;

- installing a state-of-the-art company-wide PeopleSoft enterprise software
system which provides a fully integrated order management, inventory and
manufacturing system;

- centralizing and consolidating our finished goods warehouse functions to
a primary site in Penang, Malaysia. This site, together with a Federal
Express shipment arrangement, facilitates timely movement of products
worldwide to end customers.

INTRODUCE NEW PRODUCTS. We are focused on expanding our customer base and
increasing our market share by continuing to develop new products and enhance
our current product portfolio to capitalize on industry trends. In Fiscal 1998,
our first full year as a stand-alone company, Fairchild International introduced
over 200 new products, approximately twice the number of new products introduced
in Fiscal 1997. In 1998, the power device business introduced approximately 85
new products.

INCREASE MARKET PENETRATION OF EXISTING PRODUCTS. We are uniquely
positioned, as the only global semiconductor company focused solely on
multi-market semiconductors, to dedicate our sales and marketing efforts toward
expanding our market share of existing products. Our internal sales force,
authorized representatives and distributors continue to expand customer
information programs, including technical specifications, application notes and
on-line services, and augment our trade advertising and comprehensive customer
support efforts which facilitate the incorporation of our products into our
customers' designs.

MAKE SELECTED SYNERGISTIC ACQUISITIONS. We intend to pursue strategic
acquisitions of companies that will complement our existing business by
expanding our product offerings, research and development capabilities and
market share. In addition to the acquisition of the power device business, we
acquired Raytheon Semiconductor, Inc. from Raytheon Company in December 1997.
That acquisition provided us with the opportunity to enter the approximately
$19.0 billion analog market.

CONTINUE TO IMPROVE MANUFACTURING EFFICIENCY. We have made significant
capital expenditures to increase capacity and improve manufacturing efficiency.
Although we believe that our wafer fabrication plants and assembly and test
facilities are among the most productive and efficient in the industry, we will
continue to invest in our people and assets in order to increase productivity
and

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enhance process efficiency. We are currently in the process of transferring our
analog wafer fabrication plants from our Mountain View, California facility to
our South Portland, Maine facility, which is expected to reduce our wafer costs
by two-thirds.

COMPANY STRENGTHS

We believe our core strengths are the following:

- Analog: We provide specific solutions for power conversion, temperature
sensing, management functions, battery chargers and motor controls.

- Power Discrete: We provide a comprehensive solutions for managing power
from the original source to end products such as computers, cellular
phones and network devices. Our portfolio of products includes
low-voltage products, such as power and signal MOSFETs and bipolar
devices, and high-voltage products, such as high-power MOSFETs, IGBTs,
Smart Power Switches and high-power bipolar transistors.

HIGH QUALITY CUSTOMER SERVICE. Our customers recognize us for our high
quality of service. They require a reliable source of supply, often in high
volumes and with short lead times, demand quick responses to technical questions
and seek support in designing new applications which use our products. Because
we are an independent company focused solely on multi-market products, all of
our service and support efforts are tailored to meet these customer needs. As a
result of our efforts, we have recently received numerous customer and industry
awards, including supplier awards from Compaq Computer Corp., Siemens AG and
Acer Inc. and the European Mid-Size Vendor of the Year award from Dataquest.

HISTORY OF PRODUCT INNOVATION. Our success in introducing new products has
been an important source of our growth and profitability. We have been a
significant innovator in the multi-market segment of the semiconductor industry
with several leading edge technologies and industry firsts, including our
introduction of High Speed CMOS in the late 1970s, FAST(R) and FACT(TM) in the
1980s and Low Voltage Logic products, DMOS Power MOSFETs using trench technology
and IGBT using silicon bonding technology in the 1990s. Since June 1997, we have
introduced approximately 300 new products.

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<PAGE> 72

EXPERIENCED MANAGEMENT. Our senior management team consists of seven
individuals who have on average approximately 25 years of experience in the
semiconductor industry and includes:

- Kirk P. Pond (Chief Executive Officer): Mr. Pond, with over 30 years of
experience in the semiconductor industry, has held various senior
management positions at Texas Instruments Incorporated and was the Chief
Operating Officer of National Semiconductor.

- Joseph R. Martin (Chief Financial Officer): Mr. Martin, with over 20
years of experience in the semiconductor industry, has held various
senior financial positions with National Semiconductor, including Vice
President of Finance, Worldwide Operations.

In March 1997, Mr. Pond, Mr. Martin and other key employees of Fairchild
International made an aggregate cash investment of $6.8 million in our company.
Such individuals currently own approximately 17.1% of our outstanding common
stock.

CUSTOMERS AND APPLICATIONS

Fairchild International designs, develops and manufactures products that it
supplies to more than 50,000 customers. As a result of the acquisition of the
power device business, we provide a wide range of more than 10,000 analog,
discrete, logic and non-volatile memory products to our diverse customer base.
Our position as a strategic supplier of basic and essential semiconductor
products fosters close relationships with customers. These relationships result
in additional growth opportunities for sales of existing products as well as
early knowledge of customers' evolving requirements and opportunities arising
from the related development of their new products.

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<PAGE> 73

The following table sets forth our principal end-user markets, the
percentage of pro forma trade revenue generated from each end-user market,
certain applications for our products and certain of our customers. Products
from each of our businesses are used throughout each of the major end-user
markets set forth below.

<TABLE>
<CAPTION>
CONSUMER
PERSONAL COMPUTERS INDUSTRIAL AND OTHER TELECOMMUNICATIONS ELECTRONICS AUTOMOTIVE
END MARKETS: -------------- ------------------ -------------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF OUR TRADE 40% 25% 15% 16% 4%
REVENUE(1):
- -------------------------------------------------------------------------------------------------------------------------------
APPLICATIONS: Chips for Industrial Central office Cable television Airbags
smartcards automation and switching systems systems Antiskid braking
Disk drives control Data Network Compact disc kits
Internet hardware Intelligent power equipment players Automotive
Monitors switches Cellular Home security entertainment
Network Lighting systems telephones systems systems
controllers Motor controllers ISDN controllers Household Central locking
Optical scanners Power supplies Modems appliances systems
PDA Smartcard readers PBX systems Pay television Fuel injection
Printers Set-top boxes decoders circuits
PC motherboards Satellite Ignition circuits
receiver Transmission
decoding circuits control circuits
VCR
- -------------------------------------------------------------------------------------------------------------------------------
CUSTOMERS: Apple Allen Bradley AT&T Canon Bosch
Compaq American Power Alcatel Creative Design Chrysler
Dell Honeywell Ericsson Daewoo Delco Electronics
Gateway Reliance Lucent LG Electronics Ford
Hewlett-Packard Siemens Technologies Motorola Mitsubishi
IBM Tektronics Nokia Samsung Teves
Intel Teradyne Nortel Networks Electronics Toyota
NEC Samsung Sony
Samsung Electronics Thompson
Electronics Siemens Consumer
Seagate Technology Zenith
Toshiba
- -------------------------------------------------------------------------------------------------------------------------------
EXAMPLE OF PRODUCT Computer Electric motor Portable phone VCR Engine control
APPLICATION: assembly line
control
- -------------------------------------------------------------------------------------------------------------------------------
INPUT: Turn on computer Start motor assembly Turn on phone Program VCR to Start car
conveyor record
- -------------------------------------------------------------------------------------------------------------------------------
WHAT THE PRODUCT DOES: Boot up program Analog device to Power is routed EEPROM memory is Program in EPROM
moves from detect ground faults from battery to programmed to memory directs
EPROM to main active circuits start VCR fuel mixture
memory via logic by a discrete
chip; logic chips DMOS transistor
communicate
between main
memory and
processor
- -------------------------------------------------------------------------------------------------------------------------------
RESULT: Spreadsheet Potential electrical A phone call is Program is Car runs smoothly
application is hazard is made recorded with fewer
accessed eliminated emissions
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) 1998 combined trade revenues include those of Fairchild International for
the twelve-month period ended November 29, 1998 and those of the power
device business for the twelve-months ended December 31, 1998 and are
presented to be consistent with the data reported by Worldwide Semiconductor
Trade Statistics.

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PRODUCTS AND TECHNOLOGY

We design, develop and manufacture a broad range of products used in a wide
variety of microelectronic applications, including personal computer,
industrial, telecommunications, consumer products and automotive systems. Our
products are organized into three principal products groups: the Analog, Mixed
Signal and Non-Volatile Memory Products Group, the Discrete Power and Signal
Technologies Group, and the Logic Products Group.

ANALOG, MIXED SIGNAL AND NON-VOLATILE MEMORY PRODUCTS GROUP

ANALOG AND MIXED SIGNAL PRODUCTS

This product line designs, manufactures and markets high-performance analog
and mixed signal integrated circuits for the personal computer, industrial,
consumer electronics and broadcast video markets. These products are
manufactured using leading-edge CMOS, BiCMOS, DMOS and bipolar technologies.
Analog and mixed signal products represent a significant long-term growth area
of the semiconductor industry. The increasing demand to integrate high
performance microprocessor-based electronics in equipment ranging from personal
computers to scientific instrumentation, telecommunications and data
communications networks has led analog and mixed signal semiconductor suppliers
to create designs that have higher levels of integration to reduce space and
power requirements and provide greater functionality, all at lower cost. We
offer over 2,300 analog device products, including offerings in 92 of the top
100 best selling (in terms of volume) analog product types by volume. Major
competitors include Analog Devices, Burr Brown, Linear Technology, Harris,
Motorola, Philips and Semtech.

Analog. Analog products control continuously variable functions such as
light, color, sound and power. They enable human beings to interface with the
digital world. We provide analog products that solve problems relating to power
conversion, temperature sensing, management functions, battery chargers and
motor controls. Our Smart Power Switch is a proprietary, multichip module
consisting of a power management integrated circuit and a MOSFET. Smart Power
Switches provide a solution for off-line power converter designs in power
supplies, battery chargers, PC peripherals, and home and consumer applications.
We also offer a mix of mature products, such as operational amplifiers, audio
amplifiers, regulators, compurators, references and timers, and ground fault
interrupters, which continue to generate significant revenues due to their long
product life cycles.

Mixed Signal. Mixed signal products are those which can process both
analog and digital information. Our mixed signal offerings include analog to
digital converters, digital to analog converters and market-leading digital
video encoders and decoders sold to manufacturers of high-end video equipment
and set top boxes.

We believe our Analog product portfolio is further enhanced by a wide
variety of packaging solutions that we have developed. These solutions include
surface mount and tiny packages.

NON-VOLATILE MEMORY PRODUCTS

Fairchild International designs, manufactures and markets non-volatile
memory circuits which retain data after power to the device has been shut off.
We offer an extensive portfolio of high performance serial EEPROM and EPROM
products. We do not participate in the FLASH market segment. EPROMs are
electrically programmable read-only memories. These non-volatile memory devices
are used in the personal computer, industrial, telecommunications, consumer
electronics and automotive systems. Major competitors include ST
Microlectronics, Advanced Micro Devices, Atmel, Xicor and Microchip Technology.

EEPROMS. EEPROMs are used primarily to store changing information in
consumer products and automotive applications such as microwaves, televisions,
stereos and automotive controls.

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<PAGE> 75

EEPROMs are one of the growth products in the group and a focus of non-volatile
memory research and development expenditures. We serve the serial EEPROM market
with product offerings in (i) standard EEPROM and (ii) Application Specific
Standard Products. Our standard EEPROM products serve each of the three bus
interface protocols used with all industry standard microcontrollers. Our
Application Specific Standard Products are individually developed for specific
applications and combine our core EEPROM competencies with logic capabilities.
Our Application Specific Standard Products serve three applications groups:
HiSeC, Plug and Play and SPD. HiSeC, introduced in 1994, is a single chip remote
keyless entry solution which operates complex rolling codes for secure entry.
The device is intended for applications such as automotive keyless entry
systems, garage door openers and other applications where secure transmission of
a code is critical. Plug and Play devices allow manufacturers of computer add-on
cards to automatically configure their cards for the host system. SPD,
introduced in 1996, allows a computer to identify specifications of an add-on
memory module and is used in memory upgrade products. Since Fairchild
Semiconductor Corporation's spin-off from National Semiconductor, Fairchild
Semiconductor Corporation's market share in the growing Serial EEPROM market
($910 million total available market) has grown by 10.2%.

EPROMS. The ability of EPROMs to be programmed electrically by the
equipment manufacturer enables them to achieve shorter time to market for new
products than if they used products that must be programmed by the chip
manufacturer. Today, EPROMs are primarily utilized in applications where storage
of the instruction sets for microcontrollers requires less than 2 Mb in density,
which is virtually all segments of the low-end consumer electronic market (e.g.,
answering machines, garage door openers and washing machines). The EPROM market
is declining as FLASH becomes cost-effective at lower densities. As a result, we
are incurring minimal research and development expenditures in this product
line. We currently sell EPROMs in densities ranging from 64K to 4Mb. In Fiscal
1998, we had a market share of 4.4% in the EPROM market ($740 million total
available market).

DISCRETE POWER AND SIGNAL TECHNOLOGIES GROUP

Discrete devices are individual diodes or transistors that perform basic
signal amplification and switching functions in electronic circuits. Driving the
long-term growth of discretes is the increasing importance of power management,
particularly in portable applications (e.g., pagers and notebook computers). We
participate in both the power and small signal discrete markets using our DMOS
and Bipolar technologies, manufacturing semiconductors that condition (or shape)
power or signals for use by other devices. The acquisition of the power device
business added significantly to our discrete product portfolio, with only small
signal transistors overlapping with our existing portfolio. While the world
market is dominated by such multinational semiconductor manufacturers as
Toshiba, Motorola and Philips, a significant portion of the industry is
fragmented where competition is primarily on a regional basis. Other competitors
include Siliconix and International Rectifier.

DMOS. DMOS discrete devices are used to convert, switch or otherwise shape
or condition electricity. We offer a wide range of DMOS power MOSFETs designed
for low and high voltage applications over a wide range of performance
characteristics, power handling capabilities and package options. We are
focusing on DMOS as our growth area due to the trend towards smaller and lighter
products and longer battery life, as well as batteries with built-in smart
functions. DMOS products are the focus of our research and development
expenditures. These expenditures have been directed primarily toward the
development of our leading-edge Trench technology. These products are

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commonly found in portable computers and peripherals, portable telephones,
automobiles, and battery-powered devices. Our DMOS products include:

Low Voltage MOSFET. This product line is focused on developing products in
the Low Voltage DMOS area in support of the trend towards smaller and lighter
products, longer battery life expectancy, as well as batteries with built-in
smart functions. Research and development efforts and expenditures have been
directed towards the development of our leading edge Trench Technology. The
combination of leading edge wafer fabrication processes and new packaging
technology continues to allow our Low Voltage DMOS product families to set new
standards for low resistance and high current performance in miniature surface
mount power packaging. Our Low Voltage DMOS products are commonly found in
portable computers and peripherals, portable telephones, automobiles and
battery-powered devices.

High Voltage MOSFET. This product line offers a wide variety of HV MOSFET
devices designed for high voltage applications (200V to 900V) over a wide range
of performance characteristics, power handling capabilities and package options.
The product portfolio includes both N channel and P channel devices using
proprietary HDMOS process technology. These products are commonly found in power
system applications including flyback and forward converters and power factor
correction in switch-mode power supplies (SMPS).

IGBT. This product line offers very high voltage devices (600V to 1500V)
in a variety of package options. A proprietary silicon bonding process is being
used in the production of this family of products. Typical applications for
these devices are motor control, inverters, robotics, servo controls, power
supply and lamp ballast. IGBT will be a focused growth product line as more
industrial applications are designing products using this technology.

Bipolar. We manufacture and sell a wide range of bipolar discretes,
including single junction glass diodes, small signal transistors, bipolar power
transistors, JFETs and Zener diodes in a wide variety of package configurations.
These devices switch, amplify and otherwise shape or modify electronic signals
and are found in nearly every electronic product, including computers, cellular
phones, mass storage devices, televisions, radios, VCRs and camcorders.

LOGIC PRODUCTS GROUP

We design, develop and manufacture standard logic devices utilizing three
wafer fabrication processes: CMOS, BiCMOS and Bipolar. Within each of these
production processes, we manufacture products that possess advanced performance
characteristics, as well as mature products that provide high performance at low
cost to customers. Since market adoption rates of new standard logic families
have historically spanned several years, we continue to generate significant
revenues from our mature products. Customers are typically slow to move from an
older product to a newer one. Further, for any given product, standard logic
customers use several different generations of logic products in their designs.
As a result, typical life cycles for logic families are between 20 to 25 years.

Since it takes new logic products an average of three to five years to
reach full market acceptance, we continue to invest in new products to generate
future revenue growth. In addition, many of these investments have established
our logic devices as key components for the personal computer and
telecommunications markets, particularly in the internet and networking sector
and cellular communications sector. Internet appliances and internet
infrastructure equipment (e.g. LAN and WAN switches, hubs, routers, and servers)
require high speed, high drive and low noise characteristics. We offer logic
devices using CMOS, BiCMOS and Bipolar processes that are required to achieve
these characteristics. Our ABT, LVT, ECL and GTL logic devices have all
successfully penetrated the internet hardware market. In addition, cellular
communications equipment such as cellular phones, pagers and base stations
requires low power and noise generation in very small

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packages. Our Tiny Logic, VHC, LCX and FST technology have established our logic
products as a leader in addressing these requirements. Major competitors include
Texas Instruments, Motorola and Philips.

CMOS. CMOS is a technology that consumes less power than Bipolar
technology and therefore permits more transistors to be integrated into a single
integrated circuit. Portable applications such as laptop computers and cellular
telephones require the low power consumption of CMOS technology. As a result of
the general trend toward portability, CMOS technology has been expanding at the
expense of Bipolar technology, and is the focus of research and development
spending in the Logic Products Group. Our CMOS offerings include mature products
such as FACT(TM), HCMOS, and CD4K, and new products such as LCX, VHC, GTL,
Switches and TinyLogic.

Bipolar. Bipolar devices typically operate at high speeds, require more
power, are less costly than CMOS devices and are used in many applications that
do not require CMOS solutions. We supply a full line of Bipolar products to a
broad customer base in a wide range of end-user applications. Bipolar products
are generally mature products that have few new product development activities
associated with them. Our Bipolar offerings include FAST(R), ALS, LS, ECL and
TTL.

BiCMOS. BiCMOS is a hybrid of CMOS and Bipolar technologies developed to
combine the high speed and high drive characteristics of bipolar technologies
with the low power consumption and high integration of CMOS technologies. BiCMOS
is an emerging technology which requires complex manufacturing processes and is
used in niche applications, primarily in the telecommunications market. Our
BiCMOS offerings include ABT and LVT.

According to reports issued by Insight/Onsite, a market research firm, we
were the third largest supplier of standard logic products in the world in 1997.
In the Low Voltage CMOS Logic market ($175.0 million total available market in
1997), the fastest growing portion of the CMOS Logic market, we held a No. 2
share position in 1997 behind the leader, Texas Instruments. We held a strong
No. 2 position in 1997 in the TTL Bipolar market as well with a 24% market
share.

SALES, MARKETING AND DISTRIBUTION

In Fiscal 1998, Fairchild International derived approximately 55% of its
trade sales from original equipment manufacturer customers through its regional
sales organizations and 45% of its trade sales through distributors. Fairchild
International operates regional sales organizations in Europe, headquartered in
Swindon, England, the Americas, headquartered in Sunnyvale, California, the
Asia/ Pacific region, with offices in Kowloon, Hong Kong and the Japan region
with its office in Tokyo, Japan. Each of the four regional sales organizations
is supported by logistics organizations which manage independently-operated
free-on-board warehouses. Product orders flow to Fairchild International's
manufacturing facilities, where the product is made. Products are then shipped
either directly to the customer or indirectly to the customer via
independently-operated warehouses in Singapore, the United States and the United
Kingdom.

Fairchild International has dedicated direct sales organizations operating
in Europe, the Americas, Asia/Pacific and Japan that serve its major original
equipment manufacturer customers. Fairchild International also has a large
network of distributors and manufacturer's representatives to distribute its
products around the world. We believe that maintaining a small, highly focused,
direct sales force selling products for each of Fairchild International's
businesses, combined with an extensive network of distributors and
manufacturer's representatives, is the most efficient way to serve our
multi-market customer base. Fairchild International also maintains a dedicated
marketing organization, which consists of marketing organizations in each
product group, including tactical and strategic marketing and applications, as
well as marketing personnel located in each of the sales regions.

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Typically, distributors handle a wide variety of products, including
products that compete with Fairchild International products, and fill orders for
many customers. Some of Fairchild International's sales to distributors
primarily in North America are made under agreements allowing for market price
fluctuations and/or the right of return on unsold merchandise, subject to the
right terminating after the expiration of a limited time period. Virtually all
distribution agreements contain a standard stock rotation provision allowing for
minimum levels of inventory returns. In Fairchild International's experience,
these inventory returns can usually be resold. Manufacturer's representatives
generally do not offer products that compete directly with Fairchild
International's products, but may carry complementary items manufactured by
others. Manufacturer's representatives do not maintain a product inventory;
instead, their customers place large quantity orders directly with Fairchild
International and are referred to distributors for smaller orders.

In 1998, the power device business derived approximately 73% of its trade
sales from third party original equipment manufacturer customers and Samsung
Electronics and affiliated Samsung companies and 27% of its trade sales through
distributors. The power device business has been historically supported by sales
organizations in Korea and in foreign sales subsidiaries of Samsung Electronics
throughout the world. Product orders flow to the power device business'
manufacturing facility, in Bucheon, South Korea, where silicon wafers are
fabricated. Products are assembled and tested by either independently operated
subcontractors or manufacturing entities of Samsung Electronics. Finished
products are warehoused in a Samsung Electronics facility in Onyang, South
Korea. From there they are shipped either directly to customers, distributors or
sales agents or first to Samsung Electronics' foreign sales subsidiaries and
then to customers. As a result of the acquisition of the power device business,
assembly and testing services are provided under the Assembly and Test Services
Agreements, warehousing is provided under the Transitional Services Agreement,
and sales and distribution services are provided under an Overseas Sales
Services Agreement. See "The Acquisition."

RESEARCH AND DEVELOPMENT

Fairchild International's expenditures for research and development in
Fiscal 1996, 1997 and 1998 were $30.3 million, $18.9 million and $35.7 million
(excluding a $15.5 million pre-tax charge for purchased in-process research and
development associated with the acquisition of Raytheon), respectively. Such
expenditures represented 4.4%, 3.2% and 5.6% of trade sales in Fiscal 1996, 1997
and 1998, respectively. Manufacturing technology is a key determinant in the
improvement of semiconductor products. Each new generation of process technology
has resulted in products with higher speed and greater performance produced at
lower cost. Infrastructure investments made in recent years will enable
Fairchild International to continue to achieve high volume, high reliability and
low-cost production using leading edge process technology. Fairchild
International's research and development efforts are focused on new product
development and improvements in process technology in Fairchild International's
growth areas: CMOS logic, DMOS power discretes, EEPROMs and analog and mixed
signal products.

Each of Fairchild International's product groups maintain independent
research and development organizations. Fairchild International works closely
with its major customers in many research and development situations, in order
to increase the likelihood that Fairchild International's products will be
designed directly into the customers' products and achieve rapid and lasting
market acceptance.

The power device business' expenditures for research and development in
1996, 1997 and 1998 were $18.6 million, $19.2 million and $15.2 million,
respectively. The power device business' research and development efforts are
focused on IGBT and HV MOSFET process and product development, Motor Control
integrated circuit and Samsung Power Switch product development and BCDMOS
process development.

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The power device business' research and development team at the Bucheon
facility consists of design, application, process and package engineers. The
power device business ensures early adoption of its new products by engaging
application engineers to work side-by-side with design engineers and customers
during product definition and design phase to ensure customers' ease of
incorporating our products into their designs. Following the acquisition of the
power device business, research and development for power device business
products continues to be conducted by a research and development team at the
Bucheon facility.

MANUFACTURING

We operate six manufacturing facilities, four of which are front-end wafer
fabrication plants located in the United States and South Korea and two of which
are back-end assembly and test facilities in the Asia/Pacific region. Our
products are manufactured and designed using a broad range of manufacturing
processes and proprietary design methods. We use all of the prevalent function-
oriented process technologies for wafer fabrication, including CMOS, Bipolar,
BiCMOS, DMOS and non-volatile memory technologies. We use primarily through-hole
and surface mount technologies in our assembly and test operations, in lead
counts from two to fifty-six leads.

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The table below sets forth certain information with respect to our
manufacturing facilities, products and technologies.

MANUFACTURING FACILITIES

<TABLE>
<CAPTION>
LOCATION PRODUCTS TECHNOLOGIES
-------- -------- ------------
<S> <C> <C>
FRONT-END FACILITIES:
South Portland, Maine Bipolar, CMOS and BiCMOS logic 4-inch fab -- 5.0/3.0 micron
products Bipolar and CMOS
5-inch fab -- 3.0/1.5 micron
Bipolar and CMOS
National Semiconductor contract 6-inch fab -- 1.5/0.5 micron
manufacturing CMOS and BiCMOS
Salt Lake City, Utah EPROMs, EEPROMs, ACE and USB 6-inch fab -- 1.0/0.65 micron
CMOS EPROM
Discrete power -- 2.0/0.8 micron CMOS
National Semiconductor contract EPROM
manufacturing -- 2.0 micron DMOS
Mountain View, California(1) Standard Linear products 4-inch fab -- 5.0/3.0 micron
Op Amps, Ground Fault Bipolar and CMOS
Interruptors
Bucheon, South Korea Power discrete semiconductors, 4-inch fab -- 5.0/4.0 micron
Standard analog integrated Bipolar
circuits 5-inch fab -- 2.0/0.8 micron
Bipolar and DMOS
BACK-END FACILITIES:
Penang, Malaysia Bipolar, CMOS and BiCMOS logic MDIP, SOIC, EIAJ, TSSOP, SSOP,
products 8-56 Pins
National Semiconductor assembly
and test services
Cebu, the Philippines Power and small signal discrete TO92, SOT-23, Super SOT,
National Semiconductor assembly SOT-223, TO220, TO263
and test services
</TABLE>

- -------------------------

(1) We are currently in the process of transferring our analog wafer fabrication
plant from our Mountain View, California facility to our South Portland,
Maine facility. On April 23, 1999, we sold our Mountain View property for
$35.0 million. See "-- Properties."

Fairchild International's strategy is to have its manufacturing facilities
dedicated to its product groups. The South Portland, Maine, wafer fabrication
plant and Penang, Malaysia assembly and test facility primarily support the
Logic Products Group. The Salt Lake City, Utah wafer fabrication plant and Cebu,
the Philippines assembly and test facility primarily support the Discrete Power
and Signal Technologies Group. The Mountain View, California facility supports
the Analog and Mixed Signal Products Group. Fairchild International also
subcontracts out a minority of fabrication of wafers, primarily to Tower
Semiconductor, Chartered Semiconductor and Torex Semiconductor. In order to
maximize our production capacity, some of our back-end assembly and testing
operations are also subcontracted out. Primary subcontractors include Carsem, NS
Electronics (Bangkok) Ltd. and New Japan Radio Corporation.

The power device business' wafer fabrication plant in Bucheon, South Korea,
supports the entire operations of the power device business. The power device
business subcontracts out nearly all of its assembly and test operations to
third party vendors, primarily to Korea Micro Industry, AUK and

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Woosuk Electronic Company. The power device business also subcontracts
manufacturing services from Samsung Electronics. As a result of the acquisition
of the power device business, these services are provided under other
manufacturing agreements with Samsung Electronics.

Our manufacturing processes use many raw materials, including silicon
wafers, copper lead frames, mold compound, ceramic packages and various
chemicals and gases. We obtain our raw materials and supplies from a large
number of sources on a just-in-time basis. Although supplies for the raw
materials used by us are currently adequate, shortages could occur in various
essential materials due to interruption of supply or increased demand in the
industry.

BACKLOG

Our trade sales are made primarily pursuant to standard purchase orders
that are generally booked from one to twelve months in advance of delivery.
Backlog is influenced by several factors including market demand, pricing and
customer order patterns in reaction to product lead times. Quantities actually
purchased by customers, as well as prices, are subject to variations between
booking and delivery to reflect changes in customer needs or industry
conditions.

Fairchild International sells certain products to key customers pursuant to
contracts. Contracts are annual fixed-price agreements with customers setting
forth the terms of purchase and sale of specific products. These contracts allow
Fairchild International to schedule production capacity in advance and allow
customers to manage their inventory levels consistent with just-in-time
principles while shortening the cycle times required to produce ordered
products. However, quantity and price agreements under these contracts are, as a
matter of industry practice, difficult to maintain and implement. Fairchild
International recognizes revenue from contract manufacturing services but does
not account for these revenues on a backlog basis. For these reasons, Fairchild
International believes that the amount of backlog at a particular date is not
meaningful and is not necessarily a relevant indicator of future revenues.

The power device business historically did not track backlog, but rather
negotiated pricing and delivery agreements with its customers from time to time
based on current market conditions. However, we intend to manage the backlog of
the power device business in a manner consistent with the historic management of
Fairchild International's backlog.

SEASONALITY

Generally, Fairchild International is affected by the seasonal trends of
the semiconductor and related industries. As a result of these trends, Fairchild
International typically experiences lower revenue in the third fiscal quarter,
primarily due to customer demand adjustments as a result of holiday seasons
around the world. Revenue usually has a seasonal peak in Fairchild
International's fourth fiscal quarter. In Fiscal 1998, Fairchild International
did not experience the typical seasonality in the fourth quarter due to
decreasing customer demand primarily as a result of the Asian financial crisis
and softness in the personal computer market due to excess inventories in the
sales channels.

The power device business is also affected by the seasonal trends of the
semiconductor and related industries. The power device business typically
experiences lower revenues in its fourth quarter. Revenue usually has a seasonal
peak in the third quarter. In 1998, the power device business did not experience
the typical seasonality in the third quarter due to market softness in the
semiconductor industry.

COMPETITION

Markets for our products are highly competitive. Although only a few
companies compete with us in all of our product lines, we face significant
competition within each of our product lines from

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major international semiconductor companies. Some of our competitors may have
substantially greater financial and other resources with which to pursue
engineering, manufacturing, marketing and distribution of their products.
Competitors include manufacturers of standard semiconductors,
application-specific integrated circuits and fully customized integrated
circuits, as well as customers who develop their own integrated circuit
products.

We compete in different product lines to various degrees on the basis of
price, technical performance, product features, product system compatibility,
customized design, availability, quality and sales and technical support. Our
ability to compete successfully depends on elements both within and outside of
our control, including successful and timely development of new products and
manufacturing processes, product performance and quality, manufacturing yields
and product availability, customer service, pricing, industry trends and general
economic trends.

TRADEMARKS AND PATENTS

Fairchild International owns rights to a number of trademarks and patents
that are important to its business. Among others, we consider Fairchild,
FACT(TM) and FAST(R) to be trademarks that are material to Fairchild
International's operations.

Fairchild International's corporate policy is to protect proprietary
products by obtaining patents for such products when practicable. Under a
technology licensing and transfer agreement with National Semiconductor entered
into in connection with the recapitalization of Fairchild Semiconductor
Corporation, Fairchild International has acquired approximately 150 U.S. patents
and obtained perpetual, royalty free non-exclusive licenses on approximately 250
of National Semiconductor's patents. Pursuant to an acquisition agreement with
Raytheon Company, Fairchild International acquired over 100 patents owned by
Raytheon Semiconductor, Inc., as well as licensing rights (similar to those
granted to Fairchild International by National Semiconductor in the
recapitalization of Fairchild Semiconductor Corporation) for other
semiconductor-related intellectual property of Raytheon Company not directly
owned by Raytheon Semiconductor, Inc. We believe that we have the right to use
all technology used in the production of our products.

Similarly, Fairchild International acquired from Samsung Electronics a
significant number of licenses and patents (granted, applied for and under
review for application). We obtained approximately 125 U.S. patents and over
1,000 Korean patents pursuant to the acquisition of the power device business.
Fairchild International also received the rights to use all relevant trademarks.
See "The Acquisition -- Intellectual Property and Trademark License Agreements."

ENVIRONMENTAL MATTERS

Our operations are subject to environmental laws and regulations in the
countries in which we operate that regulate, among other things, air and water
emissions and discharges at or from our manufacturing facilities; the
generation, storage, treatment, transportation and disposal of hazardous
materials by our company; the investigation and remediation of environmental
contamination; and the release of hazardous materials into the environment at or
from properties operated by our company and at other sites. As with other
companies engaged in like businesses, the nature of our operations exposes our
company to the risk of liabilities and claims with respect to such matters. We
believe, however, that our operations are in substantial compliance with
applicable environmental laws and regulations. Fairchild International's costs
to comply with environmental regulations were immaterial in Fiscal 1996, 1997
and 1998, as were the power device business' environmental compliance costs for
1996, 1997 and 1998.

Fairchild International's facilities in South Portland, Maine, and, to a
lesser extent, Salt Lake City, Utah, have ongoing remediation projects to
respond to releases of hazardous materials that occurred prior to the
consummation of the recapitalization. Under the Asset Purchase Agreement, as

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supplemented by ancillary agreements entered into in conjunction with the
recapitalization, National Semiconductor has agreed to indemnify Fairchild
International for the cost of these projects subject to limitations. Based on
the historical costs of these projects, we do not believe that future
remediation costs will be material, even without the indemnity.

Fairchild International's Mountain View, California, facility is listed on
the National Priorities List under the Comprehensive Environmental Response,
Compensation, and Liability Act. Under the terms of the Acquisition Agreement
with Raytheon Company, dated December 31, 1997, Raytheon Company has retained
responsibility for, and has agreed to indemnify us with respect to, remediation
costs or other liabilities related to pre-acquisition contamination.

Although we believe that the power device business has no significant
environmental liabilities, Samsung Electronics has agreed to indemnify Fairchild
International for environmental liabilities arising out of the Bucheon, South
Korea plant or the power device business subject to limitations.

Future laws or regulations and changes in existing environmental laws or
regulations may subject our operations to different, additional or more
stringent standards. While historically the cost of compliance with
environmental laws has not had a material adverse effect on our results of
operations, business or financial condition, we cannot predict with certainty
our future costs of compliance because of changing standards and requirements.
We cannot assure you that material costs will not be incurred in connection with
the future compliance with environmental laws.

EMPLOYEES

Fairchild International's worldwide workforce consisted of 6,450 full- and
part-time employees as of February 28, 1999, none of whom were represented by
collective bargaining arrangements. Of the total number of employees, 5,460 were
engaged in manufacturing and information services, 232 were engaged in marketing
and sales, 528 were engaged in administration and 230 were engaged in research
and development. Of the total number of employees, 3,201 or 50% were employed in
the Logic Products Group, 2,624 or 41% were employed in the Discrete Power and
Signal Technologies Group, 371 or 5% were employed in the Analog, Mixed Signal
and Non-Volatile Memory Products Group and 254 or 4% were employed in corporate
or centralized sales and marketing activities. Fairchild International believes
that its relations with its employees are satisfactory.

The power device business' worldwide workforce consisted of approximately
1,455 full- and part-time employees as of February 28, 1999, none of whom were
represented by collective bargaining arrangements. Of the total number of
employees, 910 were engaged in production, 65 were engaged in marketing and
sales, 264 were engaged in administration and 216 were engaged in research and
development. In connection with the acquisition of the power device business, we
retained all of the employees of the power device business.

Fairchild Korea sponsors a Power Device Business Labor Council consisting
of seven representatives from the non-management workforce and seven members of
the management workforce. The Labor Council, under Korean law, is recognized as
a representative of the workforce for the purposes of consultation and
cooperation only. The Labor Council therefore has no right to take a work action
or to strike and is not party to any labor or collective bargaining agreements
with Fairchild Korea Semiconductor Ltd. Management of the power device business
believes that its relations with its employees and the Labor Council are
satisfactory.

PROPERTIES

In the United States, our corporate headquarters as well as the
headquarters and wafer fabrication operations of the Logic Products Group are
located in approximately 240,000 square feet of space in properties that we own
in South Portland, Maine. Additional manufacturing, warehouse

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and office facilities are housed in approximately 300,000 square feet and
120,000 square feet of space in properties in Salt Lake City, Utah, which
Fairchild International owns, and Mountain View, California, which Fairchild
International leases, respectively. Additional office and manufacturing space is
located in leased facilities in Sunnyvale, California and San Diego, California.

Fairchild International is currently in the process of transferring its
analog wafer fabrication plant from its Mountain View, California facility to
its South Portland, Maine facility. On April 23, 1999, Fairchild International
sold its Mountain View property for approximately $35.0 million. The sale price
is subject to (1) a $3.5 million holdback which will be paid to Fairchild
International unless the city council rejects the buyer's application to
increase its building density from 35% to 50%; and (2) a $500,000 deposit which
will be placed into an escrow account and will be released to Fairchild
International upon the demolition of the existing structures on the Mountain
View property. In connection with the sale of the Mountain View property,
Fairchild International has entered into an agreement to lease back the property
until the transfer of its facility from the property is completed. We pay
monthly rent of $125,000 under the lease, which expires on December 31, 2000.

In Asia, we own or lease approximately 397,000 square feet and 170,000
square feet of manufacturing and warehouse space in Penang, Malaysia, and Cebu,
the Philippines, respectively. Leases affecting the facilities in Penang,
Malaysia, and Cebu, the Philippines, are generally in the form of long-term
ground leases, with Fairchild International owning improvements on the land. The
initial terms of these leases will expire beginning in 2014. In some cases
Fairchild International has the option to renew the lease term, while in others
Fairchild International has the option to purchase the leased premises. We lease
additional warehouse space in Singapore.

We maintain regional sales offices in leased space in Swindon, England,
Kowloon, Hong Kong, and Tokyo, Japan. In addition, we maintain smaller sales
offices in leased space around the world.

The power device business' corporate headquarters as well as its wafer
fabrication operations are located in approximately 766,000 square feet of space
in properties owned by the power device business in Bucheon, South Korea. See
"-- Manufacturing."

We believe that our facilities around the world, whether owned or leased,
are well-maintained. Our manufacturing facilities contain sufficient productive
capacity to meet our needs for the foreseeable future.

LEGAL PROCEEDINGS

From time to time we are involved in legal proceedings arising in the
ordinary course of business. We believe there is no litigation pending that
could have, individually or in the aggregate, a material adverse effect on our
business, financial condition, results of operations or cash flows.

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THE ACQUISITION

The following contains summaries of certain agreements which we entered
into in connection with the acquisition of the power device business. The
descriptions in the summaries of the terms and provisions of the agreements is
not complete, and you should read the agreements themselves, copies of which
have been filed or incorporated by reference as exhibits to the Registration
Statement of which this prospectus is a part.

BUSINESS TRANSFER AGREEMENT

The Business Transfer Agreement provided for the sale from Samsung
Electronics to Fairchild Korea Semiconductor Ltd., an indirect wholly owned
subsidiary of Fairchild Semiconductor Corporation, of substantially all of the
assets and the assumption of the liabilities occurring in the ordinary course of
business of the power device business for a purchase price of approximately
$406.8 million, net of purchase price adjustments based on the working capital
of the power device business upon consummation of the acquisition of the power
device business and an income payment Samsung Electronics made to Fairchild
Korea Semiconductor Ltd. upon consummation of the acquisition.

The assets purchased by Fairchild Korea Semiconductor Ltd. include, among
other things, land, a manufacturing plant and other buildings in Bucheon, South
Korea, as well as, with some exceptions and limitations, all of the
manufacturing equipment, inventory, motor vehicles, contractual rights and
obligations, governmental permits and licenses and all other assets used to
conduct the power device business. In addition, the purchased assets included
all of the patents, trademarks, mask works, copyrights and other intellectual
property used primarily in the power device business. Samsung retained a
co-ownership interest in some of the assembly and test patents transferred in
the acquisition. Intellectual property which is used in connection with the
power device business, but which is also used by other affiliated Samsung
companies, is licensed to Fairchild Korea Semiconductor Ltd. by Samsung
Electronics. See "-- Intellectual Property and Trademark License Agreements."

Fairchild Korea Semiconductor Ltd. did not assume liabilities incurred by
or relating to the power device business on or prior to consummation of the
acquisition of the power device business, except for liabilities that arise in
the ordinary course of business and income tax liabilities as discussed below.
The agreement provides that Samsung Electronics will indemnify Fairchild Korea
Semiconductor Ltd. for those and other excluded liabilities as well as for
environmental liabilities of the power device business. Samsung Electronics'
liability under the environmental indemnity, together with other indemnification
claims under the agreement, is limited to $150.0 million. Samsung Electronics
will also indemnify Fairchild Korea Semiconductor Ltd., for a period of three
years after consummation of the acquisition of the power device business, for
damages that result from third-party claims that the products of the power
device business infringe patents owned by those third parties that were issued
before consummation of the acquisition. This separate patent infringement
indemnity is subject to limitations and conditions. For example, it does not
apply if the infringement claim would have been avoided were it not for a
post-closing product design change by Fairchild Korea Semiconductor Ltd. Samsung
Electronics' liability under the patent indemnity provision is limited to $40.0
million.

The agreement provides that the economic benefit or detriment of the power
device business inure to Fairchild Korea Semiconductor Ltd. as of January 1,
1999. In connection with this provision, Samsung Electronics agreed to pay
Fairchild Korea Semiconductor Ltd. an amount equal to the net income before
income taxes of the power device business from January 1, 1999 to March 15,
1999, and half the net income before income taxes from March 15, 1999 to the
date the acquisition of the power device business was consummated. Accordingly,
the agreement provides that Fairchild Korea

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Semiconductor Ltd. assume liabilities for income taxes of the power device
business, with respect to amounts received, for the same period.

Under the agreement, Fairchild Korea Semiconductor Ltd. agreed to offer
employment to all power device business employees in South Korea and to provide,
either itself or through the Transitional Services Agreement, employee benefits
comparable to those provided by Samsung Electronics at the time of consummation
of the acquisition of the power device business. The agreement also contains a
provision that generally forbids Samsung Electronics from competing with the
power device business for a period of five years after consummation of the
acquisition of the power device business. In addition, both Samsung Electronics
and Fairchild Korea Semiconductor Ltd. have agreed that, for one year following
consummation of the acquisition of the power device business, neither of them
will solicit any director, officer or employee of the other party to terminate
his or her employment with the other party. In case an employee of either party
seeks employment with the other without solicitation, Samsung Electronics and
Fairchild Korea Semiconductor Ltd. have agreed to consult one another before
making a hiring decision.

As required by the Business Transfer Agreement, Samsung Electronics and
Fairchild Korea Semiconductor Ltd. have entered into the Intellectual Property
License Agreement, the Transitional Services Agreement, the Assembly and Test
Services Agreements, the Trademark License Agreement, the Foundry Sale
Agreement, the Product Supply Agreement, the EPI Services Agreement, the Photo
Mask Supply Agreement and an employment agreement with Dr. Deok J. Kim, Vice
President and General Manager of the power device business.

In connection with the consummation of the acquisition of the power device
business, Fairchild Semiconductor Corporation, Fairchild Korea Semiconductor
Ltd. and Samsung Electronics entered into a closing agreement providing, among
other things, for post-consummation filings, mechanisms for determining purchase
price adjustments and confirming the agreed-upon schedules to the Business
Transfer Agreement.

INTELLECTUAL PROPERTY AND TRADEMARK LICENSE AGREEMENTS

Under the Intellectual Property License Agreement, Samsung Electronics
non-exclusively licensed to Fairchild Korea Semiconductor Ltd. patent, copyright
and mask work rights that are used in connection with the power device business,
but that were not transferred to Fairchild Korea Semiconductor Ltd. under the
Business Transfer Agreement. The licensed rights include rights to intellectual
property of Samsung Electronics as well as to certain intellectual property used
in the power device business under licenses granted by third parties, in each
case to the extent Samsung Electronics has the right to grant a license without
obligation or accounting to others. Licensed patent rights include rights to
design, develop, make, have made, use, offer for sale, import, package, sell or
modify any product of the power device business that is under design or
development or being manufactured or sold by the power device business on the
date of the acquisition of the power device business, as well as similar rights
with respect to derivative products that are designed for the power device
business and embody technologies assigned or licensed to Fairchild Korea
Semiconductor Ltd. in the acquisition of the power device business. Samsung
Electronics also sublicensed to Fairchild Korea Semiconductor Ltd. rights to
software necessary for the operation of the power device business, for the life
of Samsung Electronics' license for that software.

For patents and other intellectual property that were transferred to
Fairchild Korea Semiconductor Ltd. under the Business Transfer Agreement,
Fairchild Korea Semiconductor Ltd. has non-exclusively licensed back to Samsung
Electronics rights to such intellectual property, to the extent Samsung
Electronics needs such rights to fulfill obligations to third parties under
existing agreements, or to prosecute or defend infringement and other claims of
third parties arising in connection with the power device business prior to the
acquisition of the power device business.

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<PAGE> 87

Under the Trademark License Agreement, Samsung Electronics has licensed
Fairchild Korea Semiconductor Ltd. to continue to use Samsung Electronics'
trademarks on power device business products, and to use part numbers and other
proprietary identification systems in the power device business as long as
necessary for up to ten years to avoid retooling, requalification of existing
products or customer disruption. Fairchild Korea Semiconductor Ltd. has agreed
to use its good faith efforts to discontinue using Samsung Electronics'
trademarks and to replace them with Fairchild International's trademarks and
identification numbers. As the use of Samsung Electronics trademarks by
Fairchild Korea Semiconductor Ltd. is discontinued, its rights under the
Trademark License Agreement will terminate.

TRANSITIONAL SERVICES AGREEMENT

Under the Transitional Services Agreement, Samsung Electronics has agreed
to provide a number of business support services to Fairchild Korea
Semiconductor Ltd. that assist the power device business' conversion into an
indirect subsidiary of Fairchild International. The agreement requires Samsung
Electronics to provide Fairchild Korea Semiconductor Ltd., for up to three years
following the acquisition of the power device business, logistics, purchasing,
sales, personnel, financial services, intellectual property administration and
other services that have been provided to the power device business by Samsung
Electronics or its sales subsidiaries and that were necessary to operate the
power device business during calendar year 1998. Information technology services
are provided under a separate agreement between Fairchild Korea Semiconductor
Ltd. and Samsung SDS Co., Ltd. The Transitional Services Agreement requires
services to be provided at a cost per service consistent with costs charged to
the power device business during calendar year 1998, subject to adjustments for
inflation and before accounting for the effects of currency exchange rate
changes. Fairchild Korea Semiconductor Ltd. has the right to terminate any given
service under the Transitional Services Agreement upon 90 days' notice. Under
the Transitional Services Agreement, Samsung Electronics bears any costs of
Fairchild Korea Semiconductor Ltd. separating from the provided services, except
for the costs of any third-party assistance, which will be shared equally by
Samsung Electronics and Fairchild Korea Semiconductor Ltd., and costs of
Fairchild Semiconductor Corporation's or our company's personnel, which will be
borne by Fairchild International. Samsung Electronics will invoice Fairchild
Korea Semiconductor Ltd. monthly for services provided under the Transitional
Services Agreement.

MANUFACTURING AGREEMENTS

Samsung Electronics and Fairchild Korea Semiconductor Ltd. have entered
into several manufacturing agreements, including a Product Supply Agreement
pursuant to which Fairchild Korea Semiconductor Ltd. has agreed to supply
products to Samsung Electronics, a Foundry Sale Agreement pursuant to which
Fairchild Korea Semiconductor Ltd. has agreed to provide foundry manufacturing
services for Samsung Electronics, Assembly and Test Services Agreements pursuant
to which Samsung Electronics and one of its subsidiaries have agreed to provide
assembly and test services to Fairchild Korea Semiconductor Ltd., a Photo Mask
Supply Agreement pursuant to which Samsung Electronics has agreed to provide
mask work services for Fairchild Korea Semiconductor Ltd., and an EPI Services
Agreement pursuant to which Samsung Electronics has agreed to provide wafer
fabrication services for Fairchild Korea Semiconductor Ltd..

Under the Product Supply Agreement, Samsung Electronics has agreed that for
three years it will purchase power device business products from Fairchild Korea
Semiconductor Ltd. at a volume level equal to 701,941,000 units per year, the
average of its purchases from the power device business during 1996, 1997 and
1998. Prices charged to Samsung Electronics under the Product Supply Agreement
will be based on prices paid by Samsung Electronics during the power device
business' fourth quarter of 1998, subject to quarterly adjustment and
reconciliation to reflect changes in the

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<PAGE> 88

worldwide market price for such products. Samsung Electronics has also agreed
that for three years it will provide Fairchild Korea Semiconductor Ltd. with an
opportunity to match quotes of other suppliers with respect to Samsung
Electronics' needs for products manufactured by the power device business, to
the extent such needs exceed Samsung Electronics' committed volume of purchases
under the agreement. Samsung Electronics' purchase commitments are conditioned
on the ability of Fairchild Korea Semiconductor Ltd. to satisfy Samsung
Electronics' quality and other specifications for the power device business
products. Samsung Electronics also agreed to use its best efforts to cause
affiliated Samsung companies to designate Fairchild Korea Semiconductor Ltd. as
a preferred supplier of power device business products to the extent permissible
under applicable laws and regulations.

Under the Foundry Sale Agreement, Fairchild Korea Semiconductor Ltd. has
agreed to provide semiconductor wafer manufacturing services for Samsung
Electronics for a three-year period following consummation of the acquisition of
the power device business. The agreement is structured to provide that Fairchild
Korea Semiconductor Ltd. will earn a profit from foundry sales to Samsung
Electronics equal to 27.7 billion Won, 17.3 billion Won and 8.7 billion Won in
each of the respective years of the agreement. Profits earned in excess of each
annual minimum amount will be counted toward the next year's minimum profit
amount.

Under the Assembly and Test Services Agreements, Samsung Electronics has
agreed to provide assembly and test services for Fairchild Korea Semiconductor
Ltd. at Samsung Electronics' Onyang, South Korea facility and a subsidiary of
Samsung Electronics has agreed to provide such services at facilities in Suzhou,
China for three years following consummation of the acquisition of the power
device business. Under separate agreements for services to be provided at each
location, the costs charged for such services should be consistent (before
accounting for the effects of currency exchange rate changes) with historical
costs charged to the power device business, subject to adjustments for inflation
in the case of Suzhou and 5% annual price decreases, in the case of Onyang.
Fairchild Korea Semiconductor Ltd. has the right to terminate the Suzhou
agreement at any time, and the Onyang agreement after its second anniversary, in
either case upon 90 days' notice. Each agreement also provides that Samsung
Electronics in the case of Onyang, or its subsidiary in the case of Suzhou, and
Fairchild Korea Semiconductor Ltd. will enter into good-faith negotiations to
allow Fairchild Korea Semiconductor Ltd. the opportunity to own or have an
interest in the assembly and test facilities at Onyang and Suzhou.

Under the Photo Mask Supply Agreement, Samsung Electronics has agreed to
supply masks, which are used in semiconductor wafer manufacturing, to Fairchild
Korea Semiconductor Ltd. for three years following consummation of the
acquisition of the power device business at costs consistent (before accounting
for the effects of currency exchange rate changes) with costs historically
charged to the power device business. Under the EPI Services Agreement, Samsung
Electronics has agreed to provide epitaxial fabrication, an intermediate step in
wafer manufacturing, for three years following consummation of the acquisition
of the power device business at costs consistent (before accounting for the
effects of currency exchange rate changes) with historical costs charged to the
power device business, plus a 10% markup.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
persons who are members of the Board of Directors or executive officers of our
company. Each director of our company will hold office until the next annual
meeting of shareholders of our company or until his successor has been elected
and qualified.

<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Kirk P. Pond......................... 54 Chairman of the Board of Directors, President and
Chief Executive Officer
Joseph R. Martin..................... 51 Executive Vice President and Chief Financial Officer
and Director
Daniel E. Boxer...................... 53 Executive Vice President and Chief Administrative
Officer, General Counsel and Secretary
Jerry M. Baker....................... 47 Executive Vice President and General Manager, Discrete
Power and Signal Technologies Group
W. Wayne Carlson..................... 57 Executive Vice President and General Manager, Logic
Products Group
Keith Jackson........................ 43 Executive Vice President and General Manager, Analog,
Mixed Signal and Non-Volatile Memory Products Group
Darrell Mayeux....................... 56 Senior Vice President, Worldwide Sales and Marketing
David A. Henry....................... 37 Vice President, Corporate Controller
Matthew W. Towse..................... 36 Vice President, Treasurer
Brian L. Halla....................... 52 Director
William N. Stout..................... 60 Director
Richard M. Cashin, Jr. .............. 46 Director
Paul C. Schorr IV.................... 32 Director
Ronald W. Shelly..................... 55 Director
</TABLE>

Kirk P. Pond, Chairman of the Board of Directors, President and Chief
Executive Officer. Mr. Pond has been the President of our company since June
1996. Since 1987, Mr. Pond had held several executive positions with National
Semiconductor, most recently Executive Vice President and Chief Operating
Officer. Prior executive management positions were with Fairchild Semiconductor
Corporation, Texas Instruments and Timex Corporation.

Joseph R. Martin, Executive Vice President, Chief Financial Officer and
Director. Mr. Martin has been the Executive Vice President and Chief Financial
Officer of our company since June 1996. Mr. Martin had held several senior
financial positions with National Semiconductor since 1989, most recently as
Vice President of Finance, Worldwide Operations. Prior to joining National
Semiconductor, Mr. Martin was Senior Vice President and Chief Financial Officer
of VTC Incorporated.

Daniel E. Boxer, Executive Vice President and Chief Administrative Officer,
General Counsel and Secretary. Mr. Boxer joined our company in March 1997. He
has practiced law for 27 years and since 1975 had been a partner at the law firm
of Pierce Atwood, Portland, Maine. His practice at Pierce Atwood included
advising many large manufacturing companies, including our company, on business,
governmental, legal compliance and environmental issues. He was most recently a
senior partner and Chairman of the firm's Management Committee.

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<PAGE> 90

Jerry M. Baker, Executive Vice President and General Manager, Discrete
Power and Signal Technologies Group. Mr. Baker has been Executive Vice
President and General Manager, Discrete Power and Signal Technologies Group,
since December 1996. He has spent more than 24 years in a variety of engineering
and management positions within National Semiconductor, most recently as Vice
President and General Manager, Discrete Products Divisions.

W. Wayne Carlson, Executive Vice President and General Manager, Logic
Products Group. Mr. Carlson has been Executive Vice President and General
Manager, Logic Products Group, since June 1996. He has 32 years of prior
engineering and management experience with National Semiconductor and Fairchild
International, most recently as Vice President and General Manager, Data
Management Division.

Keith Jackson, Executive Vice President and General Manager, Analog, Mixed
Signal and Non-Volatile Memory Products Group. Mr. Jackson joined our company
in March 1998. He has over 20 years of semiconductor industry experience. Most
recently, Mr. Jackson was President of TriTech Microelectronics in Singapore, a
manufacturer of analog and mixed signal products, which he joined in 1996. Prior
to that, he worked for National Semiconductor for 10 years, most recently as
Vice President and General Manager of the Analog and Mixed Signal division. He
has also held various marketing and engineering positions at National
Semiconductor and Texas Instruments.

Darrell Mayeux, Senior Vice President, Worldwide Sales and Marketing. Mr.
Mayeux has been Senior Vice President, Worldwide Sales and Marketing since
November 1996. He had been with National Semiconductor since 1992 as Vice
President of Sales and Marketing for Logic Products Group. He previously held
engineering, marketing and general management positions with Texas Instruments
and Philips.

David A. Henry, Vice President, Corporate Controller. Mr. Henry has been
Corporate Controller since December 1996. Previously, he had been with National
Semiconductor for eight years, and held various financial management positions,
most recently as Director of Financial Planning and Analysis for the Fairchild
Business of National Semiconductor. Mr. Henry previously worked for Amfac, Inc.
as well as Ernst and Whinney, and is a Certified Public Accountant.

Matthew W. Towse, Vice President, Treasurer. Mr. Towse became Treasurer in
March 1997. He had been with National Semiconductor for six years and has held
various financial management positions, most recently as Controller for the
Fairchild International plant in South Portland, Maine. Mr. Towse previously
worked for Ernst & Young and is a Certified Public Accountant.

Brian L. Halla, Director. Mr. Halla became a Director upon consummation of
the recapitalization of Fairchild Semiconductor Corporation. He had been
employed by National Semiconductor since 1996, serving as Chairman of the Board,
President and Chief Executive Officer. From 1988 to 1996, he was employed by LSI
Logic Corporation, where he was (in reverse chronological order) Executive Vice
President, LSI Logic Products; Senior Vice President and General Manager,
Microprocessor/DSP Products Group; and Vice President, General Manager,
Microprocessor Products Group.

William N. Stout, Director. Mr. Stout became a Director in March 1997. He
has been Chairman and Chief Executive Officer of Sterling Holding Company LLC
and Sterling's subsidiaries since 1988. Sterling is engaged, through
subsidiaries including Trompeter Electronics Inc. and Semflex, Inc. in the
manufacture and sale of coaxial connectors, coaxial cable and coaxial cable
assemblies. From 1985 to 1988, Mr. Stout was a private investor and consultant.
From 1979 to 1985, Mr. Stout was President and Chief Executive Officer of Lundy
Electronics & Systems, which manufactured electronic products and systems.

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<PAGE> 91

Richard M. Cashin, Jr., Director. Mr. Cashin became a Director in March
1997. He has been employed by Citicorp Venture Capital Ltd. since 1980, and has
been President since 1994. Mr. Cashin is a director of Lifestyle Furnishings
International, Euramax International plc, Delco Remy International, Gerber
Childrenswear, MSX International, IPC Information Systems and Titan Wheel
International.

Paul C. Schorr IV, Director. Mr. Schorr became a Director in March 1997.
He has been employed by and been a Vice President of Citicorp Venture Capital
Ltd. since 1996. Prior to joining Citicorp Venture Capital Ltd., Mr. Schorr was
employed by McKinsey & Company, Inc. from 1993 to 1996 (in reverse chronological
order) as an engagement manager and an associate. He is a director of KEMET
Corporation and Sybron Chemical.

Ronald W. Shelly, Director. Mr. Shelly became a Director in June 1998.
Until January 31, 1999, he was employed by Solectron Texas, an electronic
manufacturing services company, where he served as its President from April 1996
until April 1999 when he retired. He currently serves as a consultant to
Solectron. Mr. Shelly has more than 30 years experience in the semiconductor
industry. Prior to joining Solectron, he was employed by Texas Instruments for
30 years, most recently as Executive Vice President, Custom Manufacturing
Services.

DIRECTOR COMPENSATION AND ARRANGEMENTS

Two of our non-employee directors receive cash compensation for their
services as a director. Messrs. Stout and Shelly receive $20,000 per year, plus
$1,500 for meetings attended in person and $500 for meetings attended by
teleconference. Messrs. Halla, Cashin and Schorr do not receive cash
compensation for their services as directors. We do not pay our employee
directors any fees or additional compensation for service as members of our
Board. We reimburse all our directors for expenses incurred in attending our
Board meetings.

In connection with this offering, on June 24, 1999 our Board of Directors
authorized a directors' option program pursuant to which non-employee Directors
will receive options to purchase 7,000 shares of Class A Common Stock each year
at an exercise price equal to the fair market value of the shares on the date of
grant, subject to vesting over a five-year period after the date of grant. In
addition, the Board authorized grants to each non-employee Director of options
to purchase 10,000 shares of Class A Common Stock, at an exercise price equal to
the fair market value of the shares at or prior to the initial public offering,
which options will be fully vested on the grant date.

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EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning the
compensation received by our Chief Executive Officer and our four other most
highly compensated executive officers relating to services rendered during
Fiscal 1998, 1997 and 1996:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- --------------
NUMBER OF
FISCAL STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (IN SHARES)(1) COMPENSATION(2)
- --------------------------- ------ -------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Kirk P. Pond(3).............................. 1998 $449,994 $435,969 -- $ 39,844
Chairman of the Board of Directors, 1997 424,624 594,382 100,000 3,018,314
President and Chief Executive 1996 414,521 146,300 18,000 34,292
Officer
Joseph R. Martin............................. 1998 262,024 152,240 -- 19,818
Executive Vice President and Chief 1997 201,614 147,385 9,000 1,251,476
Financial Officer and Director 1996 181,466 68,875 7,500 7,114
Daniel E. Boxer.............................. 1998 262,024 152,240 -- 254,283
Executive Vice President and Chief 1997 52,885 -- -- --
Administrative Officer, 1996 -- -- -- --
General Counsel and Secretary
W. Wayne Carlson............................. 1998 250,004 138,406 -- 17,081
Executive Vice President and 1997 245,862 198,582 10,000 801,614
General Manager, Logic 1996 234,125 64,815 7,000 8,895
Products Group
Jerry M. Baker............................... 1998 250,009 138,406 -- 12,598
Executive Vice President and 1997 204,864 241,269 10,000 602,782
General Manager, Discrete Power 1996 169,370 54,744 10,200 6,906
and Signal Technologies
</TABLE>

- -------------------------

(1) All options granted were for National Semiconductor common stock pursuant to
National Semiconductor's Stock Option Plan. We did not assume National
Semiconductor's obligations under its Stock Option Plan.

(2) Amounts shown reflect contributions and allocations to National
Semiconductor and/or Fairchild International defined contribution retirement
plans and the value of insurance premiums paid by National Semiconductor
and/or Fairchild International for term life insurance and disability
insurance as follows: for Fiscal 1998, all amounts shown except $238,262 for
Mr. Boxer representing a one-time signing bonus. For Fiscal 1997, $18,314
for Mr. Pond; $4,289 for Mr. Martin; $4,500 for Mr. Baker; and $4,542 for
Mr. Carlson. For Fiscal 1996, all amounts shown. The remainder of the
amounts shown for Fiscal 1997 are comprised of one-time retention bonuses
paid by National Semiconductor as follows: $3,000,000 to Mr. Pond;
$1,247,187 to Mr. Martin; $598,282 to Mr. Baker; and $797,072 to Mr.
Carlson.

(3) In addition to the amounts disclosed in the table, Mr. Pond received, as
long-term compensation from National Semiconductor in Fiscal 1996, $311,190
in long-term incentive plan payoffs pursuant to National Semiconductor's
Performance Award Plan and, in Fiscal 1997, a severance payment from
National Semiconductor of $742,757. National Semiconductor's obligations
under the Performance Award Plan were not assumed by Fairchild
International.

The following table provides information with respect to the named
executive officers concerning the exercise of National Semiconductor options
during Fiscal 1998, and unexercised National

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<PAGE> 93

Semiconductor options held as of the end of Fiscal 1998. No stock options were
granted during Fiscal 1998 under the FSC Semiconductor Stock Option Plan to the
named executive officers.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
NUMBER OF UNEXERCISED UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY
ACQUIRED ON VALUE FISCAL 1998 OPTIONS AT FISCAL
NAME EXERCISE(1) REALIZED(2) END 1998 END
- ---- ------------ ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Kirk P. Pond.......................... 94,000 $1,586,716 80,000(3) $75,000(3)(4)
Joseph R. Martin...................... 22,750 176,156 -- --
Daniel E. Boxer....................... -- -- -- --
W. Wayne Carlson...................... 22,375 207,063 -- --
Jerry M. Baker........................ -- -- -- --
</TABLE>

- -------------------------

(1) Options exercised were for National Semiconductor common stock. The table
excludes any shares acquired under the National Semiconductor Employees
Stock Purchase Plan.

(2) Equals the market value of the underlying shares (based on the opening price
of National Semiconductor on the date of exercise) minus the exercise price.

(3) All options held by Mr. Pond were exercisable at the end of Fiscal 1998.

(4) Represents the difference between $16.875, the market price per share of
National Semiconductor common stock at fiscal year end, and the exercise
price.

DEFERRED COMPENSATION AGREEMENTS

National Semiconductor adopted the National Semiconductor Corporation
Deferred Compensation Plan shortly before the establishment of Fairchild
Semiconductor as an independent entity in March 1997. Under the Deferred
Compensation Plan, Kirk P. Pond, Joseph R. Martin, W. Wayne Carlson and Jerry M.
Baker elected to defer receipt of amounts that otherwise would have become
payable in Fiscal 1997 under National Semiconductor's Key Employee Incentive
Plan, Discrete Retention Bonus Plan, Discrete Performance Incentive
Plan -- Executive Level and/or letter agreements with National Semiconductor
concerning payments related to the establishment of Fairchild Semiconductor
Corporation as an independent entity. In March 1997, Fairchild Semiconductor
Corporation assumed the Deferred Compensation Plan and all liabilities with
respect to payments due thereunder, and the Deferred Compensation Plan
participants released National Semiconductor from those liabilities. The
Deferred Compensation Plan is administered by the Board of Directors. No
compensation from Fairchild International is eligible for deferral under the
plan.

Amounts participants deferred in Fiscal 1997 pursuant to the Deferred
Compensation Plan were credited to an account for that participant on the books
of Fairchild International and will be credited with earnings based on the
employee's election. Each Deferred Compensation Plan participant has elected
that specific portions of the earnings on his deferrals will be measured based
on the performance of our company's 12% Series A Cumulative Compounding
Preferred Stock and common stock, and that a portion of the earnings on his
deferrals will be measured based on short-term U.S. Treasury obligations.

Amounts credited to a Deferred Compensation Plan participant's account also
will be paid based on the participant's election. Each participant has elected
that the portion of his account on which earnings are measured based on shares
of our company's stock will be paid when such shares, if actually held, would be
redeemed, automatically or upon request, by our company to the extent that all
restrictions on the transfer of such shares have lapsed. Generally, all payments
under the Deferred Compensation Plan will be made in cash. Payments will be made
in all events (1) upon liquidation

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or dissolution of Fairchild Semiconductor Corporation; (2) upon a sale of fifty
percent (50%) or more of the equity interests in our company or Fairchild
Semiconductor Corporation, consolidation or merger of Fairchild Semiconductor
Corporation with or into another entity, or sale of all or substantially all of
Fairchild International's assets; (3) to the participant's beneficiary upon his
death; and (4) upon the mandatory redemption of 12% Series A Cumulative
Compounding Preferred Stock. Payments pursuant to items (2) through (4) of the
portion of any account the earnings on which are measured based on the
performance of our company stock will only be made, however, to the extent that
shares of such stock, if actually held, would be redeemed at that time upon
request. Payment to a participant may be accelerated if the participant suffers
an unforeseeable financial emergency or severe hardship.

In March 1997, Fairchild International established a grantor trust to which
National Semiconductor and Fairchild International together contributed cash in
an amount equal to the aggregate amount of deferrals under the Deferred
Compensation Plan as of the closing date of the recapitalization of Fairchild
Semiconductor Corporation. The trust agreement establishing the trust provides
that such amount will be invested in specific amounts of 12% Series A Cumulative
Compounding Preferred Stock and common stock.

EMPLOYMENT AGREEMENTS

In March 1997, Fairchild International and Sterling entered into an
employment agreement with each of Kirk P. Pond and Joseph R. Martin. The
employment agreements were entered into upon the closing of the recapitalization
in 1997.

Mr. Pond is employed as Chairman of the Board of Directors and as Chief
Executive Officer of Fairchild International. Mr. Martin is employed as
Executive Vice President and Chief Financial Officer, and serves as a member of
our Board of Directors. The respective agreements provide for an annual base
salary of $450,000 for Mr. Pond and $250,000 for Mr. Martin (which was
subsequently increased to $285,000), subject in each case to increases at the
discretion of the Board of Directors and to annual performance bonuses in
accordance with the FSC Semiconductor Corporation 1997 Executive Officer
Incentive Plan. Each agreement also provides for the Executive to receive
standard Fairchild International benefits. The term of each agreement is three
years subject to automatic renewal for up to two consecutive one-year terms
unless, in each case, either we or the Executive gives prior notice of
non-renewal. Under each agreement, either we or the Executive may terminate the
agreement with or without cause. If we terminate without cause or the Executive
terminates with cause, each agreement requires us to pay the Executive monthly
severance payments (approximately equal to his salary at the time of termination
plus an amount equal to incentive awards payable in the fiscal year prior to
termination) until the end of the term of the agreement or for 24 months if
longer. Each Executive is subject to a non-competition covenant during the term
of his agreement and for a period of at least 24 months following termination or
expiration of the agreement. On June 24, 1999, the Board of Directors authorized
increases of Mr. Pond's salary to $600,000 and of Mr. Martin's salary to
$360,000 per year.

PERSONAL SAVINGS AND RETIREMENT PLAN

We have adopted a Personal Savings and Retirement Plan, which we refer to
as the Retirement Plan, for all eligible employees who are not foreign nationals
or contract employees. The Retirement Plan includes a cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code and matching
contributions under Section 401(m) of the Internal Revenue Code. Under the
401(k) plan, participants may elect to defer from 1% to 15% of their
compensation on an after-tax basis, directing the investment of these elective
deferrals among several mutual funds. We will make

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quarterly matching contributions equal to 75% of the first 6% of an employee's
before-tax elective deferral contributions for the period. Both elective
deferrals and matching contributions under the 401(k) plan will be fully vested
at all times.

FAIRCHILD BENEFIT RESTORATION PLAN

We have adopted the Fairchild Benefit Restoration Plan. Under the Fairchild
Benefit Restoration Plan, certain of our employees are eligible (i) to defer on
a before-tax basis amounts over and above those they are permitted by law to
defer under Fairchild International's Retirement Plan and (ii) to receive
matching contributions from our company equal to the difference between matching
contributions received under the Retirement Plan and the matching contributions
they would have received under the Retirement Plan but for statutory limits
applicable to such contributions. Deferral and matching contributions are
credited to accounts established and maintained by our company. Interest at a
rate equal to a commonly reported rate for long-term "A"-rated corporate bonds
is credited to participants' accounts at such times as determined by the Board
of Directors which administers the Fairchild Benefit Restoration Plan. The
Fairchild Benefit Restoration Plan is an unfunded plan of deferred compensation,
and amounts payable thereunder are paid out of our general corporate assets and
are subject to the claims of our general creditors.

FAIRCHILD INCENTIVE PROGRAM

We have adopted the Fairchild Incentive Program. Under the Fairchild
Incentive Program, all of our regular full-and part-time employees (with certain
limited exceptions) are eligible to receive annual or semiannual incentive
awards. The amount of each payment is based on a given employee's "Target
Award." Under the current formulation of the Fairchild Incentive Program, the
Target Award is 5% of annual compensation for non-exempt employees, from 5% to
15% (depending on grade level) of annual compensation for exempt employees, and
up to 35% (depending on grade level) of annual compensation for certain
management-level employees. Payment awards range from 0% to 250% of the Target
Award, depending on whether we achieve certain pre-established earnings goals.
Certain participants in the Fairchild Incentive Program are eligible to defer
awards, and to the extent that the deferral option applies only to certain
Fairchild Incentive Program participants, it constitutes a separate unfunded
plan known as the Fairchild Select Employee Incentive Deferral Plan. For
participants who elect deferral, we will establish and maintain book-entry
accounts to which we shall credit deferred payments and interest equal to a
commonly reported rate for long-term "A"-rated corporate bonds. We pay deferred
amounts and accrued interest to participants upon termination or on the date
pre-selected by the participant according to the terms of the Deferral Plan. The
Compensation Committee, which is presently comprised of the entire Board of
Directors, administers the Fairchild Incentive Program and reserves the right,
among other things, not to make award payments, and to modify or amend the
Fairchild Incentive Program. The Deferral Plan is an unfunded plan of deferred
compensation, and benefits payable thereunder are paid out of our general
corporate assets and are subject to the claims of our general creditors.

FSC SEMICONDUCTOR CORPORATION 1997 EXECUTIVE OFFICER INCENTIVE PLAN

We adopted the FSC Semiconductor Corporation 1997 Executive Officer
Incentive Plan on March 11, 1997 and subsequently amended and restated it on
June 1, 1998. Under the Executive Officer Incentive Plan, certain of our
executive officers may be eligible to receive annual incentive awards, based on
a "Target Award" which ranges from 40% to 90% of an officer's base annual
compensation. Actual award payments range from 0% to 250% of the Target Award
depending on the extent to which we achieve or surpass pre-established earnings
goals. Participants may elect to defer all or any portion of an award payment.
For participants who elect deferral, we will establish and maintain book-entry
accounts, and credit cash account annually with deferred payments, as well as

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interest at a rate equal to a commonly reported rate for long-term A-rated
corporate bonds. We pay deferrals and accrued interest thereon to participants
upon termination or on a date pre-selected by the participant according to the
terms of the Executive Officer Incentive Plan. The Board of Directors determines
eligibility for Executive Officer Incentive Plan participation, performance
goals and other terms of the Executive Officer Incentive Plan. To the extent of
any deferrals, the Executive Officer Incentive Plan is an unfunded plan of
deferred compensation, and benefits payable thereunder are paid out of our
general corporate assets and are subject to the claims of our general creditors.

1997 STOCK OPTION PLAN

Fairchild International has adopted the 1997 Stock Option Plan. We may
grant to regular salaried officers and key employees of our company and
Fairchild Semiconductor Corporation options for up to 6,084,000 shares of Class
A Common Stock under the 1997 Stock Option Plan, as amended. The plan authorizes
our company to grant either (i) options intended to constitute incentive stock
options under the Internal Revenue Code of 1986, as amended, or (ii)
non-qualified stock options. Under the 1997 Stock Option Plan, our board of
directors determines the exercise price of each option granted. The maximum term
of any option is ten years from the date of grant for incentive stock options
and ten years and one day from the date of grant for non-qualified stock
options. Options granted are exercisable at the determination of our board of
directors, and most options currently vest ratably over approximately five
years. Within any one-year period, employees may not receive options to purchase
more than 200,000 shares of Class A Common Stock. As of June 25, 1999, there
were 7,785,698 shares of common stock subject to outstanding options and
warrants. On June 24, 1999, the board of directors authorized grants of options
to purchase a total of 625,000 shares of Class A Common Stock, including options
for 200,000 shares to Kirk P. Pond, 100,000 shares to Joseph R. Martin, 75,000
shares to Daniel E. Boxer, 50,000 shares to W. Wayne Carlson and 50,000 shares
to Jerry M. Baker. The options will vest over a five-year period following the
date of grant and may be exercised at the fair market value on the date of
grant. In addition, the board authorized the grant of options to purchase shares
of Class A Common Stock equal in the aggregate to 2% of the number of shares
outstanding after giving effect to the offering. These options will vest over a
five-year period and will be exercisable at the fair market value on the date of
grant.

Following this offering, we intend to amend the 1997 Stock Option Plan to,
among other things, (i) increase the number of shares of Class A Common Stock
available for grant under the plan, (ii) increase the number of shares of Class
A Common Stock permitted to be granted to any employee within any one-year
period, (iii) set the maximum exercise price of each option granted at the then
current market price and (iv) permit the grant of options to regular salaried
officers and key employees of Fairchild Korea Semiconductor Ltd.

EMPLOYEE STOCK PURCHASE SAVINGS PLAN

We adopted the Employee Stock Purchase Savings Plan (the "Savings Plan"),
pursuant to which participating employees contribute a portion of their salary,
through payroll deductions, to the Savings Plan and in return obtain an interest
in the Savings Plan. The contributions to the Savings Plan are held in trust for
the benefit of the participating employees and are invested in one or more
money-market funds. In addition, participating employees become eligible to use
funds contributed to the Savings Plan to purchase, if they so choose, shares of
Class A Common Stock concurrently and in connection with an initial public
offering of such stock. Upon an initial public offering of our Class A Common
Stock registered with the SEC, the Savings Plan authorizes our company to issue
to participating employees up to the lesser of (i) shares having an aggregate
sales price of $5.0 million and (ii) shares representing 2.5% of the total
number of shares issuable pursuant to such initial public offering. Such shares
will be offered to participating employees at a price equal to or

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<PAGE> 97

less than the price at which shares of Class A Common Stock are offered to the
public generally in such public offering.

In conjunction with this offering, we intend to terminate the Savings Plan.
When the Savings Plan is terminated, each participating employee will receive in
a lump sum all of the employee's contributions to the Savings Plan plus accrued
interest. Each employee will have the option to keep the funds or use any
portion of the funds to purchase shares of Class A Common Stock at the price per
share in this offering. Had we terminated the Savings Plan on May 13, 1999,
participating employees would have been entitled to receive payments totalling
$1,744,615 and shares of Class A Common Stock would have been issuable if
participating employees had chosen to use all such funds to purchase shares of
Class A Common Stock as described above. See "Underwriting."

In connection with this offering, on June 24, 1999 the board of directors
authorized a new employee stock purchase plan, pursuant to which employees will
have an opportunity to purchase shares of our Class A Common Stock at a 15%
discount to the current market price. Shares purchased under the plan will be
purchased in open-market transactions.

POWER DEVICE BUSINESS EMPLOYMENT AGREEMENTS AND BENEFIT PLANS

In connection with the acquisition of the power device business, we
executed employment agreements with Dr. Deok J. Kim, Vice President and General
Manager of the power device business, the head of sales and marketing of the
power device business and the Vice President of the Bucheon plant.

We also provide key management of the power device business, as well as all
other employees, with compensation and benefits plans comparable to those that
were in place on the date of the acquisition of the power device business. These
plans consist of all legally mandated and nationally-sponsored benefits plans
such as national medical insurance, unemployment insurance and a national
pension program, as well as privately sponsored plans such as a medical
treatment guarantee program and a personal pension contribution program. We will
either continue in the Samsung Electronics-sponsored programs that currently
exist or replicate existing Samsung Electronics programs under the sponsorship
of Fairchild Korea Semiconductor Ltd.

In addition to the above-mentioned benefits plans, we are continuing
incentive compensation programs of the power device business which existed at
the date of the acquisition of the power device business. These programs include
an Individual Incentive Plan which provides potential annual incentive
compensation for key employees, a Productivity Incentive Plan which pays
semi-annually based on productivity rankings and a Management by Objectives
Incentive Plan which pays semi-annually based on reaching EBITDA goals (as
defined in the plan). These incentive plans make incentive payments available in
multiples of the employee's monthly base salary, with varying caps on the
payments available under the various plans, so that an employee can earn a
maximum of 200% of monthly base salary under any one plan. Under all of the
various incentive plans, the average employee will receive approximately six
months of pay in the form of incentive payments during a fiscal year.

AFFILIATES' INTERESTS IN THIS OFFERING

Citicorp Venture Capital Ltd. owns an interest in Sterling. Citicorp
Mezzanine Partners, L.P., the general partner of which is an affiliate of
Citicorp Venture Capital, contributed $50.0 million in cash to our company in
exchange for a 12.5% Subordinated Note Due 2008 and a warrant to purchase
3,538,228 shares of our common stock. We contributed the $50.0 million from
Citicorp Mezzanine Partners, L.P. to Fairchild Semiconductor Corporation as a
capital contribution. The

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<PAGE> 98

12.5% Subordinated Note is being repaid in full in connection with this
offering, upon which event the warrant is no longer exercisable.

In connection with the recapitalization of Fairchild Semiconductor
Corporation, the existing stockholders of our company entered into the
Stockholders' Agreement containing agreements among such stockholders with
respect to the capital stock and corporate governance of our company and
Fairchild Semiconductor Corporation. Amendments to the Stockholders' Agreement,
which were effected on May 29, 1998, resulted in the lapse of risks of
forfeiture by executive officers of Fairchild Semiconductor Corporation with
respect to their stock in our company. The lapse of such restrictions resulted
in the incurrence by such executive officers of liability for federal and state
income tax. Fairchild Semiconductor Corporation made loans to such executive
officers in June 1998 to enable such officers to fund such tax liabilities.
These loans were in the following amounts: Kirk P. Pond -- $1,686,164; Joseph R.
Martin -- $843,094; Daniel E. Boxer -- $347,060; Darrell Mayeux -- $347,060; W.
Wayne Carlson -- $347,060; and Jerry M. Baker -- $350,600. Such loans bear
interest at a rate of 6% per annum. Such loans (including accrued but unpaid
interest thereon) will be canceled upon the occurrence of this offering. We have
agreed to pay to such executive officers amounts sufficient to enable them to
discharge all tax liabilities arising out of the cancellation of such loans (as
well as all tax liabilities arising out of such payments). Any such executive
officer whose employment terminates prior to the completion of this offering
will be required to repay any uncanceled amounts immediately. It is anticipated
that the amounts payable by Fairchild Semiconductor Corporation with respect to
such executive officers' tax liabilities (assuming no repayment obligation on
the part of any executive officer and cancellation in full after 4 years) are as
follows: Kirk P. Pond -- $1,811,523; Joseph R. Martin -- $905,763; Daniel E.
Boxer -- $372,858; Darrell Mayeux -- $372,858; W. Wayne Carlson -- $372,858; and
Jerry M. Baker -- $384,287.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Concurrently with the recapitalization, Fairchild Semiconductor Corporation
and National Semiconductor entered into several agreements that remain in
effect. Under the Asset Purchase Agreement, dated as of March 11, 1997, National
Semiconductor agreed to indemnify Fairchild Semiconductor Corporation from
damages arising out of any liabilities other than those assumed by Fairchild
Semiconductor Corporation in connection with such asset sale. In addition, the
Asset Purchase Agreement contains a provision that, subject to certain
limitations, forbids National Semiconductor for a period of five years beginning
on March 11, 1997 from engaging in any business competing with our products in
existence on March 11, 1997. For a period of 39 months beginning on March 11,
1997 the Asset Purchase Agreement, subject to certain limitations, forbids
Fairchild Semiconductor Corporation from engaging in any business competing with
National Semiconductor's products in existence on March 11, 1997.

Under the Technology Licensing and Transfer Agreement, dated March 11,
1997, between Fairchild Semiconductor Corporation and National Semiconductor,
National Semiconductor assigned or non-exclusively licensed to Fairchild
Semiconductor Corporation certain patent, copyright, maskwork, trade secret and
trademark rights necessary to Fairchild Semiconductor Corporation's business and
to make certain improvements to Fairchild Semiconductor Corporation's product
line. These rights include a non-exclusive license to practice certain processes
necessary to Fairchild Semiconductor Corporation's business. For patent rights,
National Semiconductor assigned to Fairchild Semiconductor Corporation 150
patents and granted Fairchild Semiconductor Corporation, a worldwide,
royalty-free, non-exclusive license under applicable patents and patent
applications, for the life of such patents (but without right to sublicense) to
manufacture, package, use, sell, offer for sale, import, design or develop
Fairchild Semiconductor Corporation's products and certain improvements to those
products. With respect to copyrights and maskworks used in Fairchild

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<PAGE> 99

Semiconductor Corporation's business. National Semiconductor granted Fairchild
Semiconductor Corporation an undivided interest in certain co-owned copyrights
and maskworks. For trademarks, National Semiconductor assigned certain
trademarks related to Fairchild Semiconductor Corporation's products and granted
licenses recognizing transitional use of visible trademarks and of
product-embedded trademarks, which embedded trademarks in some cases will not be
eliminated until the relevant product is discontinued or replaced. For patents
that National Semiconductor assigned to Fairchild Semiconductor Corporation, a
worldwide, paid-up, royalty-free, non-exclusive license, with a limited right to
sublicense, was granted by Fairchild Semiconductor Corporation to National
Semiconductor. National Semiconductor and Fairchild Semiconductor Corporation
further cross-licensed certain discoveries, improvements or inventions occurring
within one year after March 11, 1997, with no right to grant sublicenses (except
for the purpose of settling third party claims against Fairchild Semiconductor
Corporation). The agreement further provides that National Semiconductor, for a
period of time, shall indemnify and render assistance to Fairchild Semiconductor
Corporation for intellectual property claims made by third parties.

Under the National Foundry Services Agreement and the Fairchild Foundry
Services Agreement, each dated March 11, 1997, National Semiconductor and
Fairchild Semiconductor Corporation agreed to manufacture semiconductor products
(i.e., provide "foundry" services) for each other during at least the 39-month
period beginning on March 11, 1997. Foundry services are the manufacturing
processes through which thousands of integrated circuits are fabricated from raw
silicon wafers. The Fairchild Foundry Services Agreement establishes the terms
and conditions under which Fairchild Semiconductor Corporation provides foundry
services for National Semiconductor and the National Foundry Services Agreement
defines the terms and conditions under which National Semiconductor provides
foundry services for Fairchild Semiconductor Corporation. Both foundry
agreements (i) establish the processes the foundry service provider shall use,
(ii) define purchase commitments and production forecasts, (iii) establish
pricing, (iv) provide for engineering support from the other party, (v)
establish quality standards, (vi) specify delivery and payment terms among other
things, and (vii) specify warranty and inspection terms.

The National Assembly Services Agreement and the Fairchild Assembly
Services Agreement, each dated March 11, 1997, provide for assembly and test
services between National Semiconductor and Fairchild Semiconductor Corporation
during at least the 39-month period beginning on March 11, 1997. During the
assembly and test phase of semiconductor production, the thousands of integrated
circuits produced on silicon wafers during the foundry phase are separated and
packaged into individual devices ready for sale to customers. The Fairchild
Assembly Services Agreement sets forth the terms and conditions under which
National Semiconductor provides such services for Fairchild Semiconductor
Corporation. Similar to the foundry agreements, the assembly agreements
establish terms for (i) volume commitments and production planning, (ii)
ordering and shipping, (iii) quality, inspection and acceptance of finished
goods and (iv) pricing and payment.

National Semiconductor and Fairchild Semiconductor Corporation entered into
the Mil/Aero Wafer and Services Agreement, dated March 11, 1997, which
establishes, in a similar fashion, the terms and conditions under which
Fairchild Semiconductor Corporation manufactures integrated circuits for certain
military and aerospace industry customers of National Semiconductor.

Under a letter agreement, dated March 11, 1997, between National
Semiconductor and Fairchild Semiconductor Corporation, National Semiconductor is
required to purchase from Fairchild Semiconductor Corporation a minimum of
$330.0 million in goods and services in the 39-month period beginning on March
11, 1997, subject to certain conditions and adjustments.

Under the Transition Services Agreement, dated March 11, 1997, National
Semiconductor provided a number of business support services to Fairchild
Semiconductor Corporation in order to assist in Fairchild Semiconductor
Corporation's conversion to an independent entity, from March 11,

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<PAGE> 100

1997 until, in most instances, June 1, 1998, which deadline was extended with
respect to some services until August 31, 1998. These services included (i) data
processing and communication services, (ii) financial and administrative
support, (iii) purchasing services, (iv) marketing and sales services, (v)
logistics and operational support services, (vi) human resources and benefits
services and (vii) security assistance and consulting. National Semiconductor
also agreed to provide Fairchild Semiconductor Corporation, during such period,
with additional services as provided in separate shared facilities and services
agreements for the South Portland, Maine, site and a sublease for the Santa
Clara, California, site (the latter site having been vacated by Fairchild
Semiconductor Corporation during Fiscal Year 1998). Generally, such agreements
provided that National Semiconductor would invoice Fairchild Semiconductor
Corporation for the services provided, with certain charges based on a fixed
cost and other charges based on National Semiconductor's actual incurred costs.
In addition, under the agreements National Semiconductor granted to Fairchild
Semiconductor Corporation a royalty-free, perpetual and irrevocable worldwide
license to use National Semiconductor's in-house business, engineering and
manufacturing systems software. The license survives termination of such
agreements.

Daniel E. Boxer was a partner of Pierce Atwood, a Portland, Maine law firm,
during a portion of the fiscal year ended May 25, 1997. Pierce Atwood performed
legal services for Fairchild Semiconductor Corporation during such fiscal year
and continued to perform legal services for Fairchild Semiconductor Corporation
in Fiscal Year 1998.

Keith Jackson, Executive Vice President, Analog, Mixed Signal and
Non-Volatile Memory Products Group, received a loan in the amount of $100,000
from Fairchild Semiconductor Corporation on April 15, 1998 in order to assist
him in covering the costs of relocating to take this position. Such loan bears
interest at a rate of 6% per annum, with all accrued interest payable on each
April 15, beginning April 15, 1999. The outstanding principal of the loan is
payable in full upon the earlier of (a) six months after any initial public
offering of our company's stock, (b) 60 days after Mr. Jackson ceases to be
employed by Fairchild Semiconductor Corporation or (c) April 15, 2003.

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of each holder of 5% or more of the outstanding shares of Class A
Common Stock (its only voting class of stock), each director and each executive
officer named in the Summary Compensation Table, and all directors and officers
as a group, as of March 31, 1999 and as adjusted to give effect to this
offering, but without giving effect to the exercise of the underwriters'
over-allotment option.

The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option. National Semiconductor has granted the
underwriters an option to purchase up to 3,000,000 shares of Class A Common
Stock to cover over-allotments, if any. If the underwriters exercise this
over-allotment option in full, National Semiconductor will beneficially own
2,220,764 shares (4.1%) of the Class A Common Stock, 4,980,000 shares (14.9%) of
the Class B Common Stock and 8.2% of the total number of shares of common stock
outstanding after the offering. If the underwriters do not exercise their
over-allotment option, National Semiconductor will not sell any shares in the
offering.

<TABLE>
<CAPTION>
CLASS A COMMON CLASS B COMMON
STOCK(1) STOCK(2)
---------------------------------------------- --------------------
NUMBER NUMBER PERCENT OF
OF SHARES PERCENT OF SHARES PERCENT COMMON
PRIOR TO PRIOR TO AFTER AFTER NUMBER STOCK
NAME OF BENEFICIAL OWNER OFFERING OFFERING OFFERING OFFERING OF SHARES PERCENT AFTER OFFERING
- ------------------------ ----------- -------- ---------- -------- ---------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sterling Holding Company, LLC
c/o Fairchild Semiconductor
Corporation
333 Western Avenue
South Portland, Maine
04106(3)(4)(7)................. 14,212,000 48.1% 18,033,198 33.0% 28,396,000 85.1% 52.8%
National Semiconductor
Corporation
2900 Semiconductor Drive
Santa Clara, California
95052(5)(7).................... 4,380,000 14.8% 5,220,764 9.6% 4,980,000 14.9% 11.6%
Kirk P. Pond
c/o Fairchild Semiconductor
Corporation
333 Western Avenue
South Portland, Maine 04106.... 3,275,863 11.1% 3,275,836 6.0% -- -- 3.7%
Joseph R. Martin
c/o Fairchild Semiconductor
Corporation
333 Western Avenue
South Portland, Maine 04106.... 1,637,920 5.5% 1,637,920 3.0% -- -- 1.9%
H.M. Payson & Co., Trustee
of the Fairchild NSC Deferred
Compensation Plan Trust
P.O. Box 31
Portland, Maine 04112(7)....... 435,520 1.5% 762,764 1.4% -- -- 0.9%
Daniel E. Boxer................ 668,208 2.3% 693,381 1.3% -- -- 0.8%
Jerry M. Baker................. 668,208 2.3% 668,208 1.2% -- -- 0.8%
W. Wayne Carlson............... 668,208 2.3% 668,208 1.2% -- -- 0.8%
Brian L. Halla(5).............. 4,380,000 14.8% 5,220,764 9.6% 4,980,000 14.9% 11.6%
William N. Stout(3)............ 14,212,000 48.1% 18,033,198 33.0% 28,396,000 85.1% 52.8%
Richard M. Cashin(3)........... 14,212,000 48.1% 18,033,198 33.0% 28,396,000 85.1% 52.8%
</TABLE>

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- -------------------------

(1) Does not include shares of Class A Common Stock issuable upon conversion of
Class B Common Stock. A holder of Class B Common Stock may convert any or
all of his shares into an equal number of shares of Class A Common Stock,
provided that such conversion would be permitted only to the extent that the
holder of shares to be converted would be permitted under applicable law to
hold the total number of shares of Class A Common Stock which would be held
after giving effect to the conversion.

(2) Does not include shares of Class B Common Stock issuable upon conversion of
Class A Common Stock. A holder of Class A Common Stock may convert any or
all of his shares into an equal number of shares of Class B Common Stock.

(3) William N. Stout, who is one of our directors, is affiliated with Sterling
in the capacities described under "Management -- Directors and Executive
Officers." All shares listed for Mr. Stout are held by Sterling, which Mr.
Stout may be deemed to beneficially own. Mr. Stout disclaims beneficial
ownership of such shares. Richard M. Cashin and Paul C. Schorr IV, two of
our directors, are affiliated with Sterling in the capacities described
under "Management -- Directors and Executive Officers" and footnote (4)
below. All shares listed for Mr. Cashin and Mr. Schorr are held by Sterling,
which Mr. Cashin and Mr. Schorr may be deemed to beneficially own. Each of
Mr. Cashin and Mr. Schorr disclaims beneficial ownership of such shares.

(4) Citicorp Venture Capital Ltd. owns an interest in Sterling. Citicorp
Mezzanine Partners, L.P., the general partner of which is an affiliate of
Citicorp Venture Capital, contributed $50.0 million in cash to our company
in exchange for the 12.5% Subordinated Note Due 2008 and a warrant to
purchase 3,538,228 shares of our common stock. We contributed such $50.0
million to Fairchild Semiconductor Corporation as a capital contribution.
The 12.5% Subordinated Note Due 2008 is being repaid in full in connection
with this offering, upon which event the warrant is no longer exercisable.

(5) Brian L. Halla, who is one of our directors, is affiliated with National
Semiconductor in the capacities described under "Management -- Directors and
Executive Officers." All shares listed for Mr. Halla are held by National
Semiconductor, which Mr. Halla may be deemed to beneficially own. Mr. Halla
disclaims beneficial ownership of such shares.

(6) Does not include shares held for the benefit of executive officers by H.M.
Payson & Co., trustee of the Fairchild Semiconductor Corporation Deferred
Compensation Plan Trust. Under the terms of that trust, the executive
officers do not beneficially own the shares held for their benefit under the
meaning of the Securities Act. See "Deferred Compensation Agreements."

(7) The following table sets forth certain information with respect to the
security ownership of the 12% Series A Cumulative Compounding Preferred
Stock. All of the outstanding shares of the 12% Series A Cumulative
Compounding Preferred Stock are being converted into shares of Class A
Common Stock in connection with this offering at the assumed initial public
offering price, less assumed underwriting discounts and commissions, of
$17.39 per share. The number of shares of Class A Common Stock to be
received upon conversion of the 12% Series A Cumulative Compounding
Preferred Stock is included in the column "Number of shares after Offering."

<TABLE>
<CAPTION>
12% SERIES A SHARES OF CLASS A
CUMULATIVE COMMON STOCK
COMPOUNDING RECEIVED UPON
PREFERRED STOCK CONVERSION
----------------- -----------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER
------------------------ ------ ------- -----------------
<S> <C> <C> <C>
Sterling Holding Company, LLC............................... 53,113 75.9% 3,821,198
National Semiconductor Corporation.......................... 11,667 16.7% 840,764
H.M. Payson & Co., Trustee of the Fairchild NSC Deferred
Compensation Plan Trust................................... 4,582 6.5% 327,244
All directors and executive officers as a group (14
persons).................................................. 332 0.5% 25,173
Other management employees.................................. 306 0.4% 20,138
</TABLE>

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DESCRIPTION OF CAPITAL STOCK

The following description of our capital stock gives effect to this
offering and the conversion of all outstanding shares of 12% Series A Cumulative
Compounding Preferred Stock into Class A Common Stock, which will occur prior to
or simultaneously with this offering. Our capital stock consists of (1)
160,000,000 authorized shares of common stock, par value $.01 per share, divided
into two classes consisting of (a) 80,000,000 shares of Class A Common Stock, of
which 54,594,437 shares are outstanding and (b) 80,000,000 shares of Class B
Common Stock, of which 33,376,000 shares are outstanding. On January 5, 1998,
our Board of Directors approved a four-for-one common stock split in the form of
a stock dividend. Stockholders received three additional shares for each share
held. Such distribution was made on April 29, 1998 to stockholders of record on
that date. All share amounts in the accompanying consolidated financial
statements have been restated to retroactively reflect the split.

The following description of the terms and provisions of our capital stock
is not complete, and you should read our Restated Certificate of Incorporation
and By-Laws (each of which will become effective when this offering is
completed) which have been filed as exhibits to the Registration Statement of
which this prospectus is a part.

CLASS A COMMON STOCK

The holders of Class A Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Our
Restated Certificate of Incorporation will provide for cumulative voting for
directors. Under cumulative voting, at all elections for directors each holder
of Class A Common Stock will be entitled to as many votes as would equal the
number of shares he or she holds multiplied by the number of directors to be
elected. The holder may cast all of his or her votes for a single candidate or
may distribute them among any number of candidates. The holders of Class A
Common Stock will be entitled to such dividends as may be declared at the
discretion of our Board of Directors out of funds legally available for that
purpose. The holders of Class A Common Stock will be entitled to share ratably
with holders of Class B Common Stock in the net assets of our company upon
liquidation after payment or provision for all liabilities. A holder of Class A
Common Stock may convert any or all of his shares into an equal number of shares
of Class B Common Stock. We have never paid and we do not anticipate declaring
or paying any cash dividends on shares of our Class A Common Stock in the
foreseeable future. See "Dividend Policy." As of February 28, 1999, there were
79 holders of record of our Class A Common Stock.

CLASS B COMMON STOCK

Except as required by law, the holders of Class B Common Stock have no
voting rights. The holders of Class B Common Stock will be entitled to such
dividends as may be declared at the discretion of our Board of Directors out of
funds legally available for that purpose. The holders of Class B Common Stock
will be entitled to share ratably with holders of Class A Common Stock in the
net assets of our company upon liquidation after payment or provision for all
liabilities. A holder of Class B Common Stock may convert any or all of his
shares into an equal number of shares of Class A Common Stock, provided that
such conversion would be permitted only to the extent that the holder of such
shares to be converted certifies to us in writing that the holder would be
permitted under applicable law to hold the total number of shares of Class A
Common Stock which would be held after giving effect to the conversion. We have
never paid and we do not anticipate declaring or paying any cash dividends on
shares of our Class B Common Stock in the foreseeable future. As of February 28,
1999, there were 2 holders of record of our Class B Common Stock.

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12% SERIES A CUMULATIVE COMPOUNDING PREFERRED STOCK

Until this offering is completed, we will have 70,000 shares of 12% Series
A Cumulative Compounding Preferred Stock issued and outstanding. The 12% Series
A Cumulative Compounding Preferred Stock has a stated value of $1,000 per share
and is entitled to annual dividends when, as and if declared, which dividends
are cumulative, whether or not earned or declared, accruing at a rate of 12% and
compounding annually. All outstanding shares of 12% Series A Cumulative
Compounding Preferred Stock will be converted into shares of Class A Common
Stock in connection with this offering and no preferred stock will be authorized
after this offering. See "Debt Repayment and Preferred Stock Conversion
Transactions."

OTHER PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS

Our Restated Certificate of Incorporation, which will become effective when
this offering is completed, contains provisions relating to:

- the ability of our Board of Directors to adopt "shareholder rights"
plans;

- the size of the Board of Directors;

- whether Directors shall be elected for staggered terms;

- the ability of stockholders to call special meetings of the stockholders;

- the ability of the stockholders to take action by written consent without
a meeting and without notice or a vote; and

- how the certificate of incorporation may be amended.

Under the Restated Certificate of Incorporation, we will not be subject to
the provisions of Section 203 of the General Corporation Law of Delaware
regulating takeovers.

STOCKHOLDERS' AGREEMENT

The existing stockholders of our company entered into a Securities Purchase
and Holders Agreement, which we refer to as the Stockholders' Agreement,
containing agreements among such stockholders with respect to the capital stock
and corporate governance of our company and Fairchild Semiconductor Corporation.

The Stockholders' Agreement contains provisions which restrict the ability
of the stockholders to transfer any common stock or 12% Series A Cumulative
Compounding Preferred Stock. Neither Sterling nor any of its affiliates may sell
any of their shares of our common stock to us or any of our affiliates without
offering the other stockholders who are party to the agreement a pro rata
opportunity to participate in such sale. In addition, the Stockholders'
Agreement restricts certain transactions between our company and Fairchild
Semiconductor Corporation, on the one hand, and owners of 15% or more of the
common stock and their affiliates, on the other hand.

Amendments to the Stockholders' Agreement, which were effected on May 29,
1998, resulted in the lapse of risks of forfeiture by our executive officers
with respect to their stock in our company. The lapse of such restrictions
resulted in the incurrence by such executive officers of liability for federal
and state income tax. We made loans to such executive officers in June 1998 to
enable such officers to fund such tax liabilities and in connection with this
offering will forgive such loans and indemnify these executives for such taxes.
See "Affiliates' Interest in this Offering."

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REGISTRATION RIGHTS AGREEMENT

In connection with the entry by the existing stockholders of our company
into the Stockholders' Agreement, our company, Sterling, some key employees of
Fairchild International, National Semiconductor and such stockholders entered
into a Registration Rights Agreement. Pursuant to the Registration Rights
Agreement, upon the written request of Sterling or National Semiconductor, we
will prepare and file a registration statement with the Securities and Exchange
Commission concerning the distribution of all or part of the shares held by
Sterling or National Semiconductor and use our best efforts to cause such
registration statement to become effective. If at any time we file a
registration statement for the common stock pursuant to a request by Sterling,
National Semiconductor or otherwise (other than a registration statement on Form
S-8, Form S-4 or any similar form, a registration statement filed in connection
with a share exchange or an offering solely to our employees or existing
stockholders, or a registration statement registering a unit offering), we will
use our best efforts to allow the other parties to the Registration Rights
Agreement to have their shares of common stock (or a portion of their shares
when an underwriter determines that registering fewer than all their shares is
advisable) included in such offering of common stock. We will pay the
registration expenses of the selling stockholders, other than underwriting fees,
brokerage fees and transfer taxes applicable to the shares sold by such
stockholders or the fees and expenses of any accountants or other
representatives retained by a selling stockholder.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Class A Common Stock is
BankBoston, N.A.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

The following is a summary of significant indebtedness of our company and
Fairchild Semiconductor Corporation that will be outstanding following
consummation of this offering. To the extent such summary contains descriptions
of documents governing our indebtedness, such descriptions do not purport to be
complete and are qualified in their entirety by reference to such documents,
which we will provide you upon request.

SENIOR CREDIT FACILITIES

GENERAL. In connection with the acquisition of the power device business,
we entered into the senior credit facilities with a syndicate of financial
institutions, as lenders, Credit Suisse First Boston, New York Branch, as the
Administrative Agent, Salomon Brothers Holding Company Inc, as Syndication
Agent, and ABN Amro Bank, N.V. and Fleet National Bank, as Documentation Agents.

The senior credit facilities provide for up to $410.0 million of aggregate
borrowing capacity for Fairchild Semiconductor Corporation consisting of:

- a secured $100.0 million funded tranche A term loan facility;

- a secured $210.0 million funded tranche B term loan facility; and

- a secured $100.0 million revolving line of credit, including up to $10.0
million of swingline loans.

GUARANTEES; SECURITY. Fairchild Semiconductor Corporation's obligations
under the senior credit facilities are unconditionally guaranteed, jointly and
severally, by our company, Fairchild Semiconductor Corporation of California and
all of Fairchild Semiconductor Corporation's subsequently acquired or organized
domestic, and, to the extent no adverse tax consequences will result, foreign,
subsidiaries. Fairchild Semiconductor Corporation's obligations and those of
such guarantors under the senior credit facilities are secured by a pledge of
all of Fairchild Semiconductor Corporation's capital stock and by substantially
all of the assets of our company, Fairchild Semiconductor Corporation, Fairchild
Semiconductor Corporation of California and all of Fairchild Semiconductor
Corporation's subsequently acquired or organized domestic, and, to the extent no
adverse tax consequences will result, foreign, subsidiaries. None of Fairchild
Semiconductor Corporation's foreign subsidiaries guarantee the senior credit
facilities, and the senior credit facilities are not secured by a pledge of the
intercompany debt obligations of Fairchild Korea Semiconductor Ltd. The only
intercompany debt obligation of Fairchild Korea Semiconductor Ltd. is with
respect to the corporate bonds issued by it in connection with the acquisition
of the power device business. Less than two-thirds of the capital stock of
Fairchild Korea Semiconductor Ltd. has been pledged to secure the senior credit
facilities.

AMORTIZATION; INTEREST; FEES; MATURITY. The tranche A facility is subject
to amortization payments required to be made in quarterly installments which
commence on September 30, 1999 until final payment is made on March 31, 2004.
The tranche B facility is subject to amortization payments required to be made
in quarterly installments which commence on September 30, 1999 until final
payment is made on December 15, 2004. The revolving credit facility is available
until March 31, 2004 unless terminated earlier under the terms of the facility.

Borrowings under the tranche A facility, tranche B facility and revolving
credit facility portions of the senior credit facilities bear interest at a rate
equal to, at Fairchild Semiconductor Corporation's option, either (i) a base
rate which is based on the prime rate most recently announced by the
Administrative Agent or the Federal Funds rate plus one-half of 1% or (ii) the
applicable London interbank offered rate, in each case plus an applicable margin
determined by reference to the ratio of Consolidated Indebtedness to
Consolidated EBITDA (each as defined in the senior credit facilities).

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In general, Consolidated Indebtedness means the debt obligations of our company
and our subsidiaries and Consolidated EBITDA means our company's consolidated
net income before interest, taxes, depreciation and amortization. In addition,
the senior credit facilities are subject to a commitment fee of 0.50% per annum
of the undrawn portion of the revolving credit facility, and letter of credit
fees with respect to each letter of credit outstanding under the senior credit
facilities equal to (i) the spread over Adjusted LIBO Rate (as defined in the
senior credit facilities) in effect for loans under the revolving credit
facility and (ii) 0.25% per annum on the face amount of all outstanding letters
of credit. In general, Adjusted LIBO Rate means the London interbank offered
rate as adjusted by the applicable reserve percentage.

PREPAYMENTS. The loans under the senior credit facilities are required to
be prepaid with all or a portion of the net cash proceeds from asset and capital
stock sales and dispositions, incurrences of indebtedness, offerings of common
equity securities and by 50 or 75% of Fairchild Semiconductor Corporations's
annual Excess Cash Flow (as defined in the senior credit facilities). In
general, Excess Cash Flow means, for any fiscal year of our company, the excess
of (a) the sum of:

- consolidated EBITDA for such fiscal year;

- extraordinary cash receipts of our company and our subsidiaries during
such fiscal year; and

- reductions to noncash working capital of our company and our subsidiaries
for such fiscal year;

over (b) the sum of:

- cash income taxes payable by our company and our subsidiaries for such
fiscal year;

- cash interest paid by our company and our subsidiaries during such fiscal
year;

- capital expenditures made in cash during such fiscal year;

- permanent repayments of indebtedness made by our company and our
subsidiaries during such fiscal year;

- prepayments of the principal of loans during such fiscal year;

- extraordinary cash expenses paid by our company and our subsidiaries
during such fiscal year;

- additions to noncash working capital for such fiscal year; and

- the amount of permitted capital expenditures being carried forward from
such fiscal year into the next fiscal year, net of the amount of
permitted capital expenditures carried forward into such fiscal year from
the previous fiscal year.

Voluntary prepayments may be made in whole or in part without premium or
penalty.

COVENANTS AND EVENTS OF DEFAULT. The senior credit facilities contain,
among other things, covenants restricting Fairchild Semiconductor's ability and
its subsidiaries' ability to dispose of assets, merge, pay dividends, repurchase
or redeem capital stock and indebtedness, including the 10 3/8% Senior
Subordinated Notes, incur indebtedness and guarantees, create liens, enter into
agreements with negative pledge clauses, make investments or acquisitions, enter
into sale and leaseback transactions, enter into transactions with affiliates,
change its business or make fundamental changes, and otherwise restrict
corporate actions. The senior credit facilities also contain a number of
financial maintenance covenants.

The senior credit facilities also include events of default customary for
these types of credit facilities and transactions, including but not limited to
nonpayment of principal or interest, violation of covenants, incorrectness of
representations and warranties, cross defaults and cross acceleration,
bankruptcy, material judgments, ERISA, actual or asserted invalidity of the
guarantees or the security documents and changes of control of our company. The
occurrence of any event of default could

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result in the acceleration of our and the guarantors' obligations under the
senior credit facilities, which could materially and adversely affect value of
our common stock.

10 1/8% SENIOR SUBORDINATED NOTES DUE 2007

Fairchild Semiconductor Corporation is the primary obligor on $300,000,000
in aggregate principal amount of 10 1/8% Senior Subordinated Notes. The 10 1/8%
Senior Subordinated Notes bear interest at a rate of 10 1/8% per annum, payable
semi-annually on March 15 and September 15 of each year.

Fairchild Semiconductor Corporation is required to redeem $150.0 million
principal amount of 10 1/8% Senior Subordinated Notes on March 15, 2005 and
$75.0 million principal amount of 10 1/8% Senior Subordinated Notes on March 15,
2006, in each case at a redemption price of 100% of the principal amount plus
accrued interest to the date of redemption, subject to its right to credit
against any such redemption 10 1/8% Senior Subordinated Notes acquired by
Fairchild Semiconductor Corporation otherwise than through any such redemption.
The 10 1/8% Senior Subordinated Notes are not otherwise redeemable prior to
March 15, 2002, except that, until March 15, 2000, Fairchild Semiconductor
Corporation may redeem up to an aggregate of $105.0 million of the principal
amount of the 10 1/8% Senior Subordinated Notes at the redemption price of 110%
of the principal amount of the 10 1/8% Senior Subordinated Notes plus accrued
interest to the date of redemption with the net proceeds of one or more
underwritten primary public offerings of common stock of our company or
Fairchild Semiconductor Corporation under effective registration statement, if
at least $150.0 million of the principal amount of the 10 1/8% Senior
Subordinated Notes remains outstanding after each such redemption. On and after
March 15, 2002, the 10 1/8% Senior Subordinated Notes are redeemable at
Fairchild Semiconductor Corporation's option at the redemption prices (expressed
as percentages of principal amount) set forth below plus accrued and unpaid
interest to the applicable redemption date, if redeemed during the 12-month
period beginning on March 15 in the years indicated below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002........................................................ 105.063%
2003........................................................ 103.375
2004........................................................ 101.688
2005 and thereafter......................................... 100.000
</TABLE>

Upon a change of control of Fairchild Semiconductor Corporation, each
holder of the 10 1/8% Senior Subordinated Notes may require Fairchild
Semiconductor Corporation to repurchase the 10 1/8% Senior Subordinated Notes
held by such holder at 101% of the principal amount thereof plus accrued
interest to the date of repurchase.

The 10 1/8% Senior Subordinated Notes are unsecured senior subordinated
obligations of Fairchild Semiconductor Corporation and are subordinated in right
of payment to all existing and future senior indebtedness of Fairchild
Semiconductor Corporation. The 10 1/8% Senior Subordinated Notes rank pari passu
in right of payment with all senior subordinated indebtedness of Fairchild
Semiconductor Corporation and senior to any other subordinated indebtedness of
Fairchild Semiconductor Corporation.

The payment of principal, premium, if any, and interest on the 10 1/8%
Senior Subordinated Notes is fully and unconditionally guaranteed on a senior
subordinated basis by our company and the subsidiary guarantors. The guaranties
by our company and the subsidiary guarantors are subordinated to all existing
and future senior indebtedness of such parties, including our company's and the
subsidiary guarantors' guaranties of Fairchild Semiconductor Corporation's
obligations under the senior credit facilities. Our company currently conducts
no business and has no significant assets other than the capital stock of
Fairchild Semiconductor Corporation, all of which has been pledged to

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secure our company's obligations under the senior credit facilities. The
guaranty of our company or a subsidiary guarantor, as the case may be, may be
released upon a sale of our company or a subsidiary guarantor, as the case may
be, or upon repayment or defeasance of the 10 1/8% Senior Subordinated Notes in
each case as permitted by the indenture governing the 10 1/8% Senior
Subordinated Notes.

The indenture governing the 10 1/8% Senior Subordinated Notes contains
restrictive covenants substantially identical to those contained in the
indenture governing the 10 3/8% Senior Subordinated Notes, including covenants
that limit, among other things, (i) the incurrence of additional debt by
Fairchild Semiconductor Corporation and its subsidiaries, (ii) the payment of
dividends on Fairchild Semiconductor Corporation's capital stock and the
purchase, redemption or retirement of capital stock or subordinated
indebtedness, (iii) investments, (iv) certain transactions with affiliates, (v)
sales of assets, including capital stock of subsidiaries and (vi) certain
consolidations, mergers and transfers of assets. The indenture governing the
10 1/8% Senior Subordinated Notes also prohibits certain restrictions on
distributions from subsidiaries.

10 3/8% SENIOR SUBORDINATED NOTES DUE 2007

Fairchild Semiconductor Corporation is the primary obligor on $300,000,000
in aggregate principal amount of 10 3/8% Senior Subordinated Notes. The 10 3/8%
Senior Subordinated Notes bear interest at a rate of 10 3/8% per annum, payable
semi-annually on April 1 and October 1 of each year.

Fairchild Semiconductor Corporation cannot redeem the 10 3/8% Senior
Subordinated Notes prior to April 1, 2003, except as discussed below. Until
April 1, 2002, Fairchild Semiconductor Corporation can choose to redeem the
10 3/8% Senior Subordinated Notes in an amount not to exceed 35% of the sum of
the original principal amount of the 10 3/8% Senior Subordinated Notes and the
original principal amount of any other notes issued under the same indenture,
with money it raises in one or more underwritten primary public offerings of
common stock of our company or Fairchild Semiconductor Corporation under
effective registration statements, as long as:

- Fairchild Semiconductor Corporation pays the holders of the 10 3/8%
Senior Subordinated Notes and any such other notes redeemed a redemption
price of 110 3/8% of the principal amount of the 10 3/8% Senior
Subordinated Notes and any such other notes Fairchild Semiconductor
Corporation redeems, plus accrued interest to the date of redemption; and

- at least 65% of the original aggregate principal amount of the 10 3/8%
Senior Subordinated Notes and any such other notes remains outstanding
after each such redemption.

On and after April 1, 2003, Fairchild Semiconductor Corporation can redeem
some or all of the 10 3/8% Senior Subordinated Notes at the redemption prices
(expressed as percentages of the principal amount) set forth below plus accrued
and unpaid interest to the applicable redemption date, if redeemed during the
12-month period beginning on April 1 in the years indicated below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................ 105.188%
2004........................................................ 103.458
2005........................................................ 101.729
2006 and thereafter......................................... 100.000
</TABLE>

Upon a change of control of Fairchild Semiconductor Corporation, each
holder of the 10 3/8% Senior Subordinated Notes may require Fairchild
Semiconductor Corporation to repurchase the 10 3/8% Senior Subordinated Notes
held by such holder at 101% of the principal amount thereof plus accrued
interest to the date of repurchase.

The 10 3/8% Senior Subordinated Notes are unsecured senior subordinated
obligations of Fairchild Semiconductor Corporation and are subordinated in right
of payment to all existing and future senior

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indebtedness of Fairchild Semiconductor Corporation. The 10 3/8% Senior
Subordinated Notes rank pari passu in right of payment with all senior
subordinated indebtedness of Fairchild Semiconductor Corporation and senior to
any other subordinated indebtedness of Fairchild Semiconductor Corporation.

The payment of principal, premium, if any, and interest on the 10 3/8%
Senior Subordinated Notes is fully and unconditionally guaranteed on a senior
subordinated basis by our company and Fairchild Semiconductor Corporation's
principal domestic subsidiaries. The guaranties by our company and Fairchild
Semiconductor Corporation's principal domestic subsidiaries are subordinated to
all existing and future senior indebtedness of such parties, including our
company's and Fairchild Semiconductor Corporation's principal domestic
subsidiaries' guaranties of Fairchild Semiconductor Corporation's obligations
under the senior credit facilities. Our company currently conducts no business
and has no significant assets other than Fairchild Semiconductor Corporation's
capital stock, all of which will be pledged to secure our company's obligations
under the senior credit facilities. The guaranty of our company or a subsidiary
guarantor, as the case may be, may be released upon a sale of our company or a
subsidiary guarantor, as the case may be, or upon repayment or defeasance of the
10 3/8% Senior Subordinated Notes in each case as permitted by the indenture
governing the 10 3/8% Senior Subordinated Notes.

The indenture governing the 10 3/8% Senior Subordinated Notes contains
restrictive covenants substantially identical to those contained in the
indenture governing the 10 1/8% Senior Subordinated Notes, including covenants
that limit, among other things, (i) the incurrence of additional debt by
Fairchild Semiconductor Corporation and its subsidiaries, (ii) the payment of
dividends on Fairchild Semiconductor Corporation's capital stock and the
purchase, redemption or retirement of capital stock or subordinated
indebtedness, (iii) investments, (iv) certain transactions with affiliates, (v)
sales of assets, including capital stock of subsidiaries and (vi) certain
consolidations, mergers and transfers of assets. The indenture governing the
10 3/8% Senior Subordinated Notes also prohibits certain restrictions on
distributions from subsidiaries.

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of this offering, 54,594,437 shares of Class A Common
Stock will be outstanding and 33,376,000 shares of Class B Common Stock will be
outstanding, each of which is convertible into the other on a one-to-one basis.
23,000,000 shares of Class A Common Stock, assuming the underwriters exercise
their over-allotment option in full, sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless held by an "affiliate" of our company as that term is defined in Rule
144. Other than shares of Class A Common Stock registered on a registration
statement on Form S-8 under the Securities Act, and subject to Rule 144
provisions to the extent applicable to affiliates, all of the shares of Class A
Common Stock outstanding prior to this offering are "restricted securities," as
such term is defined under Rule 144. These shares are restricted securities
because they were issued in private transactions not involving a public offering
and may not be sold in the absence of registration other than in accordance with
Rule 144 or Rule 701 promulgated under the Securities Act or another exemption
from registration. This prospectus may not be used in connection with any resale
of shares of Class A Common Stock acquired in this offering by our affiliates.

Each of our company, our directors and executive officers, the selling
stockholder and some of our existing stockholders has agreed not to offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus. The

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restrictions set forth in the previous sentence do not apply to grants of
employee stock options pursuant to the terms of our stock option plans,
issuances of securities pursuant to the exercise of such options outstanding on
the date hereof or the exercise of any other stock options outstanding on the
date hereof.

In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of Class A Common Stock are aggregated), including persons
who may be deemed our affiliates, would be entitled to sell within any
three-month period a number of shares of Class A Common Stock that does not
exceed the greater of:

- one percent of the then-outstanding shares of Class A Common Stock, which
equals approximately 545,944 shares immediately after this offering; or

- the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission.

Sales under Rule 144 are also subject to restrictions as to the manner of
sale, notice requirements and the availability of current public information
about our company. In addition, under Rule 144(k), if a period of at least two
years has elapsed since the later of the date restricted securities were
acquired from our company or the date they were acquired from an affiliate of
our company, a stockholder who is not an affiliate of our company at the time of
sale and who has not been an affiliate of our company for at least three months
prior to the sale would be entitled to sell shares of Class A Common Stock in
the public market immediately without compliance with the foregoing requirements
under Rule 144, unless otherwise restricted. Rule 144 does not require the same
person to have held the securities for the applicable periods.

In addition, any employee, director or officer of, or consultant to our
company who acquired shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701 of the Securities
Act, which permits non-affiliates to sell their Rule 701 shares without having
to comply with the public information, holding period, volume limitation or
notice provisions of Rule 144, and permits our affiliates to sell their Rule 701
shares without having to comply with the holding period restrictions of Rule
144, in each case, commencing 90 days after the effectiveness of the
Registration Statement of which this prospectus is a part.

All "restricted securities" held by existing stockholders may be sold in
the public market only if they are registered or if they are exempt from
registration under Rule 144, Rule 144(k) or Rule 701. Beginning 90 days after
the effectiveness of the Registration Statement of which this prospectus is a
part, and without consideration of the contractual restrictions described above,
4,288,020 shares either issued under the 1997 Stock Option Plan or acquired upon
exercise of options issued under the 1997 Stock Option Plan will be outstanding
and eligible for sale in reliance upon Rule 701. Additional shares of Class A
Common Stock may be available if options are exercised in the 180-day period
following the date of this prospectus.

We have an effective registration statement on Form S-8 under the
Securities Act with respect to 821,000 shares of Class A Common Stock reserved
or to be available for issuance pursuant to the 1997 Stock Option Plan. We also
have an effective registration statement on Form S-8 with respect to an
additional 5,263,000 shares of Class A Common Stock issuable upon exercise of
options granted under the 1997 Stock Option Plan prior to the date of this
offering. Shares of Class A Common Stock issued pursuant to the 1997 Stock
Option Plan generally will be available for sale in the open market by holders
who are not our affiliates and, subject to the volume and other applicable
limitations of Rule 144, by holders who are our affiliates, unless such shares
are subject to vesting restrictions or the contractual restrictions described
above.

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Prior to this offering, there has been no public market for the Class A
Common Stock. No information is currently available and we cannot predict the
timing or amount of future sales of shares, or the effect, if any, that future
sales of shares, or the availability of shares for future sale, will have on the
market price of the Class A Common Stock prevailing from time to time. Sales of
substantial amounts of the Class A Common Stock, including shares issuable upon
the exercise of stock options, in the public market after the lapse of the
restrictions described above, or the perception that such sales may occur, could
materially adversely affect the prevailing market prices for the Class A Common
Stock and the ability of our company to raise equity capital in the future. See
"Risk Factors."

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UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of the Class
A Common Stock applicable to Non-United States Holders of such Class A Common
Stock. A "Non-United States Holder" is any holder that for United States federal
income tax purposes is not a United States person. For purposes of this
discussion, the term "United States person" means: (i) a citizen or resident of
the United States; (ii) a corporation or other entity taxable as a corporation
created or organized in the United States or under the laws of the United States
or of any political subdivision thereof; (iii) an estate the income of which is
included in gross income for United States federal income tax purposes
regardless of its source; or (iv) a trust if its administration is subject to
the primary supervision of a United States court and one or more United States
persons have the authority to control all substantial decisions of the trust. In
the case of a partnership that holds our Class A Common Stock, any partner
described in any of (i) through (iv) above is also a United States person.

This discussion does not address all aspects of United States federal
income and estate taxation that may be relevant in light of such Non-United
States Holder's particular facts and circumstances (such as being a U.S.
expatriate) and does not address any tax consequences arising under the laws of
any state, local or non-United States taxing jurisdiction. Furthermore, the
following discussion is based on current provisions of the Internal Revenue Code
of 1986, as amended (the "Code") and administrative and judicial interpretations
thereof, all as in effect on the date hereof, and all of which are subject to
change, possibly with retroactive effect.

We have not and will not seek a ruling from the Internal Revenue Service
with respect to the United States federal income and estate tax consequences
described below, and as a result, there can be no assurance that the IRS will
not disagree with or challenge any of the conclusions set forth in this
discussion.

DIVIDENDS

We have never paid, and do not anticipate that we will pay, cash dividends
on our Class A Common Stock. Should we ever pay a cash dividend, any dividend
paid to a Non-United States Holder of Class A Common Stock generally would be
subject to United States withholding tax at the then-effective U.S. withholding
tax rate (currently 30% of the gross amount of the dividend) or such lower rate
as may be specified by an applicable tax treaty. Dividends received by a
Non-United States Holder that are effectively connected with a United States
trade or business conducted by such Non-United States Holder or, if a tax treaty
applies, attributable to a United States permanent establishment of such
Non-United States Holder would be exempt from such withholding tax, provided
such Non-United States Holder complies with applicable certification and
disclosure requirements. However, any such effectively connected or attributable
dividends, net of deductions and credits, would be taxed at the same graduated
rates that apply to United States persons.

Dividends may be subject to backup withholding at the rate of 31% unless
the Non-United States Holder certifies to required information in accordance
with United States Treasury Regulations applicable to withholding and
information reporting. Currently, backup withholding does not apply to dividends
paid to a Non-United States Holder at an address outside the United States.
However, under final regulations regarding withholding and information
reporting, which will generally be effective for payments made after December
31, 2000, payment of dividends to a Non-United States Holder at an address
outside the United States may be subject to backup withholding unless such
Non-United States Holder satisfies applicable certification requirements. Backup
withholding, if applied, is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.

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Generally, we must report annually to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the holder. Pursuant to tax treaties or other
agreements, the IRS may make such reports available to tax authorities in the
recipient's country of residence.

GAIN ON DISPOSITION OF COMMON STOCK

A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
its common stock unless: (i) such gain is effectively connected with a United
States trade or business of the Non-United States Holder (all or a portion of
which gain, in the case of a corporate Non-United States Holder, may be subject
to the branch profits tax at the rate of 30% (or lower treaty rate, if
applicable)), (ii) the Non-United States Holder is an individual who holds such
common stock as a capital asset (within the meaning of Section 1221 of the Code)
and who is present in the United States for a period or periods aggregating 183
days or more during the taxable year in which such sale or disposition occurs
and other conditions are met; or (iii) we are or have been a "United States real
property holding corporation" for United States federal income tax purposes at
any time within the shorter of the five-year period preceding such disposition
or such Non-United States Holder's holding period of its common stock. We have
determined that we are not and do not believe that we are likely to become a
"United States real property holding corporation" for United States federal
income tax purposes. However, no assurance can be provided that we will not
become a United States real property holding corporation. If we were to become a
United States real property holding corporation, gains realized by a Non-United
States Holder which did not directly or indirectly own more than 5% of our
common stock at any time during the shorter of the five-year period preceding
such disposition or such Holder's holding period generally would not be subject
to United States federal income tax as a result of the status of our company as
a United States real property holding corporation, provided that our common
stock was regularly traded on an established securities market.

The payment of the proceeds of a sale of common stock to or through the
United States office of a broker is currently subject to both information
reporting and backup withholding at the rate of 31% unless the Non-United States
Holder certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption. Generally, the payment of proceeds of a
disposition by a Non-United States Holder of common stock outside the United
States to or through a foreign office of a broker will not be subject to backup
withholding. However, such payments will be subject to information reporting if
the broker is: (i) a United States person; (ii) a "controlled foreign
corporation" for United States tax purposes; (iii) a foreign person 50% or more
of whose gross income for a specified three-year period is effectively connected
with a United States trade or business or (iv) with respect to payments made
after December 31, 2000, a foreign partnership, if at any time during its
taxable year, one or more of its partners are United States persons who in the
aggregate hold more than 50% of the income or capital interest in the
partnership or if, at any time during its taxable year, such foreign partnership
is engaged in a United States trade or business, unless the Non-United States
Holder establishes an exemption in accordance with the current or final United
States Treasury Regulations regarding withholding and information reporting, as
applicable.

The final regulations regarding withholding and information reporting unify
current certification procedures and forms and clarify reliance standards.
Except as noted above with respect to foreign brokers that are partnerships, the
final regulations generally do not significantly alter the substantive
withholding and information reporting requirements but do alter the procedures
for claiming the benefits of an income tax treaty and change the certification
procedures relating to the receipt by intermediaries of payments on behalf of
the beneficial owner of shares of common stock. Non-United States Holders should
consult their own tax advisors regarding the effect, if any, of the final
regulations on their particular situations.

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ESTATE TAX

Common stock owned or treated as owned at the time of death by an
individual who is not a citizen or resident of the United States for federal
estate tax purposes will be included in such individual's estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
applies other rules, and as a result may be subject to United States federal
estate tax.

The foregoing discussion is a summary of the principal United States
federal income and estate tax consequences of the ownership, sale or other
disposition of our common stock by Non-United States holders. Accordingly,
investors are urged to consult their own tax advisors with respect to the income
tax consequences of the ownership and disposition of our common stock, including
the application and effect of the laws of any state, local, foreign or other
taxing jurisdiction.

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UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation
("CSFBC") is acting as representative, the following respective number of shares
of Class A Common Stock:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation......................
----------
Total.................................................. 20,000,000
==========
</TABLE>

The underwriting agreement provides that the underwriters will be obligated
to purchase all of the shares of Class A Common Stock offered in this offering
if any are purchased, other than those shares covered by the over-allotment
option described below. The underwriting agreement also provides that for
underwriter defaults, purchase commitments of non-defaulting underwriters may be
increased or the offering of Class A Common Stock may be terminated.

National Semiconductor has granted to the underwriters a 30-day option to
purchase on a pro rata basis up to 3,000,000 additional shares of Class A Common
Stock at the initial public offering price, less the underwriting discounts and
commissions. This option may be exercised only to cover any over-allotments of
Class A Common Stock.

The underwriters propose to offer the Class A Common Stock initially at the
public offering price set forth on the cover page of this prospectus and to
selling group members at such price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
offering price and concession and discount to broker/dealers may be changed by
the representative.

The following table summarizes the discounts and commissions and estimated
expenses payable by us and National Semiconductor.

<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions payable by
us......................... $ $ $ $
Expenses payable by us....... $ $ $ $
Underwriting discounts and
commissions payable by
National Semiconductor..... $ $ $ $
</TABLE>

We, our officers and directors, National Semiconductor and, with respect to
certain of their shares, our existing stockholders have agreed not to offer,
sell, contract to sell, announce their intention to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the Securities Act relating to, any
additional shares of our Class A Common Stock or securities convertible into or
exchangeable or exercisable for any shares of our Class A Common Stock without
the prior written consent of CSFBC for a period of 180 days after the date of
this prospectus, except in our case for grants of employee stock options

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<PAGE> 117

pursuant to the terms of a plan in effect on the date hereof, issuances of
securities pursuant to the exercise of employee stock options outstanding on the
date hereof or the exercise of any other stock options outstanding on the date
hereof and, in the case of National Semiconductor, shares sold in the
over-allotment option.

Of the 20,000,000 shares of our Class A Common Stock to be sold in this
offering, the underwriters have reserved for sale, at a price to be determined,
up to shares as follows:

- at Fairchild International's request, up to shares for
Fairchild International's directors, officers, friends, family members
and business associates; and

- up to shares for eligible employees pursuant to Fairchild
International's Employee Stock Purchase Savings Plan.

As a result, the number of shares of our Class A Common Stock available for sale
to the public will be reduced to the extent such eligible persons purchase the
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the public on the same terms as the other shares sold in this
offering.

We and National Semiconductor have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments which
the underwriters may be required to make in that respect.

We have applied to list our Class A Common Stock on The New York Stock
Exchange.

Prior to this offering, there has been no public market for our Class A
Common Stock. The initial public offering price for the Class A Common Stock
will be determined by negotiation among us, National Semiconductor and CSFBC,
and does not reflect the market price for the Class A Common Stock following the
offering. Among the principal factors considered in determining the initial
public offering price will be:

- the information set forth in this prospectus and otherwise available to
CSFBC;

- market conditions for initial public offerings;

- the history of and prospects for the industry in which we are competing;

- our past and present operations;

- our past and present earnings and current financial position;

- our prospects for future earnings;

- the present state of our development and our current financial condition;

- the ability of our management;

- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies;

- the general condition of the securities markets at the time of this
offering; and

- other relevant factors.

We cannot assure you that the initial public offering price will correspond
to the price at which the Class A Common Stock will trade in the public market
subsequent to the offering or that an active trading market for the Class A
Common Stock will develop and continue after the offering.

The representative may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended.

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<PAGE> 118

- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.

- Stabilizing transactions permit bids to purchase shares of the Class A
Common Stock so long as the stabilizing bids do not exceed a specified
maximum.

- Syndicate covering transactions involve purchases of the Class A Common
Stock in the open market after the distribution has been completed in
order to cover syndicate short positions.

- Penalty bids permit the representative to reclaim a selling concession
from a syndicate member when common stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.

Such stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of our Class A Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.

We intend to use more than 10% of the net proceeds of the sale of our Class
A Common Stock to repay indebtedness under our existing credit facilities owed
by us to banking affiliates of certain of the underwriters and to repay the
12.5% Subordinated Note Due 2008 held by an affiliate of one of the
underwriters. Accordingly, the offering is being made in compliance with the
requirements of Rule 2710(c)(8) of the National Association of Securities
Dealers, Inc. Conduct Rules. This rule provides generally that if more than 10%
of the net proceeds from the sale of our Class A Common Stock, not including
underwriting compensation, is paid to the underwriters or their affiliates, the
initial public offering price of the stock may not be higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
Accordingly, Credit Suisse First Boston Corporation is assuming the
responsibilities of acting as the qualified independent underwriter in pricing
the offering and conducting due diligence. The initial public offering price of
the shares of our Class A Common Stock will be no higher than the price
recommended by Credit Suisse First Boston Corporation.

The underwriters and their affiliates have provided and will in the future
continue to provide investment banking and other financial services, including
the provision of credit facilities, for us and certain of our respective
affiliates in the ordinary course of business for which they have received and
will receive customary compensation.

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<PAGE> 119

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the Class A Common Stock in Canada is being made only
on a private placement basis exempt from the requirement that we and National
Semiconductor prepare and file a prospectus with the securities regulatory
authorities in each province where trades of Class A Common Stock are effected.
Accordingly, any resale of the Class A Common Stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Class A Common
Stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of Class A Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to us, National Semiconductor and the
dealer from whom such purchase confirmation is received that (1) such purchaser
is entitled under applicable provincial securities laws to purchase such Class A
Common Stock without the benefit of a prospectus qualified under such securities
laws, (2) where required by law, that such purchaser is purchasing as principal
and not as agent and (3) such purchaser has reviewed the text above under
"Resale restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Ontario Securities Law. As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers, as well as the experts named
herein, and National Semiconductor may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of Class A Common Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Class A Common Stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from us.
Only one such report must be filed in respect of Class A Common Stock acquired
on the same date and under the same prospectus exemption.

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<PAGE> 120

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of Class A Common Stock should consult their own legal
and tax advisors with respect to the tax consequences of an investment in the
Class A Common Stock in their particular circumstances and with respect to the
eligibility of the Class A Common Stock for investment by the purchaser under
relevant Canadian legislation.

LEGAL MATTERS

The validity of the Class A Common Stock offered hereby will be passed upon
for us by Dechert Price & Rhoads, New York, New York. The underwriters have been
represented by Cravath, Swaine & Moore, New York, New York.

EXPERTS

The consolidated financial statements of FSC Semiconductor Corporation as
of May 31, 1998 and May 25, 1997, and for each of the years in the three-year
period ended May 31, 1998, have been included in this prospectus and
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, which report is included elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.

The report of KPMG LLP covering the May 31, 1998 consolidated financial
statements of FSC Semiconductor Corporation contains an explanatory paragraph
that states that we changed our method of accounting for business process
reengineering costs in 1998 to adopt the provisions of the Emerging Issues Task
Force Issue 97-13, "Accounting for Business Process Reengineering Costs."

The audited financial statements of the power device business included in
this prospectus have been audited by Samil Accounting Corporation, independent
certified public accountants, to the extent and for the periods indicated in
their report thereon. Such financial statements have been included in reliance
upon the report of Samil Accounting Corporation.

The financial statements of Raytheon Semiconductor, Inc. as of December 31,
1997 and for the year then ended, have been included in this prospectus and
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, which report is included elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports and other information with
the Securities and Exchange Commission. You may read and copy any reports or
other information filed by us at the Securities and Exchange Commission's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661 and Seven
World Trade Center, 13th Floor, New York, NY 10048. Copies of such material can
be obtained from the Public Reference Section of the SEC upon payment of certain
fees prescribed by the SEC. You may call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information contained in the public reference
room. Our filings with the Securities and Exchange Commission are also available
to the public from commercial document retrieval services and at the Securities
and Exchange Commission's Web site at "http://www.sec.gov."

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933, covering the Class A Common Stock to be offered pursuant
to this prospectus (File No. 333-78557). This prospectus, which is a part of the
registration statement, does not contain all of

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<PAGE> 121

the information included in the registration statement. Any statement made in
this prospectus concerning the contents of any contract, agreement or other
document is not necessarily complete. For further information with respect to
Fairchild International and the Class A Common Stock offered hereby, please
reference the registration statement, including its exhibits. If we have filed
any contract, agreement or other document as an exhibit to the registration
statement, you should read the exhibit for a more complete understanding of the
document or matter involved.

Copies of the registration statement, including all related exhibits and
schedules, may be inspected without charge at the public reference facilities
maintained by the SEC, or obtained at prescribed rates from the Public Reference
Section of the SEC at the address set forth above. In addition, you may request
a copy of any of these filings, at no cost, by writing or telephoning us at the
following address or phone number:

Fairchild Semiconductor International, Inc.
333 Western Avenue
South Portland, Maine 04106
Attention: General Counsel
(207) 775-8100

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GLOSSARY

ABT........................ Advanced BiCMOS Technology.

ALS........................ Advanced Low Power Schottky.

Application Specific
Standard Product........... A standard integrated circuit designed for a
specific product or application, such as a VCR,
stereo or microwave.

BiCMOS..................... BiCMOS is a hybrid of CMOS and bipolar technologies
developed to combine the high speed characteristics
of bipolar technologies with the low power
consumption and high integration of CMOS
technologies.

Bipolar.................... A manufacturing process that uses two opposite
electrical poles to build semiconductors.

CD4K....................... Metal Gate Logic.

CMOS....................... Complementary Metal Oxide Semiconductor. Currently
the most common integrated circuit fabrication
process technology, CMOS is one of the latest
fabrication techniques to use metal oxide
semiconductor transistors.

Die........................ A piece of a semiconductor wafer containing the
circuitry of a single chip.

Diode...................... An electronic device that allows current to flow in
only one direction.

Discrete................... A single individually packaged component.

DMOS....................... Diffused Metal Oxide Semiconductor. A process
technology used in power discrete fabrication.

ECL........................ Emitter Coupled Logic.

EEPROM..................... Electrically Erasable and Programmable Read-Only
Memory. A form of non-volatile memory that can be
erased electronically before being reprogrammed.

EPROM...................... Electrically Programmable Read-Only Memory.
Non-volatile memory which may be erased by exposure
to ultraviolet light and which can be reprogrammed
only by an external programming unit.

Fab........................ The facility that fabricates the wafer.

FACT(TM)................... Fairchild Advanced CMOS Technology. FACT(TM)
enhances connections between products, permitting
faster speeds at higher powers.

FAST(R).................... Fairchild Advanced Schottky Technology. FAST(R)
enhances connections between products, permitting
low power consumption at lower speeds.

FET........................ Field Effect Transistor.

Flash Memory............... A type of non-volatile memory, similar to an EEPROM
in that it is erasable and reprogrammable. The
difference is that it must be erased and
reprogrammed in sectors, not individual bits.

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Foundry.................... A wafer fabrication plant that manufactures silicon
for another business.

GFI........................ Ground Fault Interruptors.

GTL........................ Gunning Transceiver Logic.

HV MOSFET.................. High Voltage MOSFET.

IGBT....................... Insulated Gate Bipolar Transistor. A semiconductor
within an electronic switch, an IGBT operates at
high voltages.

Input-output interface..... A connection in electronic equipment allowing
circuits to connect more efficiently, such as
increasing speed by reducing power.

Integrated Circuit......... A combination of two or more transistors on a base
material, usually silicon. All semiconductor chips,
including memory chips and logic chips, are just
very complicated integrated circuits with thousands
of transistors.

LAN........................ Local Area Network. A local area network links many
nearby computers so that they may communicate and
share information. For example, an office network
is often LAN.

Lead Frames................ A conductive frame that brings the electrical
signals to and from the die.

Logic Product.............. A product that contains digital integrated circuits
that move and shape, rather than store,
information.

LS......................... Low Power Schottky.

LVT........................ Low Voltage Technology. Low voltage technology
enhances connections between products, permitting
circuits at different voltages to interface.

Mask....................... A piece of glass on which an integrated circuit's
circuitry design is laid out. Integrated circuits
may require up to 20 different layers of design,
each with its own mask. In the integrated circuit
production process, a light shines through the mask
leaving an image of the design on the wafer. Also
known as a reticle.

Mb......................... Mega Bit. One million (or 1,048,576) bits as a unit
of data size or memory capacity.

Memory..................... A group of integrated circuits that a computer uses
to store data and programs, such as ROM, RAM, DRAM,
SRAM, EEPROM and EPROM.

Micron..................... 1/25,000 of an inch. Circuity on an integrated
circuit typically follows lines that are less than
one micron wide.

MOS........................ Metal Oxide Semiconductor.

MOSFET..................... Metal Oxide Semiconductor FET. A semiconductor
within an electronic switch, a MOSFET operates at
mid-range voltages.

Motherboard................ The main piece of circuitry inside a PC.

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Non-volatile Memory........ Memory products which retain their data content
without the need for constant power supply.

Op Amp..................... Operational Amplifier.

Package.................... A protective case that surrounds the die,
consisting of a plastic housing and a lead frame.

PC......................... Personal Computer.

Planar Technology.......... By the later 1950s, transistors were made in
batches through a simple photolithographic
technique known as the mesa process. This process,
which led directly to the creation of the
commercially viable integrated circuit, is a form
of contact printing.

A cross section of a typical mesa transistor
resembles a mesa of silicon squatting on top of a
foundation of silicon. The three essential parts of
a transistor are all there: the base is the mesa,
the collector is the foundation, and the emitter is
a tiny piece of doped silicon embedded in the base.
To fabricate a mesa transistor, a flat wafer of
silicon was doped with either positive ions or
electrons, covered with a photomask (a photographic
plate), exposed to ultraviolet light and then
immersed in an acid bath, which etched away the
exposed area around the mesa.

For all the manufacturing benefits brought about by
the mesa process, it had two major drawbacks: the
mesa was susceptible to both physical harm and
contamination, and the process did not lend itself
to the making of resistors. Then Jean Hoerni, a
Swiss physicist and one of Fairchild
Semiconductor's founders, invented an ingenious way
around these obstacles by creating a flat, or
planar, transistor.

Instead of mounting the mesa, or base, on top of a
foundation of silicon, he diffused it into the
foundation, which served as the collector. Next he
diffused the emittor into the base. (The base was
composed of negatively doped silicon, the collector
and emitor of positively doped silicon; the first
planar device was thus a pnp transistor.) Then he
covered the whole thing with a protective coating
of silicon dioxide, an insulator, leaving certain
areas in the base and the emitter uncovered. He
diffused a thin layer of aluminum into these areas,
thereby creating "wires" that hooked the device up
to the outside (this was the idea of his colleague
and Fairchild Semiconductor's co-founder, Robert
Noyce). The result was a durable and reliable
transistor, and the all-important breakthrough that
made commercial production of integrated circuits
possible.

Plug and Play.............. A protocol that supports automated configuration of
add on cards.

Power Discrete............. A discrete device that converts, switches or
conditions electricity.

PROM....................... Programmable Read-Only Memory. Similar to ROM in
that once programmed it can be "read only" and not
changed. Programmable ROM means that customers can
program the integrated circuits themselves, so that
the integrated circuit need not be programmed when
it is manufactured. The programming is possible
because of a

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series of fuses in the circuitry that can be
selectively blown to create a unique type of data.

RAM........................ Random Access Memory. A type of volatile memory,
forming the main memory of a computer where
applications and files are run.

ROM........................ Read-Only Memory. Memory that is programmed by the
manufacturer and cannot be changed. Typically, ROM
is used to provide start-up data when a computer is
first turned on.

Semiconductor.............. A material with electrical conducting properties in
between those of metals and insulators. (Metals
always conduct and insulators never conduct, but
semiconductors sometimes conduct.) Essentially,
semiconductors transmit electricity only under
certain circumstances, such as when given a
positive or negative electric charge. Therefore, a
semiconductor's ability to conduct can be turned on
or off by manipulating those charges and this
allows the semiconductor to act as an electric
switch. The most common semiconductor material is
silicon, used as the base of most semiconductor
chips today because it is relatively inexpensive
and easy to create.

Silicon bonding............ A manufacturing process used to bond together two
silicon wafers, allowing higher resistivity in one
layer and lower resistivity in the other to help
conduct current.

Sort....................... The process of evaluating die into different
grades, good/bad or speed grades.

SPD........................ Serial Presence Detect.

Transistor................. An individual circuit that can amplify or switch
electric current. This is the building block of all
integrated circuits and semiconductors.

Trench technology.......... A manufacturing process used to etch trenches into
silicon wafers, allowing the transistor to be
placed both on the sides of the trenches and on the
surface of the wafer to enable transistors to be
condensed into a smaller area.

TTL........................ Transistor Transistor Logic.

Ultra small packaging...... The process of encasing very small semiconductors
so that they are protected and electronically and
mechanically connected to the outside world.

VHC........................ Very High Speed CMOS.

Volatile Memory............ Memory products which lose their data content when
the power supply is switched off.

Wafer...................... Thin, round, flat piece of silicon that is the base
of most integrated circuits.

WAN........................ Wide Area Network. A wide area network links many
computers from potentially all over the world so
that they may communicate and share information.

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INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FSC SEMICONDUCTOR CORPORATION
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets at May 31, 1998 and May 25,
1997...................................................... F-3
Consolidated Statements of Operations for each of the years
in the three-year period ended May 31, 1998............... F-4
Consolidated Statement of Cash Flows for the year ended May
31, 1998.................................................. F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for each of the years in the three-year period ended May
31, 1998.................................................. F-6
Notes to Consolidated Financial Statements.................. F-7
Condensed Consolidated Statements of Operations (Unaudited)
for the Nine Months Ended February 28, 1999 and March 1,
1998...................................................... F-30
Condensed Consolidated Balance Sheet as of February 28, 1999
(Unaudited)............................................... F-31
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended February 28, 1999 and March 1,
1998...................................................... F-32
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-33

POWER DEVICE BUSINESS
Independent Auditors' Report................................ F-35
Statements of Net Assets (Liabilities) as of December 31,
1998 and 1997............................................. F-36
Statements of Operations and Comprehensive Income (Loss) for
each of the years in the three-year period ended December
31, 1998.................................................. F-37
Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1998................. F-38
Notes to Financial Statements............................... F-39

RAYTHEON SEMICONDUCTOR, INC.
Independent Auditors' Report................................ F-55
Balance Sheet as of December 31, 1997....................... F-56
Statement of Income for the year ended December 31, 1997.... F-57
Statement of Stockholders' Equity for the year ended
December 31, 1997......................................... F-58
Statement of Cash Flows for the year ended December 31,
1997...................................................... F-59
Notes to Financial Statements............................... F-60
</TABLE>

F-1
<PAGE> 127

INDEPENDENT AUDITORS' REPORT

The Board of Directors
FSC Semiconductor Corporation:

We have audited the accompanying balance sheets of FSC Semiconductor
Corporation (the "Company") as of May 31, 1998 and May 25, 1997, the related
consolidated and combined statements of operations and stockholders' equity
(deficit) for each of the years in the three-year period ended May 31, 1998, and
the related consolidated statement of cash flows for the year ended May 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements were prepared on the basis of
presentation as described in Note 1. Prior to March 11, 1997, the statements
present the combined business equity and the related combined revenues less
direct expenses before taxes of the Fairchild Semiconductor Business of National
Semiconductor Corporation (the Business), and are not intended to be a complete
presentation of the Business' financial position, results of operations or cash
flows. The results of operations before taxes are not necessarily indicative of
the results of operations before taxes that would have been recorded by the
Company on a stand-alone basis.

In our opinion, the accompanying financial statements present fairly, in
all material respects, the consolidated financial position of the Company as of
May 31, 1998 and May 25, 1997, the results of operations for each of the years
in the three year period ended May 31, 1998, and the results of cash flows for
the year ended May 31, 1998, on the basis described in Note 1, in conformity
with generally accepted accounting principles.

As discussed in Note 18 to the financial statements, the Company changed
its method of accounting for business process reengineering costs in 1998 to
adopt the provisions of the Emerging Issues Task Force Issue 97-13, "Accounting
for Business Process Reengineering Costs".

KPMG PEAT MARWICK LLP

Boston, Massachusetts

June 16, 1998, except as to Note 19, which is as of July 20, 1998

F-2
<PAGE> 128

FSC SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
MAY 31, MAY 25,
1998 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6.5 $ 40.7
Accounts receivable, net of allowances of $14.2 and $15.9
at May 31, 1998 and May 25, 1997, respectively......... 75.0 79.6
Inventories............................................... 108.0 73.1
Other current assets...................................... 20.0 18.7
------- -------
Total current assets................................... 209.5 212.1
Property, plant and equipment, net.......................... 342.9 295.0
Deferred income taxes....................................... 21.4 18.5
Intangible assets, net of accumulated amortization of $1.4
at May 31, 1998........................................... 31.5 --
Other assets................................................ 30.4 29.4
------- -------
Total assets........................................... $ 635.7 $ 555.0
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt......................... $ 13.2 $ 11.0
Accounts payable.......................................... 75.4 77.1
Accrued expenses and other current liabilities............ 55.9 40.1
------- -------
Total current liabilities.............................. 144.5 128.2
Long-term debt, less current portion........................ 526.7 487.9
Other liabilities........................................... 0.6 0.4
------- -------
Total liabilities...................................... 671.8 616.5
------- -------
Redeemable preferred stock--12% Series A cumulative
compounding preferred stock, $.01 par value, $1,000 stated
value; 70,000 shares authorized, issued and outstanding at
May 31, 1998 and May 25, 1997............................. 80.5 71.8
Commitments and contingencies
Stockholders' equity (deficit):
Class A common stock, $.01 par value, voting; 80,000,000
shares authorized, 29,238,800 and 28,764,480 shares
issued and outstanding at May 31, 1998 and May 25,
1997, respectively..................................... 0.3 0.1
Class B common stock, $.01 par value, nonvoting;
80,000,000 shares authorized, 33,635,520 shares issued
and outstanding at May 31, 1998 and May 25, 1997....... 0.3 0.1
Additional paid-in capital.................................. 9.5 7.6
Accumulated deficit......................................... (126.7) (141.1)
------- -------
Total stockholders' equity (deficit)................... (116.6) (133.3)
------- -------
Total liabilities and stockholders' equity (deficit)... $ 635.7 $ 555.0
======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 129

FSC SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
MAY 31, MAY 25, MAY 26,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Revenue:
Net sales -- trade........................................ $635.8 $587.8 $688.7
Contract manufacturing -- National Semiconductor.......... 153.4 104.2 87.6
------ ------ ------
Total revenue.......................................... 789.2 692.0 776.3
------ ------ ------
Operating expenses:
Cost of sales............................................. 441.6 442.1 471.9
Cost of contract manufacturing -- National
Semiconductor.......................................... 117.1 97.4 87.6
Research and development.................................. 35.7 18.9 30.3
Selling, general and administrative....................... 92.0 96.4 114.4
Purchased in-process research and development............. 15.5 -- --
Restructuring............................................. -- 5.3 --
------ ------ ------
Total operating expenses............................... 701.9 660.1 704.2
------ ------ ------
Operating Income............................................ 87.3 31.9 72.1
Interest, net............................................... 54.5 11.2 --
Other (income) expense, net................................. -- 1.4 (0.2)
------ ------ ------
Income before income taxes.................................. 32.8 19.3 72.3
Income taxes................................................ 10.7 3.8 --
------ ------ ------
Income before cumulative effect of change in accounting
principle................................................. 22.1 15.5 72.3
Cumulative effect of change in accounting principle, net of
tax effect of $0.8 million................................ (1.5) -- --
------ ------ ------
Net income.................................................. $ 20.6 $ 15.5 $ 72.3
====== ====== ======
</TABLE>

<TABLE>
<S> <C> <C> <C>
Net income applicable to common stockholders (note 2)....... $ 11.9
======
Basic earnings (loss) per common share
Income before cumulative effect of change in accounting
principle................................................. $ 0.21
Cumulative effect of change in accounting principle....... (0.02)
------
$ 0.19
======
Diluted earnings (loss) per common share
Income before cumulative effect of change in accounting
principle................................................. $ 0.20
Cumulative effect of change in accounting principle....... (0.02)
------
$ 0.18
======
Weighted average common shares outstanding
Basic..................................................... 62.6
======
Diluted................................................... 64.8
======
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 130

FSC SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED
MAY 31,
1998
----------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 20.6
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of deferred compensation.................. 0.2
Cumulative effect of change in accounting principle,
net................................................... 1.5
Depreciation and amortization.......................... 84.6
Loss on disposal of fixed assets....................... 0.9
Non-cash interest expense.............................. 9.7
Purchased in-process research and development.......... 15.5
Deferred income taxes.................................. (0.4)
Changes in operating assets and liabilities, net of effect
of acquisition:
Accounts receivable.................................... 18.6
Inventories............................................ (21.3)
Other current assets................................... (1.6)
Accounts payable....................................... (6.5)
Accrued expenses and other current liabilities......... 13.7
Other assets and liabilities, net...................... 0.6
-------
Cash provided by operating activities................ 136.1
-------
Cash flows from investing activities:
Capital expenditures...................................... (78.0)
Purchase of molds and tooling............................. (5.7)
Purchase of Raytheon Semiconductor, Inc., net of cash
acquired............................................... (116.8)
-------
Cash used by investing activities.................... (200.5)
-------
Cash flows from financing activities:
Repayment of long-term debt............................... (58.7)
Issuance of long-term debt................................ 90.0
Debt issuance costs....................................... (1.1)
-------
Cash provided by financing activities................ 30.2
-------
Net change in cash and cash equivalents..................... (34.2)
Cash and cash equivalents at beginning of period............ 40.7
-------
Cash and cash equivalents at end of period.................. $ 6.5
=======
Supplemental Cash Flow Information:
Cash paid during the year for:
Income taxes........................................... $ 8.9
=======
Interest............................................... $ 43.8
=======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 131

FSC SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN MILLIONS)

<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
CLASS A CLASS B PAR PAR PAID-IN ACCUMULATED BUSINESS EQUITY
SHARES SHARES VALUE VALUE CAPITAL DEFICIT EQUITY (DEFICIT)
------- ------- ------- ------- ---------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at May 28, 1995........ -- -- $ -- $ -- $ -- $ -- $ 233.2 $ 233.2
Revenues less expenses........ -- -- -- -- -- -- 72.3 72.3
Net intercompany activity..... -- -- -- -- -- -- 43.7 43.7
---- ---- ---- ---- ----- ------- ------- -------
Balances at May 25, 1996........ -- -- -- -- -- -- 349.2 349.2
Revenues less expenses........ -- -- -- -- -- -- 9.6 9.6
Net intercompany activity..... -- -- -- -- -- -- (25.4) (25.4)
---- ---- ---- ---- ----- ------- ------- -------
Balances at March 10, 1997...... -- -- -- -- -- -- 333.4 333.4
Recapitalization of
Business................... -- -- -- -- -- 333.4 (333.4) --
Distribution to National
Semiconductor by
Fairchild.................. -- -- -- -- -- (401.6) -- (401.6)
PIK Note issued as additional
purchase consideration for
the stock of Fairchild..... -- -- -- -- -- (77.0) -- (77.0)
Issuance of common stock...... 28.8 33.6 0.1 0.1 7.6 -- -- 7.8
Net income.................... -- -- -- -- -- 5.9 -- 5.9
Dividends on redeemable
preferred stock............ -- -- -- -- -- (1.8) -- (1.8)
---- ---- ---- ---- ----- ------- ------- -------
Balances at May 25, 1997........ 28.8 33.6 0.1 0.1 7.6 (141.1) -- (133.3)
Net income.................... -- -- -- -- -- 20.6 -- 20.6
Dividends on redeemable
preferred stock............ -- -- -- -- -- (8.6) -- (8.6)
Adjustment to business equity
assumed.................... -- -- -- -- -- 2.4 -- 2.4
Issuance of common stock...... 0.4 -- -- -- -- -- -- --
Common stock split issued in
the form of a stock
dividend (4-1)............. -- -- 0.2 0.2 (0.4) -- -- --
Deferred compensation related
to the grant of stock
options.................... -- -- -- -- 0.2 -- -- 0.2
Tax benefit from compensation
related to lifting of
restrictions on common
stock owned by management
investors.................. -- -- -- -- 2.1 -- -- 2.1
---- ---- ---- ---- ----- ------- ------- -------
Balances at May 31, 1998........ 29.2 33.6 $0.3 $0.3 $ 9.5 $(126.7) $ -- $(116.6)
==== ==== ==== ==== ===== ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 132

FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- BACKGROUND AND BASIS OF PRESENTATION

BACKGROUND

FSC Semiconductor Corporation ("Fairchild Holdings" or the "Company") was
incorporated on March 10, 1997 by National Semiconductor Corporation ("National
Semiconductor" or "National"). On March 11, 1997, National Semiconductor
consummated an Agreement and Plan of Recapitalization ("Recapitalization"). As
part of the Recapitalization, National Semiconductor transferred all of the
capital stock of Fairchild Semiconductor Corporation ("Fairchild") and
approximately $12.8 million in cash to Fairchild Holdings in exchange for shares
of Fairchild Holdings' 12% Series A Cumulative Compounding Preferred Stock,
Fairchild Holdings' common stock and a promissory note in the principal amount
of approximately $77.0 million.

In addition, National Semiconductor transferred substantially all of the
assets and liabilities of the Fairchild Semiconductor Business (the "Business")
to Fairchild. The Business was defined as the logic, discrete and memory
divisions of National Semiconductor. The Recapitalization was accounted for as a
leveraged recapitalization, whereby the Company assumed the historical operating
results of the Business. Fairchild is a leading global designer, developer and
manufacturer of high performance multi-market semiconductors. The Company's
logic, discrete, non-volatile memory and analog and mixed signal products are
the building block components for virtually all electronic devices, from
sophisticated computers to household appliances. The Company is headquartered in
South Portland, Maine, and has manufacturing operations in South Portland,
Maine, West Jordan, Utah, Mountain View, California, Cebu, the Philippines, and
Penang, Malaysia.

BASIS OF PRESENTATION

The consolidated financial statements at May 31, 1998 and for the fiscal
year then ended, as well as at May 25, 1997, and for the period from March 11,
1997 through May 25, 1997, include the accounts and operations of the Company
and its wholly-owned subsidiaries.

Prior to March 11, 1997, the combined balance sheets included the assets
and liabilities that were directly related to the Business as they were operated
within National Semiconductor. These balance sheets do not include National
Semiconductor's corporate assets or liabilities not specifically identifiable to
Fairchild. National Semiconductor performed cash management on a centralized
basis and processed related receivables and certain payables, payroll and other
activity for Fairchild. These systems did not track receivables, liabilities and
cash receipts and payments on a business specific basis. Accordingly, it was not
practical to determine certain assets and liabilities associated with the
Business. Given these constraints, certain supplemental cash flow information is
presented in lieu of a statement of cash flows for the years ended May 25, 1997
and May 26, 1996 (See Note 16). The financial condition and cash flows may have
been significantly different if not for the centralized cash management system
of National Semiconductor.

Prior to March 11, 1997, the combined statements of operations included all
revenues and costs attributable to the Business including an allocation of the
costs of shared facilities and overhead of National Semiconductor. In addition,
certain costs incurred at Fairchild plants for the benefit of other National
Semiconductor product lines were allocated from Fairchild to National
Semiconductor. All of the allocations and estimates in the combined statements
of operations were based on assumptions that management believes were reasonable
under the circumstances. However, these allocations and estimates are not
necessarily indicative of the costs that would have resulted if the Business had
been operated on a stand alone basis.

F-7
<PAGE> 133
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- BACKGROUND AND BASIS OF PRESENTATION -- (CONTINUED)
Transactions with National Semiconductor have been identified in the
financial statements as transactions between related parties to the extent
practicable (See Note 12).

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR

The Company's fiscal year ends on the Sunday on or nearest preceding May
31. The Company's results for the fiscal year ended May 31, 1998 consist of 53
weeks of activity, compared to 52 weeks for the fiscal years ended May 25, 1997
and May 26, 1996.

PRINCIPLES OF CONSOLIDATION

Commencing with the Recapitalization, the consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

REVENUE RECOGNITION

Revenue from the sale of semiconductor products is recognized when shipped,
with a provision for estimated returns and allowances recorded at the time of
shipment. Contract manufacturing revenues are recognized upon completion of
contracted services.

RESEARCH AND DEVELOPMENT COSTS

The Company's research and development expenditures are charged to expense
as incurred.

RELATED PARTY ACTIVITY

In conjunction with the Recapitalization, Fairchild and National
Semiconductor executed several agreements which govern the performance of
manufacturing services by Fairchild on behalf of National Semiconductor and by
National Semiconductor on behalf of Fairchild. In addition, National
Semiconductor provides a number of business support services to Fairchild.

Prior to the Recapitalization, the Business performed contract
manufacturing services for National Semiconductor. The revenues for these
services are reflected at cost in the accompanying consolidated statements of
operations.

Manufacturing costs were generally apportioned between National
Semiconductor and the Business' product lines based upon budgeted and actual
factory production loading. Certain manufacturing costs (e.g., material costs)
that were specifically identifiable with a particular product line were charged
or credited directly without apportionment.

National Semiconductor also performed manufacturing services for the
Business and incurred other elements of cost of sales on behalf of the Business,
including freight, duty, warehousing, and purchased manufacturing services from
third party vendors.

Shared or common costs, including certain general and administrative, sales
and marketing, and research and development expenses, have been allocated from
National Semiconductor's corporate office, selling and marketing locations, and
manufacturing sites to the Business or from the Business' plants to National
Semiconductor product lines on a basis which is considered to fairly and

F-8
<PAGE> 134
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
reasonably reflect the utilization of the services provided to, or benefit
obtained by, the business receiving the charge. National Semiconductor had net
interest income on a consolidated basis for all periods presented prior to the
Recapitalization. Although not material, these amounts have been allocated to
the Business prior to the Recapitalization on the basis of net assets and are
included in other (income) expense (See Note 12).

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

INVENTORIES

Inventories are stated at the lower of standard cost, which approximates
actual cost on a first-in, first-out basis, or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recorded at cost and is generally
depreciated based upon the following estimated useful lives: buildings and
improvements ten to thirty years, and machinery and equipment three to five
years. Depreciation is computed using the straight-line method.

INTANGIBLE ASSETS

Intangible assets were recorded as part of the Raytheon acquisition and are
amortized by the use of the straight-line method over their estimated lives
which are generally three to fifteen years. (See Note 17)

OTHER ASSETS

Other assets includes debt acquisition costs which represent costs incurred
related to the issuance of the Company's long-term debt. The costs are being
amortized using the effective interest method over the related term of the
borrowings, which ranges from five to ten years, and are included in interest
expense. Also included in other assets are mold and tooling costs. Molds and
tools are amortized over their expected useful lives, generally one to three
years.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates the recoverability of long-lived assets not held for
sale, including intangible assets, by measuring the carrying amount of the
assets against the estimated undiscounted future cash flows associated with
them. At the time such evaluations indicate that the future undiscounted cash
flows of certain long-lived assets are not sufficient to recover the carrying
value of such assets, the assets are adjusted to their fair values. Based on
these evaluations, there were no adjustments to the carrying value of long-lived
assets in Fiscal Years 1998, 1997 and 1996.

CURRENCIES

The Company's functional currency for all operations worldwide is the U.S.
dollar. Accordingly, gains and losses from translation of foreign currency
financial statements are included in current

F-9
<PAGE> 135
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
results. In addition, cash conversion of foreign currency and foreign currency
transactions are also included in current results.

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

The Company utilizes various off-balance sheet financial instruments to
manage market risks associated with the fluctuations in certain interest rates
and foreign currency exchange rates. It is the Company's policy to use
derivative financial instruments to protect against market risk arising from the
normal course of business. Gains and losses on financial instruments that are
intended to hedge an identifiable firm commitment are deferred and included in
the measurement of the underlying transaction. Gains and losses on hedges of
anticipated transactions are deferred until such time as the underlying
transactions are recognized or immediately when the transaction is no longer
expected to occur. The criteria the Company uses for designating an instrument
as a hedge include the instrument's effectiveness in risk reduction and
one-to-one matching of derivative instruments to underlying transactions. In
addition, the Company uses forward and option contracts to hedge certain
non-U.S. denominated asset and liability positions. Gains and losses on these
contracts are matched with the underlying gains and losses resulting from
currency movement on these balance sheet positions.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of cash and cash equivalents, accounts receivable and
payable, and accrued liabilities approximate fair value due to the short-term
maturities of these assets and liabilities. Fair values of long term debt,
currency forward contracts and currency options are based on quoted market
prices or pricing models using prevailing financial market information as of May
31, 1998.

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

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

INCOME TAXES

Prior to the Recapitalization, the Business did not file separate income
tax returns but rather was included in the income tax returns filed by National
Semiconductor and its subsidiaries in various domestic and foreign
jurisdictions. Therefore, no provision for income taxes has been recorded in the
accompanying consolidated financial statements for the period May 27, 1996
through March 10, 1997 and for the year ended May 26, 1996. Upon the
Recapitalization, the Company became responsible for its income taxes and,
therefore, the provision for income taxes included in the accompanying 1997
statement of operations is for the period March 11, 1997 through May 25, 1997.

Income taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected

F-10
<PAGE> 136
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

Net Income (Loss) Per Common Share

The Company has presented net income (loss) per share pursuant to SFAS No.
128, Earnings per Share, and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Net income (loss) per common share is presented for
the year ended May 31, 1998 only because it is not meaningful for earlier years
since the Company did not have common stock outstanding for the entire period
during any earlier year.

Basic income (loss) per share was computed by dividing net income
applicable to common stockholders by the weighted average number of shares of
common stock outstanding. Diluted income (loss) per share also gives effect to
all dilutive potential common shares outstanding, consisting solely of
outstanding stock options.

The following table reconciles net income to net income applicable to
common stockholders and basic weighted average shares to diluted weighted
average shares outstanding.

<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Basic weighted average common shares outstanding............ 62.6
Net effect of dilutive stock options based on the treasury
stock method using the average market price............... 2.2
-----
Diluted weighted average common shares outstanding.......... 64.8
=====
Net income.................................................. $20.6
Dividends on redeemable preferred stock..................... (8.7)
-----
Net income applicable to common stockholders................ $11.9
=====
</TABLE>

Options to purchase 750,000 shares of common stock at $10.00 per share were
outstanding during fiscal 1998 but were not included in the computation of
diluted EPS because the effect of including such options would be anti-dilutive.

EMPLOYEE STOCK PLAN

The Company accounts for its stock option plan in accordance with
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees." In 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 provides
an alternative to APB 25 and is effective for fiscal years beginning after
December 15, 1995. As permitted under SFAS No. 123, the Company continues to
account for its stock option plan in accordance with the provisions of APB 25
(see Note 6) and provides the disclosure of pro forma net income as if the fair
value method under SFAS No. 123 had been applied.

F-11
<PAGE> 137
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RECLASSIFICATION

Certain amounts in Fiscal Years 1997 and 1996 have been reclassified to
conform with the current year presentation.

NOTE 3 -- FINANCIAL STATEMENT DETAILS

<TABLE>
<CAPTION>
MAY 31, MAY 25,
1998 1997
------- -------
(IN MILLIONS)
<S> <C> <C>
Inventories(1)
Raw materials............................................. $ 13.0 $ 8.8
Work in process........................................... 69.5 43.4
Finished goods............................................ 25.5 20.9
------ ------
$108.0 $ 73.1
====== ======
Other current assets
Non-trade receivable from manufacturing subcontractor..... $ 12.7 $ 14.8
Prepaid and other current assets.......................... 7.3 3.9
------ ------
$ 20.0 $ 18.7
====== ======
Property, plant and equipment(1)
Land...................................................... $ 23.5 $ 1.2
Buildings and improvements................................ 154.7 140.2
Machinery and equipment................................... 575.1 526.8
Construction in progress.................................. 46.5 20.2
------ ------
Total property, plant and equipment.................... 799.8 688.4
Less accumulated depreciation............................. 456.9 393.4
------ ------
$342.9 $295.0
====== ======
Accrued expenses(1)
Payroll and employee related accruals..................... $ 23.4 $ 14.9
Accrued interest.......................................... 8.1 8.9
Income taxes payable...................................... 3.2 2.0
Other..................................................... 21.2 14.3
------ ------
$ 55.9 $ 40.1
====== ======
</TABLE>

- -------------------------

(1) Approximately $13.6 million of inventory, $49.9 million of property, plant
and equipment, and $4.1 million in accrued liabilities were obtained through
the Raytheon acquisition and contribute to the growth in each respective
account in Fiscal Year 1998.

F-12
<PAGE> 138
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- LONG-TERM DEBT

Long-term debt consists of the following at:

<TABLE>
<CAPTION>
MAY 31, MAY 25,
1998 1997
------- -------
(IN MILLIONS)
<S> <C> <C>
Tranche A term loan payable................................. $ 62.5 $ 75.0
Tranche B term loan payable................................. -- 45.0
Tranche C term loan payable................................. 88.8 --
Senior subordinated notes payable........................... 300.0 300.0
------ ------
Subtotal............................................... 451.3 420.0
PIK note payable............................................ 88.6 78.9
------ ------
Total long-term debt................................... 539.9 498.9
Less current portion........................................ 13.2 11.0
------ ------
Long-term portion...................................... $526.7 $487.9
====== ======
</TABLE>

On March 11, 1997, the Company entered into a Senior Credit Facilities
agreement ("Credit Agreement") with a syndicate of financial institutions. On
December 31, 1997, the Credit Agreement was amended and restated ("Amended
Credit Agreement") in order to permit the acquisition of Raytheon Semiconductor,
Inc. (See Note 17).

Borrowings under the Amended Credit Agreement are segregated into two
tranches: $75.0 million Tranche A Term Loans and $90.0 million Tranche C Term
Loans. A portion of the proceeds from the Tranche C Term Loans was used to repay
in full the outstanding borrowings of the Tranche B Term Loans under the
original Credit Agreement. The Tranche A Term Loans are scheduled to mature on
March 11, 2002 and are subject to quarterly principal payments ranging from $2.5
million to $6.5 million, commencing May 30, 1997. The Tranche C Term Loans are
scheduled to mature on March 11, 2003 and are subject to quarterly principal
payments of $0.6 million each through February 2002, commencing February 28,
1998, with an additional four quarterly payments of $20.0 million each due
through March 11, 2003, commencing May 31, 2002. The Amended Credit Agreement
also includes a Revolving Credit Facility of $130.0 million. The Revolving
Credit Facility is scheduled to mature on March 11, 2002. No amounts were
outstanding under the Revolving Credit Facility as of May 31, 1998 and May 25,
1997.

The Senior Credit Facilities accrue interest based on either the bank's
base rate or the Eurodollar rate, at the option of the Company. The interest
rate was 8.2% for the Tranche A term loan and 8.1% for the Tranche C term loan
at May 31, 1998. The Company pays a commitment fee of 0.5% per annum of the
unutilized commitments under the Revolving Credit Agreement. Borrowings are
secured by substantially all assets of the Company.

On March 11, 1997, Fairchild issued $300.0 million of 10 1/8% Senior
Subordinated Notes (the "Notes") at face value. The Notes pay interest on March
15 and September 15 of each year commencing September 15, 1997. The Notes are
unsecured and are subordinated to all existing and future senior indebtedness of
the Company. The Notes are redeemable by the Company, in whole or in part, on or
after March 15, 2002 at redemption prices ranging from 100% to approximately
105% of the principal amount. The Company is required to redeem $150.0 million
principal amount of

F-13
<PAGE> 139
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- LONG-TERM DEBT -- (CONTINUED)
Notes on March 15, 2005 and $75.0 million principal amount of Notes on March 15,
2006 and 2007, respectively, in each case at a redemption price of 100% of the
principal amount plus accrued interest to the date of redemption.

The payment of principal and interest on the Senior Credit Facilities and
the Notes is fully and unconditionally guaranteed by Fairchild Holdings.
Fairchild Holdings currently conducts no business and has no significant assets
other than the capital stock of the Company. No subsidiaries of Fairchild,
except for Fairchild Semiconductor Corporation of California, are guarantors on
either the Senior Credit Facilities or the Notes. Included in the accompanying
consolidated balance sheets at May 31, 1998 and May 25, 1997 are approximately
$93.6 million and $76.2 million of net assets, respectively, related to the
Company's foreign subsidiaries.

On March 11, 1997, the Company issued a promissory note ("PIK Note") in the
principal amount of approximately $77.0 million to National Semiconductor as
part of the consideration for all of the capital stock of Fairchild. The PIK
Note bears interest at 11.74% per annum and matures in 2008. During Fiscal Year
1998, National Semiconductor sold its interest in the PIK Note to a number of
financial institutions. To the extent any Fairchild Holdings senior indebtedness
prohibits Fairchild Holdings from paying interest due on the PIK Notes in cash,
such interest shall be paid by adding such interest to the then outstanding
principal amount of the PIK Notes. Such amount shall accrue interest as a
portion of the principal amount of the PIK Notes from the applicable interest
payment date. The PIK Notes are subordinated to both the Senior Credit
Facilities and the Notes.

The Senior Credit Facilities and the indenture under which the Notes were
issued, and the PIK Notes contain certain restrictive financial and operating
covenants, including limitations on stock repurchases and prohibitions on the
payment of dividends, with which the Company was in compliance at May 31, 1998.

Aggregate maturities of long-term debt for each of the next five years and
thereafter are as follows:

<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
1999........................................................ $ 13.2
2000........................................................ 16.2
2001........................................................ 20.9
2002........................................................ 41.2
2003........................................................ 59.8
Thereafter.................................................. 388.6
------
$539.9
======
</TABLE>

On April 29, 1997 and January 7, 1998, the Company entered into interest
rate swap agreements to reduce the impact of changes in interest rates on its
Senior Credit Facilities described above. The swap agreements fixed the interest
rate on $60.0 million of the Senior Credit Facility at 9.26% through May 2001,
and $90.0 million of the Senior Credit Facility at 8.21% through February 2000.
The notional face amount of the swap agreements is $151.3 million and $60.0
million at May 31, 1998 and May 25, 1997, respectively (See Note 14). The swap
agreement covering $60.0 million of

F-14
<PAGE> 140
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- LONG-TERM DEBT -- (CONTINUED)
the Senior Credit Facility is cancelable without penalty at the option of the
Company after May 26, 1999.

The Company is exposed to credit loss in the event of nonperformance by the
other party to the interest rate swap agreement; however, the Company does not
anticipate nonperformance under the agreement.

NOTE 5 -- INCOME TAXES

As discussed in Note 2, the Business did not pay income taxes directly or
file separate income tax returns prior to the Recapitalization, and therefore,
no provision for income taxes has been recorded in the accompanying financial
statements for the period ended March 10, 1997 and for the year ended May 26,
1996. The provision for income taxes included in the accompanying consolidated
statements of operations for Fiscal Year 1998 and for the period from March 11,
1997 to May 25, 1997, consisted of the following:

<TABLE>
<CAPTION>
MARCH 11,
YEAR ENDED 1997 TO
MAY 31, MAY 25,
1998 1997
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Income before income taxes:
U.S....................................................... $14.6 $7.2
Non-U.S................................................... 18.2 2.5
----- ----
$32.8 $9.7
===== ====
Income taxes:
Current:
U.S. federal........................................... $ 7.1 $ --
U.S. state and local................................... 1.5 --
Non-U.S................................................ 3.3 1.4
----- ----
11.9 1.4
Deferred:
U.S. federal........................................... (2.0) 1.9
U.S. state and local................................... (0.4) 0.5
Non-U.S................................................ 1.2 --
----- ----
(1.2) 2.4
</TABLE>

F-15
<PAGE> 141
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- INCOME TAXES -- (CONTINUED)

<TABLE>
<CAPTION>
MARCH 11,
YEAR ENDED 1997 TO
MAY 31, MAY 25,
1998 1997
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Total income taxes:
U.S. federal........................................... 5.1 1.9
U.S. state and local................................... 1.1 0.5
Non-U.S................................................ 4.5 1.4
----- ----
$10.7 $3.8
===== ====
</TABLE>

The reconciliation between the income tax rate computed by applying the
U.S. federal statutory rate and the reported worldwide tax rate follows:

<TABLE>
<CAPTION>
MARCH 11,
YEAR ENDED 1997 TO
MAY 31, MAY 25,
1998 1997
---------- ---------
(IN MILLIONS)
<S> <C> <C>
U.S. federal statutory rate................................. 35.0% 35.0%
U.S. state and local taxes, net of federal benefit.......... 3.3% 4.1%
Tax differential related to non-U.S. income................. (5.7)% --
---- ----
32.6% 39.1%
==== ====
</TABLE>

As discussed in Note 1, the Recapitalization was accounted for as a
leveraged recapitalization whereby the Company retained the carrying value of
assets and liabilities of the Business. For income tax reporting purposes, the
Recapitalization was treated as a taxable transaction resulting in a step up of
the assets and liabilities to fair value at March 11, 1997. As such, gross
deferred tax assets of $53.7 million and a related valuation allowance of $30.7
million were established on March 11, 1997 with an offsetting credit to Business
equity.

F-16
<PAGE> 142
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences in the recognition of income and
expense for tax and financial reporting purposes that give rise to significant
portions of the deferred tax assets and the deferred tax liabilities at May 31,
1998 and May 25, 1997 are presented below:

<TABLE>
<CAPTION>
MAY 31, MAY 25,
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Reserves and accruals..................................... $ 15.8 $ 6.1
Plant and equipment....................................... 2.8 19.9
Intangibles, primarily intellectual property and
software............................................... 31.2 25.3
AMT tax credit carryovers................................. 3.8 --
------ ------
Total gross deferred assets............................ 53.6 51.3
Valuation allowance....................................... (30.7) (30.7)
------ ------
Net deferred tax assets................................ 22.9 20.6
Deferred tax liabilities:
Capital allowance -- foreign.............................. (1.4) (0.3)
------ ------
Net deferred tax assets..................................... $ 21.5 $ 20.3
====== ======
</TABLE>

In assessing the realizability of deferred tax assets, the Company has
recorded a valuation allowance. This valuation allowance reduces the gross
deferred tax asset to an amount which the Company believes will more likely than
not be realized, based on the Company's estimate of its future earnings and the
expected timing of the reversal of temporary differences. Deferred tax assets
and liabilities are classified in the consolidated balance sheet based on the
classification of the related asset or liability.

Deferred income taxes have not been provided for the undistributed earnings
of the Company's foreign subsidiaries which aggregated approximately $15.1
million at May 31, 1998. The Company plans to reinvest all such earnings for
future expansion. If such earnings were distributed, taxes would be increased by
approximately $1.2 million.

NOTE 6 -- STOCK BASED COMPENSATION

At May 31, 1998, the Company has one stock-based compensation plan, the
1997 Stock Option Plan, as amended, (the "Plan") which is described below.
Fairchild Holdings accounts for its stock option plan in accordance with the
provisions of APB 25. As such, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeds the
exercise price. Had compensation cost for the Company's stock option plan been
determined consistent with FASB Statement No. 123, the Company's net income
would have approximated reported net income of $20.6 million and $15.5 million,
respectively, in Fiscal Years 1998 and 1997.

F-17
<PAGE> 143
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- STOCK BASED COMPENSATION -- (CONTINUED)
The Company estimates the fair value of each option as of the date of grant
using a Black-Scholes pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Expected volatility......................................... -- --
Dividend yield.............................................. -- --
Risk-free interest rate..................................... 5.88% 6.17%
Expected life, in years..................................... 2.9 2.6
</TABLE>

Under the Plan, the Company may grant options for up to 5,084,000 shares of
Class A common stock. Options granted under the Plan may be either (a) options
intended to constitute incentive stock options ("ISOs") under the Internal
Revenue Code or (b) non-qualified stock options. Options may be granted under
the Plan to regular salaried officers and key employees of the Company and its
subsidiaries.

The exercise price of each option granted under the Plan shall be as
determined by the Board of Directors (the "Board"). The maximum term of any
option shall be ten years from the date of grant for incentive stock options and
ten years and one day from the date of grant for non-qualified stock options.
Options granted under the Plan are exercisable at the determination of the
Board, currently vesting ratably over approximately 4 years. Employees receiving
options under the Plan may not receive in any one year period options to
purchase more than 200,000 shares of common stock.

A summary of the status of the Company's stock option plan as of May 31,
1998 and May 25, 1997, and changes during the years then ended are presented in
the table below:

<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year................. 2,029 $0.13 -- $ --
Granted.......................................... 1,777 4.29 2,097 0.13
Exercised........................................ (142) 0.13 -- --
Canceled......................................... (80) 0.13 (68) 0.13
----- -----
Outstanding at end of year....................... 3,584 $2.20 2,029 $0.13
===== =====
Exercisable at end of year....................... 798 $0.13 -- $ --
Weighted average fair value of options granted... $0.22 $0.02
</TABLE>

F-18
<PAGE> 144
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- STOCK BASED COMPENSATION -- (CONTINUED)
Information with respect to stock options outstanding and stock options
exercisable at May 31, 1998, is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ------------------------
AVERAGE WEIGHTED- WEIGHTED-
(000'S) REMAINING AVERAGE (000'S) AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.13........................ 2,834 8.95 $ 0.13 798 $0.13
$10.00........................ 750 9.94 10.00 -- --
----- ---
3,584 9.16 $ 2.20 798 $0.13
===== ===
</TABLE>

NOTE 7 -- RETIREMENT PLANS

Effective March 11, 1997, the Company sponsors the Fairchild Personal
Savings and Retirement Plan (the "Retirement Plan"), a contributory savings plan
which qualifies under section 401(k) of the Internal Revenue Code. The
Retirement Plan covers substantially all employees in the United States. At the
inception of the Retirement Plan, the Company provided a matching contribution
equal to 50% of employee elective deferrals up to a maximum of 6% of an
employee's annual compensation. Effective June 1, 1997, the Company increased
the matching contribution to 75% of employee elective deferrals. The Company
also maintains a non-qualified Benefit Restoration Plan, under which employees
who have otherwise exceeded annual IRS limitations for elective deferrals can
continue to contribute to their retirement savings. The Company matches employee
elective deferrals to the Benefit Restoration Plan on the same basis as the
Retirement Plan. Total expense recognized under these plans was $3.4 and $1.1
million for the years ended May 31, 1998 and May 25, 1997.

Employees in Malaysia participate in a defined contribution plan. The
Company has funded accruals for this plan in accordance with statutory
regulations in Malaysia. The net pension cost for the years ended May 31, 1998
and May 25, 1997 and the accrued pension cost at May 31, 1998 and May 25, 1997
are not material to the financial statements.

Employees in the Philippines participate in a defined benefit plan that was
assumed by the Company from National Semiconductor as part of the
Recapitalization. The benefits are based on years of service and a multiple of
the employee's final monthly salary. The Company's funding policy is to
contribute annually the amount necessary to maintain the plan on an actuarially
sound basis. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned in the
future. The contributions made for the years ended May 31, 1998 and May 25, 1997
are not material to the financial statements.

Prior to the Recapitalization, employees of the Business participated in
several National Semiconductor retirement, employee benefit, and incentive
plans. No liabilities related to retirement and similar plans, other than those
disclosed above, were assumed by the Company.

F-19
<PAGE> 145
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- LEASE COMMITMENTS

Rental expense related to certain facilities and equipment of the Company's
plants was $9.5 million, $5.0 million, and $4.8 million for the fiscal years
ended 1998, 1997 and 1996, respectively.

Future minimum lease payments under noncancelable operating leases are as
follows:

<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
1999........................................................ $10.7
2000........................................................ 8.8
2001........................................................ 4.8
2002........................................................ 2.0
2003........................................................ 1.4
Thereafter.................................................. 3.5
-----
$31.2
=====
</TABLE>

NOTE 9 -- REDEEMABLE PREFERRED STOCK

Concurrent with the Recapitalization, the Company authorized 70,000 shares
of redeemable preferred stock at a par value of $.01, all of which are
designated as 12% Series A cumulative compounding preferred stock (the
"Redeemable Preferred Stock"). The Redeemable Preferred Stock has a stated value
of $1,000 per share and is entitled to annual dividends when, as and if
declared, which dividends will be cumulative, whether or not earned or declared,
and will accrue at a rate of 12%, compounding annually. At May 31, 1998 and May
25, 1997, 70,000 shares were issued and outstanding. The total liquidation value
of the shares outstanding at May 31, 1998 and May 25, 1997, in the amounts of
$80.5 million and $71.8 million, respectively, is classified in the Company's
balance sheet as Redeemable Preferred Stock. See Note 10.

The Redeemable Preferred Stock is mandatorily redeemable in 2009. The
Company may optionally redeem, in whole or in part, the Redeemable Preferred
Stock at any time at a price per share of $1,000, plus accrued and unpaid
dividends to the date of redemption.

At the option of the Company, the Redeemable Preferred Stock may be
exchanged for junior subordinated debentures of the Company. The face value of
such junior subordinated debentures shall be (i) $1,000 per share of Redeemable
Preferred Stock exchanged, plus (ii) all accrued but unpaid dividends on such
stock to the date of exchange. Their maturity date will be the same as the
mandatory redemption date of the Redeemable Preferred Stock, and they shall bear
interest at a rate equal to the lesser of 12% and the maximum interest rate
permitted to be deducted as accrued under the relevant provisions of the
Internal Revenue Code of 1986.

NOTE 10 -- STOCKHOLDERS' EQUITY

RECAPITALIZATION

On March 11, 1997, National Semiconductor consummated the Recapitalization
under which the following transactions occurred:

(i) National Semiconductor, pursuant to an Asset Purchase Agreement,
transferred all of the assets and liabilities of the Business to
Fairchild and its subsidiaries in exchange for

F-20
<PAGE> 146
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- STOCKHOLDERS' EQUITY -- (CONTINUED)
demand purchase notes of Fairchild and its subsidiaries in the
aggregate principal amount of $401.6 million (the "Purchase Price
Notes");

(ii) National Semiconductor transferred all of the capital stock of
Fairchild and approximately $12.8 million in cash to the Company in
exchange for shares of Redeemable Preferred Stock, shares of Class A
voting and Class B non-voting common stock, and a promissory PIK Note
of the Company in the principal amount of approximately $77.0
million;

(iii) The Company issued Redeemable Preferred Stock and additional common
stock in the aggregate amount of approximately $65.0 million;

(iv) The Company contributed cash in the amount of approximately $77.8
million to the capital of Fairchild;

(v) Fairchild borrowed $120.0 million under term bank loans and issued
$300.0 million of 10 1/8% Senior Subordinated Notes due 2007 (as
described in Note 4). The proceeds from these borrowings were used to
repay the Purchase Price Notes and certain debt acquisition costs as
described in Note 2.

The transaction was accounted for as a leveraged recapitalization whereby
the Company assumed the historical operating results of the Business.
Accordingly, the repayment of the Purchase Price Notes of $401.6 and issuance of
the PIK Note of $77.0 million were included in the statements of equity as a
distribution to National Semiconductor by Fairchild and the Company,
respectively.

COMMON STOCK

On January 5, 1998, the Board of Directors approved a four-for-one common
stock split in the form of a stock dividend. Stockholders received three
additional shares for each share held. Such distribution was made on April 29,
1998 to stockholders of record on that date. All share amounts in the
accompanying consolidated financial statements have been restated to
retroactively reflect the split.

As approved by stockholders on April 24, 1998, the Company has authorized
160,000,000 shares of common stock at a par value of $.01 per share, divided
into two classes consisting of 80,000,000 shares of Class A stock and 80,000,000
shares of Class B stock. As of May 25, 1997, 60,000,000 shares were authorized,
consisting of 30,000,000 shares of Class A stock and 30,000,000 shares of Class
B stock. The holders of Class A stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Except as
required by law, the holders of Class B stock have no voting rights. A holder of
either class of common stock may convert any or all of his shares into an equal
number of shares of the other class of common stock provided that in the case of
a conversion from Class B stock, which is nonvoting, into Class A stock, which
is voting, such conversion would be permitted only to the extent that the holder
of shares to be converted would be permitted under applicable law to hold the
total number of shares of Class A stock which would be held after giving effect
to the conversion.

Certain amendments to the Securities Purchase and Holders Agreement, dated
as of March 11, 1997 (the "Stockholders Agreement"), which were effected in May
1998, resulted in the lapse of certain risks of forfeiture by the management
investors with respect to their stock ownership of the Company. The lapse of
such restrictions resulted in the incurrence by the Company of deductible

F-21
<PAGE> 147
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- STOCKHOLDERS' EQUITY -- (CONTINUED)
compensation expense for income tax purposes of $10.4 million in Fiscal Year
1998. The tax effect of the compensation expense of $2.1 million was recorded as
a reduction in income taxes payable and an increase to additional paid-in
capital at May 31, 1998. The tax effect was recorded using the alternative
minimum tax rate of 20%. In connection with this transaction, loans aggregating
$5.0 million were made by the Company to the management investors to pay their
federal and state individual income tax liabilities in June 1998. Such loans
(including accrued but unpaid interest thereon) will be cancelled over the
four-year period following their creation, or earlier, in whole, upon the
occurrence of certain qualifying public offerings of the Company's or
Fairchild's stock and, in part, upon the death or disability of the obligor. The
Company has also agreed to pay to such executive officers amounts sufficient to
enable them to discharge all tax liabilities arising out of the cancellation of
such loans (as well as all tax liabilities arising out of such payments). Any
such executive officer whose employment terminates will be required to repay any
uncancelled amounts immediately.

NOTE 11 -- RESTRUCTURING

In June 1996, National Semiconductor announced a restructuring of its
operations and the intent to pursue a sale or partial financing of the Business.
In connection with the restructuring, the Business recorded a $5.3 million
nonrecurring charge related to work force reductions. During the year ended May
25, 1997, $5.3 million of severance was paid to terminated employees.

F-22
<PAGE> 148
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12 -- RELATED PARTY TRANSACTIONS

Related party activity between the Company and National Semiconductor is
summarized as follows:

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MARCH 11, MAY 27,
YEAR 1997 1996 YEAR
ENDED THROUGH THROUGH ENDED
MAY 31, MAY 25, MARCH 10, MAY 26,
1998 1997 1997 1996
------- ------------- ----------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Manufacturing services performed by
National Semiconductor plants or
purchased from third parties............. $14.0 $ 2.8 $34.3 $ 73.9
Headquarters, freight, duty, warehousing
and other elements of cost of sales...... 17.9 3.7 41.8 58.5
----- ----- ----- ------
$31.9 $ 6.5 $76.1 $132.4
===== ===== ===== ======
Cost of business support services provided
by National Semiconductor................ $28.7 $11.6 $ -- $ --
===== ===== ===== ======
Operating costs allocated to the Business
by National Semiconductor................ $ -- $ -- $63.9 $108.6
===== ===== ===== ======
Operating costs allocated to National
Semiconductor by the Business............ $ -- $ -- $ 9.6 $ 27.1
===== ===== ===== ======
</TABLE>

Amounts receivable from National Semiconductor, included in accounts
receivable, totaled $12.4 million and $19.9 million at May 31, 1998 and May 25,
1997, respectively. Amounts payable to National Semiconductor, included in
accounts payable, totaled $5.3 million and $22.6 million at May 31, 1998 and May
25, 1997, respectively.

NOTE 13 -- CONTINGENCIES

The Company's facilities in South Portland, Maine, West Jordan, Utah, Cebu,
the Philippines, and Penang, Malaysia, have ongoing remediation projects to
respond to certain releases of hazardous substances that occurred prior to the
Recapitalization. Pursuant to the Asset Purchase Agreement, National
Semiconductor has agreed to indemnify the Company for the future costs of these
projects. The costs incurred to respond to these conditions were not material to
the combined financial statements of the Business during Fiscal Years 1997 and
1996.

The Company's Mountain View, California, facility is located on a
contaminated site under the Comprehensive Environmental Response, Compensation
and Liability Act. Under the terms of the Acquisition Agreement with Raytheon
Company, dated December 31, 1997, Raytheon Company has assumed responsibility
for all remediation costs or other liabilities related to historical
contamination.

In addition, in the normal course of business, the Company is subject to
proceedings, lawsuits and other claims, including proceedings under laws and
regulations related to environmental and other matters. All such matters are
subject to uncertainties and outcomes that are not predictable with

F-23
<PAGE> 149
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- CONTINGENCIES -- (CONTINUED)
assurance. Consequently, the Company is unable to ascertain the ultimate
aggregate amount of monetary liability or financial impact with respect to these
matters at May 31, 1998. It is management's opinion that after final
disposition, any monetary liability or financial impact to the Company would not
be material to the Company's financial position, or annual results of operations
or cash flows.

NOTE 14 -- FINANCIAL INSTRUMENTS

FOREIGN CURRENCY INSTRUMENTS

The objective of the Company's foreign exchange risk management policy is
to preserve the U.S. dollar value of after-tax cash flows in relation to
non-U.S. dollar currency fluctuations. The company uses forward contracts to
hedge firm commitments and option contracts to hedge anticipated transactions.
Gains and losses on financial instruments that are intended to hedge an
identifiable firm commitment are deferred and included in the measurement of the
underlying transaction. Gains and losses on hedges of anticipated transactions
are deferred until such time as the underlying transactions are recognized or
immediately when the transactions are no longer expected to occur. In addition,
the Company uses forward and option contracts to hedge certain non-U.S.
denominated asset and liability positions. Gains and losses on these contracts
are matched with the underlying gains and losses resulting from currency
movement on these balance sheet positions. Gains and losses on any instruments
not meeting the above criteria are recognized in income in the current period.
Net gains and losses from foreign currency transactions were not material for
fiscal years 1998, 1997 and 1996.

INTEREST RATE DERIVATIVES

The Company utilizes interest rate swap agreements to exchange the variable
interest rate of certain long-term, U.S. dollar debt for fixed interest rates.
The variable rates on swaps are based primarily on U.S. dollar LIBOR and reset
on a quarterly basis. These agreements have maturities of up to two years. The
differential between fixed and variable rates to be paid or received is accrued
as interest rates change in accordance with the agreements and is included in
current interest expense.

F-24
<PAGE> 150
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- FINANCIAL INSTRUMENTS -- (CONTINUED)
FAIR VALUE AND NOTIONAL PRINCIPAL OF OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

The table below shows the fair value and notional principal of the
Company's off-balance sheet instruments as of May 31, 1998 and May 25, 1997. The
notional principal amounts for off-balance sheet instruments provide one measure
of the transaction volume outstanding as of year end and do not represent the
amount of the Company's exposure to credit or market loss. The estimates of fair
value are based on applicable and commonly used pricing models using prevailing
financial market information as of May 31, 1998, and May 25, 1997. Although the
following table reflects the notional principal and fair value of amounts of
off-balance sheet instruments, it does not reflect the gains or losses
associated with the exposures and transactions that the off-balance sheet
instruments are intended to hedge. The amounts ultimately realized upon
settlement of these financial instruments, together with the gains and losses on
the underlying exposures, will depend on actual market conditions during the
remaining life of the instruments.

<TABLE>
<CAPTION>
MAY 31, 1998 MAY 25, 1997
----------------------- -----------------------
NOTIONAL ESTIMATED NOTIONAL ESTIMATED
PRINCIPAL FAIR VALUE PRINCIPAL FAIR VALUE
--------- ---------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest Rate Instruments
Swaps..................................... $151.3 $(0.5) $60.0 $(0.2)
Foreign Exchange Instruments
Purchased Options......................... $ 31.7 $ 0.6 $ -- $ --
</TABLE>

FAIR VALUE OF FINANCIAL INSTRUMENTS

A summary table of estimated fair values of financial instruments at Fiscal
Year end follows:

<TABLE>
<CAPTION>
MAY 31, 1998 MAY 25, 1997
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Long Term Debt
Senior Subordinated Debt................... $300.0 $310.5 $300.0 $311.3
PIK Note................................... 88.6 87.7 78.9 78.1
Credit Facility............................ 151.3 151.3 120.0 120.0
Currency Options............................. 0.8 0.6 -- --
</TABLE>

The Company has outstanding foreign currency options denominated in
Japanese yen. All foreign currency options expire within one quarter. Unrealized
gains and losses on these option contracts are deferred and recognized in income
in the same period as the hedged transactions. Unrealized gains and losses as of
May 31, 1998 are not material to the consolidated financial statements.
Premiums, if any, on purchased foreign exchange option contracts are amortized
over the life of the option.

F-25
<PAGE> 151
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15 -- INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION

The Company operates in one industry segment and is engaged in the design,
development, manufacture and marketing of a wide variety of semiconductor
products for the semiconductor industry and original equipment manufacturers.
The Company operates in three main geographic areas. In the information that
follows, sales include local sales and exports made by operations within each
area. To control costs, a substantial portion of the Company's products are
transported between various facilities in the Americas, Asia and Europe in the
process of being manufactured and sold. Accordingly, it is not meaningful to
present interlocation transfers between the Company's facilities on a stand
alone basis. Sales to unaffiliated customers have little correlation with the
location of manufacture. It is, therefore, not meaningful to present operating
profit by geographic area.

The Company conducts a substantial portion of its operations outside of the
U.S. and is subject to risks associated with non-U.S. operations, such as
political risks, currency controls and fluctuations, tariffs, import controls
and air transportation.

<TABLE>
<CAPTION>
AMERICAS EUROPE ASIA CONSOLIDATED
-------- ------ ------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1998:
Sales to unaffiliated customers............. $242.3 $132.6 $260.9 $635.8
====== ====== ====== ======
Total assets................................ $420.5 $ 12.2 $203.0 $635.7
====== ====== ====== ======
1997:
Sales to unaffiliated customers............. $222.7 $117.6 $247.5 $587.8
====== ====== ====== ======
Total assets................................ $345.5 $ 14.9 $194.6 $555.0
====== ====== ====== ======
1996:
Sales to unaffiliated customers............. $260.3 $161.9 $266.5 $688.7
====== ====== ====== ======
Total assets................................ $248.4 $ 0.8 $183.5 $432.7
====== ====== ====== ======
</TABLE>

F-26
<PAGE> 152
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 -- SUPPLEMENTAL CASH FLOW INFORMATION

As described in Note 1, National Semiconductor's cash management system was
not designed to trace centralized cash and related financing transactions to the
specific cash requirements of the Business. In addition, National
Semiconductor's corporate transaction systems are not designed to track
receivables and certain liabilities and cash receipts and payments on a business
specific basis. Given these constraints, the following data are presented to
facilitate analysis of key components of cash flow activity for Fiscal Years
1997 and 1996:

<TABLE>
<CAPTION>
YEAR ENDED
------------------
MAY 25, MAY 26,
1997 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
Operating activities:
Revenues less expenses.................................... $ 15.5 $ 72.3
Depreciation and amortization............................. 77.1 64.2
Deferred taxes............................................ (20.3) --
Loss on disposal of equipment, molds and tooling.......... 1.0 2.0
Non-cash interest expense................................. 1.9 --
Increase in accounts receivable........................... (79.6) --
Decrease (increase) in inventories........................ 20.0 (24.3)
Decrease (increase) in prepaid expenses and other current
assets................................................. (5.8) 11.1
Increase in other assets.................................. 0.9 --
Increase (decrease) in accounts payable................... 12.2 (5.2)
Increase (decrease) in accrued expenses and other
liabilities............................................ 21.6 (1.3)
Net financing provided from (to) National
Semiconductor*......................................... (25.4) 43.7
------- -------
Cash provided by operating activities.................. 19.1 162.5
------- -------
Investing activities:
Capital expenditures...................................... (47.1) (153.9)
Purchase of molds and tooling............................. (7.2) (8.6)
------- -------
Cash used by investing activities...................... (54.3) (162.5)
------- -------
Financing activities:
Issuance of long-term debt................................ 420.0 --
Debt acquisition costs.................................... (20.3) --
Issuance of common stock.................................. 7.8 --
Issuance of preferred stock............................... 70.0 --
Distribution to National Semiconductor.................... (401.6) --
------- -------
Cash provided by financing activities.................. 75.9 --
------- -------
Net change in cash and cash equivalents..................... 40.7 --
Cash and cash equivalents at beginning of year.............. -- --
------- -------
Cash and cash equivalents at end of year.................... $ 40.7 $ --
======= =======
</TABLE>

- -------------------------

* Net financing provided from (to) National Semiconductor does not necessarily
represent the cash flows of the Business, or the timing of such cash flows,
had it operated on a stand alone basis.

F-27
<PAGE> 153
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 -- SUPPLEMENTAL CASH FLOW INFORMATION -- (CONTINUED)
Cash paid for interest by the Company totaled $0.1 million for the period
from March 11, 1997 through May 25, 1997. The Business did not make any cash
payments for interest prior to March 11, 1997, as discussed in Note 2. No cash
payments were made for income taxes for any period presented above.

During the year ended May 25, 1997, the Company issued a note to National
Semiconductor in the principal amount of approximately $77.0 million as
additional purchase consideration for the capital stock of Fairchild. The
Company recorded the note as an increase to long-term debt and accumulated
deficit. For the period from March 11 through May 25, 1997, the Company
accumulated dividends on the redeemable preferred stock of approximately $1.8
million. The Company recorded the accumulated dividends as an increase to the
carrying value of the redeemable preferred stock and accumulated deficit.

NOTE 17 -- ACQUISITIONS

On December 31, 1997, Fairchild Semiconductor Corporation, a wholly-owned
subsidiary of the Company acquired all of the outstanding common stock of
Raytheon Semiconductor, Inc. ("Raytheon") for approximately $117.0 million in
cash plus transaction expenses. Raytheon, based in Mountain View, California,
designs, manufactures and markets high-performance analog and mixed signal
integrated circuits for the personal computer, communications, broadcast video
and industrial markets. The purchase price was financed through a combination of
existing cash and borrowings under the Tranche C Term Loan.

The acquisition was accounted for as a purchase as of December 31, 1997,
and the results of operations of Raytheon have been included since that date.
The purchase price exceeded the fair value of the net tangible assets by $48.4
million, of which $32.9 million was allocated to various intangible assets and
$15.5 million to in-process research and development. The in-process research
and development was expensed to operations concurrent with the acquisition.

The unaudited pro forma combined historical results, as if Raytheon had
been acquired at the beginning of Fiscal Years 1998 and 1997, respectively, are
estimated to be:

<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Net sales................................................... $836.5 $762.6
Net income.................................................. $ 20.9 $ 11.4
</TABLE>

The pro forma results include amortization of the intangibles presented
above and interest expense on debt assumed issued to finance the purchase. The
pro forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been completed as of the beginning of each of
the fiscal years presented, nor are they necessarily indicative of future
consolidated results.

NOTE 18 -- CHANGE IN ACCOUNTING PRINCIPLE

Effective in the third quarter of Fiscal Year 1998, the Company adopted the
provisions of Emerging Issues Task Force Issue 97-13 "Accounting for Business
Process Reengineering Costs." This Issue requires companies to write-off
business process reengineering costs that had been

F-28
<PAGE> 154
FSC SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 18 -- CHANGE IN ACCOUNTING PRINCIPLE -- (CONTINUED)
previously capitalized. The Company had been capitalizing such costs in
conjunction with its enterprise software implementation project. The Issue
requires companies to write-off these costs in the quarter that contains
November 20, 1997.

The cumulative effect of adoption of this Issue resulted in a charge of
$1.5 million, net of taxes of $0.8 million for the year ended May 31, 1998. Of
the pre-tax write-off, $1.6 million applies to costs incurred in Fiscal Year
1998, while $0.7 million applies to costs incurred in Fiscal Year 1997. The
charge relates specifically to costs incurred to assess the system's
capabilities in light of the Company's current business processes, which under
prior guidance was capitalizable to the cost of the software.

NOTE 19 -- SUBSEQUENT EVENT -- WORKFORCE REDUCTION

On July 20, 1998, the Company announced a restructuring of its operations,
consisting of a reduction of approximately 10% of its payroll, which will
primarily affect its operations in the United States. The Company will take a
nonrecurring charge of approximately $4.5 million, primarily for severance costs
during the first quarter of Fiscal Year 1999.

F-29
<PAGE> 155

FSC SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
FEBRUARY 28, MARCH 1,
1999 1998
------------ --------
(IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Revenue:
Net sales -- trade........................................ $434.1 $479.1
Contract manufacturing -- National Semiconductor.......... 54.5 122.8
------ ------
Total revenue.......................................... 488.6 601.9
Operating expenses:
Cost of sales............................................. 336.2 329.4
Cost of contract manufacturing -- National
Semiconductor.......................................... 45.4 92.3
Research and development.................................. 27.9 24.7
Selling, general and administrative....................... 68.5 66.6
Purchased in-process research and development............. -- 15.5
Restructuring............................................. 7.2 --
------ ------
Total operating expenses............................... 485.2 528.5
------ ------
Operating income............................................ 3.4 73.4
Interest, net............................................... 44.7 41.1
------ ------
Income (loss) before income taxes........................... (41.3) 32.3
Provision (benefit) for income taxes........................ (4.1) 10.4
------ ------
Income (loss) before cumulative effect of change in
accounting principle...................................... (37.2) 21.9
Cumulative effect of change in accounting principle, net of
tax effect of $0.8 million................................ -- (1.5)
------ ------
Net income (loss)........................................... $(37.2) $ 20.4
====== ======
Net income (loss) applicable to common stockholders......... $(44.4) $ 13.9
====== ======
Basic earnings (loss) per common share
Income before cumulative effect of change in accounting
principle.............................................. $(0.71) $ 0.24
Cumulative effect of change in accounting principle....... -- (0.02)
------ ------
$(0.71) $ 0.22
====== ======
Diluted earnings (loss) per common share
Income before cumulative effect of change in accounting
principle.............................................. $(0.71) $ 0.23
Cumulative effect of change in accounting principle....... -- (0.02)
------ ------
$(0.71) $ 0.21
====== ======
Weighted average common shares outstanding
Basic..................................................... 62.9 62.5
====== ======
Diluted................................................... 62.9 65.0
====== ======
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-30
<PAGE> 156

FSC SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
FEBRUARY 28,
1999
-------------
(IN MILLIONS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5.4
Receivables, net.......................................... 101.5
Inventories............................................... 105.6
Other current assets...................................... 19.7
-------
Total current assets................................... 232.2
Property, plant and equipment, net.......................... 305.9
Deferred income taxes....................................... 25.3
Intangible assets, net...................................... 29.0
Other assets................................................ 31.1
-------
Total assets........................................... $ 623.5
=======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings and current portion of long-term
debt................................................... $ 35.5
Accounts payable.......................................... 79.1
Accrued expenses and other current liabilities............ 56.0
-------
Total current liabilities.............................. 170.6
Long-term debt, less current portion........................ 524.5
Other liabilities........................................... 1.7
-------
Total liabilities...................................... 696.8
Redeemable preferred stock.................................. 87.7
Commitments and contingencies
Stockholders' equity (deficit):
Class A common stock...................................... 0.3
Class B common stock...................................... 0.3
Additional paid-in capital................................ 9.5
Accumulated deficit....................................... (171.1)
-------
Total stockholders' equity (deficit)................... (161.0)
-------
Total liabilities and stockholders' equity (deficit)... $ 623.5
=======
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-31
<PAGE> 157

FSC SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
FEBRUARY 28, MARCH 1,
1999 1998
------------ --------
(IN MILLIONS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(37.2) $ 20.4
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Cumulative effect of change in accounting principle.... -- 1.5
Depreciation and amortization.......................... 72.1 62.5
Restructing charges, net of cash expended.............. 3.3 --
Non-cash interest expense.............................. 7.8 7.3
Purchased in-process research and development.......... -- 15.5
Loss on disposal of property, plant and equipment...... 0.2 0.7
Deferred income taxes.................................. (4.0) (0.8)
Changes in operating assets and liabilities, net:
Accounts receivable.................................... (26.5) 6.9
Inventories............................................ 2.4 (12.9)
Prepaid expenses and other current assets.............. 0.4 2.5
Current liabilities.................................... 3.2 5.0
Other assets and liabilities........................... (1.7) 0.1
------ -------
Cash provided by operating activities................ 20.0 108.7
------ -------
Cash flows from investing activities:
Capital expenditures................................... (31.5) (49.3)
Proceeds from sale of property, plant and equipment.... 1.0 --
Purchase of molds and tooling.......................... (2.9) (4.2)
Purchase of Raytheon Semiconductor, Inc., net of cash
acquired.............................................. -- (116.8)
------ -------
Cash used in investing activities...................... (33.4) (170.3)
------ -------
Cash flows from financing activities:
Proceeds from revolving credit facility, net........... 21.6 --
Issuance of long-term debt............................. -- 90.0
Repayment of long-term debt............................ (9.3) (55.6)
Debt issuance costs.................................... -- (1.1)
------ -------
Cash provided by financing activities.................. 12.3 33.3
------ -------
Net change in cash and cash equivalents..................... (1.1) (28.3)
Cash and cash equivalents at beginning of period............ 6.5 40.7
------ -------
Cash and cash equivalents at end of period.................. $ 5.4 $ 12.4
====== =======
Supplemental cash flow information:
Cash paid for:
Income taxes........................................... $ 2.1 $ 8.3
====== =======
Interest............................................... $ 27.9 $ 24.5
====== =======
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-32
<PAGE> 158

FSC SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

The Condensed Consolidated Balance Sheet of FSC Semiconductor Corporation
(the "Company") as of February 28, 1999, the Condensed Consolidated Statements
of Operations for the nine-month periods ended February 28, 1999 and March 1,
1998 and the Condensed Consolidated Statements of Cash Flows for the nine-month
periods ended February 28, 1999 and March 1, 1998 were prepared by the Company.
In the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments (consisting of only normal recurring items)
necessary to present fairly the financial position and results of operations of
the Company. Interim results of operations are not necessarily indicative of the
results to be expected for the full year. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the fiscal year ended May 31, 1998, included
elsewhere in this Prospectus.

Certain prior period amounts have been reclassified to conform to their
current presentation.

NOTE 2 -- INVENTORIES

The components of inventories are as follows:

<TABLE>
<CAPTION>
FEBRUARY 28,
1999
-------------
(IN MILLIONS)
<S> <C>
Raw materials............................................... $ 8.6
Work in process............................................. 75.3
Finished goods.............................................. 21.7
------
Total inventories...................................... $105.6
======
</TABLE>

NOTE 3 -- RESTRUCTURING CHARGES

In the first quarter of fiscal 1999, in connection with management's plan
to reduce costs and improve operating efficiencies, the Company recorded a
pre-tax restructuring charge of approximately $4.5 million. The restructuring
charge consisted of $0.8 million related to non-cash asset impairments and $3.7
million of employee separation costs. The asset impairments relate to idle
production equipment in the Company's Mountain View, California and West Jordan,
Utah facilities, which primarily serve the Company's Analog and Discrete product
groups, respectively. The charge for employee separation arrangements provided
for the termination and other severance costs associated with the approximately
600 salaried, hourly and temporary employees severed as a result of this action,
a reduction of approximately 10% of the Company's payroll. The affected
employees, who work in production, engineering, sales and marketing and
administration, are located in the United States and Cebu, Philippines.

In the third quarter of fiscal 1999, the Company recorded a pre-tax
restructuring charge of approximately $2.7 million related to the transfer of
all assembly and test work performed at its Mountain View, California facility
to its Penang, Malaysia facility. The charge consisted of $1.9 million of
non-cash asset write-offs and $0.8 million primarily for severance and other
benefits for 54

F-33
<PAGE> 159
FSC SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

NOTE 3 -- RESTRUCTURING CHARGES -- (CONTINUED)
employees terminated as a result of the transfer. The asset write-offs consist
of production equipment that will be idled as a result of the action.

NOTE 4 -- SUBSEQUENT EVENT -- FACILITY CLOSURE

On March 31, 1999, the Company agreed to sell its Mountain View, California
facility for approximately $35.0 million. The sale price is subject to (i) a
$1.0 million deposit, which is nonrefundable if the sale of the property is not
consummated by April 19, 1999 for reasons other than a title defect; (ii) a $3.5
million holdback which will be paid to the Company unless the city council
rejects the buyer's application to increase its building density from 35% to
50%; and (iii) a $0.5 million deposit which will be placed into an escrow
account and will be released to the Company upon the demolition of the existing
structures on the property. At closing, the Company received approximately $30.7
million (excluding the $0.5 million in escrow) after deducting closing costs,
contingency holdbacks, commissions and other fees and expenses.

In connection with the sale of the Mountain View facility, on April 2, 1999
the Company announced a transfer of all wafer production to its South Portland,
Maine facility. The transfer is expected to be complete by the end of the 1999
calendar year. Net of a gain on the sale of land and building of approximately
$1.6 million, the Company will record a one-time charge for severance, equipment
disposals and other costs related to the closing of the Mountain View facility
of approximately $11.9 million in the fourth quarter of fiscal 1999.

NOTE 5 -- SUBSEQUENT EVENT -- ACQUISITION

On April 13, 1999, the Company completed its acquisition of the Power
Device Business of Samsung Electronics Co., Ltd., for approximately $406.8
million, net of certain purchase price adjustments. The purchase includes
substantially all of the worldwide business and assets of the Power Device
Business, comprising high volume wafer fabs in Bucheon, South Korea, design and
development personnel in Bucheon, and secured services for high volume assembly
and test operations for the Power Device Business, and worldwide sales and
marketing personnel. The transaction will be accounted for as a purchase.

On April 13, 1999 the Company refinanced all of its existing senior credit
facilities with the proceeds from new senior term facilities of $310.0 million.
The excess proceeds, together with the net proceeds from the Company's $300.0
million senior subordinated notes issued on April 7, 1999 and a $50.0 million
subordinated PIK note from Citicorp Mezzanine Partners, L.P., were used to
finance the purchase price and related fees and expenses of the acquisition.

F-34
<PAGE> 160

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Samsung Electronics Co., Ltd.

In our opinion, the accompanying statements of net assets (liabilities) and
the related statements of operations and comprehensive income (loss) and cash
flows present fairly, in all material respects, the financial position of the
Power Device Business of Samsung Electronics Co., Ltd. (the "Business") at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Business' management, our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

As discussed in Note 11 to the financial statements, the operations of the
Business, and those of similar companies in the Republic of Korea, have been
significantly affected, and will continue to be affected for the foreseeable
future, by the country's unstable economy caused in part by the currency
volatility in the Asia Pacific region.

The Business is an operating unit of Samsung Electronics Co., Ltd. and, as
discussed in Notes 3, 7 and 15, has engaged in various transactions with Samsung
Electronics Co., Ltd.

Samil Accounting Corporation

Seoul, Korea
February 24, 1999

F-35
<PAGE> 161

POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

STATEMENTS OF NET ASSETS (LIABILITIES)

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
1997 1998
---------- ----------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 18 $ 37
Trade accounts and notes receivable, net.................. 28,445 26,605
Inventories............................................... 50,469 43,977
Deferred tax assets....................................... 909 1,184
Prepaid expenses and other current assets................. 2,317 3,750
-------- --------
Total current assets................................... 82,158 75,553
Advances to employees....................................... 5,398 2,632
Property, plant and equipment, net.......................... 93,166 90,955
Deposit for deferred employee compensation.................. 6,272 --
Intangible assets, net...................................... 1,182 887
Other assets................................................ 419 262
-------- --------
Total assets........................................... 188,595 170,289
-------- --------
LIABILITIES
Current liabilities:
Corporate borrowings...................................... 9,750 12,641
Current portion of capital lease obligation............... 12,706 8,086
Trade accounts and notes payable.......................... 11,086 13,729
Income taxes payable to Samsung........................... 6,394 12,947
Accrued expenses and other accounts payable............... 6,621 70,594
-------- --------
Total current liabilities.............................. 46,557 117,997
Corporate borrowings........................................ 92,032 46,065
Capital lease obligation.................................... 15,151 9,667
Deferred employee compensation.............................. 13,004 6,471
Deferred tax liabilities.................................... 3,173 1,914
-------- --------
Total liabilities...................................... 169,917 182,114
-------- --------
Commitments and contingencies
NET ASSETS (LIABILITIES)
Business equity............................................. 37,301 272
Accumulated other comprehensive loss --
Cumulative translation adjustments........................ (18,623) (12,097)
-------- --------
Total net assets (liabilities)......................... $ 18,678 $(11,825)
======== ========
</TABLE>

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

F-36
<PAGE> 162

POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C>
Revenues:
Net sales............................................ $418,047 $440,700 $369,899
Contract manufacturing -- Samsung Electronics........ 53,735 37,428 16,620
-------- -------- --------
Total revenue........................................ 471,782 478,128 386,519
-------- -------- --------
Operating expenses:
Cost of sales........................................ 361,624 309,712 232,562
Cost of contract manufacturing -- Samsung
Electronics....................................... 53,735 37,428 16,620
Research and development............................. 18,579 19,205 15,224
Selling, general and administrative.................. 28,950 34,280 33,812
Litigation settlement................................ -- -- 58,000
-------- -------- --------
Total operating expenses.......................... 462,888 400,625 356,218
-------- -------- --------
Operating income....................................... 8,894 77,503 30,301
Interest expense, net.................................. 10,384 10,076 4,205
Foreign currency losses, net........................... 497 5,933 923
-------- -------- --------
Income (loss) before income taxes...................... (1,987) 61,494 25,173
Income tax benefit (provision)......................... 4,754 (18,549) (9,519)
-------- -------- --------
Net income............................................. 2,767 42,945 15,654
-------- -------- --------
Other comprehensive income (loss):
Net foreign currency translation adjustments...... (4,837) (14,491) 6,526
-------- -------- --------
Comprehensive income (loss)............................ $ (2,070) $ 28,454 $ 22,180
======== ======== ========
</TABLE>

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

F-37
<PAGE> 163

POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS OF US DOLLARS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 2,767 $ 42,945 $ 15,654
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 48,965 38,792 22,289
Provision for (recovery of) doubtful accounts........... (6) 93 7
Provision for (reversal of) inventory reserve........... (216) (3,713) 1,016
Accrual for litigation settlement....................... -- -- 58,000
Loss on disposition of property, plant and equipment.... 1,545 423 498
Deferred employee compensation.......................... 1,407 (8,623) 3,745
Deferred income taxes................................... (4,365) 8,648 (1,534)
Changes in operating assets and liabilities:
Trade accounts and notes receivable..................... 3,283 (28,329) 5,817
Inventories............................................. 13,092 (3,166) 12,617
Prepaid expenses and other current assets............... 2,629 720 (894)
Advances to employees................................... (1,208) 1,702 3,188
Deposit for deferred employee compensation.............. (1,036) 4,057 6,345
Other assets............................................ 1,463 516 198
Trade accounts and notes payable........................ (2,942) 1,008 638
Income taxes payable to Samsung......................... (4,966) 6,394 6,553
Accrued expenses and other accounts payable............. (12,388) 19,152 4,232
Payment of deferred employee compensation............... (8,642) (6,299) (10,278)
--------- --------- ---------
Net cash provided by operating activities............... 39,382 74,320 128,091
--------- --------- ---------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment............ (118,005) (10,259) (7,671)
Proceeds from sale of property, plant and equipment..... 30,644 10,593 2,297
Acquisition of intangible assets........................ (1,134) (454) (319)
--------- --------- ---------
Net cash used in investing activities................... (88,495) (120) (5,693)
--------- --------- ---------
Cash Flows from Financing Activities:
Corporate borrowing, net................................ 54,223 (75,678) (43,076)
Capital lease payment................................... (9,335) (23,819) (11,046)
Net capital distribution................................ (16,867) (57,593) (52,683)
--------- --------- ---------
Net cash provided by (used in) financing activities..... 28,021 (157,090) (106,805)
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... 21,092 82,907 (15,574)
--------- --------- ---------
Net increase in cash and cash equivalents................... -- 17 19
Cash and cash equivalents, beginning of period.............. 1 1 18
--------- --------- ---------
Cash and cash equivalents, end of period.................... $ 1 $ 18 $ 37
========= ========= =========
Supplemental disclosure of cash flows information:
Interest paid........................................... $ 396 $ 252 $ 9
========= ========= =========
Machinery and equipment acquired under capital lease.... $ 103 $ 673 $ 942
========= ========= =========
</TABLE>

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

F-38
<PAGE> 164

POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND BASIS OF PRESENTATION:

BUSINESS

The Power Device Business (the "Business") was established in 1985 as an
operating unit of Samsung Electronics Co., Ltd. ("Samsung"). The Business is not
a distinct legal entity. The Business designs, develops and manufactures
discrete and standard analog semiconductors. These products are used in major
market worldwide sectors including computers, computer peripherals, office
equipment, consumer electronics, lighting, communications, and industrial
equipment. The Business is located in Bucheon, the Republic of Korea ("Korea")
and shares the Samsung Bucheon factory with Samsung's Multimedia Business.

On December 20, 1998, Samsung entered into a Business Transfer Agreement
(the "Agreement") with Fairchild Semiconductor Corporation ("Fairchild"). Under
terms of the Agreement, Fairchild shall purchase substantially all of the assets
including allocated notes receivable and prepaid expenses and assume certain
liabilities of the Business in exchange for $455,000 thousand in cash, subject
to certain conditions and adjustments. In conjunction with the transfer of the
Business, Samsung intends to pay an employee bonus to the employees staying with
the Business to the closing date.

BASIS OF PRESENTATION

The Securities and Exchange Commission, in Staff Accounting Bulletin Number
55, requires that historical financial statements of a subsidiary, division, or
lesser business component of another entity include certain expenses incurred by
the parent on its behalf. These expenses generally include, but are not limited
to, officer and employee salaries, rent, depreciation, advertising, accounting
and legal services, other selling, general and administrative expenses and other
such expenses. These financial statements include such expenses and services.

These financial statements present the assets, liabilities, results of
operations and cash flows of the Business. Because the Business did not
previously prepare separate financial statements, these financial statements
were derived by extracting the assets, liabilities and results of operations of
the Business from the corresponding Samsung accounts. As a result, the carved
out financial statements contain allocations of certain Samsung assets,
liabilities, revenues and expenses attributable to the Business deemed
reasonable by management to present the Business on a stand-alone basis.

Although the Business' management is unable to estimate the actual benefits
which would have been realized and costs which would have been incurred had the
respective transactions been executed with independent third parties, the
allocation methodologies described below and within the respective notes to
financial statements, where appropriate, are considered reasonable by
management. The financial position and results of operations of the Business
may, however, differ from the results which may have been achieved had the
Business operated as an independent legal entity. Additionally, future expenses
incurred as an independent entity may not be comparable to the historical
levels.

The carved out financial statements are presented in accordance with
generally accepted accounting principles of the United States.

F-39
<PAGE> 165
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The significant accounting policies followed by the Business in the
preparation of its financial statements are summarized below.

RELATED PARTY ACTIVITY AND ALLOCATIONS

The financial statements reflect the assets, liabilities, revenue and
expenses that were directly related to the Business as it operated within
Samsung. In cases involving assets and liabilities not specifically identifiable
to any particular facility, a portion of such items were allocated to the
Business based on assumptions that management considers reasonable in the
circumstances.

Samsung uses a centralized approach to cash management and the financing of
its operations. These systems did not track cash balances, notes receivable
balances and bank borrowings on a business specific basis. Accordingly, notes
receivable and debt not specifically identifiable to the operations of any
particular facility were allocated annually to the Business based on the
customer sales ratio and fixed asset ratio of the Business, respectively, as a
percentage of Samsung for each respective period. Interest expense on allocated
debt was determined by applying the average interest rates of Samsung during the
respective periods. Management believes the debt allocation basis is reasonable
as the Business operates in a highly capital intensive industry and capital
expenditures are financed through bank borrowings.

Manufacturing costs were generally apportioned between the Business and
Samsung's other product lines based upon actual factory production loading.
Certain manufacturing costs (e.g., material costs) that were specifically
identifiable with a particular product line were charged directly.

Other operating units of Samsung also performed manufacturing services for
the Business and incurred other elements of cost of sales on behalf of the
Business, including freight, duty, warehousing, and purchased manufacturing
services from third party vendors. Costs of these services are specifically
identified as they relate to the Business. Also, the Business has performed
contract manufacturing related to wafer foundry services for Samsung. The
revenues for these services are reflected at cost in the accompanying statements
of operations. These costs include manufacturing costs incurred within the
Samsung Bucheon factory and do not include cost of raw materials and/or
processing costs incurred outside of the Samsung Bucheon factory.

Shared or common costs, including certain general and administrative, sales
and marketing, and research and development expenses, have been allocated from
Samsung's corporate office, selling and marketing locations, and manufacturing
sites to the Business on a basis which is considered by management to reasonably
reflect the utilization of such services by the operating unit receiving the
charge. These allocations were based on sales revenues, the number of employees
and working hours. Research and development (R&D) expenses represent the actual
costs incurred by the Bucheon factory plus R&D expenses specifically incurred by
Samsung on behalf of the Business.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
revenues and expenses in the financial statements and accompanying notes.
Significant estimates made by management include those related to the useful
lives of property, plant and equipment, allowances for doubtful accounts and
customer returns, inventory realizability,

F-40
<PAGE> 166
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
contingent liabilities and allocated expenses. Actual results could differ from
those estimates, and such differences may be material to the financial
statements.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash on hand and cash in bank accounts,
with original maturities of three months or less.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Business provides an allowance for doubtful accounts and notes
receivable to reduce such receivables to their probable estimated collectable
amounts.

INVENTORIES

Inventories are stated at the lower of cost or market, using the weighted
average method, except for materials in-transit, for which cost is determined
using the specific identification method.

INTANGIBLE ASSETS

Intangible assets, principally patent rights, are stated at cost and
amortized on a straight-line basis over their estimated useful lives of 10 years
which does not exceed the patent period.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as set forth below:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
-------------
<S> <C>
Buildings................................................... 15 - 40 years
Building related structures................................. 7 - 40 years
Machinery and equipment..................................... 5 years
Tools....................................................... 5 years
Furniture and fixtures...................................... 5 years
Vehicles.................................................... 5 years
</TABLE>

Assets under capital leases and leasehold improvements are amortized over
the shorter of the asset life or the remaining lease term. Amortization of
assets under capital leases is included within depreciation expense.

Upon retirement or other disposal of fixed assets, the costs and related
accumulated depreciation or amortization are eliminated from the accounts, and
any resulting gain or loss is reflected in income for the period. Routine
maintenance and repairs are charged to expense as incurred. Expenditures which
enhance the value or significantly extend the useful lives of the related assets
are capitalized.

F-41
<PAGE> 167
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS

Effective January 1, 1996, the Business adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of". In accordance
with this standard, management periodically evaluates the carrying value of
long-lived assets to be held and used, when events and circumstances warrant
such a review. The carrying value of long-lived assets is considered impaired
when the anticipated undiscounted cash flows is separately identifiable and is
less than the carrying value of the assets. In that event, a loss is recognized
based on the amount by which the carrying value exceeds the fair market value of
the long-lived assets.

Fair market value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risk involved. The adoption of this
new accounting standard did not have a material effect on the Business'
operating results or financial position.

WARRANTIES

The Business' products are generally warranted for up to one year from
customer receipt. Estimated future costs of repair, replacement, or customer
accommodations are reflected in income for the period of the related sales.

RECOGNITION OF REVENUES

Revenues from the sale of products are recognized on the transfer of
ownership upon shipment. The Business provides a reserve for product returns
from all customers at the time revenue is recognized. Contract manufacturing
revenues are recognized based on completion of respective stages of production,
defined as wafer fabrication and electronic die sorting.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.

The Business receives, under the terms of specific legislation, research
and development grants for projects selected by the government. Such grants,
collectively insignificant, are recorded as liabilities since the grant monies
must be repaid upon conclusion of the project.

INCOME TAXES

The Business is not a separate taxable entity for Korean or international
tax purposes and has not filed separate income tax returns, but rather was
included in the income tax returns filed by Samsung. Accordingly, income tax
expense in the carved out financial statements has been calculated as if filed
on a separate tax return basis. The Business accounts for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." SFAS 109 requires
an asset and liability approach for financial accounting and reporting for
income tax purposes. Under the asset and liability method, deferred income taxes
are recognized for temporary differences, net operating loss carryforwards and
credits by applying enacted statutory tax rates applicable to future years.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.

F-42
<PAGE> 168
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Investment R&D tax credits are accounted for by the flow-through method
whereby they reduce income taxes in the period the assets giving rise to such
credits are placed in service. To the extent such credits are not currently
utilized, deferred tax assets, subject to considerations about the need for a
valuation allowance, are recognized for the carryforward account.

DEFERRED EMPLOYEE COMPENSATION

In accordance with statutory regulations in Korea, employees and directors
with one year or more of service are entitled to receive a lump-sum payment upon
termination of their employment with the Business, based on years of service and
rate of pay at the time of termination. The accrual for deferred compensation
approximates the amount required if all employees were to terminate employment
at the balance sheet date.

The annual provision for deferred compensation charged to operations is
calculated based on the net change in the deferred compensation amount, assuming
the termination of all eligible employees and directors as of the beginning and
end of the period, plus the actual payments made during the period.

Under the National Pension Fund Law of Korea, the Business is required to
pay a certain percentage of employee retirement benefits to the National Pension
Fund in exchange for a reduction in their severance pay. Contributed amounts
shall be refunded from the National Pension Plan to employees on their
retirement. This amount has been offset against deferred compensation except for
the portion related to employees with less than one year of service which is
included in current assets.

Deferred employee compensation is partially funded through a group
severance insurance plan with Samsung Life Insurance Co., Ltd., an affiliate of
Samsung. The amounts deposited under this insurance plan are classified as
noncurrent assets and may only be withdrawn for the actual payment of deferred
compensation.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities denominated in currencies other than the Korean won
have been translated at the rate of exchange on the balance sheet date. Gains
and losses resulting from the translation are reflected in income for the
period.

The Business' functional currency is the Korean won, the primary currency
in which business is conducted, and its official accounting records are
maintained in Korean won. The accompanying financial statements are reported in
US dollars pursuant to SFAS No. 52, "Foreign Currency Translation." Assets and
liabilities are translated at the exchange rate as of the balance sheet date.
All revenue and expense accounts are translated at a weighted-average exchange
rate in effect during the respective period.

Resulting translation adjustments are recorded in a separate component of
net assets entitled "Cumulative Translation Adjustment." All amounts in these
financial statements have been presented in thousands of US dollars, unless
otherwise stated.

F-43
<PAGE> 169
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
The exchange rates used to translate the financial statements are as
follows:

<TABLE>
<CAPTION>
EXCHANGE RATES USED
-------------------------------------
BALANCE SHEET REVENUE AND EXPENSE
ACCOUNTS ACCOUNTS
-------------- -------------------
<S> <C> <C>
1996................................................ US$1 = 844.20 US$1 = 804.78
1997................................................ US$1 = 1415.20 US$1 = 951.11
1998................................................ US$1 = 1207.80 US$1 = 1398.88
</TABLE>

COMPREHENSIVE INCOME

Effective January 1, 1996, the Business retroactively adopted SFAS No. 130,
"Reporting Comprehensive Income". SFAS 130 establishes standards for the
reporting and display of comprehensive income. The components of comprehensive
income (loss) include net income and foreign currency translation adjustments.
There is no tax effect on the foreign currency translation adjustments.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially expose the Business to a
concentration of credit risk consist primarily of cash and cash equivalents and
trade accounts and notes receivable.

The Business deposits its cash with a major Korean bank. Deposits in this
bank may exceed the amount of insurance provided on such deposits. However, the
Business is exposed to loss only to the extent of the amount of cash reflected
on its statements of net assets. The Business has not experienced losses on its
bank cash deposits.

The Business performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral for domestic
customers on accounts or notes receivable. The Business maintains reserves for
potential credit losses, but historically has not experienced significant losses
related to individual customers or groups of customers in any particular
industry or geographic area. The Business derives a substantial portion of its
revenues from export sales through Samsung's foreign subsidiaries in Asia, North
America and Europe.

A substantial portion of the components necessary for the manufacture and
operation of many of the Business' products are obtained from the other
operating units of Samsung and its affiliates. The disruption or termination of
any of these sources could have a material adverse effect on the Business'
operating results and financial condition.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents, trade accounts and notes
receivable, trade accounts and notes payable, and accrued expenses and other
accounts payable approximates fair value due to the short-term nature of these
instruments.

F-44
<PAGE> 170
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The provisions
of the statement require the recognition of all derivatives as either assets or
liabilities in the financial statements and the measurement of those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
This statement is effective for fiscal years beginning after June 15, 1999. The
Business is currently not separately engaged in any derivatives or hedging
activities.

In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which provides guidance
concerning recognition and measurement of costs associated with developing or
acquiring software for internal use. In 1998, the AICPA also issued Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities", which provides
guidance concerning the costs of start-up activities. For accounting purposes,
start-up activities are defined as one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory or with a new class of customer, initiating a new process in an
existing facility, or commencing some new operation. Both pronouncements are
effective for financial statements of years beginning after December 15, 1998,
with earlier application encouraged. Management does not believe that adoption
of these pronouncements will have a material impact on the financial statements
of the Business.

3. TRADE ACCOUNTS AND NOTES RECEIVABLE:

Trade accounts and notes receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Trade accounts receivable
Due from third parties.................................... $10,820 $ 9,198
Due from Samsung subsidiaries and affiliates.............. 9,173 2,338
------- -------
19,993 11,536
Trade notes receivable
Due from third parties.................................... 8,205 7,516
Due from Samsung subsidiaries and affiliates.............. 353 7,666
------- -------
8,558 15,182
Allowance for doubtful accounts............................. (106) (113)
$28,445 $26,605
======= =======
</TABLE>

At December 31, 1997 and 1998, trade accounts receivable of $17,992
thousand and $6,148 thousand, respectively, are denominated in foreign
currencies, primarily US dollars. Trade notes receivable represents amounts due
from domestic customers maturing generally within 90 to 120 days with no
interest charge.

F-45
<PAGE> 171
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. INVENTORIES:

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Finished products........................................... $15,606 $21,482
Work-in-process............................................. 25,395 19,632
Raw materials and supplies.................................. 10,444 6,411
Materials in-transit........................................ 1,757 201
------- -------
53,202 47,726
Allowance for obsolete and excess inventory................. (2,733) (3,749)
------- -------
$50,469 $43,977
======= =======
</TABLE>

At December 31, 1998, substantially all of the Business' inventories are
insured against fire and other casualty losses.

At December 31, 1998, a portion of the Business' inventory up to a maximum
amount of $27,654 thousand is pledged as collateral for a bank loan of Samsung.
At December 31, 1998, a total of approximately $9,136 thousand of raw materials
and work-in-process inventories was held by the Business' subcontractors
including Samsung plants in Korea and China. Also, at December 31, 1998, all
finished goods inventories were held by the Samsung Onyang plant in Korea for
warehousing.

5. ADVANCES TO EMPLOYEES:

The Business provides advances to its employees primarily for the purchase
or lease of residential properties. Advances to employees are provided for
periods of up to 7 years and earn interest at a maximum annual rate not to
exceed 4%.

F-46
<PAGE> 172
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Buildings................................................... $ 38,666 $ 44,948
Building related structures................................. 6,124 7,175
Machinery and equipment..................................... 165,362 190,421
Tools....................................................... 3,046 2,894
Furniture and fixtures...................................... 7,737 8,757
Vehicles.................................................... 497 466
--------- ---------
221,432 254,661
Accumulated depreciation.................................... (137,891) (172,685)
--------- ---------
83,541 81,976
Land........................................................ 8,973 8,563
Construction in progress.................................... 510 247
Machinery in transit........................................ -- 4
Other....................................................... 142 165
--------- ---------
$ 93,166 $ 90,955
========= =========
</TABLE>

At December 31, 1998, substantially all of the Business' property, plant
and equipment, other than land and certain construction in progress, are insured
against fire and other casualty losses. A substantial portion of the Business'
property, plant and equipment at December 31, 1998 is pledged as collateral for
various bank loans of Samsung.

Depreciation expense for property, plant and equipment was $48,812
thousand, $38,564 thousand and $21,540 thousand for the years ended December 31,
1996, 1997, and 1998, respectively.

At December 31, 1998, approximately $6,132 thousand of the Business'
manufacturing machinery and equipment was held by its subcontractors, primarily
in Korea.

Property, plant and equipment under capital leases, which include primarily
machinery and equipment, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Cost........................................................ $ 40,114 $ 40,325
Accumulated amortization.................................... (30,387) (33,658)
-------- --------
$ 9,727 $ 6,667
======== ========
</TABLE>

Amortization expense for assets under capital leases for the years ended
December 31, 1996, 1997 and 1998 is $15,026 thousand, $9,350 thousand and $4,002
thousand, respectively.

F-47
<PAGE> 173
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. TRADE ACCOUNTS AND NOTES PAYABLE:

Trade accounts and notes payable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Trade accounts payable
Due to third parties...................................... $ 9,091 $11,035
Due to Samsung subsidiary and affiliates.................. 1,283 2,203
------- -------
10,374 13,238
Trade notes payable
Due to third parties...................................... 712 409
Due to Samsung subsidiary and affiliates.................. -- 82
------- -------
712 491
------- -------
$11,086 $13,729
======= =======
</TABLE>

At December 31, 1997 and 1998, trade accounts payable of $10,204 thousand
and $12,925 thousand, respectively, are denominated in foreign currencies,
primarily US dollars.

8. CORPORATE BORROWINGS:

The Business does not undertake its own financing but has been able to
benefit from the financing obtained by Samsung. Corporate borrowings have been
allocated based on the methodology described in Note 2. The interest expense on
the allocated corporate borrowings has been calculated using average interest
rates of 6.48%, 7.30%, and 9.69% for the years ended December 31, 1996, 1997,
and 1998, respectively.

Samsung has entered into various types of short-term financing arrangements
including usance financing and bank overdrafts. The Business does not have its
own usance letter of credit but benefits from such letter of credit of Samsung
when needed. At December 31, 1998, no borrowings existed from such short-term
financing arrangements. The Business does not have any debt sharing or other
arrangements with Samsung. Consequently, corporate borrowings have been
classified as current and long-term based on the expected maturities of the
contractual obligations into which Samsung has entered.

F-48
<PAGE> 174
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. DEFERRED EMPLOYEE COMPENSATION:

Changes in deferred employee compensation are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Beginning balance........................................... $27,926 $ 13,004
Provision................................................... (8,623) 3,745
Payments.................................................... (6,299) (10,278)
------- --------
Ending balance.............................................. $13,004 $ 6,471
======= ========
</TABLE>

During 1998, certain employees elected to take early settlement of deferred
compensation. As a result, the Business paid approximately $2,436 thousand in
cash from the deferred employee compensation balance, net of advances due from
employees of $2,751 thousand.

10. COMMITMENTS AND CONTINGENCIES:

LITIGATION

On December 30, 1998, a settlement agreement was reached resolving a patent
infringement lawsuit. Under the terms of this settlement, Samsung shall pay the
principal sum of $58,000 thousand. The litigation settlement has been accrued in
the financial statements of the Business as of December 31, 1998 and for the
year then ended.

Samsung is also alleged, in the United States, to have infringed a method
claimed by a patent owned by Northern Telecom ("NT"), in the production of its
memory devices. The patent expired in 1994 and hence NT's claim is limited to
past damages based on a reasonable royalty accrued between February 1989 and
June 1994, and prejudgment interest thereon. In September 1998, the District
Court granted Samsung's motion for summary judgment, finding the patent invalid
and dismissed the case. NT filed a motion to set aside the judgment which was
denied on December 10, 1998. Additionally, NT has brought an action against
Samsung alleging an infringement of a patent in Germany. The German patent is a
counterpart of the patent being litigated in the United States. In May 1997, the
court allowed the action but did not fix the amount of damages to be paid and
Samsung appealed against this decision. The proceedings are currently pending
and the next hearing is scheduled for March 1999. Similar to the case in the
United States, the German patent expired in 1995 and potential liability is
limited to past damages. While it is not feasible to predict or determine the
final outcome of these proceedings at the present time, management does not
believe that they will result in a materially adverse effect on the financial
position or results of operations of Samsung or the Business.

LICENSING AND SUBCONTRACT AGREEMENTS

Samsung has entered into various licensing agreements, some of which relate
to Power Device products either directly or indirectly. Royalty expense incurred
by or allocated to the Business was $636 thousand, $5,922 thousand, and $6,004
thousand for the years ended December 31, 1996, 1997, and 1998, respectively.
The allocation was made based on the relative sales value for the respective
period.

F-49
<PAGE> 175
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

10. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)
The Business has two 7-year subcontract agreements with Usha HBB (India)
Ltd. ("Usha") and Psi Technologies, Inc. ("Psi"), third party subcontractors, in
connection with assembly and test of certain products of the Business. The Usha
agreement provides for the subcontractor to provide and the Business to purchase
at least 480 million units per year at a unit price of $0.01153. And the Psi
agreement provides for the subcontractor to provide and the Business to purchase
at least 4 million units per month at a unit price of $0.0581. These unit prices
in the agreements are subject to adjustment to reflect changes in market prices.
The agreements with Usha and Psi expire in July 2001 and July 2005,
respectively.

Subject to the subcontractors' quality and performance, at December 31,
1998, the approximate future purchase commitments under these agreements are as
follows:

<TABLE>
<CAPTION>
YEAR PURCHASE COMMITMENT
---- -------------------
<S> <C>
1999.............................................. $ 8,323
2000.............................................. $ 8,323
2001.............................................. $ 6,017
2002.............................................. $ 2,789
2003.............................................. $ 2,789
2004 and thereafter............................... $ 4,416
-------
Total............................................. $32,657
=======
</TABLE>

Total payments to Usha and Psi under the agreements were $3,734 thousand,
$3,953 thousand and $5,169 thousand for the years ended December 31, 1996, 1997
and 1998, respectively.

GUARANTEE PROVIDED

In relation to the Business, Samsung has guaranteed payment of principal
and interest on a bank loan provided to Korea Microsystems, Inc., a third-party
subcontractor of the Business, up to $2,070 thousand due in April 2002.

F-50
<PAGE> 176
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

10. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)
CAPITAL LEASE

With respect to the Business, Samsung leases machinery and equipment under
capital lease arrangements. The future minimum lease payments under the capital
leases are as follows:

<TABLE>
<CAPTION>
MINIMUM
LEASE
FOR THE YEAR ENDING DECEMBER 31, PAYMENTS
- -------------------------------- --------
<S> <C>
1999........................................................ $ 8,086
2000........................................................ 6,467
2001........................................................ 3,177
2002........................................................ 1,475
Thereafter.................................................. 226
-------
Total.................................................. 19,431
Less: amount representing interest.......................... (1,678)
-------
Present value of minimum lease payments..................... 17,753
Less: current portion....................................... (8,086)
-------
Total capital lease obligation, non-current portion......... $ 9,667
=======
</TABLE>

11. UNSTABLE ECONOMIC ENVIRONMENT:

The operations of the Business, and those of similar companies in Korea,
have been affected, and may continue to be affected for the foreseeable future,
by the unstable economic conditions in Korea and the Asia Pacific region.
Specific factors that impact these companies include volatility in the value of
the Korean won and interest rates and the general deterioration of the economies
of countries in the Asia Pacific region.

12. BUSINESS EQUITY:

Business equity represents Samsung's ownership interest in the recorded net
assets (liabilities) of the Business. A summary of activity is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Beginning balance...................................... $ 66,049 $ 51,949 $ 37,301
Net income............................................. 2,767 42,945 15,654
Net capital distribution............................... (16,867) (57,593) (52,683)
-------- -------- --------
Ending balance......................................... $ 51,949 $ 37,301 $ 272
======== ======== ========
</TABLE>

F-51
<PAGE> 177
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

13. INCOME TAXES:

As discussed in Note 2, the Business did not pay income taxes directly or
file separate income tax returns. The Business incurs income tax liabilities in
Korean won and based on taxable income determined in accordance with generally
accepted accounting principles and tax laws of Korea. The tax provision
(benefit) included in these financial statements reflects current tax expense
and the impact of accounting for deferred taxes under the asset and liability
method, including the impact of foreign currency translation of such deferred
tax amounts.

The income tax provision (benefit) for 1996, 1997 and 1998 consists of the
following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Current................................................... -- $ 9,515 $11,178
Deferred.................................................. $(4,754) 9,034 (1,659)
------- ------- -------
Income tax provision (benefit)............................ $(4,754) $18,549 $ 9,519
======= ======= =======
</TABLE>

The deferred tax consequences of temporary differences in reporting items
for financial statement and income tax purposes are recognized, if appropriate.
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors, including the Business' ability to generate taxable
income within the period which the temporary differences reverse, the outlook of
the Korean economic environment and the overall future industry outlook.
Management has considered these factors in reaching its conclusion as to the
need for a valuation allowance for financial reporting purposes.

The Business does not have any formalized tax sharing agreement with
Samsung.

The income tax effect of temporary differences comprising the deferred tax
assets and deferred tax liabilities as of December 31, 1997 and 1998 is as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets -- current:
Inventory reserve......................................... $ 842 $ 1,154
Other..................................................... 67 30
------- -------
909 1,184
------- -------
Deferred tax assets (liabilities) -- non-current:
Provision for deferred employee compensation.............. -- 783
Excess depreciation....................................... (3,173) (2,697)
------- -------
(3,173) (1,914)
------- -------
Net deferred tax liabilities................................ $(2,264) $ (730)
======= =======
</TABLE>

F-52
<PAGE> 178
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

13. INCOME TAXES: -- (CONTINUED)
Realization of deferred tax assets is dependent upon taxable income within
carry forward periods available under the tax laws. Management has concluded
that it is "more likely than not" that the Business will realize the full
benefit of deferred tax assets.

The statutory income tax rate, including tax surcharges, applicable to the
Business for 1996, 1997 and 1998 is approximately 30.8%. The reconciliation from
income taxes calculated at the statutory tax rate to the effective income tax
amount for each of the periods is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Taxes at Korean statutory tax rate......................... $ (612) $18,940 $7,753
R&D tax credit............................................. (4,375) (391) (675)
Effect of tax rate change on beginning cumulative temporary
differences.............................................. 233 -- --
Effect of exchange rate changes............................ -- -- 2,441
------- ------- ------
Effective income tax amounts............................... $(4,754) $18,549 $9,519
======= ======= ======
</TABLE>

The current and deferred income tax provisions were computed on a Korean
won basis, the functional currency of the Business, and translated into US
dollars using the weighted average exchange rate. The effect of exchange rate
changes in the amount of $2,441 thousand reflects the impact of translating the
litigation settlement discussed in Note 10, using the rate at which such
transaction was recognized for financial reporting purposes.

14. OTHER COMPREHENSIVE INCOME (LOSS):

For the years ended December 31, 1996, 1997 and 1998, foreign currency
translation adjustments are the only components of other comprehensive income.

There are no related tax effects allocated to foreign currency translation
adjustments due to the fact that the Business' functional currency is Korean
won.

A summary of cumulative translation adjustments are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Cumulative translation adjustments:
Beginning balance..................................... $ 705 $ (4,132) $(18,623)
Current-period change................................. (4,837) (14,491) 6,526
------- -------- --------
Ending balance........................................ $(4,132) $(18,623) $(12,097)
======= ======== ========
</TABLE>

F-53
<PAGE> 179
POWER DEVICE BUSINESS OF SAMSUNG ELECTRONICS CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

15. RELATED PARTY TRANSACTIONS:

Related party activity between the Business and Samsung (including
subsidiaries and affiliates of Samsung) is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Product sales to other operating units of Samsung...... $ 66,834 $ 68,472 $ 56,126
Product sales to foreign sales subsidiaries of
Samsung.............................................. 144,338 150,943 86,552
Product sales to other Samsung subsidiaries and
affiliates........................................... 27,032 25,503 41,691
-------- -------- --------
Total sales....................................... $238,204 $244,918 $184,369
======== ======== ========
Manufacturing services performed by other operating
units of Samsung..................................... $ 81,151 $ 75,962 $ 49,775
Manufacturing services performed by a Chinese
subsidiary of Samsung................................ 5,149 22,086 16,352
Purchase of raw materials from Samsung affiliates...... 15,966 20,797 10,626
-------- -------- --------
Total manufacturing costs......................... $102,266 $118,845 $ 76,753
======== ======== ========
Selling, general and administrative expenses allocated
from Samsung......................................... $ 26,891 $ 27,880 $ 27,536
======== ======== ========
Sales of manufacturing equipment to other operating
units of Samsung..................................... $ 12,590 $ 6,945 $ 56
======== ======== ========
Purchase of manufacturing equipment from other
operating units of Samsung........................... $ 20,937 $ 1,088 $ 2,355
======== ======== ========
</TABLE>

16. GEOGRAPHIC INFORMATION:

The Business is engaged in one industry segment, namely the development,
manufacture and marketing of power semiconductors. Sales data, summarized by
geographic area, is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Korea.................................................. $178,321 $171,058 $137,111
Asia................................................... 182,839 207,602 186,668
North America.......................................... 32,001 35,638 24,308
Europe................................................. 24,886 26,402 21,812
-------- -------- --------
Total............................................. $418,047 $440,700 $369,899
======== ======== ========
</TABLE>

Substantially all of the Business' assets are located in Korea.

F-54
<PAGE> 180

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholder
Raytheon Semiconductor, Inc:

We have audited the accompanying balance sheet of Raytheon Semiconductor,
Inc. (a wholly owned subsidiary of Thornwood Trust) (the Company) as of December
31, 1997, and the related statements of income, stockholder's equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Raytheon Semiconductor, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

Mountain View, California
February 27, 1998

F-55
<PAGE> 181

RAYTHEON SEMICONDUCTOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 186
Accounts receivable, net of allowances of $2,073.......... 11,414
Inventories............................................... 18,125
Prepaid expenses and other................................ 262
-------
Total current assets................................... 29,987
Property, plant, and equipment, net......................... 21,532
-------
Total assets........................................... $51,519
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,711
Accrued compensation...................................... 2,575
Accrued liabilities....................................... 1,062
-------
Total current liabilities.............................. 7,348
Commitments and contingencies
Stockholder's equity
Common stock, $0.01 par value; 2,500 authorized, issued,
and outstanding........................................ --
Additional paid-in-capital................................ 44,171
-------
Total liabilities and stockholder's equity............. $51,519
=======
</TABLE>

See accompanying notes to financial statements.

F-56
<PAGE> 182

RAYTHEON SEMICONDUCTOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Net sales................................................... $78,369
Cost of sales............................................... 44,815
-------
Gross profit........................................... 33,554
Operating expenses:
Research and development.................................. 12,128
Selling, general, and administrative...................... 10,064
-------
Total operating expenses............................... 22,192
-------
Operating Income....................................... 11,362
Other Expense............................................... 88
-------
Income before income taxes............................. 11,274
Provision for income tax expense............................ 4,395
-------
Net income............................................. $ 6,879
=======
</TABLE>

See accompanying notes to financial statements.

F-57
<PAGE> 183

RAYTHEON SEMICONDUCTOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

STATEMENT OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------
PARENT COMMON STOCK ADDITIONAL TOTAL
COMPANY --------------- PAID-IN- STOCKHOLDERS'
INVESTMENT SHARES AMOUNT CAPITAL EQUITY
---------- ------ ------ ---------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balances at beginning of year........ $ 54,874 -- $-- $ -- $ 54,874
Net income........................... 6,879 -- -- -- 6,879
Net transfers to parent.............. (17,582) -- -- -- (17,582)
Incorporation of Company on December
31, 1997........................... (44,171) 2,500 -- 44,171 --
-------- ----- -- ------- --------
Balances at end of year.............. $ -- 2,500 $-- $44,171 $ 44,171
======== ===== == ======= ========
</TABLE>

See accompanying notes to financial statements.

F-58
<PAGE> 184

RAYTHEON SEMICONDUCTOR, INC.
(A WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 6,879
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 6,397
Changes in operating assets and liabilities:
Accounts receivable.................................. (2,112)
Inventory............................................ 2,977
Prepaid expenses and other........................... (76)
Accounts payable..................................... (221)
Accrued expenses..................................... (595)
--------
Net cash provided by operating activities......... 13,249
--------
Cash flows from investing activities -- additions to
property, plant and equipment............................. (2,718)
--------
Cash flows from financing activities -- transfers to Parent
Company Investment........................................ (10,570)
--------
Net decrease in cash........................................ (39)
Cash, beginning of year..................................... 225
--------
Cash, end of year........................................... $ 186
========
Supplemental disclosure of cash flow information:
Deferred taxes transferred to Parent Company Investment per
terms of the Acquisition Agreement........................ $ 7,012
========
</TABLE>

See accompanying notes to financial statements.

F-59
<PAGE> 185

RAYTHEON SEMICONDUCTOR, INC.
(WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(1) BACKGROUND AND BASIS OF PRESENTATION

Raytheon Semiconductor Inc. (the Company) is a wholly owned subsidiary of
Thornwood Trust (Thornwood) which is a wholly owned unit of Raytheon Company
(Raytheon). The Company's Multimedia Business Unit, based in San Diego,
California, designs and manufactures digital and mixed-signal integrated
circuits (IC) for use in broadcast video, computer graphics, multimedia, imaging
and communications applications. The Analog and High Speed Communications
Business Units, both based in Mountain View, California, manufacture DC-DC
converters, voltage regulator modules and IC's used by customers in high
performance microprocessors and networking applications. The Company sells
mainly through distributors in North America, Asia, and Europe.

Fairchild Semiconductor Corporation (Fairchild) acquired all the
outstanding shares of the Company subsequent to the close of business on
December 31, 1997 (see Note 10). Prior to this transaction, the net assets of
the Company represented an operating division of Raytheon. These financial
statements report the operating results of the Company as a division of
Raytheon. As a division of Raytheon, certain costs included in the income
statement were determined on the basis of allocations from Corporate
Headquarters and represent management's best estimate of the cost that would
have been incurred had the division operated independently. As a result, the
financial statements presented may not reflect the financial position or results
of operations which would have been realized had the Company operated as a
nonaffiliated entity for the year.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

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

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to a
concentration of credit risk principally consist of trade accounts receivable.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral on accounts receivable, as the majority of the
Company's customers are large, well established companies. The Company maintains
reserves for potential credit losses, but historically has not experienced any
significant losses related to individual customers or groups of customers in any
particular industry or geographic area.

REVENUE RECOGNITION

Revenue is primarily recognized at the time product is shipped. The Company
provides for estimated returns of products sold to distributors under various
sales incentive programs and for general product returns from all customers.
Reductions of net sales revenue under these programs are recorded at the time
products are shipped.

F-60
<PAGE> 186
RAYTHEON SEMICONDUCTOR, INC.
(WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INVENTORIES

Inventories are stated at the lower of standard cost, which approximates
actual cost, or net realizable value. Cost is determined on a first-in,
first-out basis.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment are stated at cost. Depreciation is
generally provided on the double declining balance (buildings), or sum-of-years
digits method based on the following estimated useful lives:

<TABLE>
<S> <C>
Buildings................................................... 20 to 45 years
Machinery and equipment..................................... 3 to 10 years
Computer software and other assets.......................... 7 years
</TABLE>

Leasehold improvements are amortized over the lesser of the remaining term
of the lease or the estimated useful life of the improvement.

INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards of the Company. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

STOCK OPTION PLAN

The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded using the intrinsic value-based method. The Company adopted
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, on January 1, 1996, which permits entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.

PARENT COMPANY INVESTMENT

As a division of Raytheon, the Company's operating cash requirements have
been met with transfers from Raytheon as required. Cash balances of the Company
not required for operations have been transferred to Raytheon, and all cash
receipts and disbursements and intercompany charges

F-61
<PAGE> 187
RAYTHEON SEMICONDUCTOR, INC.
(WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

related to the Company's operations have been credited to or charged against
Parent Company Investment.

(3) CORPORATE ALLOCATIONS

The accompanying statement of income includes charges allocated by Raytheon
representing the Company's share of certain costs incurred by Raytheon in
support of the Company's operations. Services provided by Raytheon in 1997 were
primarily financial, legal and administrative in nature. Costs have been
allocated to the Company based on the proportion of Raytheon expenses
represented by Company expenses. Management has reviewed the allocations made by
Raytheon and believes them to be reasonable. In all cases, the corporate charges
assessed approximate the amounts which would have been incurred by the Company
if it had operated on a standalone basis during the year.

The total amounts allocated to the Company for the year ended December 31,
1997 and included in the statement of income are as follows (in thousands):

<TABLE>
<S> <C>
Cost of sales............................................... $3,647
Research and development.................................... 1,059
Selling, general and administrative......................... 1,715
------
$6,421
======
</TABLE>

Additionally, in 1997, substantially all employees of the Company
participated in the defined benefit pension plans of Raytheon. Under the plans,
benefits are generally based on years of service and the employee's compensation
during the years before retirement. Total expense allocated to the Company for
1997 was $572.

Subject to certain age and service requirements, substantially all
employees of the Company in 1997 were eligible to participate in Raytheon's
defined contribution plans. Employees participating in the Raytheon Savings and
Investment Plan could contribute up to 17% of their pay subject to prescribed
Internal Revenue Code ("IRC") limits. Raytheon matched 50% of the employees'
contributions, up to a maximum of 3% of each participating individual's
compensation. Total expense charged to the Company for this plan in 1997 was
$458. For employees participating in the Raytheon Employee Stock Ownership Plan,
the Company's annual contribution was approximately one half of one percent of
salary, as limited by the IRC. Total expense charged to the Company for this
plan in 1997 was $105.

Raytheon allocated charges for the employee benefit plans based primarily
on headcount and eligible payroll. Management has reviewed the allocations made
by Raytheon in respect of employee benefit plans and believes them to be
reasonable.

Subject to the Acquisition Agreement with Fairchild, substantial changes to
the Company's pension and benefit plans are expected for 1998. See Note 10.

F-62
<PAGE> 188
RAYTHEON SEMICONDUCTOR, INC.
(WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(4) INVENTORIES

Inventories as of December 31, 1997, consisted of the following (in
thousands):

<TABLE>
<S> <C>
Finished goods.............................................. $ 6,012
Work in process............................................. 10,419
Raw materials............................................... 1,694
-------
$18,125
=======
</TABLE>

(5) PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment as of December 31, 1997, consisted of the
following (in thousands):

<TABLE>
<S> <C>
Land........................................................ $ 616
Buildings and leasehold improvements........................ 22,802
Machinery and equipment..................................... 61,159
Computer software........................................... 2,898
Construction in progress.................................... 427
-------
87,902
Less accumulated depreciation and amortization.............. 66,370
-------
Property, plant, and equipment, net......................... $21,532
=======
</TABLE>

(6) FEDERAL INCOME TAXES

The provision for income taxes for the year ended December 31, 1997, was
(in thousands):

<TABLE>
<S> <C>
Current income tax expense:
Federal................................................... $2,299
State..................................................... 473
------
2,772
------
Deferred income tax expense:
Federal................................................... 1,247
State..................................................... 376
------
1,623
Total tax expense................................. $4,395
======
</TABLE>

F-63
<PAGE> 189
RAYTHEON SEMICONDUCTOR, INC.
(WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(6) FEDERAL INCOME TAXES -- (CONTINUED)
The provision for income taxes for 1997 differs from the U.S. statutory
rate due to the following (in thousands):

<TABLE>
<S> <C>
Computed expected tax expense............................... $3,833
State income tax, net of federal tax benefit................ 562
------
$4,395
======
</TABLE>

Current income tax expense is included as a transfer to Raytheon in the
Parent Company Investment account. The sources and tax effects of temporary
differences which give rise to deferred income tax balances are as follows (in
thousands):

<TABLE>
<S> <C>
Current deferred tax assets:
Inventory reserves........................................ $2,196
Accounts receivables allowances........................... 829
Accrued expenses.......................................... 801
------
3,826
Noncurrent deferred tax assets:
Depreciation and amortization............................. 1,568
------
$5,394
======
</TABLE>

Under the terms of the Acquisition Agreement with Fairchild, the deferred
tax assets will not be transferred to Fairchild and accordingly are included as
a transfer to Raytheon as of December 31, 1997. See Note 10.

(7) EMPLOYEE STOCK PLANS

STOCK BASED COMPENSATION

The Company's employees participate in the Raytheon Stock Option Plan (the
Plan) which provides for the grant of incentive stock options and nonqualified
stock options to employees, directors and consultants of the Company at the fair
market value of Raytheon's common stock on the date of grant.

The vesting and exercise provisions of the option grants under the Plan are
determined by the Board of Directors. Options generally vest ratably over a
four-year period commencing from the date of grant, subject to one year of
employment and generally expire in 10 years from the date of grant.

The Company has elected to use the intrinsic value-based method to account
for all of its stock-based employee compensation plans. Accordingly, no
compensation cost has been recognized for its stock options in the accompanying
financial statements because the fair value of the underlying common stock
equals the exercise price of the stock options at the date of grant. Pursuant to
SFAS No. 123, Accounting for Stock Based Compensation, the Company is required
to disclose the pro forma effects on the net income of the Company as if the
Company had elected to use the fair value approach to account for its
stock-based employee compensation plan.

F-64
<PAGE> 190
RAYTHEON SEMICONDUCTOR, INC.
(WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(7) EMPLOYEE STOCK PLANS -- (CONTINUED)
Had compensation cost for the Company's plans been determined consistent
with the fair value approach under SFAS No. 123, the Company's 1997 net income
would have been $6,476.

The fair value of each option is estimated using a Black-Scholes option
pricing model with the following weighted average assumptions: risk-free
interest rate of 6.5%, an expected life of 5 years, and volatility of 24%. No
dividend impact was considered as Raytheon has never declared, and does not have
plans to declare, any future dividends. No option or equity instruments were
issued to nonemployees.

The following table summarizes activity under the plan as of December 31,
1997:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------ ---------
<S> <C> <C>
Outstanding at beginning of year............................ 67,320 $39.25
Options granted............................................. 32,500 51.13
Options exercised........................................... (8,900) 31.02
Options canceled............................................ -- --
------
Outstanding at end of year.................................. 90,920 44.30
======
Options vested at year-end.................................. 58,420 $40.60
======
Weighted-average fair value of options granted during the
year...................................................... $13.98
</TABLE>

F-65
<PAGE> 191
RAYTHEON SEMICONDUCTOR, INC.
(WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(7) EMPLOYEE STOCK PLANS -- (CONTINUED)
The following table summarizes information about stock options outstanding
as of December 31, 1997:

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
- -------------------------------------- -----------
WEIGHTED-
AVERAGE
EXERCISE OPTIONS REMAINING OPTIONS
PRICE OUTSTANDING LIFE IN YEARS EXERCISABLE
- -------- ----------- ------------- -----------
<S> <C> <C> <C>
1$6.95.. 2,000 1.96 years 2,000
21.80 1,000 4.06 1,000
31.91 2,020 5.65 2,020
31.47 5,000 5.73 5,000
32.53 10,000 6.48 10,000
32.88 3,000 6.65 3,000
39.03 14,000 7.49 14,000
52.56 20,400 8.44 20,400
51.75 1,000 8.66 1,000
47.13 4,000 9.15 --
51.69 28,500 9.50 --
------ ------
44.30 90,920 58,420
====== ====== ======
</TABLE>

Pursuant to the Acquisition Agreement with Fairchild (see Note 10), all
unvested outstanding options at December 31, 1997 are canceled.

(8) COMMITMENTS AND CONTINGENCIES

At December 31, 1997, the Company had commitments under long-term operating
leases requiring approximate annual rentals as follows (in thousands):

<TABLE>
<S> <C>
1998........................................................ $ 812
1999........................................................ 844
2000........................................................ 439
2001........................................................ --
2002........................................................ --
Thereafter.................................................. --
------
$2,095
======
</TABLE>

Rental expense for 1997 amounted to $533.

The Company's Mountain View facility is located on a contaminated site
under the Comprehensive Environmental Liability Act (the "Act"). During the year
the Company paid $2,164

F-66
<PAGE> 192
RAYTHEON SEMICONDUCTOR, INC.
(WHOLLY OWNED SUBSIDIARY OF THORNWOOD TRUST)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(8) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
for remediation costs which were reimbursed by Raytheon. Under the terms of the
Acquisition Agreement executed on December 31, 1997(see Note 10), future
responsibility for these costs will be assumed by Raytheon. All other
environmental costs are immaterial to the Company and have been expensed as
incurred.

The Company is subject to various claims and legal proceedings in the
normal course of business. None of the claims or potential claims outstanding at
December 31, 1997 are anticipated to have a material impact on the financial
position, cash flows, or results of operations of the Company after taking into
consideration provisions already recorded.

(9) RELATED PARTY TRANSACTIONS, AND GEOGRAPHIC INFORMATION

In 1997, the Company had $2,134 of net sales to affiliate companies of
Raytheon; the related cost of sales amounted to $1,126. There were no other
transactions with affiliate companies of Raytheon during 1997.

The Company's export sales for the year ended December 31, 1997 was $24,810
principally to customers Europe and Asia.

(10) SUBSEQUENT EVENT

As discussed in Note 1, prior to the formation of the Company on December
31, 1997, the Company operated as a division of Raytheon. On December 31, 1997,
the Company was incorporated as a wholly-owned subsidiary of Thornwood Trust
(Thornwood), a Massachusetts Business Trust and wholly-owned unit of Raytheon.

Subsequent to the close of business on December 31, 1997, Fairchild
acquired 100% of the outstanding shares of common stock of the Company from
Thornwood for approximately $117 million. Upon closing of the acquisition, the
Company became a business unit of Fairchild.

Pursuant to the Acquisition Agreement, Raytheon will retain and be
responsible for liabilities accrued by employees of the Company through December
31, 1997 under any defined benefit pension plan or other employee-related
benefit plans. In addition, Raytheon will retain all liability and
responsibility for the disposition of interests under the Raytheon Savings and
Investment Plan and the Raytheon Stock Ownership Plan with respect to all
employees of the Company who were participants in either of the plans as of
December 31, 1997.

Raytheon will also retain and be responsible for all liabilities related to
environmental remediation activities, including those required by the United
States Environmental Protection Agency, at the Company's Mountain View,
California facility which arose prior to December 31, 1997 or were created by
the release of hazardous substances that first occurred prior to December 31,
1997.

F-67
<PAGE> 193

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONS

The following table sets forth the estimated expenses to be incurred in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts and commissions, to be paid by
Fairchild International.

<TABLE>
<S> <C>
SEC registration fee....................................... $ 97,300
Printing and engraving fees................................ *
Legal fees and expenses.................................... *
Accounting fees and expenses............................... *
Blue Sky fees and expenses................................. *
Directors' and Officers' Insurance......................... *
Filing fee................................................. *
Miscellaneous.............................................. *
-----------
Total............................................ $24,000,000
===========
</TABLE>

- ---------------
* To be supplied by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law provides in relevant
part that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful.

In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon

II-1
<PAGE> 194

application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.

Section 145 also provides that to the extent a director, officer, employee
or agent of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to above, or defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.

Furthermore, Section 145 provides that nothing in the above-described
provisions shall be deemed exclusive of any other rights to indemnification or
advancement of expenses to which any person may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.

Our Bylaws provide for the indemnification of any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding") by reason of the fact that such person is or was
a director or officer of our company or a constituent corporation absorbed in a
consolidation or merger, or is or was serving at the request of our company or a
constituent corporation absorbed in a consolidation or merger, as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or is or was a director or officer of our company serving at its
request as an administrator, trustee or other fiduciary of one or more of the
employee benefit plans of our company or other enterprise, against expenses
(including attorneys' fees), liability and loss actually and reasonably incurred
or suffered by such person in connection with such proceeding, whether or not
the indemnified liability arises or arose from any threatened, pending or
completed proceeding by or in the right of our company, except to the extent
that such indemnification is prohibited by applicable law. Our Bylaws also
provide that such indemnification shall not be deemed exclusive of any other
rights to which those indemnified may be entitled as a matter of law or under
any bylaw, agreement, vote of stockholders or otherwise.

Section 102(b)(7) of the Delaware General Corporation Law provides that a
corporation may in its certificate of incorporation eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director except for
liability: for any breach of the director's duty of loyalty to the corporation
or its stockholders; for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; under Section 174 of the
Delaware General Corporation Law (pertaining to certain prohibited acts
including unlawful payment of dividends or unlawful purchase or redemption of
the corporation's capital stock); or for any transaction from which the director
derived an improper personal benefit. Our Certificate of Incorporation contains
a provision so limiting the personal liability of our directors.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On March 11, 1997, Fairchild International issued approximately 28,764,480
shares of Class A Common Stock, 33,635,520 shares of Class B Common Stock, $70.0
million (aggregate principal amount) of 12% Series A Cumulative Compounding
Preferred Stock and an 11.74% Subordinated Note Due March 14, 2008 in an
original principal amount of approximately $77.0 million in connection with the
recapitalization of Fairchild Semiconductor Corporation. These securities were
issued pursuant to the exemption from registration provided by Section 4(2) of
the Securities Act.

On April 13, 1999, Fairchild International issued a 12.5% Subordinated Note
Due 2008 in the original principal amount of $50.0 million in connection with
the acquisition of the power device business, the financings in connection with
the acquisition and the application of the proceeds of such

II-2
<PAGE> 195

financings. This note was issued pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.01 Underwriting Agreement dated July , 1999 among Fairchild
International, National Semiconductor, Credit Suisse First
Boston Corporation, .*
2.01 Agreement and Plan of Recapitalization dated January 24,
1997 between Sterling and National Semiconductor
(incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4 filed May
12, 1997 (File No. 333-26897)).
2.02 Asset Purchase Agreement dated as of March 11, 1997 between
Fairchild Semiconductor and National Semiconductor
(incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4 filed May
12, 1997 (File No. 333-26897)).
2.03 Acquisition Agreement dated November 25, 1997 between
Fairchild Semiconductor Corporation and Raytheon Company
(incorporated by reference from Fairchild Semiconductor
Corporation's Current Report on Form 8-K dated December 31,
1997, filed January 13, 1998).
2.04 Amendment No. 1 to Acquisition Agreement dated December 29,
1997 between Fairchild Semiconductor Corporation and
Raytheon Company (incorporated by reference from Fairchild
Semiconductor Corporation's Current Report on Form 8-K dated
December 31, 1997, filed January 13, 1998).
2.05 Exhibit 3.14 to Acquisition Agreement dated December 29,
1997 between Fairchild Semiconductor Corporation and
Raytheon Company (incorporated by reference from Fairchild
Semiconductor Corporation's Current Report on Form 8-K dated
December 31, 1997, filed January 13, 1998).
2.06 Business Transfer Agreement dated December 20, 1998 between
Samsung Electronics and Fairchild Semiconductor Corporation
(incorporated by reference from Fairchild Semiconductor
Corporation's Current Report on Form 8-K dated April 13,
1999, filed April 27, 1999).
2.07 Closing Agreement dated April 13, 1999 among Samsung
Electronics, Fairchild Korea Semiconductor Ltd. and
Fairchild Semiconductor Corporation (incorporated by
reference from Fairchild Semiconductor Corporation's Current
Report on Form 8-K dated April 13, 1999, filed April 27,
1999).
3.01 Certificate of Incorporation of Fairchild International
(incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4 filed May
12, 1997 (File No. 333-26897)).
3.02 Bylaws of Fairchild International (incorporated by reference
from Fairchild Semiconductor Corporation's Registration
Statement on Form S-4 filed May 12, 1997 (File No.
333-26897)).
</TABLE>

II-3
<PAGE> 196

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
3.03 Certificate of Amendment to Certificate of Incorporation of
Fairchild International (incorporated by reference from
Fairchild International's Registration Statement on Form S-8
filed July 7, 1998 (File No. 333-58603)).
3.04 Certificate of Amendment of Certificate of Incorporation of
Fairchild International.+
3.05 Restated Certificate of Incorporation of Fairchild
International.*
4.01 Indenture dated April 7, 1999 among Fairchild Semiconductor
Corporation, Fairchild International, as Guarantor,
Fairchild Semiconductor Corporation of California, as
Guarantor, and the United States Trust Company of New York.+
4.02 Form of 10 3/8% Senior Subordinated Notes Due 2007 (included
in Exhibit 4.01).
4.03 Registration Rights Agreement dated March 30, 1999 among
Fairchild Semiconductor Corporation, Fairchild
International, as Guarantor, Fairchild Semiconductor
Corporation of California, as Guarantor, Credit Suisse First
Boston Corporation, Morgan Stanley & Co. Incorporated,
Salomon Smith Barney Inc. and Fleet Securities, Inc.+
4.04 Registration Rights Agreement dated March 11, 1997 among
Fairchild International, Sterling, National Semiconductor
and certain investors.+
5.01 Form of Opinion of Dechert Price & Rhoads.
10.01 Indenture dated as of March 11, 1997 among Fairchild
Semiconductor Corporation, Fairchild International, as
Guarantor and United States Trust Company of New York, as
Trustee relating to Fairchild Semiconductor Corporation's
10 1/8% Senior Subordinated Notes (incorporated by reference
from Fairchild Semiconductor Corporation's Registration
Statement on Form S-4 filed May 12, 1997 (File No.
333-26897)).
10.02 Form of 10 1/8% Senior Subordinated Notes Due 2007 (included
in Exhibit 10.01).
10.03 Technology Licensing and Transfer Agreement dated March 11,
1997 between National Semiconductor and Fairchild
Semiconductor Corporation (incorporated by reference from
Amendment No. 3 to Fairchild Semiconductor Corporation's
Registration Statement on Form S-4, filed July 9, 1997 (File
No. 333-26897)).
10.04 Transition Services Agreement dated March 11, 1997 between
National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4, filed May 12, 1997 (File No. 333-26897)).
10.05 Fairchild Foundry Services Agreement dated March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Amendment No. 3
to Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed July 9, 1997 (File No.
333-26897)).
10.06 Revenue Side Letter dated March 11, 1997 between National
Semiconductor and Fairchild Semiconductor Corporation
(incorporated by reference from Amendment No. 3 to Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4, filed July 9, 1997 (File No. 333-26897)).
10.07 Fairchild Assembly Services Agreement dated March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Amendment No. 3
to Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed July 9, 1997 (File No.
333-26897)).
</TABLE>

II-4
<PAGE> 197

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.08 National Foundry Services Agreement dated March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Amendment No. 3
to Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed July 9, 1997 (File No.
333-26897)).
10.09 National Assembly Services Agreement dated March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Amendment No. 3
to Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed July 9, 1997 (File No.
333-26897)).
10.10 Mil/Aero Wafer and Services Agreement dated March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Amendment No. 3
to Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed July 9, 1997 (File No.
333-26897)).
10.11 Shared Services Agreement (South Portland) dated March 11,
1997 between National Semiconductor and Fairchild
Semiconductor Corporation (incorporated by reference from
Amendment No. 3 to Fairchild Semiconductor Corporation 's
Registration Statement on Form S-4, filed July 9, 1997 (File
No. 333-26897)).
10.12 Credit Agreement dated March 11, 1997 among Fairchild
Semiconductor Corporation, Fairchild International, Various
Banks, Bankers Trust Company, Credit Suisse First Boston
Corporation and Canadian Imperial Bank of Commerce
(incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4, filed May
12, 1997 (File No. 333-26897)).
10.13 Corporate Agreement dated February 20, 1992 between Torex
Semiconductor Ltd. and National Semiconductor (incorporated
by reference from Amendment No. 3 to Fairchild Semiconductor
Corporation's Registration Statement on Form S-4, filed July
9, 1997 (File No. 333-26897)).
10.14 Assembly/Test Subcontract Agreement dated August 13, 1998
between NS Electronics Bangkok (1993) Ltd. and Fairchild
Semiconductor Corporation (incorporated by reference from
Fairchild Semiconductor Corporation's Annual Report on Form
10-K for the fiscal year ended May 31, 1998, filed August
27, 1998).
10.15 Supply Agreement dated January 20, 1996 between National
Semiconductor and Dynacraft Industries Sdn. Bhd.
(incorporated by reference from Amendment No. 3 to Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4, filed July 9, 1997 (File No. 333-26897)).
10.16 Licensing and Manufacturing Agreement dated April 27, 1990
between National Semiconductor and Waferscale Integration,
Inc. (incorporated by reference from Amendment No. 3 to
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4, filed July 9, 1997 (File No. 333-26897)).
10.17 Qualified Titles Corresponding to Registry Title Nos. 19, 44
and 3400-Mk 12 from the State of Penang, Malaysia and
corresponding Sale and Purchase Agreements, each dated March
11, 1997, between National Semiconductor Sdn. Bhd. and
Fairchild Semiconductor Sdn. Bhd. (incorporated by reference
from Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed May 12, 1997 (File No.
333-26897)).
</TABLE>

II-5
<PAGE> 198

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.18 Lease Agreement dated October 10, 1979 between Export
Processing Zone Authority and Fairchild Semiconductor (Hong
Kong) Limited, and Supplemental Agreements thereto dated May
1, 1982; December 12, 1983; August 17, 1984; March 10, 1987;
February 16, 1990; August 25, 1994; May 29, 1995; June 7,
1995; November 9, 1995; and October 24, 1996 (incorporated
by reference from Fairchild Semiconductor Corporation's
Registration Statement on Form S-4, filed May 12, 1997 (File
No. 333-26897)).
10.19 Lease for Santa Clara Facilities dated as of March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4, filed May 12, 1997 (File No. 333-26897)).
10.20 Shared Facilities Agreement (South Portland) dated March 11,
1997 between National Semiconductor and Fairchild
Semiconductor Corporation (incorporated by reference from
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4, filed May 12, 1997 (File No. 333-26897)).
10.21 Environmental Side Letter dated March 11, 1997 between
National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4, filed May 12, 1997 (File No. 333-26897)).
10.22 Master Sublease Agreement dated March 11, 1997 between
National Semiconductor and Fairchild Semiconductor
Corporation and Master Lease Agreement dated December 13,
1994 between General Electric Capital Corporation and
National Semiconductor (incorporated by reference from
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4, filed May 12, 1997 (File No. 333-26897)).
10.23 Fairchild NSC Deferred Compensation Plan Trust established
effective March 11, 1997 (incorporated by reference from
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4, filed May 12, 1997 (File No. 333-26897)).
10.24 Fairchild NSC Deferred Compensation Plan assumed and
continued, effective March 11, 1997 (included as Schedule A
to Exhibit 10.23).
10.25 Fairchild Benefit Restoration Plan (incorporated by
reference from Fairchild Semiconductor Corporation's
Registration Statement on Form S-4 dated, filed May 12, 1997
(File No. 333-26897)).
10.26 Fairchild Incentive Plan (incorporated by reference from
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4, filed May 12, 1997 (File No. 333-26897)).
10.27 FSC Semiconductor Corporation Executive Officer Incentive
Plan (incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4 dated,
filed May 12, 1997 (File No. 333-26897)).
10.28 FSC Semiconductor Corporation Stock Option Plan
(incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4 dated,
filed May 12, 1997 (File No. 333-26897)).
10.29 Employment Agreement dated March 11, 1997 among Fairchild
Semiconductor Corporation, Fairchild International, Sterling
and Kirk P. Pond (incorporated by reference from Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4 dated, filed May 12, 1997 (File No. 333-26897)).
</TABLE>

II-6
<PAGE> 199

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.30 Employment Agreement dated March 11, 1997 among Fairchild
Semiconductor Corporation, Fairchild International, Sterling
and Joseph R. Martin (incorporated by reference from
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4, filed May 12, 1997 (File No. 333-26897)).
10.31 Credit Agreement -- Amended and Restated as of December 31,
1997 (incorporated by reference from Fairchild Semiconductor
Corporation's Quarterly Report on Form 10-Q for the
quarterly period ended March 1, 1998, filed April 13, 1998).
10.32 Employee Stock Purchase Savings Plan, as amended as of June
25, 1998 (incorporated by reference from Fairchild
Semiconductor Corporation's Annual Report on Form 10-K for
the fiscal year ended May 31, 1998, filed August 27, 1998).
10.33 Fairchild Revocable Savings Plan Trust, dated February 20,
1998, executed by Fleet Bank of Maine, as trustee
(incorporated by reference from Fairchild International's
Registration Statement on Form S-8, filed July 7, 1998 (File
No. 333-58603)).
10.34 Amendment to Securities Purchase and Holders Agreement dated
May 29, 1998 (incorporated by reference from Fairchild
Semiconductor Corporation's Annual Report on Form 10-K for
the fiscal year ended May 31, 1998, filed August 27, 1998).
10.35 Form of Promissory Note between Fairchild Semiconductor
Corporation and Management Investors dated June 3, 1998
(incorporated by reference from Fairchild Semiconductor
Corporation's Annual Report on Form 10-K for the fiscal year
ended May 31, 1998, filed August 27, 1998).
10.36 Second Amendment to Amended and Restated Credit Agreement
dated August 25, 1998 among Fairchild International,
Fairchild Semiconductor Corporation, the lenders party to
the Credit Agreement dated March 11, 1997, Bankers Trust
Company, Credit Suisse First Boston Corporation and Canadian
Imperial Bank of Commerce (incorporated by reference from
Fairchild Semiconductor Corporation's Quarterly Report on
Form 10-Q for the fiscal quarter ended August 30, 1998,
filed October 9, 1998).
10.37 Purchase Agreement dated March 30, 1999 among Fairchild
Semiconductor Corporation, Fairchild International,
Fairchild Semiconductor Corporation of California, Credit
Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, Salomon Smith Barney Inc. and Fleet
Securities, Inc.+
10.38 Transitional Services Agreement dated April 13, 1999 between
Samsung Electronics and Fairchild Korea Semiconductor Ltd.+
10.39 Product Supply Agreement dated April 13, 1999 between
Samsung Electronics and Fairchild Korea Semiconductor Ltd.+
10.40 Foundry Sale Agreement dated April 13, 1999 between Samsung
Electronics and Fairchild Korea Semiconductor Ltd.+
10.41 Intellectual Property License Agreement dated April 13, 1999
between Samsung Electronics and Fairchild Korea
Semiconductor Ltd.+
10.42 Trademark License Agreement dated April 13, 1999 between
Samsung Electronics and Fairchild Korea Semiconductor Ltd.+
10.43 Assembly and Test Services Agreement (Onyang) dated April
13, 1999 between Samsung Electronics and Fairchild Korea
Semiconductor Ltd.+
10.44 Assembly and Test Services Agreement (Suzhou) dated April
13, 1999 between SESS Electronics Suzhou Semiconductor Co.,
Ltd. and Fairchild Korea Semiconductor Ltd.+
</TABLE>

II-7
<PAGE> 200

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.45 EPI Services Agreement dated April 13, 1999 between Samsung
Electronics and Fairchild Korea Semiconductor Ltd.+
10.46 Photo Mask Supply Agreement dated April 13, 1999 between
Samsung Electronics and Fairchild Korea Semiconductor Ltd.+
10.47 Credit Agreement dated April 14, 1999 among Fairchild
Semiconductor Corporation, Fairchild International, certain
lenders named within the Credit Agreement, Credit Suisse
First Boston Corporation, Salomon Brothers Holding Company
Inc., ABN Amro Bank NV and Fleet National Bank.+
10.48 Employment Agreement dated March 28, 1999 between Fairchild
International and Deok-Jung Kim.+
10.49 Employment Agreement dated as of April 23, 1999 between
Fairchild Semiconductor Corporation and Kyoung-Soo Kim.+
10.50 Sublease Agreement dated April 23, 1999 between Veritas
Software Corporation and Fairchild Semiconductor Corporation
of California.+
10.51 Lock-Up Agreement dated July , 1999.*
10.52 Fairchild Executive Incentive Plan, as amended and restated,
effective June 1, 1998.+
10.53 Securities Purchase and Holders Agreement dated as of March
11, 1997 among Fairchild International, Sterling, National
Semiconductor and Management Investors.+
21.01 Subsidiaries of Fairchild International.+
23.01 Consent of Dechert Price & Rhoads (included in the opinion
filed as Exhibit 5.01).
23.02 Consent of Samil Accounting Corporation.
23.03 Consent of KPMG LLP.
23.04 Consent of KPMG LLP.
24.01 Power of Attorney.+
</TABLE>

- ---------------
* To be supplied by amendment.
+ Previously filed.

(B) FINANCIAL STATEMENT SCHEDULES:

Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a

II-8
<PAGE> 201

court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424 (b) (1) or
(4) or 497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

II-9
<PAGE> 202

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of South Portland, State of Maine, on the 2nd day of
July 1999.

FAIRCHILD SEMICONDUCTOR
INTERNATIONAL, INC.

By: /s/ JOSEPH R. MARTIN
-----------------------------------------
Executive Vice President
and Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities at the above-named Registrant on July 2, 1999.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

* Chairman of the Board of Directors,
- --------------------------------------------------- President and Chief Executive Officer
Kirk P. Pond (principal executive officer)

* Executive Vice President, Chief Financial
- --------------------------------------------------- Officer and Director (principal financial
Joseph R. Martin and accounting officer)

* Director
- ---------------------------------------------------
Brian L. Halla

* Director
- ---------------------------------------------------
William N. Stout

* Director
- ---------------------------------------------------
Richard M. Cashin, Jr.

* Director
- ---------------------------------------------------
Paul C. Schorr IV

* Director
- ---------------------------------------------------
Ronald W. Shelly

*By: /s/ JOSEPH R. MARTIN
---------------------------------------------
Joseph R. Martin
Attorney-in-fact
</TABLE>

II-10
<PAGE> 203

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
1.01 Underwriting Agreement dated July , 1999 among
Fairchild International, National Semiconductor, Credit
Suisse First Boston Corporation, .*
2.01 Agreement and Plan of Recapitalization dated January 24,
1997 between Sterling and National Semiconductor
(incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4 filed May
12, 1997 (File No. 333-26897)).
2.02 Asset Purchase Agreement dated as of March 11, 1997 between
Fairchild Semiconductor and National Semiconductor
(incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4 filed May
12, 1997 (File No. 333-26897)).
2.03 Acquisition Agreement dated November 25, 1997 between
Fairchild Semiconductor Corporation and Raytheon Company
(incorporated by reference from Fairchild Semiconductor
Corporation's Current Report on Form 8-K dated December 31,
1997, filed January 13, 1998).
2.04 Amendment No. 1 to Acquisition Agreement dated December 29,
1997 between Fairchild Semiconductor Corporation and
Raytheon Company (incorporated by reference from Fairchild
Semiconductor Corporation's Current Report on Form 8-K dated
December 31, 1997, filed January 13, 1998).
2.05 Exhibit 3.14 to Acquisition Agreement dated December 29,
1997 between Fairchild Semiconductor Corporation and
Raytheon Company (incorporated by reference from Fairchild
Semiconductor Corporation's Current Report on Form 8-K dated
December 31, 1997, filed January 13, 1998).
2.06 Business Transfer Agreement dated December 20, 1998 between
Samsung Electronics and Fairchild Semiconductor Corporation
(incorporated by reference from Fairchild Semiconductor
Corporation's Current Report on Form 8-K dated April 13,
1999, filed April 27, 1999).
2.07 Closing Agreement dated April 13, 1999 among Samsung
Electronics, Fairchild Korea Semiconductor Ltd. and
Fairchild Semiconductor Corporation (incorporated by
reference from Fairchild Semiconductor Corporation's Current
Report on Form 8-K dated April 13, 1999, filed April 27,
1999).
3.01 Certificate of Incorporation of Fairchild International
(incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4 filed May
12, 1997 (File No. 333-26897)).
3.02 Bylaws of Fairchild International (incorporated by reference
from Fairchild Semiconductor Corporation's Registration
Statement on Form S-4 filed May 12, 1997 (File No.
333-26897)).
3.03 Certificate of Amendment to Certificate of Incorporation of
Fairchild International (incorporated by reference from
Fairchild International's Registration Statement on Form S-8
filed July 7, 1998 (File No. 333-58603)).
3.04 Certificate of Amendment of Certificate of Incorporation of
Fairchild International.+
3.05 Restated Certificate of Incorporation of Fairchild
International.*
</TABLE>

<PAGE> 204

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
4.01 Indenture dated April 7, 1999 among Fairchild Semiconductor
Corporation, Fairchild International, as Guarantor,
Fairchild Semiconductor Corporation of California, as
Guarantor, and the United States Trust Company of New York.+
4.02 Form of 10 3/8% Senior Subordinated Notes Due 2007 (included
in Exhibit 4.01).
4.03 Registration Rights Agreement dated March 30, 1999 among
Fairchild Semiconductor Corporation, Fairchild
International, as Guarantor, Fairchild Semiconductor
Corporation of California, as Guarantor, Credit Suisse First
Boston Corporation, Morgan Stanley & Co. Incorporated,
Salomon Smith Barney Inc. and Fleet Securities, Inc.+
4.04 Registration Rights Agreement dated March 11, 1997 among
Fairchild International, Sterling, National Semiconductor
and certain investors.+
5.01 Form of Opinion of Dechert Price & Rhoads.
10.01 Indenture dated as of March 11, 1997 among Fairchild
Semiconductor Corporation, Fairchild International, as
Guarantor and United States Trust Company of New York, as
Trustee relating to Fairchild Semiconductor Corporation's
10 1/8% Senior Subordinated Notes (incorporated by reference
from Fairchild Semiconductor Corporation's Registration
Statement on Form S-4 filed May 12, 1997 (File No.
333-26897)).
10.02 Form of 10 1/8% Senior Subordinated Notes Due 2007 (included
in Exhibit 10.01).
10.03 Technology Licensing and Transfer Agreement dated March 11,
1997 between National Semiconductor and Fairchild
Semiconductor Corporation (incorporated by reference from
Amendment No. 3 to Fairchild Semiconductor Corporation's
Registration Statement on Form S-4, filed July 9, 1997 (File
No. 333-26897)).
10.04 Transition Services Agreement dated March 11, 1997 between
National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4, filed May 12, 1997 (File No. 333-26897)).
10.05 Fairchild Foundry Services Agreement dated March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Amendment No. 3
to Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed July 9, 1997 (File No.
333-26897)).
10.06 Revenue Side Letter dated March 11, 1997 between National
Semiconductor and Fairchild Semiconductor Corporation
(incorporated by reference from Amendment No. 3 to Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4, filed July 9, 1997 (File No. 333-26897)).
10.07 Fairchild Assembly Services Agreement dated March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Amendment No. 3
to Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed July 9, 1997 (File No.
333-26897)).
</TABLE>

<PAGE> 205

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
10.08 National Foundry Services Agreement dated March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Amendment No. 3
to Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed July 9, 1997 (File No.
333-26897)).
10.09 National Assembly Services Agreement dated March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Amendment No. 3
to Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed July 9, 1997 (File No.
333-26897)).
10.10 Mil/Aero Wafer and Services Agreement dated March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Amendment No. 3
to Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed July 9, 1997 (File No.
333-26897)).
10.11 Shared Services Agreement (South Portland) dated March 11,
1997 between National Semiconductor and Fairchild
Semiconductor Corporation (incorporated by reference from
Amendment No. 3 to Fairchild Semiconductor Corporation 's
Registration Statement on Form S-4, filed July 9, 1997 (File
No. 333-26897)).
10.12 Credit Agreement dated March 11, 1997 among Fairchild
Semiconductor Corporation, Fairchild International, Various
Banks, Bankers Trust Company, Credit Suisse First Boston
Corporation and Canadian Imperial Bank of Commerce
(incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4, filed May
12, 1997 (File No. 333-26897)).
10.13 Corporate Agreement dated February 20, 1992 between Torex
Semiconductor Ltd. and National Semiconductor (incorporated
by reference from Amendment No. 3 to Fairchild Semiconductor
Corporation's Registration Statement on Form S-4, filed July
9, 1997 (File No. 333-26897)).
10.14 Assembly/Test Subcontract Agreement dated August 13, 1998
between NS Electronics Bangkok (1993) Ltd. and Fairchild
Semiconductor Corporation (incorporated by reference from
Fairchild Semiconductor Corporation's Annual Report on Form
10-K for the fiscal year ended May 31, 1998, filed August
27, 1998).
10.15 Supply Agreement dated January 20, 1996 between National
Semiconductor and Dynacraft Industries Sdn. Bhd.
(incorporated by reference from Amendment No. 3 to Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4, filed July 9, 1997 (File No. 333-26897)).
10.16 Licensing and Manufacturing Agreement dated April 27, 1990
between National Semiconductor and Waferscale Integration,
Inc. (incorporated by reference from Amendment No. 3 to
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4, filed July 9, 1997 (File No. 333-26897)).
</TABLE>
<PAGE> 206

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
10.17 Qualified Titles Corresponding to Registry Title Nos. 19, 44
and 3400-Mk 12 from the State of Penang, Malaysia and
corresponding Sale and Purchase Agreements, each dated March
11, 1997, between National Semiconductor Sdn. Bhd. and
Fairchild Semiconductor Sdn. Bhd. (incorporated by reference
from Fairchild Semiconductor Corporation's Registration
Statement on Form S-4, filed May 12, 1997 (File No.
333-26897)).
10.18 Lease Agreement dated October 10, 1979 between Export
Processing Zone Authority and Fairchild Semiconductor (Hong
Kong) Limited, and Supplemental Agreements thereto dated May
1, 1982; December 12, 1983; August 17, 1984; March 10, 1987;
February 16, 1990; August 25, 1994; May 29, 1995; June 7,
1995; November 9, 1995; and October 24, 1996 (incorporated
by reference from Fairchild Semiconductor Corporation's
Registration Statement on Form S-4, filed May 12, 1997 (File
No. 333-26897)).
10.19 Lease for Santa Clara Facilities dated as of March 11, 1997
between National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4, filed May 12, 1997 (File No. 333-26897)).
10.20 Shared Facilities Agreement (South Portland) dated March 11,
1997 between National Semiconductor and Fairchild
Semiconductor Corporation (incorporated by reference from
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4, filed May 12, 1997 (File No. 333-26897)).
10.21 Environmental Side Letter dated March 11, 1997 between
National Semiconductor and Fairchild Semiconductor
Corporation (incorporated by reference from Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4, filed May 12, 1997 (File No. 333-26897)).
10.22 Master Sublease Agreement dated March 11, 1997 between
National Semiconductor and Fairchild Semiconductor
Corporation and Master Lease Agreement dated December 13,
1994 between General Electric Capital Corporation and
National Semiconductor (incorporated by reference from
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4, filed May 12, 1997 (File No. 333-26897)).
10.23 Fairchild NSC Deferred Compensation Plan Trust established
effective March 11, 1997 (incorporated by reference from
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4, filed May 12, 1997 (File No. 333-26897)).
10.24 Fairchild NSC Deferred Compensation Plan assumed and
continued, effective March 11, 1997 (included as Schedule A
to Exhibit 10.23).
10.25 Fairchild Benefit Restoration Plan (incorporated by
reference from Fairchild Semiconductor Corporation's
Registration Statement on Form S-4 dated, filed May 12, 1997
(File No. 333-26897)).
10.26 Fairchild Incentive Plan (incorporated by reference from
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4, filed May 12, 1997 (File No. 333-26897)).
</TABLE>
<PAGE> 207

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
10.27 FSC Semiconductor Corporation Executive Officer Incentive
Plan (incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4 dated,
filed May 12, 1997 (File No. 333-26897)).
10.28 FSC Semiconductor Corporation Stock Option Plan
(incorporated by reference from Fairchild Semiconductor
Corporation's Registration Statement on Form S-4, filed May
12, 1997 (File No. 333-26897)).
10.29 Employment Agreement dated March 11, 1997 among Fairchild
Semiconductor Corporation, Fairchild International, Sterling
and Kirk P. Pond (incorporated by reference from Fairchild
Semiconductor Corporation's Registration Statement on Form
S-4 dated, filed May 12, 1997 (File No. 333-26897)).
10.30 Employment Agreement dated March 11, 1997 among Fairchild
Semiconductor Corporation, Fairchild International, Sterling
and Joseph R. Martin (incorporated by reference from
Fairchild Semiconductor Corporation's Registration Statement
on Form S-4 dated, filed May 12, 1997 (File No. 333-26897)).
10.31 Credit Agreement -- Amended and Restated as of December 31,
1997 (incorporated by reference from Fairchild Semiconductor
Corporation's Quarterly Report on Form 10-Q for the
quarterly period ended March 1, 1998, filed April 13, 1998).
10.32 Employee Stock Purchase Savings Plan, as amended as of June
25, 1998 (incorporated by reference from Fairchild
Semiconductor Corporation's Annual Report on Form 10-K for
the fiscal year ended May 31, 1998, filed August 27, 1998).
10.33 Fairchild Revocable Savings Plan Trust, dated February 20,
1998, executed by Fleet Bank of Maine, as trustee
(incorporated by reference from Fairchild International's
Registration Statement on Form S-8, filed July 7, 1998 (File
No. 333-58603)).
10.34 Amendment to Securities Purchase and Holders Agreement dated
May 29, 1998 (incorporated by reference from Fairchild
Semiconductor Corporation's Annual Report on Form 10-K for
the fiscal year ended May 31, 1998, filed August 27, 1998).
10.35 Form of Promissory Note between Fairchild Semiconductor
Corporation and Management Investors dated June 3, 1998
(incorporated by reference from Fairchild Semiconductor
Corporation's Annual Report on Form 10-K for the fiscal year
ended May 31, 1998, filed August 27, 1998).
10.36 Second Amendment to Amended and Restated Credit Agreement
dated August 25, 1998 among Fairchild International,
Fairchild Semiconductor Corporation, the lenders party to
the Credit Agreement dated March 11, 1997, Bankers Trust
Company, Credit Suisse First Boston Corporation and Canadian
Imperial Bank of Commerce (incorporated by reference from
Fairchild Semiconductor Corporation's Quarterly Report on
Form 10-Q for the fiscal quarter ended August 30, 1998,
filed October 9, 1998).
10.37 Purchase Agreement dated March 30, 1999 among Fairchild
Semiconductor Corporation, Fairchild International,
Fairchild Semiconductor Corporation of California, Credit
Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated, Salomon Smith Barney Inc. and Fleet
Securities, Inc.+
</TABLE>

<PAGE> 208

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
10.38 Transitional Services Agreement dated April 13, 1999 between
Samsung Electronics and Fairchild Korea Semiconductor Ltd.+
10.39 Product Supply Agreement dated April 13, 1999 between
Samsung Electronics and Fairchild Korea Semiconductor Ltd.+
10.40 Foundry Sale Agreement dated April 13, 1999 between Samsung
Electronics and Fairchild Korea Semiconductor Ltd.+
10.41 Intellectual Property License Agreement dated April 13, 1999
between Samsung Electronics and Fairchild Korea
Semiconductor Ltd.+
10.42 Trademark License Agreement dated April 13, 1999 between
Samsung Electronics and Fairchild Korea Semiconductor Ltd.+
10.43 Assembly and Test Services Agreement (Onyang) dated April
13, 1999 between Samsung Electronics and Fairchild Korea
Semiconductor Ltd.+
10.44 Assembly and Test Services Agreement (Suzhou) dated April
13, 1999 between SESS Electronics Suzhou Semiconductor Co.,
Ltd. and Fairchild Korea Semiconductor Ltd.+
10.45 EPI Services Agreement dated April 13, 1999 between Samsung
Electronics and Fairchild Korea Semiconductor Ltd.+
10.46 Photo Mask Supply Agreement dated April 13, 1999 between
Samsung Electronics and Fairchild Korea Semiconductor Ltd.+
10.47 Credit Agreement dated April 14, 1999 among Fairchild
Semiconductor Corporation, Fairchild International, certain
lenders named within the Credit Agreement, Credit Suisse
First Boston Corporation, Salomon Brothers Holding Company
Inc., ABN Amro Bank NV and Fleet National Bank.+
10.48 Employment Agreement dated March 28, 1999 between Fairchild
International and Deok-Jung Kim.+
10.49 Employment Agreement dated as of April 23, 1999 between
Fairchild Semiconductor Corporation and Kyoung-Soo Kim.+
10.50 Sublease Agreement dated April 23, 1999 between Veritas
Software Corporation and Fairchild Semiconductor Corporation
of California.+
10.51 Lock-Up Agreement dated July , 1999.*
10.52 Fairchild Executive Incentive Plan, as amended and restated,
effective June 1, 1998.+
10.53 Securities Purchase and Holders Agreement dated as of March
11, 1997 among Fairchild International, Sterling, National
Semiconductor and Management Investors.+
21.01 Subsidiaries of Fairchild International.+
23.01 Consent of Dechert Price & Rhoads (included in the opinion
filed as Exhibit 5.01).
23.02 Consent of Samil Accounting Corporation.
23.03 Consent of KPMG LLP.
23.04 Consent of KPMG LLP.
24.01 Power of Attorney.+
</TABLE>

- ------------------------
* To be supplied by amendment.

+ Previously filed.

<PAGE> 1

Exhibit 5.01

DECHERT PRICE & RHOADS
30 Rockefeller Plaza
New York, New York 10112

, 1999

Fairchild Semiconductor International, Inc.
333 Western Avenue
Mail Stop 01-00
South Portland, Maine 04106

Re: 20,000,000 Shares of Class A Common Stock, as described
in the Registration Statement on Form S-1 (Registration
No. 333-78557)

Gentlemen and Ladies:

We have acted as your counsel in connection with the
registration under the Securities Act of 1933, as amended, of an aggregate of
20,000,000 shares of your Class A Common Stock, par value $.01 per share (the
"Shares"), pursuant to the above-referenced registration statement (the
"Registration Statement"). The Shares are to be sold pursuant to an underwriting
agreement (the "Underwriting Agreement"), among Fairchild Semiconductor
International, Inc. (the "Company"), National Semiconductor Corporation and
Credit Suisse First Boston Corporation, Salomon Smith Barney Inc., BancBoston
Robertson Stephens Inc. and BT Alex. Brown Incorporated as representatives of
the several underwriters (the "Underwriters"), the form of which is included as
Exhibit 1.01 to the Registration Statement.

We have participated in the preparation of the Registration
Statement and have reviewed the proposed form of the Underwriting Agreement, and
we have examined such corporate records and documents, certificates of officers
and matters of law as we have considered appropriate to enable us to give this
opinion.

Based upon the foregoing, it is our opinion that the Shares
have been duly authorized and, when delivered to the Underwriters against
payment therefor in accordance with the terms of the Underwriting Agreement,
will be validly issued, fully paid and non-assessable.

We hereby consent to the reference to our firm under the
caption "Legal Matters" in the Prospectus portion of the Registration Statement
and to the filing of this opinion as Exhibit 5.01 to the Registration Statement.

Very truly yours,

<PAGE> 1
Exhibit 23.02

[SAMIL ACCOUNTING CORPORATION LETTERHEAD]

July 1, 1999

The Board of Directors
Fairchild Semiconductor International, Inc.
f/k/a/ FSC Semiconductor Corporation
333 Western Avenue
South Portland, ME 04106

Credit Suisse First Boston
11 Madison Avenue
New York, NY 10010

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of Fairchild Semiconductor International,
Inc. of our report dated February 24, 1999 relating to the statements of net
assets (liabilities) of the Power Device Business of Samsung Electronics Co.,
Ltd. as of December 31, 1997 and 1998, and the related statements of operations
and comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 1998, which appears in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ Samil Accounting Corporation
Samil Accounting Corporation

Seoul, Korea

<PAGE> 1
Exhibit 23.03

The Board of Directors
FSC Semiconductor Corporation:

We consent to the inclusion of our reports dated June 16, 1998, except as to
Note 19, which is as of July 20, 1998, and as to Note 20, which is as of
June 24, 1999, with respect to the consolidated balance sheets of FSC
Semiconductor Corporation as of May 31, 1998 and May 25, 1997, and the related
consolidated and combined statements of operations and stockholders' equity
(deficit) for each of the years in the three-year period ended May 31, 1998, and
the related consolidated statement of cash flows for the year ended May 31,
1998, and the related schedule, which reports appear in this Registration
Statement, and to the reference to our firm under the heading "Experts" in this
Registration Statement on Form S-1.

As discussed in Note 18 to the financial statements, the Company changed its
method of accounting for business process reengineering costs in 1998 to adopt
the provisions of the Emerging Issues Task Force Issue 97-13, "Accounting for
Business Process Reengineering Costs."

/s/ KPMG LLP

Boston, Massachusetts
July 1, 1999

<PAGE> 1
EXHIBIT 23.04

The Board of Directors
Fairchild Semiconductor Corporation of California
(formerly known as Raytheon Semiconductor, Inc):

We consent to the inclusion of our report dated February 27, 1998, with respect
to the balance sheet of Raytheon Semiconductor, Inc. (a wholly owned subsidiary
of Thornwood Trust) as of December 31, 1997, and the related statements of
income, stockholder's equity, and cash flows for the year then ended, which
report appears in this Registration Statement, and to the reference to our firm
under the heading "Experts" in this Registration Statement on Form S-1.

KPMG LLP

Mountain View, California
July 1, 1999